Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed in the preparation of the consolidated financial statements:
Principles of Consolidation
The consolidated financial statements include the accounts of Park National Corporation and its subsidiaries (“Park”, the “Company” or the “Corporation”), unless the context otherwise requires. Material intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current presentation. These reclassifications had no impact on net income or shareholders' equity.
Restrictions on Cash and Due from Banks
The Corporation’s national bank subsidiary, The Park National Bank ("PNB"), is required to maintain average reserve balances with the Federal Reserve Bank of Cleveland. The average required reserve balance was approximately $89.2 million at December 31, 2019 and $73.9 million at December 31, 2018. No other compensating balance arrangements were in existence at December 31, 2019.
Investment Securities
Debt securities are classified upon acquisition into one of three categories: HTM, AFS, or trading (see Note 5 - Investment Securities).
HTM securities are those debt securities that the Corporation has the positive intent and ability to hold to maturity and are recorded at amortized cost. AFS securities are those debt securities that would be available to be sold in the future in response to the Corporation’s liquidity needs, changes in market interest rates, and asset-liability management strategies, among other reasons. AFS securities are reported at fair value, with unrealized holding gains and losses excluded from earnings but included in other comprehensive income (loss), net of applicable income taxes. The Corporation did not hold any trading securities during any period presented. Equity securities are carried at fair value, with changes in fair value reported in net income. Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment.
Debt securities are evaluated quarterly for potential other-than-temporary impairment. Management considers the facts related to each security including the nature of the security, the amount and duration of the loss, the credit quality of the issuer, the expectations for that security’s performance and whether Park intends to sell, or it is more likely than not that Park will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. Declines in the value of debt securities that are considered to be other-than-temporary are separated into (1) the amount of the total impairment related to credit loss and (2) the amount of the total impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income (loss), net of income tax. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.
Interest income from investment securities includes amortization of purchase premium or discount. Premiums and discounts on investment securities are amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated.
Gains and losses realized on the sale of investment securities are recorded on the trade date and determined using the specific identification method.
Federal Home Loan Bank and Federal Reserve Bank of Cleveland Stock
PNB is a member of the FHLB and the FRB. Members are required to own a certain amount of stock based on their level of borrowings and other factors and may invest in additional amounts. FHLB stock and FRB stock are classified as restricted
securities and are carried at their redemption value within "Other investment securities" on the Consolidated Balance Sheets. Impairment is evaluated based on the ultimate recovery of par value. Both cash and stock dividends are reported as income.
Bank Owned Life Insurance
Park has purchased insurance policies on the lives of directors and certain key officers. Bank owned life insurance is recorded at its cash surrender value (or the amount that can be realized).
Loans Held for Sale
Park has elected the fair value option for mortgage loans held for sale, which are carried at their fair value as of each balance sheet date.
Mortgage Banking Derivatives
Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of these mortgage loans are accounted for as free standing derivatives. The fair value of the interest rate lock is recorded at the time the commitment to fund the mortgage loan is executed and is adjusted for the expected exercise of the commitment before the loan is funded. In order to hedge the change in interest rates resulting from its commitments to fund the loans, the Company enters into forward commitments for the future delivery of mortgage loans when interest rate locks are entered into. Fair value of these mortgage derivatives is estimated based on the change in mortgage interest rates from the date the interest on the loan is locked. Changes in the fair values of these derivatives are included in "Other service income" in the Consolidated Statements of Income.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff, are reported at their outstanding principal balances adjusted for any charge-offs, any nonaccrual interest payments applied to principal, any deferred fees or costs on originated loans, and any unamortized premiums or discounts on purchased loans. Interest income is accrued on the unpaid principal balance. Late charges on loans are recognized as income when they are collected. Net loan origination fees and costs are deferred and recognized in interest income using the level-yield method without anticipating prepayments.
Commercial loans include: (1) commercial, financial and agricultural loans; (2) commercial real estate loans; (3) those commercial loans in the construction real estate loan segment; (4) those commercial loans in the residential real estate loan segment; and (5) leases. Consumer loans include: (1) mortgage and installment loans included in the construction real estate segment; (2) mortgage, home equity lines of credit ("HELOCs"), and installment loans included in the residential real estate segment; and (3) all loans included in the consumer segment.
Generally, commercial loans are placed on nonaccrual status at 90 days past due and consumer and residential mortgage loans are placed on nonaccrual status at 120 days past due. The delinquency status of a loan is based on contractual terms and not on how recently payments have been received. Commercial loans placed on nonaccrual status are considered impaired (see Note 6 - Loans). Park’s charge-off policy for commercial loans requires management to establish a specific reserve or record a charge-off when collection is in doubt or it is probable a loss has been incurred and there is, or likely will be, a collateral shortfall related to the estimated value of the collateral securing the loan. The Company’s charge-off policy for consumer loans is dependent on the class of the loan. Residential mortgage loans, HELOCs, and consumer loans secured by residential real estate are typically charged down to the value of the collateral, less estimated selling costs, at 180 days past due. The charge-off policy for other consumer loans, primarily installment loans, requires a monthly review of delinquent loans and a complete charge-off for any account that reaches 120 days past due.
For loans which are on nonaccrual status, it is Park’s policy to reverse interest previously accrued on the loans against interest income. Interest on such loans may be recorded on a cash basis and be included in earnings only when Park expects to receive the entire recorded investment of the loan. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
A description of each segment of the loan portfolio, along with the risk characteristics of each segment, is included below:
Commercial, financial and agricultural: Commercial, financial and agricultural ("C&I") loans are made for a wide variety of general corporate purposes, including financing for commercial and industrial properties, financing for equipment, inventory and accounts receivable, acquisition financing, commercial leasing, and to consumer finance companies. The term of each commercial loan varies by its purpose. Repayment terms are structured such that commercial loans will be repaid within the economic useful life of the underlying asset. Risk of loss on C&I loans largely depends upon general economic cycles, as they may adversely impact certain industries, competency of the borrower's management team, the quality of the underlying assets supporting the loans including accounts receivable, inventory, and equipment, and the accuracy of the borrower's financial reporting. Such risks are mitigated by generally requiring the borrower's owners to guaranty the loans.
Commercial real estate: Commercial real estate (“CRE”) loans include mortgage loans to developers and owners of commercial real estate. The lending policy for CRE loans is designed to address the unique risk attributes of CRE lending. The collateral for these CRE loans is the underlying commercial real estate. Risk of loss on CRE loans largely depends upon the cash flow of the properties which is influenced by the amount of vacancy experienced by the underlying real estate, the credit capacity of the tenants occupying the underlying real estate, and general economic trends as they may adversely impact the value of the property. These risks are mitigated by generally requiring personal guaranties of the owners of the properties and by requiring appraisals pursuant to government regulations.
Construction real estate: The Company defines construction loans as both commercial construction loans and residential construction loans where the loan proceeds are used exclusively for the improvement of real estate as to which the Company holds a mortgage. Construction loans may be in the form of a permanent loan or a short-term construction loan, depending on the needs of the individual borrower. Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the property’s value at completion of construction and the estimated cost (including interest) of construction. If the estimate of construction cost proves to be inaccurate, the PNB division making the loan may be required to advance funds beyond the amount originally committed to permit completion of the project. If the estimate of value proves inaccurate, the PNB division may be confronted, at or prior to the maturity of the loan, with a project having a value insufficient to assure full repayment, should the borrower default. In the event that a default on a construction loan occurs and foreclosure follows, the PNB division must take control of the project and attempt to either arrange for completion of construction or dispose of the unfinished project. Additional risk exists with respect to loans made to developers who do not have a buyer for the property, as the developer may lack funds to pay the loan if the property is not sold upon completion. PNB and its divisions attempt to reduce such risks on loans to developers by generally requiring personal guarantees and reviewing current personal financial statements and tax returns as well as other projects undertaken by the developer.
Residential real estate: The Company defines residential real estate loans as first mortgages on individuals’ primary residences or second mortgages of individuals’ primary residences in the form of HELOCs or installment loans. Credit approval for residential real estate loans requires demonstration of sufficient income to repay the principal and interest and the real estate taxes and insurance, stability of employment, an established credit record and a current independent third-party appraisal providing the market value of the real estate securing the loan. Residential real estate loans typically have longer terms and higher balances with lower yields as compared to consumer loans, but generally carry lower risks of default. The Dodd-Frank Wall Street Reform and Consumer Protection Act requires creditors to make a reasonable and good faith determination of a consumer's ability to repay any consumer credit transaction secured by a dwelling. Documentation and verification of income within defined time frames and not-to-exceed limits are basis for affirming ability to repay. Risk of loss largely depends upon factors affecting the borrower's ability to repay as well as the general economic trends as they may adversely impact the value of the property. These risks are mitigated by completing a comprehensive underwriting of the borrower and by requiring appraisals pursuant to government regulations.
Consumer: The Company originates direct and indirect consumer loans, primarily automobile loans, to customers in its primary market areas. Credit approval for consumer loans requires income sufficient to repay principal and interest due, stability of employment, an established credit record and sufficient collateral for secured loans. Consumer loans typically have shorter terms and lower balances with higher yields as compared to real estate mortgage loans, but generally carry higher risks of default. Consumer loan collections are dependent on the borrower’s financial stability, and thus are more likely to be affected by adverse personal circumstances.
Leases: The Company originates financing leases primarily for the purchase of commercial vehicles, operating/manufacturing equipment, and municipal vehicles/equipment. Repayment terms are structured such that the lease will be repaid within the economic useful life of the leased asset. Risk of losses on financing leases largely depends upon general economic cycles, as they may adversely impact certain industries, competency of the borrower’s management team, the quality and residual value of the leased asset, and the accuracy of the borrower’s financial reporting. These risks are mitigated by underwriting leases considering primary and secondary sources of repayment and requiring guaranteed residual values.
Concentration of Credit Risk
Park's commercial loan portfolio includes loans to a wide variety of corporations and businesses across many industrial classifications in the 29 Ohio counties, four North Carolina counties, four South Carolina counties and one Kentucky county where PNB and its divisions operate, with the exception of nationwide aircraft loans and nationwide asset-based lending to consumer finance companies. The primary industries represented by these customers include real estate rental and leasing, finance and insurance, construction, agriculture, forestry, fishing and hunting, manufacturing, retail trade, health care, accommodation and food services and other services.
Purchased Credit Impaired Loans
The Company has purchased loans, some of which have shown evidence of credit deterioration since origination. These PCI loans are recorded at fair value at inception, such that there is no carryover of the sellers' allowance for loan losses. After acquisition, losses are recognized by an increase in the allowance for loan losses.
PCI loans are accounted for individually or aggregated into pools of loans based on common characteristics. The Company estimates the amount and timing of expected cash flows for each loan or pool and the expected cash flows in excess of the amount paid is recorded as interest income over the remaining life of the loan (accretable yield). The excess of the loan’s or pool's contractual principal and interest over expected cash flows is not recorded (nonaccretable difference).
Over the life of the loan or pool, expected cash flows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a loss is recorded as a provision for loan losses. If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income.
Allowance for Loan Losses
The allowance for loan losses is that amount believed adequate to absorb probable incurred credit losses in the loan portfolio based on management’s evaluation of various factors. The determination of the allowance requires significant estimates, including the timing and amounts of expected cash flows on impaired loans, consideration of current economic conditions, and historical loss experience pertaining to pools of homogeneous loans, all of which may be susceptible to change. The allowance is increased through a provision for loan losses that is charged to earnings based on management’s quarterly evaluation of the factors previously mentioned and is reduced by charge-offs, net of recoveries.
The allowance for loan losses includes both (1) an estimate of loss based on historical loss experience within both commercial and consumer loan categories with similar characteristics (“statistical allocation”) and (2) an estimate of loss based on an impairment analysis of each commercial loan that is considered to be impaired (“specific allocation”). Included in the statistical allocation is a reserve for TDRs within the consumer loan portfolio. Management performs a periodic evaluation to ensure the reserve calculated utilizing the statistical allocation is consistent with a reserve calculated under Accounting Standards Codification ("ASC") 310-10 - Receivables.
In calculating the allowance for loan losses, management believes it is appropriate to consider historical loss rates that are comparable to the current period being analyzed, giving consideration to losses experienced over a full cycle. For the historical loss factor at December 31, 2019, the Company utilized an annual loss rate (“historical loss experience”), calculated based on an average of the net charge-offs and the annual change in specific reserves for impaired commercial loans, experienced during 2010 through 2019 within the individual segments of the commercial and consumer loan categories. The 120-month historical loss period captures all annual periods subsequent to June 2009, the end of the most recent recession, thus encompassing the full economic cycle to date.
The loss factor applied to Park’s consumer loan portfolio as of December 31, 2019 was based on the historical loss experience over the preceding 120 months, plus an additional judgmental reserve, increasing the total allowance for loan loss coverage in the consumer loan portfolio to approximately 1.90 years of historical losses, compared to 1.87 years at December 31, 2018. Historical loss experience over the preceding 120 months for the consumer loan portfolio was 0.31% for 2019. Historical loss experience over the preceding 108 months for the consumer loan portfolio was 0.33% for 2018.
The loss factor applied to Park’s commercial loan portfolio as of December 31, 2019 was based on the historical loss experience over the preceding 120 months, plus additional reserves for consideration of (1) a loss emergence period factor, (2) a loss migration factor and (3) a judgmental or environmental loss factor. These additional reserves increased the total allowance for loan loss coverage in the commercial loan portfolio to approximately 3.40 years of historical losses at December 31, 2019, compared to 3.39 years at December 31, 2018. Historical loss experience over the preceding 120 months for the commercial loan portfolio was 0.34% for 2019. Historical loss experience over the preceding 108 months for the commercial loan portfolio was 0.35% for 2018. Park’s commercial loans are individually risk graded. If loan downgrades occur, the probability of default increases and accordingly management allocates a higher percentage reserve to those accruing commercial loans graded special mention and substandard.
U.S. GAAP requires a specific allocation to be established as a component of the allowance for loan losses for certain loans when it is probable that all amounts due pursuant to the contractual terms of the loans will not be collected, and the recorded investment in the loans exceeds their measure of impairment. Management considers the following related to commercial loans when determining if a loan should be considered impaired: (1) current debt service coverage levels of the borrowing entity; (2) payment history over the most recent 12-month period; (3) other signs of deterioration in the borrower’s financial situation, such as changes in credit scores; and (4) consideration of global cash flows of financially sound guarantors that have previously supported loan payments. The recorded investment is the balance of the loan, plus accrued interest receivable. Impairment is measured using either the present value of expected future cash flows based upon the initial effective interest rate on the loan, or the fair value of the collateral. If a loan is considered to be collateral dependent, the fair value of collateral, less estimated selling costs, is used to measure impairment.
Loans acquired as part of the acquisition of NewDominion Bank were recorded at fair value on the date of acquisition, July 1, 2018. Loans acquired as part of the acquisition of Carolina Alliance Bank were recorded at fair value on the date of acquisition, April 1, 2019. An allowance is only established on acquired NewDominion Bank loans and Carolina Alliance Bank loans as a result of credit deterioration post acquisition. As of December 31, 2019, there was no allowance related to performing acquired NewDominion Bank loans and Carolina Alliance Bank loans.
Troubled Debt Restructurings ("TDRs")
Management classifies loans as TDRs when a borrower is experiencing financial difficulty and Park has granted a concession. 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 under 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. TDRs are measured at the present value of estimated future cash flows using the loan’s effective rate at inception, or if a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. Commercial TDRs are separately identified for impairment disclosures.
Premises and Equipment
Land is carried at cost and is not subject to depreciation. Premises and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation is generally provided on the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the remaining lease period or the estimated useful lives of the improvements. Upon the sale or other disposal of an asset, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is recognized. Maintenance and repairs are charged to expense as incurred while renewals and improvements that extend the useful life of an asset are capitalized. Premises and equipment are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of a particular asset may not be recoverable.
The range of depreciable lives over which premises and equipment are being depreciated are:
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Buildings
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30 Years
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Building improvements
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5 to 10 Years
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Equipment, furniture and fixtures
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3 to 12 Years
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Leasehold improvements
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Shorter of the remaining lease period or the estimated useful life of the improvement
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Other Real Estate Owned
Management transfers a loan to OREO at the time that Park takes deed/title to the asset. OREO is initially recorded at fair value less anticipated selling costs (net realizable value), establishing a new cost basis, and consists of property acquired through foreclosure and real estate held for sale. If the net realizable value is below the carrying value of the loan at the date of transfer, the difference is charged to the allowance for loan losses. These assets are subsequently accounted for at the lower of cost or fair value less costs to sell. Subsequent changes in the value of real estate are classified as OREO valuation adjustments, are reported as adjustments to the carrying amount of OREO and are recorded within “Other income”. In certain circumstances where management believes the devaluation may not be permanent in nature, Park utilizes a valuation allowance to record OREO devaluations, which is also expensed through “Other income”. Costs relating to development and improvement of such properties are capitalized (not in excess of fair value less estimated costs to sell) and costs relating to holding the properties are charged to "Other expense".
Foreclosed Assets
Foreclosed assets include non-real estate assets where Park, as creditor, has received physical possession of a borrower’s assets, regardless of whether formal foreclosure proceedings take place. Additionally, TDRs in which Park obtains one of more of the debtor’s non-real estate assets in place of all or part of the receivable are accounted for as foreclosed assets. Foreclosed assets are initially recorded as fair value less costs to sell when acquired, establishing a new cost basis. Operating costs after acquisition are expensed as incurred. As of December 31, 2019 and 2018, Park had $4.2 million and $4.0 million, respectively, of foreclosed assets included within “Other assets.”
Mortgage Servicing Rights
When Park sells mortgage loans with servicing retained, MSRs are recorded at fair value with the income statement effect recorded in "Other service income." Capitalized MSRs are amortized in proportion to and over the period of the estimated future servicing income of the underlying loan and are included within “Other service income”.
MSRs are assessed for impairment quarterly, based on fair value, with any impairment recognized through a valuation allowance. The fair value of MSRs is determined by discounting estimated future cash flows from the servicing assets, using market discount rates and expected future prepayment rates. In order to calculate fair value, the sold loan portfolio is stratified into homogeneous pools of like categories. (See Note 26 - Loan Servicing.)
Fees received for servicing mortgage loans owned by investors are based on a percentage of the outstanding monthly principal balance of such loans and are included in income as loan payments are received. The amortization of MSRs is netted against loan servicing fee income, recorded in "Other service income".
Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price over net identifiable tangible and intangible assets acquired in a purchase business combination. Goodwill is not amortized to expense, but is subject to impairment tests annually, or more frequently, if events or changes in circumstances indicate that the asset might be impaired, by assessing qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If after assessing these events or circumstances, it is concluded that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the performance of additional analysis is unnecessary. If the carrying amount of the goodwill exceeds the fair value, an impairment charge must be recorded in an amount equal to the excess, not to exceed the total goodwill allocated to the reporting unit.
Park evaluates goodwill for impairment on April 1 of each year, with financial data as of March 31. Based on the analysis performed as of April 1, 2019, the Company determined that goodwill for PNB was not impaired. There have been no subsequent circumstances or events triggering an additional evaluation. (See Note 8 - Goodwill and Other Intangible Assets and Note 30 - Segment Information for operating segment results.)
Other intangible assets consist of core deposit intangibles and a trade name intangible. Core deposit intangibles are amortized on an accelerated basis over a period of ten years. The trade name intangible when initially recorded, assumed an indefinite useful life. During 2019, the trade name intangible was deemed impaired, and a $1.3 million charge was recorded in "other expense". (See Note 8 - Goodwill and Other Intangible Assets.)
Consolidated Statements of Cash Flows
Cash and cash equivalents include cash and cash items, amounts due from banks and money market instruments. Generally, money market instruments are purchased and sold for one-day periods.
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.
Income Taxes
The Corporation accounts for income taxes using the asset and liability approach. Under this method, deferred tax assets and deferred tax liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. To the extent that Park does not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is recorded. All positive and negative evidence is reviewed when determining how much of a valuation allowance is recognized on a quarterly basis. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.
An uncertain tax position is recognized as a benefit only if it is “more-likely-than-not” that the tax position would be sustained in a tax examination being presumed to occur. The benefit recognized for a tax position that meets the “more-likely-than-not” criteria is measured based on the largest benefit that is more than 50 percent likely to be realized, taking into consideration the amounts and probabilities of the outcome upon settlement. For tax positions not meeting the “more-likely-than-not” test, no tax benefit is recorded. Park recognizes any interest and penalties related to income tax matters in income tax expense.
Treasury Shares
The purchase of Park’s common shares to be held in treasury is recorded at cost. At the date of retirement or subsequent reissuance, the treasury shares account is reduced by the weighted average cost of the common shares retired or reissued.
Dividend Restriction
Banking regulations require maintaining certain capital levels and may limit the dividends paid by a bank to its parent holding company or by the parent holding company to its shareholders. (See Note 24 - Dividend Restrictions and Note 29 - Capital Ratios.)
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on debt securities available for sale, changes in the funded status of the Company’s defined benefit pension plan and unrealized gains and losses on cash flow hedges which are also recognized as separate components of equity.
Share-Based Compensation
Compensation cost is recognized for restricted stock units and stock awards issued to employees and directors, respectively, based on the fair value of these awards at the date of grant. The market price of Park’s common shares at the date of grant is used to estimate the fair value of restricted stock units and stock awards. Compensation cost is recognized on a straight-line basis over the required service period, generally defined as the vesting period and is recorded in "Salaries" expense. (See Note 19 - Share-Based Compensation.) The Company's accounting policy is to recognize forfeitures as they occur.
Loan Commitments and Related Financial Instruments
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.
Fair Value Measurement
Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 28 - Fair Value. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.
Derivatives
At the inception of a derivative contract, Park designates the derivative as one of three types based on its intentions and belief as to the likely effectiveness as a hedge. These three types are (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value hedge”), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), or (3) an instrument with no hedging designation (“stand-alone derivative”). Park does not have any fair value hedges. For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects earnings. Changes in the fair value of derivatives that do not qualify for hedge accounting are reported currently in earnings, as non-interest income.
Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged. Net cash settlements on derivatives that do not qualify for hedge accounting are reported in non-interest income. Cash flows on hedges are classified in the Consolidated Statements of Cash Flow under the same item as the cash flows of the items being hedged.
Park formally documents the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions at the inception of the hedging relationship. The documentation includes linking cash flow hedges to specific assets and liabilities on the Consolidated Balance Sheets. Park also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in cash flows of the hedged items. Park discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting cash flows of the hedged item, the derivative is settled or terminates, or treatment of the derivative as a hedge is no longer appropriate or intended.
When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as non-interest income. When a cash flow hedge is discontinued but the hedged cash flows are still expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods that the hedged transactions will affect earnings.
The Company is exposed to losses if a counterparty fails to make its payments under a contract in which the Company is in the net receiving position. The Company anticipates that the counterparties will be able to fully satisfy their obligations under the agreements. All the contracts to which the Company is party settle monthly or quarterly.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Retirement Plans
Pension expense is the net of service and interest cost, return on plan assets and amortization of gains and losses not immediately recognized. The service cost component of pension expense is recorded within "Employee benefits" on the Consolidated Statements of Income. All other components of pension expense are recorded within "Other components of net periodic benefit income" on the Consolidated Statements of Income. Employee KSOP plan expense is the amount of matching contributions to Park's Employees Stock Ownership Plan. Deferred compensation and supplemental retirement plan expense allocates the benefits over years of service. (See Note 20 - Benefit Plans.)
Earnings Per Common Share
Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under restricted stock unit awards. Earnings and dividends per common share are restated for any stock splits and stock dividends through the date of issuance of the consolidated financial statements. (See Note 19 - Share-Based Compensation and Note 23 - Earnings Per Common Share.)
Operating Segments
The Corporation is a financial holding company headquartered in Newark, Ohio. The operating segments for the Corporation are its chartered national bank subsidiary, PNB (headquartered in Newark, Ohio) and GFSC.
2. Adoption of New Accounting Pronouncements and Issued But Not Yet Effective Accounting Standards
The following is a summary of new accounting pronouncements impacting Park's consolidated financial statements, and issued but not yet effective accounting standards:
Adoption of New Accounting Pronouncements
ASU 2016-02 - Leases (Topic 842): In February 2016, the FASB issued ASU 2016-02 - Leases (Topic 842). This ASU requires 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 are 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. The adoption of this guidance on January 1, 2019 resulted in a $11.0 million increase in assets, a $11.2 million increase in liabilities and a $143,000 decrease in beginning retained earnings, but did not have a material impact on Park's Consolidated Statement of Income. Additionally, Note 27 - Leases includes the new required disclosures.
ASU 2017-08 - Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities: In March 2017, the FASB issued ASU 2017-08 - Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. This ASU amends the amortization period for certain purchased callable debt securities held at a premium. It shortens the amortization period for the premium to the earliest call date. Under previous U.S. GAAP, premiums on callable debt securities generally were 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. The adoption of this guidance on January 1, 2019 did not have a material impact on Park's consolidated financial statements.
ASU 2018-10 - Codification Improvements to Topic 842, Leases: In July 2018, the FASB issued ASU 2018-10 - Codification Improvements to Topic 842, Leases. This ASU includes amendments that clarify certain aspects of the guidance issued in ASU 2016-02. Park considered these clarifications in determining the appropriate adoption of ASU 2016-02 on January 1, 2019.
ASU 2018-11 - Leases (Topic 842): Targeted Improvements: In July 2018, the FASB issued ASU 2018-11 - Leases (Topic 842): Targeted Improvements. This ASU amends the guidance in ASU 2016-02 which was not yet effective. The amendments in the ASU provide entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings for the period of adoption. Additionally, this amendment provides lessors with a practical expedient, by class of asset, to not separate nonlease components from the associated lease component and, instead, to account for those components as a single component if certain criteria are met. Park considered these clarifications in determining the appropriate adoption of ASU 2016-02 on January 1, 2019.
ASU 2018-16 - Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes: In October 2018, the FASB issued ASU 2018-16 - Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. The amendments in this ASU permit use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the interest rates on direct Treasury obligations of the U.S. government ("UST"), the LIBOR swap rate, the OIS rate based on the Fed Funds Effective Rate, and the SIFMA Municipal Swap Rate. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The adoption of this guidance on January 1, 2019 did not have an impact on Park’s consolidated financial statements.
ASU 2018-20 - Leases (Topic 842): Narrow - Scope Improvements for Lessors: In December 2018, the FASB issued ASU 2018-20 - Leases (Topic 842): Narrow - Scope Improvements for Lessors. The amendments in this ASU address the treatment of certain sales taxes and other similar taxes, certain lessor costs and recognition of variable payments for contracts with lease and nonlease components. Park considered these clarifications in determining the appropriate adoption of ASU 2016-02 on January 1, 2019.
ASU 2019-01 - Leases (Topic 842): Narrow - Codification Improvements: In January 2019, the FASB issued ASU 2019-01 - Leases (Topic 842): Codification Improvements. The amendments in this ASU address the determination of the fair value of the underlying asset by lessors that are not manufacturers or dealers, the presentation on the statement of cash flows for sales type and direct financing leases, and transition disclosures related to Topic 250, Accounting Changes and Error Corrections. Park considered these clarifications in determining the appropriate adoption of ASU 2016-02 on January 1, 2019.
ASU 2019-07 - Codification Updates to SEC Sections: In July 2019, the FASB issued ASU 2019-07 - Codification Updates to SEC Sections. The amendments in this ASU update SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates. Park considered these amendments in presenting Park's consolidated financial statements and disclosures.
Issued But Not Yet Effective Accounting Standards
ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments: In June 2016, FASB issued ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new accounting guidance in this ASU replaces the incurred loss model with an expected loss model, which is referred to as the 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, HTM debt securities, and reinsurance receivables. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor. The CECL model requires an entity to estimate credit losses over the life of an asset or off-balance sheet exposure. The new accounting 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 adoption of this new accounting guidance on Park’s consolidated financial statements. Adoption will be applied through a one-time cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. Management adopted the guidance on January 1, 2020 and implemented changes to relevant systems as necessary. Management has developed a credit model and has begun the process of validation, which will be completed during the first quarter of 2020. Management is still finalizing the analysis of qualitative factors, to capture inherent risks, which are not included within the quantitative model. Management, along with Park’s CECL Committee, is in the process of implementing the accounting, processes, controls and governance required to comply with the new accounting guidance.
The Company currently intends to use a blend of multiple economic forecasts to estimate expected credit losses over a one year reasonable and supportable forecast period and then revert, over a one year period, to longer term historical loss experience to arrive at lifetime expected credit losses. The estimated increase in the allowance is primarily due to required increases for residential mortgage, home equity, and installment loans to include the requirement to estimate lifetime expected credit losses and the remaining length of time to maturity for these loans as well as an increase in reserves on acquired non-impaired loans which had low reserve levels under the previous accounting guidance. Offsetting declines in the allowance are expected for commercial and commercial real estate loans due to their short-term nature. Additionally, management expects an increase in the allowance for credit losses for unfunded commitments.
While adoption of this ASU is expected to increase the allowance for credit losses, it does not change the overall credit risk in the Company's loan, lease and securities portfolios or the ultimate losses therein. The transition adjustment to increase the allowance will primarily result in a decrease to shareholders' equity, net of income taxes, on January 1, 2020. The ultimate impact of the adoption of this ASU will depend on the composition of the loan, lease and securities portfolios, finalization of credit loss models, and macroeconomic conditions and forecasts that existed at the adoption date.
At adoption, Park did not have any securities classified as HTM debt securities. No allowance was recorded related to AFS debt securities at the date of adoption, January 1, 2020.
ASU 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement: In August 2018, the FASB issued ASU 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement by removing, modifying and adding certain requirements. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of this ASU. An entity is permitted to early
adopt and remove or modify disclosures upon issuance of the ASU and delay adoption of the additional disclosures until their effective date. The adoption of this guidance will not have an impact on Park’s consolidated financial statements, but will impact disclosures.
ASU 2018-14 - Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans: In August 2018, the FASB issued ASU 2018-14 - Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in this ASU modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing disclosures that are no longer considered cost beneficial, clarifying the specific requirements of disclosures and adding disclosure requirements identified as relevant. The amendments in this ASU are effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The adoption of this guidance will not have an impact on Park’s consolidated financial statements, but will impact disclosures.
ASU 2018-19 - Codification Improvements to Topic 326, Financial Instruments - Credit Losses: In November 2018, the FASB issued ASU 2018-19 - Codification Improvements to Topic 326, Financial Instruments - Credit Losses. The amendment in this ASU clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. Park will consider this clarification in determining the appropriate adoption of ASU 2016-13.
ASU 2019-04 - Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments: In April 2019, the FASB issued ASU 2018-19 - Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. This ASU includes amendments that clarify or address specific issues about certain aspects of the amendments in ASU 2016-01, Financial Instruments - Overall (Subtopic 925-10): Recognition and Measurement of Financial Assets and Financial Liabilities, ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.
Park has already adopted ASU 2016-01. As a result, certain provisions in the amendments within ASU 2019-04 related to the same topics as ASU 2016-01 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption of these provision is permitted. The adoption of the provisions related to the same topics as ASU 2016-01 is not expected to have a material effect on Park’s consolidated financial statements.
For the amendments related to Topic 326 that clarify or address specific aspects of ASU 2016-13, Park will consider these clarifications in determining the appropriate adoption of ASU 2016-13.
Park has already adopted ASU 2017-12. As a result, the amendments within ASU 2019-04 are effective as of January 1, 2020 with early adoption permitted. This ASU allows entities, like Park, who did not reclassify debt securities from HTM to AFS upon the adoption of ASU 2017-12 to reclassify these securities as of the adoption of ASU 2019-04. Park considered this option and, effective September 1, 2019, reclassified all HTM debt securities to AFS. The transfer occurred at fair value and resulted in an unrealized gain, net of taxes, of $19.1 million being recorded in other comprehensive income.
ASU 2019-05 - Financial Instruments - Credit Losses (Topic 326): In May 2019, the FASB issued ASU 2019-05 - Financial Instruments - Credit Losses (Topic 326). The amendments in this ASU provide entities that have certain instruments within the scope of Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost, with an option to irrevocably elect the fair value option in Subtopic 825-10, Financial Instruments - Overall, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of Topic 326. Park will consider this amendment in determining the appropriate adoption of ASU 2016-13.
ASU 2019-11 - Codification Improvements to Topic 326, Financial Instruments - Credit Losses: In November 2019, the FASB issued ASU 2019-11 - Codification Improvements to Topic 326, Financial Instruments - Credit Losses. This ASU represents changes to clarify, correct errors in, or improve the Codification related to five topics. The amendments make the Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. Park will consider these clarifications and improvements in determining the appropriate adoption of ASU 2016-13.
ASU 2019-20 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes: In December 2019, the FASB issued ASU 2019-20 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU includes amendments to simplify accounting for income taxes by removing certain exceptions and adding requirements with the
intention of simplifying and clarifying existing guidance. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The adoption of this guidance will not have a material impact on Park's consolidated financial statements.
3. Organization
Park National Corporation is a financial holding company headquartered in Newark, Ohio. Through PNB, Park is engaged in a general commercial banking and trust business, primarily in Ohio, Kentucky, North Carolina, and South Carolina, with the exception of nationwide aircraft loans and nationwide asset-based lending to consumer finance companies. PNB operates through 12 banking divisions with the Park National Bank Division headquartered in Newark, Ohio, the Fairfield National Bank Division headquartered in Lancaster, Ohio, the Richland Bank Division headquartered in Mansfield, Ohio, the Century National Bank Division headquartered in Zanesville, Ohio, the First-Knox National Bank Division headquartered in Mount Vernon, Ohio, the United Bank, N.A. Division headquartered in Bucyrus, Ohio, the Second National Bank Division headquartered in Greenville, Ohio, the Security National Bank Division headquartered in Springfield, Ohio, the Unity National Bank Division headquartered in Piqua, Ohio, The Park National Bank of Southwest Ohio & Northern Kentucky Division headquartered in Cincinnati, Ohio, the NewDominion Bank Division headquartered in Charlotte, North Carolina and the Carolina Alliance Bank Division headquartered in Spartanburg, South Carolina. A wholly-owned subsidiary of Park, GFSC is a consumer finance company located in Central Ohio.
Through February 16, 2012, Park operated a second banking subsidiary, Vision Bank ("Vision"), which was engaged in a general commercial banking business, primarily in Baldwin County, Alabama and the panhandle of Florida. Promptly following the sale of the Vision business to Centennial Bank (a wholly-owned subsidiary of Home BancShares, Inc.), Vision surrendered its Florida banking charter to the Florida Office of Financial Regulation and became a non-bank Florida corporation. Vision (the Florida corporation) merged with and into a wholly-owned, non-bank subsidiary of Park, SEPH, with SEPH being the surviving entity. SEPH holds the remaining assets and liabilities retained by Vision subsequent to the sale. SEPH also holds OREO that had previously been transferred to SEPH from Vision. SEPH's assets consist primarily of nonperforming loans and OREO. This non-bank subsidiary represents a run off portfolio of the legacy Vision assets.
PNB provides the following principal services: the acceptance of deposits for demand, savings and time accounts; commercial, industrial, consumer and real estate lending, including installment loans, credit cards, home equity lines of credit and commercial leasing; trust and wealth management services; cash management; safe deposit operations; electronic funds transfers and a variety of additional banking-related services. See Note 30 - Segment Information for financial information on the Corporation’s operating segments.
4. Business Combinations
NewDominion Bank
On July 1, 2018, NewDominion Bank, a North Carolina state-chartered bank (“NewDominion”), merged with and into PNB, with PNB continuing as the surviving entity pursuant to the Agreement and Plan of Merger and Reorganization (the “NewDominion Merger Agreement”), dated as of January 22, 2018, by and among Park, PNB, and NewDominion. In accordance with the NewDominion Merger Agreement, NewDominion shareholders were permitted to make an election to receive for their shares of NewDominion common stock either $1.08 in cash without interest (the cash consideration) or 0.01023 of a Park common share, plus cash in lieu of any fractional Park common share (the stock consideration). Based on the terms of the NewDominion Merger Agreement, the aggregate merger consideration was subject to proration and allocation procedures to ensure that 60 percent of the shares of NewDominion common stock outstanding immediately prior to the completion of the merger were exchanged for the stock consideration and that the remaining 40 percent of the shares of NewDominion common stock outstanding immediately prior to the completion of the merger were exchanged for the cash consideration, including, in each case, shares of NewDominion common stock subject to NewDominion options and restricted stock awards.
Purchase consideration consisted of 435,457 Park common shares, valued at $48.5 million, and $30.7 million in cash to acquire 91.45% of the outstanding shares of NewDominion common stock. The remaining 8.55% of the outstanding shares of NewDominion common stock were previously held by Park. Park recognized a gain of $3.5 million as a result of the remeasuring to fair value of its 8.55% equity interest in NewDominion held before the business combination. This non-taxable gain is included in "Gain on equity securities, net" in the Consolidated Statements of Income. The acquisition is expected to provide additional revenue growth and geographic diversification.
NewDominion's results of operations were included in Park’s results beginning July 1, 2018. For the years ended December 31, 2019 and 2018, Park recorded merger-related expenses of $87,000 and $4.6 million, respectively, associated with the NewDominion acquisition.
Goodwill of $40.4 million arising from the acquisition consisted largely of synergies and the cost savings resulting from the combining of the operations of PNB and NewDominion. The goodwill is not deductible for income tax purposes as the transaction was accounted for as a tax-free exchange.
The following table summarizes the consideration paid for NewDominion and the amounts of the assets acquired and liabilities assumed at their fair value:
|
|
|
|
|
|
(in thousands)
|
|
Consideration
|
|
Cash
|
$
|
30,684
|
|
Park common shares
|
48,519
|
|
Previous 8.55% investment in NewDominion
|
7,000
|
|
Fair value of total consideration transferred
|
$
|
86,203
|
|
|
|
Recognized amounts of identifiable assets acquired and liabilities assumed
|
|
Cash and cash equivalents
|
$
|
42,954
|
|
Securities
|
1,954
|
|
Loans
|
272,753
|
|
Premises and equipment
|
940
|
|
Core deposit intangibles
|
6,249
|
|
Trade name intangible (1)
|
1,300
|
|
Other assets
|
6,133
|
|
Total assets acquired
|
$
|
332,283
|
|
|
|
Deposits
|
$
|
284,231
|
|
Other liabilities
|
2,254
|
|
Total liabilities assumed
|
286,485
|
|
|
|
Net identifiable assets
|
45,798
|
|
|
|
Goodwill
|
$
|
40,405
|
|
(1) During 2019, Park announced its 2020 rebranding initiative to operate all 12 banking divisions of PNB under one name. The NewDominion trade name intangible was initially recorded assuming an indefinite useful life. Considering Park's rebranding initiative, Park concluded that the trade name intangible now represents a definite life asset, and impairment was recorded during 2019.
Park accounted for the NewDominion acquisition using the acquisition method of accounting and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date, in accordance with FASB ASC Topic 805, Business Combinations.
The fair value of net assets acquired includes fair value adjustments to loans that were not considered impaired as of the acquisition date. The fair value adjustments were determined using discounted contractual cash flows. However, Park believes that all contractual cash flows related to these loans will be collected. As such, these loans were not considered impaired at the acquisition date and were not subject to the guidance relating to purchased credit impaired loans, which have shown evidence of credit deterioration since origination. Loans acquired that were not subject to these requirements included non-impaired loans with a fair value and gross contractual amounts receivable of $267.9 million and $273.7 million, respectively, on the date of acquisition.
The table below presents information with respect to the fair value of the NewDominion acquired loans as well as their book balance at the acquisition date.
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Book Balance
|
|
Fair Value
|
Commercial, financial and agricultural
|
$
|
19,246
|
|
|
$
|
19,138
|
|
Commercial real estate
|
119,434
|
|
|
117,638
|
|
Construction real estate:
|
|
|
|
Commercial
|
22,494
|
|
|
22,235
|
|
Mortgage
|
8,391
|
|
|
8,111
|
|
Residential real estate:
|
|
|
|
Commercial
|
14,798
|
|
|
14,797
|
|
Mortgage
|
50,295
|
|
|
48,714
|
|
HELOC
|
37,651
|
|
|
36,688
|
|
Consumer
|
541
|
|
|
539
|
|
Purchased credit impaired
|
5,069
|
|
|
4,893
|
|
Total loans
|
$
|
277,919
|
|
|
$
|
272,753
|
|
CAB Financial Corporation
On April 1, 2019, CAB Financial Corporation, a South Carolina corporation, merged with and into Park, with Park continuing as the surviving entity pursuant to the Agreement and Plan of Merger and Reorganization (the "CABF Merger Agreement"), dated as of September 12, 2018, by and between Park and CABF. Immediately following the CABF merger into Park, Carolina Alliance Bank, a South Carolina state-chartered bank and a wholly-owned subsidiary of CABF, was merged with and into PNB, with PNB as the surviving bank. In accordance with the CABF Merger Agreement, CABF shareholders were to receive for each share of their CABF common stock (i) $3.80 in cash (the cash consideration) and (ii) 0.1378 of a Park common share (the stock consideration). CABF stock options and restricted stock awards were fully vested (with any performance-based vesting condition deemed satisfied) and canceled and converted automatically into the right to receive merger consideration.
Purchase consideration consisted of 1,037,205 Park common shares, valued at $98.3 million, and $28.6 million in cash to acquire 100% of CABF's outstanding shares of common stock. The acquisition is expected to provide additional revenue growth and geographic diversification.
Carolina Alliance's results of operations were included in Park's results beginning April 1, 2019. For the years ended December 31, 2019 and 2018, Park recorded merger-related expenses of $8.8 million and $0.6 million, respectively, associated with the Carolina Alliance acquisition.
Goodwill of $46.9 million arising from the acquisition consisted largely of synergies and the cost savings resulting from the combining of the operations of PNB and Carolina Alliance. The goodwill is not deductible for income tax purposes as the transaction was accounted for as a tax-free exchange.
The following table summarizes the consideration paid for Carolina Alliance and the amounts of the assets acquired and liabilities assumed at their fair value:
|
|
|
|
|
|
(in thousands)
|
|
Consideration
|
|
Cash
|
$
|
28,630
|
|
Park common shares
|
98,275
|
|
Fair value of total consideration transferred
|
$
|
126,905
|
|
|
|
Recognized amounts of identifiable assets acquired and liabilities assumed
|
|
Cash and cash equivalents
|
$
|
23,799
|
|
Securities
|
97,606
|
|
Loans
|
578,577
|
|
Premises and equipment
|
8,337
|
|
Core deposit intangibles
|
8,207
|
|
Other assets
|
32,123
|
|
Total assets acquired
|
$
|
748,649
|
|
|
|
Deposits
|
$
|
632,649
|
|
Other liabilities
|
35,951
|
|
Total liabilities assumed
|
668,600
|
|
|
|
Net identifiable assets
|
80,049
|
|
|
|
Goodwill
|
$
|
46,856
|
|
Park accounted for the Carolina Alliance acquisition using the acquisition method of accounting and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date, in accordance with FASB ASC Topic 805, Business Combinations. The fair value measurements of assets acquired and liabilities assumed are subject to refinement for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available. During the three months ended September 30, 2019, Park made a $58,000 adjustment to decrease the initial fair value of deposits, which resulted in a $58,000 reduction in goodwill. During the three months ended December 31, 2019, Park made a $2.0 million adjustment to decrease the initial fair value of core deposit intangibles and a $0.5 million adjustment to increase other assets for the related deferred tax impact, which resulted in a $1.6 million increase in goodwill.
The fair value of net assets acquired includes fair value adjustments to loans that were not considered impaired as of the acquisition date. The fair value adjustments were determined using discounted contractual cash flows. However, Park believes that all contractual cash flows related to these loans will be collected. As such, these loans were not considered impaired at the acquisition date and were not subject to the guidance relating to purchased credit impaired loans which have shown evidence of credit deterioration since origination. Loans acquired that were not subject to these requirements included non-impaired loans with a fair value and gross contractual amounts receivable of $560.2 million and $572.6 million, respectively, on the date of acquisition.
The table below presents information with respect to the fair value of acquired loans as well as their book balance at the acquisition date.
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Book Balance
|
|
Fair Value
|
Commercial, financial and agricultural
|
$
|
80,895
|
|
|
$
|
80,580
|
|
Commercial real estate
|
281,425
|
|
|
273,855
|
Construction real estate:
|
|
|
|
|
Commercial
|
43,106
|
|
|
42,176
|
Mortgage
|
11,130
|
|
|
10,633
|
Residential real estate:
|
|
|
|
|
Commercial
|
48,546
|
|
|
48,684
|
Mortgage
|
30,519
|
|
|
30,969
|
HELOC
|
40,825
|
|
|
39,853
|
Consumer
|
4,813
|
|
|
4,647
|
Leases
|
28,589
|
|
|
28,781
|
Purchased credit impaired
|
19,850
|
|
|
18,399
|
Total loans
|
$
|
589,698
|
|
|
$
|
578,577
|
|
The following table presents supplemental pro forma information as if the NewDominion and Carolina Alliance acquisitions had occurred as of January 1, 2018. The unaudited pro forma information includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the respective transactions, depreciation expense on property acquired, interest expense on deposits acquired, and the related tax effects. The pro forma information is not necessarily indicative of the results of operations that would have occurred had the transactions been effected on the assumed date.
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended December 31,
|
|
|
(dollars in thousands, except per share data)
|
2019
|
|
2018
|
Net interest income
|
$
|
304,480
|
|
|
$
|
302,282
|
|
Net income
|
112,492
|
|
|
123,472
|
|
Basic earnings per share
|
6.82
|
|
|
7.37
|
|
Diluted earnings per share
|
6.78
|
|
|
7.31
|
|
5. Investment Securities
The amortized cost and fair value of investment securities are shown in the following tables. Management performs a quarterly evaluation of investment securities for any other-than-temporary impairment. During 2019, 2018 and 2017, there were no investment securities deemed to be other-than-temporarily impaired.
Investment securities at December 31, 2019 and December 31, 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Amortized Cost
|
|
Gross Unrealized Holding Gains
|
|
Gross Unrealized Holding Losses
|
|
Fair Value
|
2019:
|
|
|
|
|
|
|
|
|
Debt Securities Available-for-Sale
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
$
|
302,928
|
|
|
|
$
|
17,563
|
|
|
|
$
|
—
|
|
|
$
|
320,491
|
|
U.S. Government sponsored entities’ asset-backed securities
|
|
884,571
|
|
|
10,862
|
|
|
6,223
|
|
|
889,210
|
|
Total
|
|
$
|
1,187,499
|
|
|
$
|
28,425
|
|
|
$
|
6,223
|
|
|
$
|
1,209,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Amortized Cost
|
|
Gross Unrealized/Unrecognized Holding Gains
|
|
Gross Unrealized/Unrecognized Holding Losses
|
|
Fair Value
|
2018:
|
|
|
|
|
|
|
|
|
Debt Securities Available-for-Sale
|
|
|
|
|
|
|
|
|
U.S. Government sponsored entities’ asset-backed securities
|
|
$
|
1,028,883
|
|
|
$
|
453
|
|
|
$
|
25,915
|
|
|
$
|
1,003,421
|
|
Total
|
|
$
|
1,028,883
|
|
|
$
|
453
|
|
|
$
|
25,915
|
|
|
$
|
1,003,421
|
|
2018:
|
|
|
|
|
|
|
|
|
Debt Securities Held-to-Maturity
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
$
|
305,278
|
|
|
$
|
3,202
|
|
|
$
|
2,672
|
|
|
$
|
305,808
|
|
U.S. Government sponsored entities’ asset-backed securities
|
|
46,530
|
|
|
87
|
|
|
1,003
|
|
|
45,614
|
|
Total
|
|
$
|
351,808
|
|
|
$
|
3,289
|
|
|
$
|
3,675
|
|
|
$
|
351,422
|
|
Park’s U.S. Government sponsored entities' asset-backed securities consisted primarily of 15-year residential mortgage-backed securities and collateralized mortgage obligations ("CMOs"). At December 31, 2019, the amortized cost of Park’s AFS mortgage-backed securities was $581.0 million within Park's investment portfolio. At December 31, 2019, the amortized cost of Park's AFS CMOs was $303.6 million.
On September 1, 2019, Park adopted the portion of ASU 2019-04 which allowed for a one-time reclassification of securities from HTM to AFS. On that date, Park transferred HTM securities with a fair value of $373.9 million to the AFS classification. The transfer occurred at fair value and had a related unrealized gain, net of taxes, of $19.1 million recorded in other comprehensive income.
The following table provides detail on investment securities with unrealized/unrecognized losses aggregated by investment category and length of time the individual securities had been in a continuous loss position at December 31, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
|
(In thousands)
|
|
Fair Value
|
Unrealized Losses
|
|
Fair Value
|
Unrealized Losses
|
|
Fair Value
|
|
Unrealized Losses
|
2019:
|
|
|
|
|
|
|
|
|
|
|
Debt Securities Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
U.S. Government sponsored entities' asset-backed securities
|
|
$
|
237,613
|
|
$
|
1,106
|
|
|
$
|
171,805
|
|
$
|
5,117
|
|
|
$
|
409,418
|
|
|
$
|
6,223
|
|
Total
|
|
$
|
237,613
|
|
$
|
1,106
|
|
|
$
|
171,805
|
|
$
|
5,117
|
|
|
$
|
409,418
|
|
|
$
|
6,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
|
(In thousands)
|
|
Fair Value
|
Unrealized/Unrecognized Losses
|
|
Fair Value
|
Unrealized/Unrecognized Losses
|
|
Fair Value
|
|
Unrealized/Unrecognized Losses
|
2018:
|
|
|
|
|
|
|
|
|
|
|
Debt Securities Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
U.S. Government sponsored entities' asset-backed securities
|
|
$
|
506,280
|
|
$
|
5,998
|
|
|
$
|
449,569
|
|
$
|
19,917
|
|
|
$
|
955,849
|
|
|
$
|
25,915
|
|
Total
|
|
$
|
506,280
|
|
$
|
5,998
|
|
|
$
|
449,569
|
|
$
|
19,917
|
|
|
$
|
955,849
|
|
|
$
|
25,915
|
|
2018:
|
|
|
|
|
|
|
|
|
|
|
Debt Securities Held-to-Maturity
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
$
|
91,960
|
|
$
|
1,095
|
|
|
$
|
70,723
|
|
$
|
1,577
|
|
|
$
|
162,683
|
|
|
$
|
2,672
|
|
U.S. Government sponsored entities' asset-backed securities
|
|
32,656
|
|
838
|
|
|
6,931
|
|
165
|
|
|
39,587
|
|
|
1,003
|
|
Total
|
|
$
|
124,616
|
|
$
|
1,933
|
|
|
$
|
77,654
|
|
$
|
1,742
|
|
|
$
|
202,270
|
|
|
$
|
3,675
|
|
Management does not believe any individual unrealized/unrecognized loss as of December 31, 2019 or 2018 represented an other-than-temporary impairment. The unrealized/unrecognized losses on agency issued and non-agency issued debt securities are primarily the result of interest rate changes. These conditions will not prohibit Park from receiving its contractual principal and interest payments on these debt securities. The fair value of these debt securities is expected to recover as payments are received on these securities and they approach maturity. Should the impairment of any of these securities become other-than-temporary, the cost basis of the investment will be reduced and the resulting loss attributable to credit will be recognized in net income in the period the other-than-temporary impairment is identified.
The amortized cost and estimated fair value of investments in debt securities at December 31, 2019, are shown in the following table by contractual maturity, except for asset-backed securities, which are shown as a single total, due to the unpredictability of the timing in principal repayments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Amortized Cost
|
|
Fair Value
|
|
Tax Equivalent Yield (1)
|
Debt Securities Available-for-Sale
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
|
|
|
|
|
Due five through ten years
|
|
$
|
3,984
|
|
|
$
|
4,135
|
|
|
3.04
|
%
|
Due greater than ten years
|
|
298,944
|
|
|
316,356
|
|
|
3.69
|
%
|
Total
|
|
$
|
302,928
|
|
|
$
|
320,491
|
|
|
3.68
|
%
|
|
|
|
|
|
|
|
U.S. Government sponsored entities’ asset-backed securities
|
|
$
|
884,571
|
|
|
$
|
889,210
|
|
|
2.37
|
%
|
(1) The tax equivalent yield for obligations of states and political subdivisions includes the effects of a taxable equivalent adjustment using a 21% federal corporate income tax rate.
At December 31, 2019, investment securities with an amortized cost of $370 million were pledged for government and trust department deposits, $197 million were pledged to secure repurchase agreements and $18 million were pledged as collateral for FHLB advance borrowings. At December 31, 2018, investment securities with an amortized cost of $332 million were pledged for government and trust department deposits, $280 million were pledged to secure repurchase agreements and $22 million were pledged as collateral for FHLB advance borrowings.
At December 31, 2019, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity.
During 2019, Park sold certain AFS debt securities with a book value of $62.4 million at a gross loss of $692,000, and sold certain AFS debt securities with a book value of $29.1 million at a gross gain of $271,000. During 2018, Park sold certain AFS debt securities with a book value of $245.0 million at a gross loss of $2.6 million, sold certain AFS debt securities with a book value of $2.0 million at a gross gain of $60,000, and sold certain HTM debt securities with a book value of $7.4 million at a
gross gain of $0.3 million. These HTM debt securities had been paid down by 96.3% of the principal outstanding at acquisition. During 2017, Park sold certain equity securities with a book value of $444,000 at a gain of $1.8 million.
Other investment securities (as shown on the Consolidated Balance Sheets) consist of stock investments in the FHLB, the FRB, and equity securities. The FHLB and FRB restricted stock investments are carried at their redemption value. Equity securities with a readily determinable fair value are carried at fair value. Equity securities without a readily determinable fair value are recorded at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions ("modified cost"). Park's portfolio of equity investments in limited partnerships which provide mezzanine funding ("Partnership Investments") are valued using the net asset value practical expedient in accordance with ASC 820.
The carrying amount of other investment securities at December 31, 2019 and 2018 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
December 31, 2019
|
|
December 31, 2018
|
FHLB stock
|
|
$
|
30,060
|
|
|
$
|
43,388
|
|
FRB stock
|
|
14,653
|
|
|
8,225
|
|
Equity investments carried at fair value
|
|
1,993
|
|
|
1,649
|
|
Equity investments carried at modified cost (1)
|
|
2,689
|
|
|
2,589
|
|
Equity investments carried at net asset value
|
|
20,411
|
|
|
17,065
|
|
Total other investment securities
|
|
$
|
69,806
|
|
|
$
|
72,916
|
|
(1) There have been no impairments, downward adjustments, or upward adjustments made to equity investments carried at modified cost.
During the year ended December 31, 2019, the FHLB repurchased 123,472 shares of FHLB stock with a book value of $13.3 million, and Park purchased 128,553 shares of FRB stock with a book value of $6.4 million. During the year ended December 31, 2018, the FHLB repurchased 66,980 shares of FHLB stock with a book value of $6.7 million. No shares of FRB stock were purchased or sold in 2018.
For the years ended December 31, 2019 and 2018, $345,000 and $(287,000), respectively, of unrealized gains (losses) on equity investments carried at fair value were recorded within "Gain on equity securities, net" on the Consolidated Statements of Income. An additional $3.5 million gain recorded within "Gain on equity securities, net" on the Consolidated Statements of Income for the year ended December 31, 2018 relates to Park's 8.55% investment in NewDominion which was held at December 31, 2017. See Note 4 - Business Combinations.
For the years ended December 31, 2019 and 2018, $4.8 million and $1.4 million, respectively, of gains on equity investments carried at NAV were recorded within "Gain on equity securities, net" on the Consolidated Statements of Income.
6. Loans
The composition of the loan portfolio, by class of loan, as of December 31, 2019 and December 31, 2018 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2019
|
|
|
|
|
|
|
12/31/2018
|
|
|
|
|
(In thousands)
|
|
Loan Balance
|
|
Accrued Interest Receivable
|
|
Recorded Investment
|
|
|
Loan Balance
|
|
Accrued Interest Receivable
|
|
Recorded Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural *
|
|
$
|
1,185,110
|
|
|
$
|
4,393
|
|
|
$
|
1,189,503
|
|
|
|
$
|
1,072,786
|
|
|
$
|
4,603
|
|
|
$
|
1,077,389
|
|
Commercial real estate *
|
|
1,609,413
|
|
|
5,571
|
|
|
1,614,984
|
|
|
|
1,283,045
|
|
|
4,750
|
|
|
1,287,795
|
|
Construction real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
233,637
|
|
|
826
|
|
234,463
|
|
|
|
175,300
|
|
|
801
|
|
176,101
|
|
Mortgage
|
|
96,574
|
|
|
228
|
|
96,802
|
|
|
|
70,541
|
|
|
151
|
|
70,692
|
|
Installment
|
|
1,488
|
|
|
4
|
|
1,492
|
|
|
|
2,433
|
|
|
7
|
|
2,440
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
479,081
|
|
|
1,339
|
|
|
480,420
|
|
|
|
429,730
|
|
|
1,150
|
|
|
430,880
|
|
Mortgage
|
|
1,176,316
|
|
|
1,381
|
|
|
1,177,697
|
|
|
|
1,134,278
|
|
|
1,227
|
|
|
1,135,505
|
|
HELOC
|
|
224,766
|
|
|
1,113
|
|
|
225,879
|
|
|
|
215,283
|
|
|
1,159
|
|
|
216,442
|
|
Installment
|
|
12,563
|
|
|
32
|
|
12,595
|
|
|
|
14,327
|
|
|
36
|
|
14,363
|
|
Consumer
|
|
1,452,375
|
|
|
4,314
|
|
|
1,456,689
|
|
|
|
1,292,136
|
|
|
3,756
|
|
|
1,295,892
|
|
Leases
|
|
30,081
|
|
|
20
|
|
30,101
|
|
|
|
2,273
|
|
|
26
|
|
2,299
|
|
Total loans
|
|
$
|
6,501,404
|
|
|
$
|
19,221
|
|
|
$
|
6,520,625
|
|
|
|
$
|
5,692,132
|
|
|
$
|
17,666
|
|
|
$
|
5,709,798
|
|
* Included within commercial, financial and agricultural loans and commercial real estate loans was an immaterial amount of consumer loans that were not broken out by class.
Loans are shown net of deferred origination fees, costs and unearned income of $16.3 million at December 31, 2019 and of $12.5 million at December 31, 2018, which represented a net deferred income position in both years. At December 31, 2019 and December 31, 2018, loans included purchase accounting adjustments of $11.7 million and $4.4 million, respectively, which represented a net deferred income position at each date. This fair market value purchase accounting adjustment related to loans which are not PCI is expected to be recognized into interest income on a level yield basis over the remaining expected life of the loans.
Overdrawn deposit accounts of $2.2 million and $2.3 million had been reclassified to loans at December 31, 2019 and December 31, 2018, respectively, and are included in the commercial, financial and agricultural loan class above.
Credit Quality
The following table presents the recorded investment in nonaccrual loans, accruing TDRs, and loans past due 90 days or more and still accruing by class of loan as of December 31, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2019
|
|
|
|
|
|
|
(In thousands)
|
|
Nonaccrual Loans
|
|
Accruing TDRs
|
|
Loans Past Due 90 Days or More and Accruing
|
|
Total Nonperforming Loans
|
Commercial, financial and agricultural
|
|
$
|
26,776
|
|
|
$
|
6,349
|
|
|
$
|
28
|
|
|
$
|
33,153
|
|
Commercial real estate
|
|
39,711
|
|
|
2,080
|
|
|
625
|
|
|
42,416
|
|
Construction real estate:
|
|
|
|
|
|
|
|
|
Commercial
|
|
453
|
|
|
—
|
|
|
—
|
|
|
453
|
|
Mortgage
|
|
25
|
|
|
84
|
|
|
—
|
|
|
109
|
|
Installment
|
|
72
|
|
|
5
|
|
|
—
|
|
|
77
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
Commercial
|
|
2,025
|
|
|
—
|
|
|
—
|
|
|
2,025
|
|
Mortgage
|
|
15,271
|
|
|
8,826
|
|
|
1,209
|
|
|
25,306
|
|
HELOC
|
|
2,062
|
|
|
1,010
|
|
|
44
|
|
|
3,116
|
|
Installment
|
|
462
|
|
|
1,964
|
|
|
—
|
|
|
2,426
|
|
Consumer
|
|
3,089
|
|
|
980
|
|
|
645
|
|
|
4,714
|
|
Leases
|
|
134
|
|
|
—
|
|
|
186
|
|
|
320
|
|
Total loans
|
|
$
|
90,080
|
|
|
$
|
21,298
|
|
|
$
|
2,737
|
|
|
$
|
114,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2018
|
|
|
|
|
|
|
(In thousands)
|
|
Nonaccrual Loans
|
|
Accruing TDRs
|
|
Loans Past Due 90 Days or More and Accruing
|
|
Total Nonperforming Loans
|
Commercial, financial and agricultural
|
|
$
|
14,998
|
|
|
$
|
196
|
|
|
$
|
10
|
|
|
$
|
15,204
|
|
Commercial real estate
|
|
25,566
|
|
|
2,860
|
|
|
—
|
|
|
28,426
|
|
Construction real estate:
|
|
|
|
|
|
|
|
|
Commercial
|
|
1,866
|
|
|
—
|
|
|
—
|
|
|
1,866
|
|
Mortgage
|
|
—
|
|
|
15
|
|
|
20
|
|
|
35
|
|
Installment
|
|
19
|
|
|
9
|
|
|
—
|
|
|
28
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
Commercial
|
|
2,610
|
|
|
122
|
|
|
—
|
|
|
2,732
|
|
Mortgage
|
|
16,892
|
|
|
9,100
|
|
|
1,124
|
|
|
27,116
|
|
HELOC
|
|
2,158
|
|
|
1,028
|
|
|
9
|
|
|
3,195
|
|
Installment
|
|
468
|
|
|
1,049
|
|
|
24
|
|
|
1,541
|
|
Consumer
|
|
3,377
|
|
|
843
|
|
|
1,115
|
|
|
5,335
|
|
Leases
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total loans
|
|
$
|
67,954
|
|
|
$
|
15,222
|
|
|
$
|
2,302
|
|
|
$
|
85,478
|
|
The following table provides additional information regarding those nonaccrual and accruing TDR loans that are individually evaluated for impairment and those collectively evaluated for impairment as of December 31, 2019 and December 31, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2019
|
|
|
|
|
|
|
12/31/2018
|
|
|
|
|
(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
|
|
$
|
33,125
|
|
|
$
|
33,088
|
|
|
$
|
37
|
|
|
|
$
|
15,194
|
|
|
$
|
15,120
|
|
|
$
|
74
|
|
Commercial real estate
|
|
41,791
|
|
|
41,791
|
|
|
—
|
|
|
|
28,426
|
|
|
28,426
|
|
|
—
|
|
Construction real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
453
|
|
|
453
|
|
|
—
|
|
|
|
1,866
|
|
|
1,866
|
|
|
—
|
|
Mortgage
|
|
109
|
|
|
—
|
|
|
109
|
|
|
|
15
|
|
—
|
|
|
15
|
Installment
|
|
77
|
|
|
—
|
|
|
77
|
|
|
|
28
|
|
—
|
|
|
28
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
2,025
|
|
|
2,025
|
|
|
—
|
|
|
|
2,732
|
|
|
2,732
|
|
|
—
|
|
Mortgage
|
|
24,097
|
|
|
—
|
|
|
24,097
|
|
|
|
25,992
|
|
|
—
|
|
|
25,992
|
|
HELOC
|
|
3,072
|
|
|
—
|
|
|
3,072
|
|
|
|
3,186
|
|
|
—
|
|
|
3,186
|
|
Installment
|
|
2,426
|
|
|
—
|
|
|
2,426
|
|
|
|
1,517
|
|
|
—
|
|
|
1,517
|
|
Consumer
|
|
4,069
|
|
|
—
|
|
|
4,069
|
|
|
|
4,220
|
|
|
—
|
|
|
4,220
|
|
Leases
|
|
134
|
|
|
134
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total loans
|
|
$
|
111,378
|
|
|
$
|
77,491
|
|
|
$
|
33,887
|
|
|
|
$
|
83,176
|
|
|
$
|
48,144
|
|
|
$
|
35,032
|
|
All of the loans individually evaluated for impairment were evaluated using the fair value of the collateral or the present value of expected future cash flows as the measurement method.
The following table presents loans individually evaluated for impairment by class of loan as of December 31, 2019 and December 31, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2019
|
|
|
|
|
|
|
12/31/2018
|
|
|
|
|
(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
|
|
$
|
21,194
|
|
|
$
|
21,010
|
|
|
$
|
—
|
|
|
|
$
|
8,999
|
|
|
$
|
3,713
|
|
|
$
|
—
|
|
Commercial real estate
|
|
41,696
|
|
|
41,471
|
|
|
—
|
|
|
|
26,663
|
|
|
26,213
|
|
|
—
|
|
Construction real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
453
|
|
|
453
|
|
|
—
|
|
|
|
4,679
|
|
|
1,866
|
|
|
—
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
1,921
|
|
|
1,854
|
|
|
—
|
|
|
|
2,691
|
|
|
2,374
|
|
|
—
|
|
Leases
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
With an allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural
|
|
12,289
|
|
|
12,078
|
|
|
5,104
|
|
|
|
13,736
|
|
|
11,407
|
|
|
2,169
|
|
Commercial real estate
|
|
320
|
|
|
320
|
|
|
35
|
|
|
|
2,255
|
|
|
2,213
|
|
|
86
|
|
Construction real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
171
|
|
|
171
|
|
|
42
|
|
|
|
358
|
|
|
358
|
|
|
18
|
|
Leases
|
|
134
|
|
|
134
|
|
|
49
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
78,178
|
|
|
$
|
77,491
|
|
|
$
|
5,230
|
|
|
|
$
|
59,381
|
|
|
$
|
48,144
|
|
|
$
|
2,273
|
|
Management’s general practice is to proactively charge down loans individually evaluated for impairment to the fair value of the underlying collateral. At December 31, 2019 and December 31, 2018, there were $0.5 million and $8.8 million, respectively, of partial charge-offs on loans individually evaluated for impairment with no related allowance recorded and $0.2 million and $2.4 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 related to loans individually evaluated for impairment at December 31, 2019 and 2018, of $5.2 million and $2.3 million, respectively. These loans with specific reserves had a recorded investment of $12.7 million and $14.0 million as of December 31, 2019 and 2018, 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 tables present the average recorded investment and interest income recognized subsequent to impairment on loans individually evaluated for impairment as of and for the years ended December 31, 2019, 2018, and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2019
|
|
|
(In thousands)
|
|
Recorded Investment as of December 31, 2019
|
|
Average Recorded Investment
|
|
Interest Income Recognized
|
Commercial, financial and agricultural
|
|
$
|
33,088
|
|
|
$
|
21,415
|
|
|
$
|
527
|
|
Commercial real estate
|
|
41,791
|
|
|
32,132
|
|
|
1,241
|
|
Construction real estate:
|
|
|
|
|
|
|
Commercial
|
|
453
|
|
|
1,987
|
|
|
26
|
|
Residential real estate:
|
|
|
|
|
|
|
Commercial
|
|
2,025
|
|
|
2,175
|
|
|
99
|
|
Consumer
|
|
—
|
|
|
—
|
|
|
—
|
|
Leases
|
|
134
|
|
|
59
|
|
|
—
|
|
Total
|
|
$
|
77,491
|
|
|
$
|
57,768
|
|
|
$
|
1,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2018
|
|
|
(In thousands)
|
|
Recorded Investment as of December 31, 2018
|
|
Average Recorded Investment
|
|
Interest Income Recognized
|
Commercial, financial and agricultural
|
|
$
|
15,120
|
|
|
$
|
21,000
|
|
|
$
|
695
|
|
Commercial real estate
|
|
28,426
|
|
|
23,024
|
|
|
1,047
|
|
Construction real estate:
|
|
|
|
|
|
|
Commercial
|
|
1,866
|
|
|
1,709
|
|
|
34
|
Residential real estate:
|
|
|
|
|
|
|
Commercial
|
|
2,732
|
|
|
5,308
|
|
|
114
|
|
Consumer
|
|
—
|
|
|
—
|
|
|
—
|
|
Leases
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
48,144
|
|
|
$
|
51,041
|
|
|
$
|
1,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2017
|
|
|
(In thousands)
|
|
Recorded Investment as of December 31, 2017
|
|
Average Recorded Investment
|
|
Interest Income Recognized
|
Commercial, financial and agricultural
|
|
$
|
18,039
|
|
|
$
|
23,154
|
|
|
$
|
963
|
|
Commercial real estate
|
|
18,142
|
|
|
21,692
|
|
|
903
|
Construction real estate:
|
|
|
|
|
|
|
Commercial
|
|
1,324
|
|
|
1,729
|
|
|
64
|
Residential real estate:
|
|
|
|
|
|
|
Commercial
|
|
19,059
|
|
|
20,490
|
|
|
778
|
|
Consumer
|
|
—
|
|
|
5
|
|
|
—
|
|
Leases
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
56,564
|
|
|
$
|
67,070
|
|
|
$
|
2,708
|
|
The following tables present the aging of the recorded investment in past due loans as of December 31, 2019 and December 31, 2018 by class of loan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2019
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Accruing Loans Past Due 30-89 Days
|
|
Past Due Nonaccrual Loans and Loans Past Due 90 Days or More and Accruing (1)
|
|
Total Past Due
|
|
Total Current (2)
|
|
Total Recorded Investment
|
Commercial, financial and agricultural
|
|
$
|
582
|
|
|
$
|
12,407
|
|
|
$
|
12,989
|
|
|
$
|
1,176,514
|
|
|
$
|
1,189,503
|
|
Commercial real estate
|
|
160
|
|
|
1,143
|
|
|
1,303
|
|
|
1,613,681
|
|
|
1,614,984
|
|
Construction real estate:
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
—
|
|
|
—
|
|
|
—
|
|
|
234,463
|
|
|
234,463
|
|
Mortgage
|
|
397
|
|
|
—
|
|
|
397
|
|
|
96,405
|
|
|
96,802
|
|
Installment
|
|
24
|
|
|
—
|
|
|
24
|
|
|
1,468
|
|
|
1,492
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
—
|
|
|
908
|
|
|
908
|
|
|
479,512
|
|
|
480,420
|
|
Mortgage
|
|
12,841
|
|
|
9,153
|
|
|
21,994
|
|
|
1,155,703
|
|
|
1,177,697
|
|
HELOC
|
|
652
|
|
|
779
|
|
|
1,431
|
|
|
224,448
|
|
|
225,879
|
|
Installment
|
|
164
|
|
|
338
|
|
|
502
|
|
|
12,093
|
|
|
12,595
|
|
Consumer
|
|
6,561
|
|
|
1,621
|
|
|
8,182
|
|
|
1,448,507
|
|
|
1,456,689
|
|
Leases
|
|
368
|
|
|
186
|
|
|
554
|
|
|
29,547
|
|
|
30,101
|
|
Total loans
|
|
$
|
21,749
|
|
|
$
|
26,535
|
|
|
$
|
48,284
|
|
|
$
|
6,472,341
|
|
|
$
|
6,520,625
|
|
(1) Includes an aggregate of $2.7 million of loans past due 90 days or more and accruing. The remaining are past due, nonaccrual loans.
(2) Includes an aggregate of $66.3 million of nonaccrual loans which are current in regards to contractual principal and interest payments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2018
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Accruing Loans Past Due 30-89 Days
|
|
Past Due, Nonaccrual Loans and Loans Past Due 90 Days or More and Accruing (1)
|
|
Total Past Due
|
|
Total Current (2)
|
|
Total Recorded Investment
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural
|
|
$
|
4,786
|
|
|
$
|
1,375
|
|
|
$
|
6,161
|
|
|
$
|
1,071,228
|
|
|
$
|
1,077,389
|
|
Commercial real estate
|
|
780
|
|
|
3,584
|
|
|
4,364
|
|
|
1,283,431
|
|
|
1,287,795
|
|
Construction real estate:
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
—
|
|
|
1,635
|
|
|
1,635
|
|
|
174,466
|
|
|
176,101
|
|
Mortgage
|
|
133
|
|
20
|
|
|
153
|
|
70,539
|
|
|
70,692
|
|
Installment
|
|
28
|
|
19
|
|
47
|
|
2,393
|
|
|
2,440
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
683
|
|
|
1,104
|
|
|
1,787
|
|
|
429,093
|
|
|
430,880
|
|
Mortgage
|
|
13,210
|
|
|
8,553
|
|
|
21,763
|
|
|
1,113,742
|
|
|
1,135,505
|
|
HELOC
|
|
620
|
|
|
907
|
|
|
1,527
|
|
|
214,915
|
|
|
216,442
|
|
Installment
|
|
155
|
|
|
274
|
|
|
429
|
|
|
13,934
|
|
|
14,363
|
|
Consumer
|
|
9,524
|
|
|
2,131
|
|
|
11,655
|
|
|
1,284,237
|
|
|
1,295,892
|
|
Leases
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,299
|
|
|
2,299
|
|
Total loans
|
|
$
|
29,919
|
|
|
$
|
19,602
|
|
|
$
|
49,521
|
|
|
$
|
5,660,277
|
|
|
$
|
5,709,798
|
|
(1) Includes an aggregate of $2.3 million of loans past due 90 days or more and accruing. The remaining are past due, nonaccrual loans.
(2) Includes an aggregate of $50.7 million of nonaccrual loans which are current in regards to contractual principal and interest payments.
Credit Quality Indicators
Management utilizes past due information as a credit quality indicator across the loan portfolio. Past due information as of December 31, 2019 and 2018 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 all commercial loans on a scale from 1 to 8. Credit grades are continuously monitored by the responsible loan officer and adjustments are made when appropriate. A grade of 1 indicates little or no credit risk and a grade of 8 is considered a loss. Commercial loans that are pass-rated (graded a 1 through a 4) are considered to be of acceptable credit risk. Commercial loans graded a 5 (special mention) are considered to be watch list credits and a higher loan loss reserve 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 a 6 (substandard), also considered 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 graded a 7 (doubtful) are shown as nonaccrual and Park generally charges these loans down to their fair value by taking a partial charge-off or recording a specific reserve. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Certain 6-rated loans and all 7-rated loans are placed on nonaccrual status and included within the impaired category. A loan is deemed impaired 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 December 31, 2019 and December 31, 2018 for all commercial loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2019
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
5 Rated
|
|
6 Rated
|
|
Nonaccrual and Accruing TDRs
|
|
Purchased Credit Impaired (1)
|
|
Pass-Rated
|
|
Recorded
Investment
|
Commercial, financial and agricultural*
|
|
$
|
11,981
|
|
|
$
|
3
|
|
|
$
|
33,125
|
|
|
$
|
966
|
|
|
$
|
1,143,428
|
|
|
$
|
1,189,503
|
|
Commercial real estate*
|
|
6,796
|
|
|
945
|
|
|
41,791
|
|
|
9,182
|
|
|
1,556,270
|
|
|
$
|
1,614,984
|
|
Construction real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
4,857
|
|
|
1
|
|
|
453
|
|
|
1,044
|
|
|
228,108
|
|
|
$
|
234,463
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
3,839
|
|
|
30
|
|
|
2,025
|
|
|
1,754
|
|
|
472,772
|
|
|
$
|
480,420
|
|
Leases
|
|
—
|
|
|
—
|
|
|
134
|
|
|
523
|
|
|
29,444
|
|
|
$
|
30,101
|
|
Total Commercial Loans
|
|
$
|
27,473
|
|
|
$
|
979
|
|
|
$
|
77,528
|
|
|
$
|
13,469
|
|
|
$
|
3,430,022
|
|
|
$
|
3,549,471
|
|
* Included within commercial, financial and agricultural loans and commercial real estate loans is an immaterial amount of consumer loans that were not broken out by class.
(1) Excludes loans acquired with deteriorated credit quality which are nonaccrual or TDRs due to additional credit deterioration or modification post acquisition. These loans had a recorded investment of $6,000 at December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2018
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
5 Rated
|
|
6 Rated
|
|
Nonaccrual and Accruing TDRs
|
|
Purchased Credit Impaired (1)
|
|
Pass Rated
|
|
Recorded Investment
|
Commercial, financial and agricultural*
|
|
$
|
11,509
|
|
|
$
|
444
|
|
|
$
|
15,194
|
|
|
$
|
148
|
|
|
$
|
1,050,094
|
|
|
$
|
1,077,389
|
|
Commercial real estate*
|
|
2,707
|
|
|
—
|
|
|
28,426
|
|
|
3,059
|
|
|
1,253,603
|
|
|
1,287,795
|
|
Construction real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
1,560
|
|
|
—
|
|
|
1,866
|
|
|
503
|
|
|
172,172
|
|
|
176,101
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
272
|
|
|
41
|
|
|
2,732
|
|
|
251
|
|
|
427,584
|
|
|
430,880
|
|
Leases
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,299
|
|
|
2,299
|
|
Total Commercial Loans
|
|
$
|
16,048
|
|
|
$
|
485
|
|
|
$
|
48,218
|
|
|
$
|
3,961
|
|
|
$
|
2,905,752
|
|
|
$
|
2,974,464
|
|
* Included within commercial, financial and agricultural loans and commercial real estate loans is an immaterial amount of consumer loans that were not broken out by class.
(1) Excludes loans acquired with deteriorated credit quality which are nonaccrual or TDRs due to additional credit deterioration or modification post acquisition. These loans had a recorded investment of $475,000 at December 31, 2018.
Loans and Leases Acquired with Deteriorated Credit Quality
In conjunction with the NewDominion acquisition, Park acquired loans with a book value of $277.9 million as of July 1, 2018. These loans were recorded at the initial fair value of $272.8 million. Loans acquired with deteriorated credit quality with a book value of $5.1 million were recorded at the initial fair value of $4.9 million. The carrying amount of loans acquired with deteriorated credit quality at December 31, 2019 and December 31, 2018 was $3.0 million and $4.4 million, respectively, while the outstanding customer balance was $3.2 million and $4.6 million, respectively. At December 31, 2019, a $101,000 allowance for loan losses had been recognized related to the acquired impaired loans. There was no allowance recognized related to acquired impaired loans at December 31, 2018.
In conjunction with the Carolina Alliance acquisition, Park acquired loans and leases with a book value of $589.7 million as of
April 1, 2019. These loans and leases were recorded at the initial fair value of $578.6 million. Loans and leases acquired with
deteriorated credit quality with a book value of $19.9 million were recorded at the initial fair value of $18.4 million. The
carrying amount of loans and leases acquired with deteriorated credit quality at December 31, 2019 was $11.3 million, while
the outstanding customer balance was $13.8 million. At December 31, 2019, a $167,000 allowance for loan losses had been recognized related to the acquired impaired loans.
Troubled Debt Restructurings
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 years ended December 31, 2019 and December 31, 2018 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.
Quarterly, management reviews renewals/modifications of loans previously identified as TDRs to consider if it is appropriate to remove the TDR classification. If the borrower is no longer experiencing financial difficulty and the renewal/modification does not contain a concessionary interest rate or other concessionary terms and the terms of the renewal/modification are considered to be market terms based on the current risk characteristics of the borrower, management considers the potential removal of the TDR classification. If deemed appropriate, the TDR classification is removed 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. During the years ended December 31, 2019 and 2018, Park removed the TDR classification on $38,000 and $2.4 million, respectively, of loans that met the requirements discussed above.
At December 31, 2019 and 2018, there were $34.3 million and $24.6 million, respectively, of TDRs included in the nonaccrual loan totals. At December 31, 2019 and 2018, $23.2 million and $19.2 million, respectively, of these nonaccrual TDRs were performing in accordance with the terms of the restructured note. As of December 31, 2019 and 2018, loans with a recorded investment of $21.3 million and $15.2 million, respectively, were included in accruing TDR loan totals. Management will continue to review the restructured loans and may determine it appropriate to move certain nonaccrual TDRs to accrual status in the future.
At December 31, 2019 and 2018, Park had commitments to lend $7.9 million and $0.3 million, respectively, of additional funds to borrowers whose outstanding loan terms had been modified in a TDR.
The specific reserve related to TDRs at December 31, 2019 and 2018 was $2.2 million and $1.2 million, respectively. Modifications made in 2018 and 2019 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 ASC 310. Additional specific reserves of $1,300 were recorded during the year ended December 31, 2019, as a result of TDRs identified in the 2019 year. Additional specific reserves of $0.2 million were recorded during the year ended December 31, 2018, as a result of TDRs identified in the 2018 year. Additional specific reserves of $0.3 million were recorded during the year ended December 31, 2017, as a result of TDRs identified in the 2017 year.
The terms of certain other loans were modified during the years ended December 31, 2019 and 2018 that did not meet the definition of a TDR. Substandard commercial loans modified during the years ended December 31, 2019 and 2018 which did not meet the definition of a TDR had a total recorded investment of $649,000 and $368,000, respectively. The renewal/modification of these loans: (1) resulted in a delay in a payment that was considered to be insignificant, or (2) 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. Consumer loans modified during 2019 which did not meet the definition of a TDR had a total recorded investment as of December 31, 2019 of $36.2 million. Consumer loans modified during 2018 which did not meet the definition of a TDR had a total recorded investment as of December 31, 2018 of $20.9 million. Many of these loans were to borrowers who were not experiencing financial difficulties but who were looking to reduce their cost of funds.
Additionally, there were $440,000 of modified PCI loans that were accounted for under a pool approach as of December 31, 2019 that did not meet the definition of a TDR. There were no PCI loans that were accounted for under a pool approach that did not meet the definition of a TDR at December 31, 2018.
The following tables detail the number of contracts modified as TDRs during the years ended December 31, 2019, 2018 and 2017 as well as the recorded investment of these contracts at December 31, 2019, 2018, and 2017. The recorded investment pre- and post-modification is generally the same due to the fact that Park does not typically forgive principal.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31, 2019
|
|
|
|
|
|
|
(In thousands)
|
|
Number of Contracts
|
|
Accruing
|
|
Nonaccrual
|
|
Recorded Investment
|
Commercial, financial and agricultural
|
|
30
|
|
|
$
|
6,040
|
|
|
$
|
7,821
|
|
|
$
|
13,861
|
|
Commercial real estate
|
|
8
|
|
|
415
|
|
|
7,855
|
|
|
8,270
|
|
Construction real estate:
|
|
|
|
|
|
|
|
|
Commercial
|
|
3
|
|
|
—
|
|
|
415
|
|
|
415
|
|
Mortgage
|
|
2
|
|
|
77
|
|
|
—
|
|
|
77
|
|
Installment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
Commercial
|
|
3
|
|
|
—
|
|
|
100
|
|
|
100
|
|
Mortgage
|
|
21
|
|
|
535
|
|
|
589
|
|
|
1,124
|
|
HELOC
|
|
18
|
|
|
126
|
|
|
234
|
|
|
360
|
|
Installment
|
|
34
|
|
|
1,047
|
|
|
28
|
|
|
1,075
|
|
Consumer
|
|
324
|
|
|
225
|
|
|
1,166
|
|
|
1,391
|
|
Total loans
|
|
443
|
|
$
|
8,465
|
|
|
$
|
18,208
|
|
|
$
|
26,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31, 2018
|
|
|
|
|
|
|
(In thousands)
|
|
Number of Contracts
|
|
Accruing
|
|
Nonaccrual
|
|
Recorded Investment
|
Commercial, financial and agricultural
|
|
21
|
|
$
|
28
|
|
|
$
|
829
|
|
|
$
|
857
|
|
Commercial real estate
|
|
17
|
|
414
|
|
|
3,172
|
|
|
3,586
|
|
Construction real estate:
|
|
|
|
|
|
|
|
|
Commercial
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Mortgage
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Installment
|
|
2
|
|
|
10
|
|
|
—
|
|
|
10
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
Commercial
|
|
3
|
|
54
|
|
|
363
|
|
|
417
|
|
Mortgage
|
|
25
|
|
842
|
|
|
854
|
|
|
1,696
|
|
HELOC
|
|
21
|
|
558
|
|
|
86
|
|
|
644
|
|
Installment
|
|
19
|
|
459
|
|
|
69
|
|
|
528
|
|
Consumer
|
|
283
|
|
204
|
|
|
1,249
|
|
|
1,453
|
|
Total loans
|
|
392
|
|
$
|
2,569
|
|
|
$
|
6,622
|
|
|
$
|
9,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31, 2017
|
|
|
|
|
|
|
(In thousands)
|
|
Number of Contracts
|
|
Accruing
|
|
Nonaccrual
|
|
Recorded Investment
|
Commercial, financial and agricultural
|
|
29
|
|
$
|
945
|
|
|
$
|
2,770
|
|
|
$
|
3,715
|
|
Commercial real estate
|
|
9
|
|
1,050
|
|
|
313
|
|
|
1,363
|
|
Construction real estate:
|
|
|
|
|
|
|
|
|
Commercial
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
Mortgage
|
|
1
|
|
|
—
|
|
|
8
|
|
|
8
|
|
Installment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
Commercial
|
|
15
|
|
144
|
|
|
486
|
|
|
630
|
|
Mortgage
|
|
33
|
|
888
|
|
|
1,359
|
|
|
2,247
|
|
HELOC
|
|
19
|
|
474
|
|
|
102
|
|
|
576
|
|
Installment
|
|
11
|
|
251
|
|
|
43
|
|
|
294
|
|
Consumer
|
|
309
|
|
171
|
|
|
1,121
|
|
|
1,292
|
|
Total loans
|
|
426
|
|
$
|
3,923
|
|
|
$
|
6,202
|
|
|
$
|
10,125
|
|
Of those loans which were modified and determined to be a TDR during the year ended December 31, 2019, $2.1 million were on nonaccrual status as of December 31, 2018. Of those loans which were modified and determined to be a TDR during the year ended December 31, 2018, $0.5 million were on nonaccrual status as of December 31, 2017. Of those loans which were modified and determined to be a TDR during the year ended December 31, 2017, $1.8 million were on nonaccrual status as of December 31, 2016.
The following table presents the recorded investment in financing receivables which were modified as TDRs within the previous 12 months and for which there was a payment default during the year ended December 31, 2019, December 31, 2018, and December 31, 2017. For this table, a loan is considered to be in default when it becomes 30 days contractually past due under the modified terms. The additional allowance for loan loss resulting from the defaults on TDR loans was immaterial.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31, 2019
|
|
|
|
Year ended
December 31, 2018
|
|
|
|
Year ended
December 31, 2017
|
|
|
(In thousands)
|
|
Number of Contracts
|
|
Recorded Investment
|
|
Number of Contracts
|
|
Recorded Investment
|
|
Number of Contracts
|
|
Recorded Investment
|
Commercial, financial and agricultural
|
|
1
|
|
|
$
|
20
|
|
|
3
|
|
|
$
|
104
|
|
|
—
|
|
|
$
|
—
|
|
Commercial real estate
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
82
|
|
Construction real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Mortgage
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Installment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
117
|
|
Mortgage
|
|
7
|
|
|
665
|
|
|
8
|
|
|
518
|
|
|
6
|
|
|
467
|
|
HELOC
|
|
6
|
|
|
141
|
|
|
2
|
|
|
32
|
|
|
4
|
|
|
194
|
|
Installment
|
|
—
|
|
|
—
|
|
|
1
|
|
|
29
|
|
|
—
|
|
|
—
|
|
Consumer
|
|
56
|
|
|
539
|
|
|
59
|
|
|
636
|
|
|
50
|
|
|
375
|
|
Leases
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total loans
|
|
70
|
|
|
$
|
1,365
|
|
|
$
|
73
|
|
|
$
|
1,319
|
|
|
64
|
|
|
$
|
1,235
|
|
Of the $1.4 million in modified TDRs which defaulted during the year ended December 31, 2019, $350,000 were accruing loans and $1.0 million were nonaccrual loans. Of the $1.3 million in modified TDRs which defaulted during the year ended December 31, 2018, $86,000 were accruing loans and $1.2 million were nonaccrual loans. Of the $1.2 million in modified
TDRs which defaulted during the year ended December 31, 2017, $180,000 were accruing loans and $1.1 million were nonaccrual loans.
Certain of the Corporation’s executive officers, directors and related entities of directors are loan customers of PNB. As of December 31, 2019 and 2018, credit exposure aggregating approximately $44.3 million and $35.9 million, respectively, was outstanding to such parties. Of this total exposure, approximately $28.7 million and $25.9 million was outstanding at December 31, 2019 and 2018, respectively, with the remaining balance representing available credit. During 2019, new loans and advances on existing loans were made to these executive officers, directors and related entities of directors totaling $9.2 million and $8.9 million, respectively. These extensions of credit were offset by principal payments of $15.3 million. During 2018, new loans and advances on existing loans were $1.4 million and $4.9 million, respectively. These extensions of credit were offset by principal payments of $11.5 million.
7. Allowance for Loan Losses
The allowance for loan losses is that amount management believes is adequate to absorb probable incurred credit losses in the loan portfolio based on management’s evaluation of various factors including the overall growth in the loan portfolio, an analysis of individual loans, prior and current loss experience, and current economic conditions. A provision for loan losses is charged to operations based on management’s periodic evaluation of these and other pertinent factors as discussed within Note 1 - Summary of Significant Accounting Policies.
Loss factors are reviewed quarterly and updated at least annually to reflect recent loan loss history and incorporate current risks and trends which may not be recognized in historical data. Management updated the historical loss calculation during the fourth quarter of 2019, incorporating annualized net charge-offs plus changes in specific reserves through December 31, 2019. With the addition of 2019 historical losses, management extended the historical loss period to 120 months from 108 months. The 120 month historical loss period captures all annual periods subsequent to June 2009, the end of the most recent recession, thus encompassing the full economic cycle to date.
For all loan types, management considers the following factors in determining loan collectability and the appropriate level of the allowance:
•Changes in the nature and volume of the portfolio and in the terms of loans, including:
◦Trends (e.g., growth, reduction) in specific categories of the loan portfolio, as well as adjustments to the types of loans offered by PNB and GFSC.
◦Level of and trend in loan delinquencies, troubled loans, commercial watch list and impaired loans.
◦Level of and trend in new nonaccrual loans.
◦Level of and trend in loan charge-offs and recoveries.
•Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices.
•Changes in national and local economic and business conditions and developments that affect the collectability of the portfolio.
•The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated losses in Park's existing portfolio.
The following are factors management reviews specifically for commercial loans on a quarterly or annual basis.
•Loss Emergence Period Factor: At least annually, management calculates the loss emergence period for each commercial loan segment. This loss emergence period is calculated based upon the average period of time it takes from the probable occurrence of a loss event to the credit being moved to nonaccrual. If the loss emergence period for any commercial loan segment is greater than one year, management applies additional general reserves to all performing loans within that segment of the commercial loan portfolio. The loss emergence period was last updated in the fourth quarter of 2019.
•Loss Migration Factor: Park’s commercial loans are individually risk graded. If loan downgrades occur, the probability of default increases, and accordingly, management allocates a higher percentage reserve to those accruing commercial loans graded special mention and substandard. Annually, management calculates a loss migration factor for each commercial loan segment for special mention and substandard credits based on a review of losses over the period of time a loan takes to migrate from pass-rated to impaired. The loss migration factor was last updated in the fourth quarter of 2019.
•Environmental Loss Factor: Management has identified certain macroeconomic factors that trend in accordance with losses in Park’s commercial loan portfolio. Certain environmental loss factors were determined to correlate with higher charge-offs while other adjustments are based on a subjective evaluation of other environmental loss factors. Environmental factors applicable to the commercial loan portfolio include: the Ohio unemployment rate, the 10-year Treasury index, the consumer confidence index, the prevalence of fixed rate loans in the portfolio and other environmental factors. In evaluating the ongoing relevance and amount of the other environmental factors, management considers: changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off and recovery practices, changes in national and local economic and business conditions, and developments that affect the collectability of the portfolio, and the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated losses in Park's existing portfolio. All of these factors are evaluated in relation to the historical look back period. At December 31, 2019, such subjective environmental loss factor inputs accounted for approximately one half of the allowance for loan losses driven by environmental loss factors.
These macroeconomic factors are reviewed quarterly and the adjustments made to the environmental loss factor impacting each segment in the performing commercial loan portfolio correlate to changes in the macroeconomic environment. No changes were deemed necessary to the environmental factors in the fourth quarter of 2019.
The activity in the allowance for loan losses for the years ended December 31, 2019, 2018, and 2017 is summarized in the following tables.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Commercial, financial and agricultural
|
|
Commercial real estate
|
|
Construction real estate
|
|
Residential real estate
|
|
Consumer
|
|
Leases
|
|
Total
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
16,777
|
|
|
$
|
9,768
|
|
|
$
|
4,463
|
|
|
$
|
8,731
|
|
|
$
|
11,773
|
|
|
$
|
—
|
|
|
$
|
51,512
|
|
Charge-offs
|
|
2,231
|
|
|
400
|
|
|
—
|
|
|
239
|
|
|
8,307
|
|
|
—
|
|
|
11,177
|
|
Recoveries
|
|
(1,241)
|
|
|
(720)
|
|
|
(2,682)
|
|
|
(787)
|
|
|
(4,742)
|
|
|
(1)
|
|
|
(10,173)
|
|
Net charge-offs (recoveries)
|
|
990
|
|
|
(320)
|
|
|
(2,682)
|
|
|
(548)
|
|
|
3,565
|
|
|
(1)
|
|
|
1,004
|
|
Provision (Recovery)
|
|
4,416
|
|
|
141
|
|
|
(1,834)
|
|
|
(669)
|
|
|
4,003
|
|
|
114
|
|
|
6,171
|
|
Ending balance
|
|
$
|
20,203
|
|
|
$
|
10,229
|
|
|
$
|
5,311
|
|
|
$
|
8,610
|
|
|
$
|
12,211
|
|
|
115
|
|
|
$
|
56,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Commercial, financial and agricultural
|
|
Commercial real estate
|
|
Construction real estate
|
|
Residential real estate
|
|
Consumer
|
|
Leases
|
|
Total
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
15,022
|
|
|
$
|
9,601
|
|
|
$
|
4,430
|
|
|
$
|
9,321
|
|
|
$
|
11,614
|
|
|
$
|
—
|
|
|
$
|
49,988
|
|
Charge-offs
|
|
2,796
|
|
|
281
|
|
|
72
|
|
|
441
|
|
|
9,962
|
|
|
—
|
|
|
13,552
|
|
Recoveries
|
|
(1,221)
|
|
|
(272)
|
|
|
(712)
|
|
|
(844)
|
|
|
(4,078)
|
|
|
(4)
|
|
|
(7,131)
|
|
Net charge-offs (recoveries)
|
|
1,575
|
|
|
9
|
|
|
(640)
|
|
|
(403)
|
|
|
5,884
|
|
|
(4)
|
|
|
6,421
|
|
Provision (Recovery)
|
|
3,330
|
|
|
176
|
|
|
(607)
|
|
|
(993)
|
|
|
6,043
|
|
|
(4)
|
|
|
7,945
|
|
Ending balance
|
|
$
|
16,777
|
|
|
$
|
9,768
|
|
|
$
|
4,463
|
|
|
$
|
8,731
|
|
|
$
|
11,773
|
|
|
$
|
—
|
|
|
$
|
51,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Commercial, financial and agricultural
|
|
Commercial real estate
|
|
Construction real estate
|
|
Residential real estate
|
|
Consumer
|
|
Leases
|
|
Total
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
13,434
|
|
|
$
|
10,432
|
|
|
$
|
5,247
|
|
|
$
|
10,958
|
|
|
$
|
10,553
|
|
|
$
|
—
|
|
|
$
|
50,624
|
|
Charge-offs
|
|
6,017
|
|
|
1,798
|
|
|
105
|
|
|
1,208
|
|
|
10,275
|
|
|
—
|
|
|
19,403
|
|
Recoveries
|
|
(809)
|
|
|
(810)
|
|
|
(2,124)
|
|
|
(1,863)
|
|
|
(4,603)
|
|
|
(1)
|
|
|
(10,210)
|
|
Net charge-offs (recoveries)
|
|
5,208
|
|
|
988
|
|
|
(2,019)
|
|
|
(655)
|
|
|
5,672
|
|
|
(1)
|
|
|
9,193
|
|
Provision (Recovery)
|
|
6,796
|
|
|
157
|
|
|
(2,836)
|
|
|
(2,292)
|
|
|
6,733
|
|
|
(1)
|
|
|
8,557
|
|
Ending balance
|
|
$
|
15,022
|
|
|
$
|
9,601
|
|
|
$
|
4,430
|
|
|
$
|
9,321
|
|
|
$
|
11,614
|
|
|
$
|
—
|
|
|
$
|
49,988
|
|
Loans collectively evaluated for impairment in the following tables include all performing loans at December 31, 2019 and 2018, as well as nonperforming loans internally classified as consumer loans. Nonperforming consumer loans are not typically individually evaluated for impairment, but receive a portion of the statistical allocation of the allowance for loan losses. Loans individually evaluated for impairment include all impaired loans internally classified as commercial loans at December 31, 2019 and 2018, which are evaluated for impairment in accordance with U.S. GAAP (see Note 1 - Summary of Significant Accounting Policies).
The composition of the allowance for loan losses at December 31, 2019 and 2018 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Commercial, financial, and agricultural
|
|
Commercial real estate
|
|
Construction real estate
|
|
Residential real estate
|
|
Consumer
|
|
Leases
|
|
Total
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributed to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
5,104
|
|
|
$
|
35
|
|
|
$
|
—
|
|
|
$
|
42
|
|
|
$
|
—
|
|
|
$
|
49
|
|
|
$
|
5,230
|
|
Collectively evaluated for impairment
|
14,948
|
|
|
10,187
|
|
|
5,311
|
|
|
8,458
|
|
|
12,211
|
|
|
66
|
|
|
51,181
|
|
Acquired with deteriorated credit quality
|
151
|
|
|
7
|
|
|
—
|
|
|
110
|
|
|
—
|
|
|
—
|
|
|
268
|
|
Total ending allowance balance
|
$
|
20,203
|
|
|
$
|
10,229
|
|
|
$
|
5,311
|
|
|
$
|
8,610
|
|
|
$
|
12,211
|
|
|
$
|
115
|
|
|
$
|
56,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
$
|
33,077
|
|
|
$
|
41,770
|
|
|
$
|
453
|
|
|
$
|
2,025
|
|
|
$
|
—
|
|
|
$
|
134
|
|
|
$
|
77,459
|
|
Loans collectively evaluated for impairment
|
1,151,073
|
|
|
1,558,550
|
|
|
330,106
|
|
|
1,888,088
|
|
|
1,452,373
|
|
|
29,424
|
|
|
6,409,614
|
|
Loans acquired with deteriorated credit quality (1)
|
960
|
|
|
9,093
|
|
|
1,140
|
|
|
2,613
|
|
|
2
|
|
|
523
|
|
|
14,331
|
|
Total ending loan balance
|
$
|
1,185,110
|
|
|
$
|
1,609,413
|
|
|
$
|
331,699
|
|
|
$
|
1,892,726
|
|
|
$
|
1,452,375
|
|
|
$
|
30,081
|
|
|
$
|
6,501,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a percentage of loan balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
15.43
|
%
|
|
0.08
|
%
|
|
—
|
%
|
|
2.07
|
%
|
|
—
|
%
|
|
36.57
|
%
|
|
6.75
|
%
|
Loans collectively evaluated for impairment
|
1.30
|
%
|
|
0.65
|
%
|
|
1.61
|
%
|
|
0.45
|
%
|
|
0.84
|
%
|
|
0.22
|
%
|
|
0.80
|
%
|
Loans acquired with deteriorated credit quality
|
15.73
|
%
|
|
0.08
|
%
|
|
—
|
%
|
|
4.21
|
%
|
|
—
|
%
|
|
—
|
%
|
|
1.87
|
%
|
Total
|
1.70
|
%
|
|
0.64
|
%
|
|
1.60
|
%
|
|
0.45
|
%
|
|
0.84
|
%
|
|
0.38
|
%
|
|
0.87
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
$
|
33,088
|
|
|
$
|
41,791
|
|
|
$
|
453
|
|
|
$
|
2,025
|
|
|
$
|
—
|
|
|
$
|
134
|
|
|
$
|
77,491
|
|
Loans collectively evaluated for impairment
|
1,155,449
|
|
|
1,564,011
|
|
|
331,161
|
|
|
1,891,941
|
|
|
1,456,687
|
|
|
29,444
|
|
|
6,428,693
|
|
Loans acquired with deteriorated credit quality (1)
|
966
|
|
|
9,182
|
|
|
1,143
|
|
|
2,625
|
|
|
2
|
|
|
523
|
|
|
14,441
|
|
Total ending recorded investment
|
$
|
1,189,503
|
|
|
$
|
1,614,984
|
|
|
$
|
332,757
|
|
|
$
|
1,896,591
|
|
|
$
|
1,456,689
|
|
|
$
|
30,101
|
|
|
$
|
6,520,625
|
|
(1) Excludes loans acquired with deteriorated credit quality which are individually evaluated for impairment due to additional credit deterioration post acquisition. These loans had a balance of $5,000, a recorded investment of $6,000, and zero allowance as of December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Commercial, financial, and agricultural
|
|
Commercial real estate
|
|
Construction real estate
|
|
Residential real estate
|
|
Consumer
|
|
Leases
|
|
Total
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributed to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
2,169
|
|
|
$
|
86
|
|
|
$
|
—
|
|
|
$
|
18
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,273
|
|
Collectively evaluated for impairment
|
14,608
|
|
|
9,682
|
|
|
4,463
|
|
|
8,713
|
|
|
11,773
|
|
|
—
|
|
|
49,239
|
|
Acquired with deteriorated credit quality
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total ending allowance balance
|
$
|
16,777
|
|
|
$
|
9,768
|
|
|
$
|
4,463
|
|
|
$
|
8,731
|
|
|
$
|
11,773
|
|
|
$
|
—
|
|
|
$
|
51,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
$
|
15,119
|
|
|
$
|
28,418
|
|
|
$
|
1,866
|
|
|
$
|
2,732
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
48,135
|
|
Loans collectively evaluated for impairment
|
1,057,520
|
|
|
1,251,579
|
|
|
245,909
|
|
|
1,790,637
|
|
|
1,292,136
|
|
|
2,273
|
|
|
5,640,054
|
|
Loans acquired with deteriorated credit quality (1)
|
147
|
|
|
3,048
|
|
|
499
|
|
|
249
|
|
|
—
|
|
|
—
|
|
|
3,943
|
|
Total ending loan balance
|
$
|
1,072,786
|
|
|
$
|
1,283,045
|
|
|
$
|
248,274
|
|
|
$
|
1,793,618
|
|
|
$
|
1,292,136
|
|
|
$
|
2,273
|
|
|
$
|
5,692,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a percentage of loan balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
14.35
|
%
|
|
0.30
|
%
|
|
—
|
%
|
|
0.66
|
%
|
|
—
|
%
|
|
—
|
%
|
|
4.72
|
%
|
Loans collectively evaluated for impairment
|
1.38
|
%
|
|
0.77
|
%
|
|
1.81
|
%
|
|
0.49
|
%
|
|
0.91
|
%
|
|
—
|
%
|
|
0.87
|
%
|
Loans acquired with deteriorated credit quality
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Total
|
1.56
|
%
|
|
0.76
|
%
|
|
1.80
|
%
|
|
0.49
|
%
|
|
0.91
|
%
|
|
—
|
%
|
|
0.90
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
$
|
15,120
|
|
|
$
|
28,426
|
|
|
$
|
1,866
|
|
|
$
|
2,732
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
48,144
|
|
Loans collectively evaluated for impairment
|
1,062,121
|
|
|
1,256,310
|
|
|
246,864
|
|
|
1,794,207
|
|
|
1,295,892
|
|
|
2,299
|
|
|
5,657,693
|
|
Loans acquired with deteriorated credit quality (1)
|
148
|
|
|
3,059
|
|
|
503
|
|
|
251
|
|
|
—
|
|
|
—
|
|
|
3,961
|
|
Total ending recorded investment
|
$
|
1,077,389
|
|
|
$
|
1,287,795
|
|
|
$
|
249,233
|
|
|
$
|
1,797,190
|
|
|
$
|
1,295,892
|
|
|
$
|
2,299
|
|
|
$
|
5,709,798
|
|
(1) Excludes loans acquired with deteriorated credit quality which are individually evaluated for impairment due to additional credit deterioration post acquisition. These loans had a balance of $475,000, a recorded investment of $475,000, and zero allowance as of December 31, 2018.
8. Goodwill and Other Intangible Assets
The following table shows the activity in goodwill and other intangible assets for the years ended December 31, 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Goodwill
|
|
Other
Intangible Assets
|
|
Total
|
January 1, 2018
|
|
$
|
72,334
|
|
|
$
|
—
|
|
|
$
|
72,334
|
|
Acquired goodwill and other intangible assets
|
|
40,405
|
|
|
7,549
|
|
|
47,954
|
|
Amortization
|
|
—
|
|
|
578
|
|
|
578
|
|
December 31, 2018
|
|
$
|
112,739
|
|
|
$
|
6,971
|
|
|
$
|
119,710
|
|
Acquired goodwill and other intangible assets
|
|
46,856
|
|
|
8,207
|
|
|
55,063
|
|
Amortization
|
|
—
|
|
|
2,355
|
|
|
2,355
|
|
Trade name intangible impairment
|
|
—
|
|
|
1,300
|
|
|
1,300
|
|
December 31, 2019
|
|
$
|
159,595
|
|
|
$
|
11,523
|
|
|
$
|
171,118
|
|
Goodwill impairment exists when a reporting unit's carrying value exceeds its fair value. At April 1, 2019, the Company's reporting unit, PNB, had positive equity and the Company elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the reporting unit exceeded its carrying value, including goodwill. The qualitative assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment. There have been no subsequent circumstances or events triggering an additional evaluation.
Acquired Intangible Assets
The following table shows the balance of acquired intangible assets as of December 31, 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
2018
|
|
|
(in thousands)
|
Gross Carrying Amount
|
|
Accumulated Amortization/Impairment
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
Other intangible assets:
|
|
|
|
|
|
|
|
Core deposit intangibles
|
$
|
14,456
|
|
|
$
|
2,933
|
|
|
$
|
6,249
|
|
|
$
|
578
|
|
Trade name intangible
|
1,300
|
|
|
1,300
|
|
|
1,300
|
|
|
—
|
|
Total
|
$
|
15,756
|
|
|
$
|
4,233
|
|
|
$
|
7,549
|
|
|
$
|
578
|
|
During 2019, Park announced its 2020 rebranding initiative to operate all 12 banking divisions of PNB under one name. The NewDominion trade name intangible was initially recorded assuming an indefinite useful life. Considering Park's rebranding initiative, Park concluded that the trade name intangible now represents a definite life asset, and impairment was recorded during 2019.
Core deposit intangibles are being amortized, on an accelerated basis, over a period of ten years. Amortization expense for the core deposit intangibles was $2.4 million and $0.6 million for the years ended December 31, 2019 and 2018, respectively.
The following is a schedule of estimated amortization expense for each of the next five years:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Total
|
2020
|
|
$
|
2,263
|
|
2021
|
|
1,798
|
|
2022
|
|
1,487
|
|
2023
|
|
1,323
|
|
2024
|
|
1,215
|
|
9. Loans Held for Sale
Mortgage loans held for sale are carried at their fair value. Mortgage loans held for sale were $12.3 million and $4.2 million at December 31, 2019 and 2018, respectively. These amounts are included in "Loans" on the Consolidated Balance Sheets and in the residential real estate loan segments in Note 6 - Loans and Note 7 - Allowance for Loan Losses. The contractual balance was $12.1 million and $4.1 million at December 31, 2019 and 2018, respectively. The gain expected upon sale was $153,000 and $60,000 at December 31, 2019 and 2018, respectively. None of these loans were 90 days or more past due or on nonaccrual status as of December 31, 2019 or 2018.
During 2018, Park transferred certain non-performing loans held for investment, with a book balance of $174,000, to the loans held for sale portfolio, and subsequently completed the sale of these non-performing loans held for sale, recognizing a net gain on sale of $2.8 million. No non-performing loans were held for sale or sold during 2019 or 2017.
10. Foreclosed and Repossessed Assets
Park typically transfers a loan to OREO at the time that Park takes deed/title to the real estate property asset. The carrying amount of foreclosed properties held at December 31, 2019 and December 31, 2018 are listed below, as well as the recorded
investment of loans secured by residential real estate properties for which formal foreclosure proceedings were in process at those dates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
December 31, 2019
|
|
December 31, 2018
|
OREO:
|
|
|
|
|
Commercial real estate
|
|
$
|
2,295
|
|
|
$
|
2,359
|
|
Construction real estate
|
|
879
|
|
|
1,108
|
|
Residential real estate
|
|
855
|
|
|
836
|
|
Total OREO
|
|
$
|
4,029
|
|
|
$
|
4,303
|
|
|
|
|
|
|
Loans in process of foreclosure:
|
|
|
|
|
Residential real estate
|
|
$
|
3,959
|
|
|
$
|
2,346
|
|
In addition to real estate, Park may also repossess different types of collateral. As of December 31, 2019 and December 31, 2018, Park had $4.2 million and $4.0 million in other repossessed assets which are included in "Other assets" on the Consolidated Balance Sheets. For both periods presented, the other repossessed assets largely consisted of an aircraft acquired as part of a loan workout.
11. Premises and Equipment
The major categories of premises and equipment and accumulated depreciation are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 (In thousands)
|
|
2019
|
|
2018
|
Land
|
|
$
|
23,520
|
|
|
$
|
20,062
|
|
Buildings
|
|
92,857
|
|
|
79,706
|
|
Equipment, furniture and fixtures
|
|
74,298
|
|
|
65,659
|
|
Leasehold improvements
|
|
5,386
|
|
|
4,791
|
|
Total
|
|
$
|
196,061
|
|
|
$
|
170,218
|
|
Less accumulated depreciation
|
|
(122,739)
|
|
|
(110,447)
|
|
Premises and equipment, net
|
|
$
|
73,322
|
|
|
$
|
59,771
|
|
Depreciation expense amounted to $9.1 million, $8.6 million and $8.6 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Park records leased assets where Park acts as the lessor within "Other assets" on the Consolidated Balance Sheets. Equipment subject to lease agreements at December 31, 2019 and 2018 is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 (In thousands)
|
|
2019
|
|
2018
|
Equipment
|
|
$
|
9,277
|
|
|
$
|
1,566
|
|
Less accumulated depreciation
|
|
(3,911)
|
|
|
(1,325)
|
|
Leased assets, net
|
|
$
|
5,366
|
|
|
$
|
241
|
|
Depreciation expense on operating lease assets of $1.3 million, $26,000, $62,000 was recorded for the years ended December 31, 2019, 2018 and 2017, respectively.
12. Investments in Qualified Affordable Housing
Park makes certain equity investments in various limited partnerships that sponsor affordable housing projects. The purposes of these investments are to achieve a satisfactory return on capital, help create affordable housing opportunities, and assist the Company to achieve our goals associated with the Community Reinvestment Act.
As permitted by ASU 2014-01, Accounting for Investments in Qualified Affordable Housing Projects, Park has elected the proportional amortization method of accounting. Under the proportional amortization method, amortization expense and tax benefits are recognized through the provision for income taxes.
The table below details the balances of Park’s affordable housing tax credit investments and related unfunded commitments as of December 31, 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
December 31, 2019
|
December 31, 2018
|
Affordable housing tax credit investments
|
|
$
|
53,070
|
|
$
|
50,347
|
|
Unfunded commitments
|
|
25,894
|
|
22,282
|
|
Commitments are funded when capital calls are made by the general partner. Park expects that the commitments as of December 31, 2019 will be funded between 2020 and 2029.
During the years ended December 31, 2019, 2018 and 2017, Park recognized amortization expense of $6.9 million, $7.3 million and $10.3 million, respectively, which was included within the provision for income taxes. Included in the $10.3 million of amortization expense during the year ended December 31, 2017 was $3.1 million in accelerated amortization as a result of tax reform as discussed in Note 21 - Income Taxes. This reflects an overall reduction in the total projected tax benefits of the affordable housing tax credit investments as a result of the reduction in the federal corporate income tax rate to 21%. For the years ended December 31, 2019, 2018 and 2017, Park recognized tax credits and other benefits from its affordable housing tax credit investments of $8.8 million, $9.0 million and $9.4 million, respectively.
13. Deposits
At December 31, 2019 and 2018, non-interest bearing and interest bearing deposits were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 (In thousands)
|
|
2019
|
|
2018
|
Non-interest bearing
|
|
$
|
1,959,935
|
|
|
$
|
1,804,881
|
|
Interest bearing
|
|
5,092,677
|
|
|
4,455,979
|
|
Total
|
|
$
|
7,052,612
|
|
|
$
|
6,260,860
|
|
At December 31, 2019, the maturities of time deposits were as follows:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
2020
|
|
$
|
796,716
|
|
2021
|
|
227,164
|
|
2022
|
|
71,748
|
|
2023
|
|
21,035
|
|
2024
|
|
22,366
|
|
After 5 years
|
|
102
|
|
Total
|
|
$
|
1,139,131
|
|
At December 31, 2019 and 2018, respectively, Park had approximately $17.7 million and $19.7 million of deposits received from Park's executive officers, Park directors and related entities of Park directors.
Time deposits that meet or exceed the FDIC insurance limit of $250,000 at December 31, 2019 and 2018 were $96.0 million and $62.9 million, respectively.
14. Repurchase Agreement Borrowings
Securities sold under agreements to repurchase ("repurchase agreements") with customers represent funds deposited by customers, generally on an overnight basis, that are collateralized by investment securities owned by Park. Repurchase agreements with customers are included in short-term borrowings on the Consolidated Balance Sheets.
All repurchase agreements are subject to terms and conditions of repurchase/security agreements between Park and the client and are accounted for as secured borrowings. Park's repurchase agreements consisted of customer accounts and securities which are pledged on an individual security basis.
At December 31, 2019 and December 31, 2018, Park's repurchase agreement borrowings totaled $176 million and $165 million, respectively. These borrowings were collateralized with U.S. government and agency securities with a fair value of $200 million and $272 million at December 31, 2019 and December 31, 2018, respectively. Declines in the value of the collateral would require Park to pledge additional securities. As of December 31, 2019 and December 31, 2018, Park had $756 million and $933 million, respectively, of available unpledged securities.
The following table presents the carrying value of Park's repurchase agreement borrowings by remaining contractual maturity and collateral pledged at December 31, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Remaining Contractual Maturity of the Agreements
|
|
|
|
|
|
|
|
|
|
|
Overnight and Continuous
|
|
Up to 30 days
|
|
30 - 90 days
|
|
Greater than 90 days
|
|
Total
|
U.S. government and agency securities
|
|
$
|
175,657
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
175,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Remaining Contractual Maturity of the Agreements
|
|
|
|
|
|
|
|
|
|
|
Overnight and Continuous
|
|
Up to 30 days
|
|
30 - 90 days
|
|
Greater than 90 days
|
|
Total
|
U.S. government and agency securities
|
|
$
|
164,966
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
164,966
|
|
See Note 15 - Short-Term Borrowings for additional information related to repurchase agreements.
15. Short-Term Borrowings
Short-term borrowings were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 (In thousands)
|
|
2019
|
|
2018
|
Securities sold under agreements to repurchase
|
|
$
|
175,657
|
|
|
$
|
164,966
|
|
FHLB advances
|
|
55,000
|
|
|
57,000
|
|
Total short-term borrowings
|
|
$
|
230,657
|
|
|
$
|
221,966
|
|
The outstanding balances for all short-term borrowings as of December 31, 2019 and 2018 and the weighted-average interest rates as of and paid during each of the years then ended were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Repurchase agreements
|
|
FHLB Advances
|
2019
|
|
|
|
|
Ending balance
|
|
$
|
175,657
|
|
|
$
|
55,000
|
|
Highest month-end balance
|
|
207,079
|
|
|
205,000
|
|
Average daily balance
|
|
168,449
|
|
|
47,371
|
|
Weighted-average interest rate:
|
|
|
|
|
As of year-end
|
|
0.73
|
%
|
|
1.73
|
%
|
Paid during the year
|
|
0.66
|
%
|
|
2.89
|
%
|
2018
|
|
|
|
|
Ending balance
|
|
$
|
164,966
|
|
|
$
|
57,000
|
|
Highest month-end balance
|
|
199,729
|
|
|
256,000
|
|
Average daily balance
|
|
172,774
|
|
|
44,553
|
|
Weighted-average interest rate:
|
|
|
|
|
As of year-end
|
|
0.49
|
%
|
|
2.45
|
%
|
Paid during the year
|
|
0.42
|
%
|
|
1.95
|
%
|
During 2018 and 2019, outstanding FHLB advances were collateralized by investment securities owned by PNB and by various loans pledged under a blanket agreement by PNB. At December 31, 2019 and December 31, 2018, $18 million and $22 million, respectively, of investment securities were pledged as collateral for FHLB advances. At December 31, 2019 and December 31, 2018, $1,566 million and $1,646 million, respectively, of commercial real estate and residential mortgage loans were pledged under a blanket agreement to the FHLB by PNB. See Note 14 - Repurchase Agreement Borrowings for information related to investment securities collateralizing repurchase agreements.
16. Long-Term Debt
Long-term debt is listed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
|
|
2018
|
|
|
(In thousands)
|
|
Outstanding Balance
|
|
Average Rate
|
|
|
Outstanding Balance
|
|
Average Rate
|
Total Federal Home Loan Bank advances by year of maturity:
|
|
|
|
|
|
|
|
|
2019
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
100,000
|
|
|
1.92
|
%
|
2020
|
|
—
|
|
|
—
|
%
|
|
50,000
|
|
|
2.04
|
%
|
2021
|
|
—
|
|
|
—
|
%
|
|
100,000
|
|
|
1.96
|
%
|
2022
|
|
50,000
|
|
|
3.01
|
%
|
|
50,000
|
|
|
3.01
|
%
|
2023
|
|
100,000
|
|
|
3.40
|
%
|
|
100,000
|
|
|
3.40
|
%
|
2024
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
Thereafter
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
Total
|
|
$
|
150,000
|
|
|
3.27
|
%
|
|
$
|
400,000
|
|
|
2.45
|
%
|
Total U.S. Bank term note by year of maturity:
|
|
|
|
|
|
|
|
|
2022
|
|
$
|
42,500
|
|
|
3.40
|
%
|
|
—
|
|
|
—
|
%
|
Total
|
|
$
|
42,500
|
|
|
3.40
|
%
|
|
—
|
|
|
—
|
%
|
Total combined long-term debt by year of maturity:
|
|
|
|
|
|
|
|
|
2019
|
|
$
|
—
|
|
|
—
|
%
|
|
100,000
|
|
|
1.92
|
%
|
2020
|
|
—
|
|
|
—
|
%
|
|
50,000
|
|
|
2.04
|
%
|
2021
|
|
—
|
|
|
—
|
%
|
|
100,000
|
|
|
1.96
|
%
|
2022
|
|
92,500
|
|
|
3.19
|
%
|
|
50,000
|
|
|
3.01
|
%
|
2023
|
|
100,000
|
|
|
3.40
|
%
|
|
100,000
|
|
|
3.40
|
%
|
2024
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
Thereafter
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
Total
|
|
$
|
192,500
|
|
|
3.30
|
%
|
|
$
|
400,000
|
|
|
2.45
|
%
|
Park had no long-term debt at December 31, 2019 with a contractual maturity longer than five years.
At December 31, 2019 and December 31, 2018, FHLB advances were collateralized by investment securities owned by PNB and by various loans pledged under a blanket agreement by PNB. At December 31, 2019 and December 31, 2018, $18 million and $22 million, respectively, of investment securities were pledged as collateral for FHLB advances. At December 31, 2019 and December 31, 2018, $1,566 million and $1,646 million, respectively, of commercial real estate and residential mortgage loans were pledged under a blanket agreement to the FHLB by PNB.
On June 20, 2019, Park issued a $50 million term note to U.S. Bank National Association. This term note has a maturity date of June 21, 2022 and accrues interest at a floating rate of one-month LIBOR plus 1.65%. As of December 31, 2019, Park was in compliance with the covenants in the credit agreement related to the term note.
17. Subordinated Notes
As part of the acquisition of Vision's parent bank holding company ("Vision Parent") on March 9, 2007, Park became the successor to Vision Parent under (i) the Amended and Restated Trust Agreement of Vision Bancshares Trust I (the “Trust”), dated as of December 5, 2005, (ii) the Junior Subordinated Indenture, dated as of December 5, 2005, and (iii) the Guarantee Agreement, also dated as of December 5, 2005.
On December 1, 2005, Vision Parent formed a wholly-owned Delaware statutory business trust, Vision Bancshares Trust I (“Trust I”), which issued $15.0 million of Trust I's floating rate preferred securities (the “Trust Preferred Securities”) to institutional investors. These Trust Preferred Securities qualify as Tier I capital under FRB guidelines. All of the common securities of Trust I are owned by Park. The proceeds from the issuance of the common securities and the Trust Preferred Securities were used by Trust I to purchase $15.5 million of junior subordinated notes, which carry a floating rate based on three-month LIBOR plus 148 basis points. The junior subordinated notes represent the sole asset of Trust I. The Trust Preferred Securities accrue and pay distributions at a floating rate of three-month LIBOR plus 148 basis points per annum. The Trust
Preferred Securities are mandatorily redeemable upon maturity of the junior subordinated notes in December 2035, or upon earlier redemption as provided in the junior subordinated notes. Since December 30, 2010, Park has had the right to redeem the junior subordinated notes purchased by Trust I in whole or in part. As specified in the indenture, if the junior subordinated notes are redeemed prior to maturity, the redemption price will be the principal amount, plus any unpaid accrued interest. In accordance with U.S. GAAP, Trust I is not consolidated with Park’s financial statements, but rather the subordinated notes are reflected as a liability.
18. Derivatives
Park uses certain derivative instruments to meet the needs of its clients while managing the interest rate risk associated with certain transactions. Park does not use derivatives for speculative purposes. A summary of derivative instruments utilized by Park follows.
Interest Rate Swaps
Park utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position and as a means to meet the financing, interest rate and other risk management needs of qualifying commercial banking customers. The notional amount of the interest rate swaps does not represent the amount exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements.
Borrowing Derivatives: Interest rate swaps with notional amounts totaling $25.0 million as of December 31, 2019 were designated as cash flow hedges of certain FHLB advances. There were no interest rate swaps of FHLB advances as of December 31, 2018.
Loan Derivatives: In conjunction with the Carolina Alliance acquisition, Park acquired interest rate swaps related to certain commercial loans. These interest rate swaps were simultaneously hedged by offsetting interest rate swaps that Carolina Alliance executed with a third party, such that Carolina Alliance minimized its net interest rate risk exposure resulting from such transactions. These interest rate swaps had a notional amount totaling $35.5 million as of December 31, 2019. There were no interest rate swaps of commercial loans as of December 31, 2018.
All of the Company's interest rate swaps were determined to be fully effective during the year ended December 31, 2019. As such, no amount of ineffectiveness has been included in net income. Therefore, the aggregate fair value of the swaps is recorded in other assets and other liabilities with changes in fair value recorded in other comprehensive income. The amount included in accumulated other comprehensive loss would be reclassified to current earnings should the hedges no longer be considered effective. Park expects the hedges to remain fully effective during the remaining respective terms of the swaps.
Summary information about Park's interest rate swaps as of December 31, 2019 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
(In thousands, except weighted average data)
|
|
Borrowing Derivatives
|
|
Loan Derivatives
|
Notional amounts
|
|
$
|
25,000
|
|
|
$
|
35,503
|
|
Weighted average pay rates
|
|
2.595
|
%
|
|
4.695
|
%
|
Weighted average receive rates
|
|
2.002
|
%
|
|
4.695
|
%
|
Weighted average maturity (years)
|
|
2.5
|
|
10.2
|
Unrealized losses
|
|
$
|
575
|
|
|
$
|
—
|
|
Interest expense recorded on swap transactions totaled $42,000 for the year ended December 31, 2019. No interest income or expense related to swap transactions was recorded during the year ended December 31, 2018.
Interest Rate Swaps
The following table presents the net gains (losses), net of income taxes, recorded in AOCI and the consolidated statements of income related to interest rate swaps for the year ended December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2019
|
|
|
(In thousands)
|
|
Amount of Gain (Loss) Recognized in OCI (Effective Portion)
|
|
Amount of Gain (Loss) Reclassified from OCI to Interest Income
|
|
Amount of Gain (Loss) Recognized in Other Non-interest Income (Ineffective Portion)
|
|
Interest rate contracts
|
|
$
|
(454)
|
|
$
|
—
|
|
$
|
—
|
|
The following table reflects the interest rate swaps included in the Consolidated Balance Sheet as of December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
December 31, 2019
|
|
|
|
|
Notional Amount
|
|
|
Fair Value
|
|
Included in other assets:
|
|
|
|
|
Borrowing derivatives - interest rate swaps related to FHLB advances
|
|
$
|
—
|
|
|
|
$
|
—
|
|
Loan derivatives - instruments associated with loans
|
|
|
|
|
Matched interest rate swaps with borrower
|
|
24,421
|
|
|
1,781
|
|
Matched interest rate swaps with counterparty
|
|
11,083
|
|
|
89
|
|
Total included in other assets
|
|
$
|
35,504
|
|
|
$
|
1,870
|
|
|
|
|
|
|
Included in other liabilities:
|
|
|
|
|
Borrowing derivatives - interest rate swaps related to FHLB advances
|
|
$
|
25,000
|
|
|
$
|
(575)
|
|
Loan derivatives - instruments associated with loans
|
|
|
|
|
Matched interest rate swaps with borrower
|
|
11,083
|
|
|
(89)
|
|
Matched interest rate swaps with counterparty
|
|
24,421
|
|
|
(1,781)
|
|
Total included in other liabilities
|
|
$
|
60,504
|
|
|
$
|
(2,445)
|
|
Mortgage Banking Derivatives
Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of these mortgage loans are accounted for as free standing derivatives. In order to hedge the change in interest rates resulting from its commitments to fund the loans, the Company enters into forward commitments for the future delivery of mortgage loans when interest rate locks are entered into. These mortgage banking derivatives are not designated in hedge relationships. The fair value of the interest rate lock is recorded at the time the commitment to fund the mortgage loan is executed and is adjusted for the expected exercise of the commitment before the loan is funded. Fair values of these mortgage banking derivatives are estimated based on changes in mortgage interest rates from the date the interest on the loan is locked. Changes in the fair values of these derivatives are included in "Other service income" in the Consolidated Statements of Income.
At December 31, 2019 and December 31, 2018, Park had $15.9 million and $5.8 million, respectively, of interest rate lock commitments. The fair value of these mortgage banking derivatives was reflected by a derivative asset of $221,000 and $87,000 at December 31, 2019 and December 31, 2018, respectively.
Other Derivatives
In connection with the sale of Park’s Class B Visa shares during 2009, Park entered into a swap agreement with the purchaser of the shares. The swap agreement adjusts for dilution in the conversion ratio of Class B Visa shares resulting from certain Visa litigation. At December 31, 2019, the fair value of the swap liability of $226,000 was an estimate of the exposure based upon probability-weighted potential Visa litigation losses.
19. Share-Based Compensation
The Park National Corporation 2013 Long-Term Incentive Plan (the "2013 Incentive Plan") was adopted by the Board of Directors of Park on January 28, 2013 and was approved by Park's shareholders at the Annual Meeting of Shareholders on April 22, 2013. The 2013 Incentive Plan made equity-based awards and cash-based awards available for grant to participants (who could have been employees or non-employee directors) in the form of incentive stock options, nonqualified stock options, SARs, restricted common shares (“Restricted Stock”), restricted stock unit awards that may be settled in common shares, cash or a combination of the two (“Restricted Stock Units”), unrestricted common shares (“Other Stock-Based Awards”) and cash-based awards. Under the 2013 Incentive Plan, 600,000 common shares were authorized to be delivered in connection with grants under the 2013 Incentive Plan. The common shares to be delivered under the 2013 Incentive Plan are to consist of either common shares currently held or common shares subsequently acquired by Park as treasury shares, including common shares purchased in the open market or in private transactions. At December 31, 2019, there were 60,805 unvested common shares subject to unvested PBRSUs issued under the 2013 Incentive Plan, which represented the only awards outstanding under the 2013 Incentive Plan.
The Park National Corporation 2017 Long-Term Incentive Plan for Employees (the "2017 Employees LTIP") was adopted by the Board of Directors of Park on January 23, 2017 and was approved by Park's shareholders at the Annual Meeting of Shareholders on April 24, 2017. The 2017 Employees LTIP makes equity-based awards and cash-based awards available for grant to employee participants in the form of incentive stock options, nonqualified stock options, SARs, Restricted Stock, Restricted Stock Units, Other Stock-Based Awards and cash-based awards. Under the 2017 Employees LTIP, 750,000 common shares are authorized to be delivered in connection with grants under the 2017 Employees LTIP. The common shares to be delivered under the 2017 Employees LTIP are to consist of either common shares currently held or common shares subsequently acquired by Park as treasury shares, including common shares purchased in the open market or in private transactions. At December 31, 2019, 616,083 common shares were available for future grants under the 2017 Employee LTIP.
The Park National Corporation 2017 Long-Term Incentive Plan for Non-Employee Directors (the "2017 Non-Employee Directors LTIP") was adopted by the Board of Directors of Park on January 23, 2017 and was approved by Park's shareholders at the Annual Meeting of Shareholders on April 24, 2017. The 2017 Non-Employee Directors LTIP makes equity-based awards and cash-based awards available for grant to non-employee director participants in the form of nonqualified stock options, SARs, Restricted Stock, Restricted Stock Units, Other Stock-Based Awards, and cash-based awards. Under the 2017 Non-Employee Directors LTIP, 150,000 common shares are authorized to be delivered in connection with grants under the 2017 Non-Employee Directors LTIP. The common shares to be delivered under the 2017 Non-Employee Directors LTIP are to consist of either common shares currently held or common shares subsequently acquired by Park as treasury shares, including common shares purchased in the open market or in private transactions. At December 31, 2019, 113,700 common shares were available for future grants under the 2017 Non-Employee Directors LTIP.
The 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP have replaced the provisions of the 2013 Incentive Plan with respect to the grant of future awards. As a result of the approval of the 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP, Park has not granted and will not grant any additional awards under the 2013 Incentive Plan after April 24, 2017. Awards made under the 2013 Incentive Plan prior to April 24, 2017 will remain in effect in accordance with their respective terms.
During 2019, 2018 and 2017, Park granted 13,500, 11,650 and 11,150 common shares, respectively, to directors of Park and to directors of PNB (and its divisions) under the 2017 Non-Employee Directors LTIP. The common shares granted to directors were not subject to a vesting period and resulted in expense of $1.3 million, $1.1 million, and $1.2 million in 2019, 2018, and 2017, respectively, which is included in professional fees and services on the Consolidated Statements of Income.
During 2019, the Compensation Committee of the Board of Directors of Park granted awards of TBRSUs, under the 2017 Employees LTIP, covering an aggregate of 15,700 shares to Carolina Alliance Bank Division employees and granted awards of PBRSUs, under the 2017 Employees LTIP, covering an aggregate of 58,740 common shares to certain employees of Park and its subsidiaries. During 2018, the Compensation Committee of the Board of Directors of Park granted awards of PBRSUs, under the 2017 Employees LTIP, covering an aggregate of 48,053 of common shares to certain employees of Park and its subsidiaries. Additionally, during 2018, Park granted 13,637 TBRSUs to certain NewDominion employees. During 2017, the Compensation Committee of the Board of Directors of Park granted awards of PBRSUs covering an aggregate of 45,788 common shares, under the 2013 Incentive Plan, to certain employees of Park and its subsidiaries. The number of PBRSUs earned or settled will depend on the level of achievement with respect to certain performance criteria and are also subject to subsequent service-based vesting. The number of TBRSUs earned or settled are subject to service-based vesting.
A summary of changes in the common shares subject to nonvested PBRSUs and TBRSUs for the years ended December 31, 2019 and 2018 follows:
|
|
|
|
|
|
|
Common shares subject to PBRSUs and TBRSUs
|
Nonvested at January 1, 2018
|
116,716
|
|
Granted
|
61,690
|
|
Vested
|
(18,800)
|
|
Forfeited
|
(4,655)
|
|
Adjustment for performance conditions of PBRSUs (1)
|
(2,320)
|
|
Nonvested at January 1, 2019
|
152,631
|
|
Granted
|
74,440
|
|
Vested
|
(27,719)
|
|
Forfeited
|
(1,262)
|
|
Adjustment for performance conditions of PBRSUs (1)
|
(3,368)
|
|
Nonvested at December 31, 2019 (2)
|
194,722
|
|
(1) The number of PBRSUs earned depends on the level of achievement with respect to certain performance criteria. Adjustment herein represents the difference between the maximum number of common shares which could be earned and the actual number earned for those PBRSUs as to which the performance period was completed.
(2) Nonvested amount herein represents the maximum number of nonvested PBRSUs and TBRSUs. As of December 31, 2019, an aggregate of 175,033 PBRSUs and TBRSUs are expected to vest.
On March 31, 2019, an aggregate of 27,719 of the PBRSUs granted in 2015 and 2016 vested in full due to the level of achievement with respect to certain performance criteria and the satisfaction of the service-based vesting requirement. A total of 8,736 common shares were withheld to satisfy employee income tax withholding obligations. This resulted in a net number of 18,983 common shares being issued to employees of Park. On March 31, 2018, 18,800 PBRSUs granted in 2014 and 2015 vested in full due to the level of achievement with respect to certain performance criteria and the satisfaction of the service-based vesting requirement. A total of 5,879 common shares were withheld to pay employee income taxes. This resulted in a net number of 12,921 common shares being issued to employees of Park.
Share-based compensation expense of $5.0 million, $4.0 million and $2.7 million was recognized for the years ended December 31, 2019, 2018 and 2017, respectively, related to PBRSU and TBRSU awards to employees. The following table details expected additional share-based compensation expense related to PBRSUs and TBRSUs currently outstanding:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
2020
|
|
$
|
4,024
|
|
2021
|
|
2,370
|
|
2022
|
|
1,029
|
|
2023
|
|
162
|
|
Total
|
|
$
|
7,585
|
|
20. Benefit Plans
The Corporation has a noncontributory Defined Benefit Pension Plan (the “Pension Plan”) covering substantially all of the employees of the Corporation and its subsidiaries. The Pension Plan provides benefits based on an employee’s years of service and compensation.
There was no pension contribution in 2019 or 2018 and there is no contribution expected to be made in 2020.
Using accrual measurement dates of December 31, 2019 and 2018, plan assets and benefit obligation activity for the Pension Plan are listed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2019
|
|
2018
|
Change in fair value of plan assets
|
|
|
|
|
Fair value at beginning of measurement period
|
|
$
|
177,077
|
|
|
$
|
195,735
|
|
Actual return on plan assets
|
|
42,402
|
|
|
(8,118)
|
|
Employer contributions
|
|
—
|
|
|
—
|
|
Benefits paid
|
|
(8,856)
|
|
|
(10,540)
|
|
Fair value at end of measurement period
|
|
$
|
210,623
|
|
|
$
|
177,077
|
|
Change in benefit obligation
|
|
|
|
|
Projected benefit obligation at beginning of measurement period
|
|
$
|
123,528
|
|
|
$
|
138,698
|
|
Service cost
|
|
5,873
|
|
|
6,547
|
|
Interest cost
|
|
5,491
|
|
|
5,236
|
|
Plan amendments
|
|
(168)
|
|
|
—
|
|
Actuarial loss (gain)
|
|
28,551
|
|
|
(16,413)
|
|
Benefits paid
|
|
(8,856)
|
|
|
(10,540)
|
|
Projected benefit obligation at the end of measurement period
|
|
$
|
154,419
|
|
|
$
|
123,528
|
|
Funded status at end of year (fair value of plan assets less benefit obligation)
|
|
$
|
56,204
|
|
|
$
|
53,549
|
|
The change in the actuarial loss (gain) from an actuarial gain of $16.4 million as of December 31, 2018 to an actuarial loss of $28.6 million as of December 31, 2019, was largely the result of a decrease in the discount rate from 4.60% to 3.53%. Additionally, the generational mortality improvement projection scale was updated from scale MP-2018 to scale MP-2019 and the mortality tables were updated from the RP-2004 employee and healthy annuitant mortality tables to the Pri-2012 employee and retiree mortality tables.
The asset allocation for the Pension Plan as of each measurement date, by asset category, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Plan Assets
|
|
|
Asset category
|
|
Target Allocation
|
|
2019
|
|
2018
|
Equity securities
|
|
50% - 100%
|
|
|
81
|
%
|
|
82
|
%
|
Fixed income and cash equivalents
|
|
remaining balance
|
|
19
|
%
|
|
18
|
%
|
Total
|
|
|
|
100
|
%
|
|
100
|
%
|
The investment policy, as established by the Retirement Plan Committee, is to invest assets according to the target allocation stated above. Assets will be reallocated periodically based on the investment strategy of the Retirement Plan Committee. The investment policy is reviewed periodically.
The expected long-term rate of return on plan assets used to measure the benefit obligation was 7.00% at both December 31, 2019 and December 31, 2018. This return was based on the expected long-term return of each of the asset categories, weighted based on the median of the target allocation for each class.
The accumulated benefit obligation for the Pension Plan was $129.3 million and $104.9 million at December 31, 2019 and 2018, respectively.
On November 17, 2009, the Park Pension Plan completed the purchase of 115,800 common shares of Park for $7.0 million or $60.45 per share. At December 31, 2019 and 2018, the fair value of the 115,800 common shares held by the Pension Plan was $11.9 million, or $102.38 per share and $9.8 million, or $84.95 per share, respectively.
The weighted average assumptions used to determine benefit obligations at December 31, 2019, 2018 and 2017 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Discount rate
|
|
3.53
|
%
|
|
4.60
|
%
|
|
3.89
|
%
|
Rate of compensation increase
|
|
|
|
|
|
|
|
|
Under age 30
|
|
10.00
|
%
|
|
10.00
|
%
|
|
10.00
|
%
|
Ages 30-39
|
|
6.00
|
%
|
|
6.00
|
%
|
|
6.00
|
%
|
Ages 40-49
|
|
4.00
|
%
|
|
4.00
|
%
|
|
4.00
|
%
|
Ages 50 and over
|
|
3.00
|
%
|
|
3.00
|
%
|
|
3.00
|
%
|
The estimated future pension benefit payments reflecting expected future service for the next ten years are shown below (in thousands):
|
|
|
|
|
|
2020
|
$
|
9,676
|
|
2021
|
10,377
|
|
2022
|
11,038
|
|
2023
|
10,553
|
|
2024
|
11,627
|
|
2025-2029
|
|
58,398
|
|
Total
|
$
|
111,669
|
|
The following table shows ending balances of accumulated other comprehensive loss at December 31, 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2019
|
|
2018
|
Prior service credit
|
|
$
|
168
|
|
|
$
|
—
|
|
Net actuarial loss
|
|
(33,933)
|
|
|
(37,560)
|
|
Total
|
|
(33,765)
|
|
|
(37,560)
|
|
Deferred taxes
|
|
7,091
|
|
|
7,888
|
|
Accumulated other comprehensive loss
|
|
$
|
(26,674)
|
|
|
$
|
(29,672)
|
|
Using actuarial measurement dates of December 31 for 2019, 2018 and 2017, components of net periodic benefit income and other amounts recognized in other comprehensive income were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2019
|
|
2018
|
|
2017
|
Affected Line Item in the Consolidated Statements of Income
|
Components of net periodic benefit income and other amounts recognized in other comprehensive income (loss)
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
(5,873)
|
|
|
$
|
(6,547)
|
|
|
$
|
(5,270)
|
|
Employee benefits
|
|
Interest cost
|
|
(5,491)
|
|
|
(5,236)
|
|
|
(5,085)
|
|
Other components of net periodic benefit income
|
|
Expected return on plan assets
|
|
12,105
|
|
|
13,417
|
|
|
11,455
|
|
Other components of net periodic benefit income
|
|
Recognized net actuarial loss
|
|
(1,882)
|
|
|
(1,361)
|
|
|
(576)
|
|
Other components of net periodic benefit income
|
|
Net periodic benefit (loss) income
|
|
$
|
(1,141)
|
|
|
$
|
273
|
|
|
$
|
524
|
|
|
Net actuarial gain (loss) and prior service cost
|
|
$
|
1,913
|
|
|
$
|
(5,122)
|
|
|
$
|
(11,698)
|
|
|
Amortization of net loss
|
|
1,882
|
|
|
1,361
|
|
|
576
|
|
|
Total recognized in other comprehensive income (loss)
|
|
3,795
|
|
|
(3,761)
|
|
|
(11,122)
|
|
|
Total recognized in net benefit income (loss) and other comprehensive income (loss)
|
|
$
|
2,654
|
|
|
$
|
(3,488)
|
|
|
$
|
(10,598)
|
|
|
There are $16,000 in estimated prior service costs for the Pension Plan to be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next year. The estimated net actuarial loss expected to be recognized in the next year is $1.2 million.
The weighted average assumptions used to determine net periodic benefit income for the years ended December 31, 2019, 2018 and 2017 are listed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Discount rate
|
|
4.60
|
%
|
|
3.89
|
%
|
|
4.58
|
%
|
Rate of compensation increase
|
|
|
|
|
|
|
|
|
|
Under age 30
|
|
10.00
|
%
|
|
10.00
|
%
|
|
10.00
|
%
|
Ages 30-39
|
|
6.00
|
%
|
|
6.00
|
%
|
|
6.00
|
%
|
Ages 40-49
|
|
4.00
|
%
|
|
4.00
|
%
|
|
4.00
|
%
|
Ages 50 and over
|
|
3.00
|
%
|
|
3.00
|
%
|
|
3.00
|
%
|
Expected long-term return on plan assets
|
|
7.00
|
%
|
|
7.00
|
%
|
|
7.00
|
%
|
The Pension Plan maintains cash in a PNB savings account. The Pension Plan cash balance was $8.9 million at December 31, 2019.
GAAP defines fair value as the price that would be received by Park for an asset or paid by Park to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date, using the most advantageous market for the asset or liability. The fair values of equity securities, consisting of mutual fund investments and common stock (U.S. large cap) held by the Pension Plan and the fixed income and cash equivalents, are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs). The fair value of Pension Plan assets at December 31, 2019 was $210.6 million. At December 31, 2019, $180.0 million of equity investments and cash in the Pension Plan were categorized as Level 1 inputs; $30.6 million of Pension Plan investments in corporate (U.S. large cap), U.S. Government sponsored entity bonds and marketable CDs were categorized as Level 2 inputs, as fair value was based on quoted market prices of comparable instruments; and no investments were categorized as Level 3 inputs. The fair value of Pension Plan assets was $177.1 million at December 31, 2018. At December 31, 2018, $147.1 million of investments in the Pension Plan were categorized as Level 1 inputs; $30.0 million were categorized as Level 2; and no investments were categorized as Level 3.
Salary Deferral Plan
The Corporation has a voluntary salary deferral plan (the Corporation's Employees Stock Ownership Plan) covering substantially all of the employees of the Corporation and its subsidiaries. Eligible employees may contribute a portion of their compensation subject to a maximum statutory limitation. The Corporation provides a matching contribution established annually by the Corporation. Contribution expense for the Corporation was $3.9 million, $3.0 million, and $1.3 million for 2019, 2018 and 2017, respectively.
Supplemental Executive Retirement Plan
The Corporation has entered into Supplemental Executive Retirement Plan Agreements (the "SERP Agreements") with certain key officers of the Corporation and its subsidiaries which provide defined pension benefits in excess of limits imposed by federal income tax law. The accrued benefit cost for the SERP Agreements totaled $11.0 million and $10.3 million for 2019 and 2018, respectively. The expense for the Corporation was $1.3 million for 2019, $1.0 million for 2018 and $1.7 million for 2017.
21. Income Taxes
On December 22, 2017, “H.R.1,” known as the “Tax Cuts and Jobs Act", was signed into law. Among other things, the Tax Cuts and Jobs Act permanently lowered the corporate federal corporate income tax rate to 21% from the then existing maximum rate of 35%, effective January 1, 2018. As a result of the reduction of the federal corporate income tax rate to 21%, U.S. GAAP required companies to revalue certain tax-related assets and liabilities as of the date of enactment, with the resulting tax effects accounted for in the reporting period of enactment. This revaluation impacted Park’s net deferred tax liabilities and qualified affordable housing tax credit investments. This revaluation resulted in a $1.9 million tax benefit as a result of the revaluation of Park’s net deferred tax liabilities offset by $3.1 million in tax expense as a result of the accelerated amortization of qualified affordable housing tax credit investments. The net effect of the Tax Cuts and Jobs Act was an increase to federal income tax expense at Park of $1.2 million in the fourth quarter of 2017.
Also on December 22, 2017, the U.S. Securities and Exchange Commission (“SEC”) released Staff Accounting Bulletin No. 118 (“SAB 118”) to address any uncertainty or diversity of views in practice in accounting for the income tax effects of the Act in situations where a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete this accounting in the reporting period that includes the enactment date. SAB 118 allowed for a measurement period not to extend beyond one year from the Act’s enactment date to complete the necessary accounting.
As of December 31, 2017, management recorded provisional amounts of deferred income taxes using reasonable estimates in one area where information necessary to complete the accounting was not available, prepared, or analyzed. Park's deferred tax liability for temporary differences associated with equity investments in partnerships was awaiting receipt of Schedules K-1 from outside preparers, which was necessary to determine our 2017 tax impact from these investments.
Management made no adjustments to deferred tax assets representing future deductions for accrued compensation that may be subject to new limitations under Internal Revenue Code Section 162(m) which, generally, limits the annual deduction for certain compensation paid to certain employees to $1.0 million.
All of these matters were finalized in 2018 with no material impact to the Corporation's federal income tax expense.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Corporation’s deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 (In thousands)
|
|
2019
|
|
2018
|
Deferred tax assets:
|
|
|
|
|
Allowance for loan losses
|
|
$
|
12,120
|
|
|
$
|
10,818
|
|
Accumulated other comprehensive loss – Pension Plan
|
|
7,091
|
|
|
7,888
|
|
Accumulated other comprehensive loss – Unrealized losses on securities
|
|
—
|
|
|
5,347
|
|
Accumulated other comprehensive loss – Unrealized losses on swaps
|
|
121
|
|
|
—
|
|
Deferred compensation
|
|
3,131
|
|
|
2,896
|
|
OREO valuation adjustments
|
|
964
|
|
|
1,028
|
|
Net deferred loan fees
|
|
1,451
|
|
|
1,221
|
|
Deferred contract bonus
|
|
477
|
|
|
556
|
|
Nonvested equity-based compensation
|
|
2,132
|
|
|
1,567
|
|
Fixed assets
|
|
—
|
|
|
206
|
|
Net operating loss ("NOL") carryforward
|
|
4,094
|
|
|
4,663
|
|
Operating lease liability
|
|
3,097
|
|
|
—
|
|
Other
|
|
843
|
|
|
824
|
|
Total deferred tax assets
|
|
$
|
35,521
|
|
|
$
|
37,014
|
|
Deferred tax liabilities:
|
|
|
|
|
Accumulated other comprehensive loss - Unrealized gains on securities
|
|
$
|
4,662
|
|
|
$
|
—
|
|
Fixed assets
|
|
585
|
|
|
—
|
|
Deferred investment income
|
|
6,231
|
|
|
6,120
|
|
Pension Plan
|
|
19,238
|
|
|
19,133
|
|
MSRs
|
|
2,153
|
|
|
2,137
|
|
Partnership adjustments
|
|
178
|
|
|
630
|
|
Purchase accounting adjustments
|
|
49
|
|
|
769
|
|
Operating lease right-of-use asset
|
|
2,932
|
|
|
—
|
|
Lessor adjustments
|
|
2,697
|
|
|
—
|
|
Other
|
|
488
|
|
|
210
|
|
Total deferred tax liabilities
|
|
$
|
39,213
|
|
|
$
|
28,999
|
|
Net deferred tax asset (liability)
|
|
$
|
(3,692)
|
|
|
$
|
8,015
|
|
As of December 31, 2019, Park had a net deferred tax asset balance related to federal NOL carryforwards of approximately $3.5 million, which expire at various dates from 2031-2039. Park also had a net deferred tax asset balance related to state NOL carryforwards of approximately $0.6 million, which expire at various dates from 2030-2039.
Park performs an analysis to determine if a valuation allowance against deferred tax assets is required in accordance with U.S. GAAP. Management determined that it was not required to establish a valuation allowance against the December 31, 2019 or 2018 deferred tax assets in accordance with U.S. GAAP since it was more likely than not that the deferred tax asset will be fully utilized in future periods.
The components of the provision for federal income taxes are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, (In thousands)
|
|
2019
|
|
2018
|
|
2017
|
Currently payable
|
|
|
|
|
|
|
Federal
|
|
$
|
14,797
|
|
|
$
|
12,700
|
|
|
$
|
20,660
|
|
State
|
|
1,191
|
|
|
352
|
|
|
—
|
|
Amortization of qualified affordable housing projects
|
|
6,927
|
|
|
7,322
|
|
|
10,278
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
Federal
|
|
(815)
|
|
|
481
|
|
|
3,289
|
|
State
|
|
(29)
|
|
|
57
|
|
|
—
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
22,071
|
|
|
$
|
20,912
|
|
|
$
|
34,227
|
|
The following is a reconciliation of income tax expense to the amount computed at the statutory federal corporate income tax rate of 21% for the years ended December 31, 2019 and 2018, and 35% for the year ended December 31, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Statutory federal corporate income tax rate
|
|
21.0
|
%
|
|
21.0
|
%
|
|
35.0
|
%
|
Changes in rates resulting from:
|
|
|
|
|
|
|
Tax exempt interest income, net of disallowed interest
|
|
(2.0)
|
%
|
|
(1.8)
|
%
|
|
(2.8)
|
%
|
Bank owned life insurance
|
|
(0.8)
|
%
|
|
(1.1)
|
%
|
|
(1.4)
|
%
|
Investments in qualified affordable housing projects, net of tax benefits
|
|
(1.5)
|
%
|
|
(1.3)
|
%
|
|
(1.9)
|
%
|
KSOP dividend deduction
|
|
(0.6)
|
%
|
|
(0.6)
|
%
|
|
(1.0)
|
%
|
Impact of the Tax Cuts and Jobs Act (1)
|
|
—
|
%
|
|
—
|
%
|
|
1.0
|
%
|
Non-taxable gain on NewDominion common stock
|
|
—
|
%
|
|
(0.6)
|
%
|
|
—
|
%
|
Other
|
|
1.6
|
%
|
|
0.3
|
%
|
|
—
|
%
|
Effective tax rate
|
|
17.7
|
%
|
|
15.9
|
%
|
|
28.9
|
%
|
(1) As a result of the reduction of the federal corporate income tax rate to 21%, U.S. GAAP required companies to re-value certain tax-related assets and liabilities as of the date of enactment, with the resulting tax effects accounted for in the reporting period of enactment. This re-valuation resulted in a $1.9 million tax benefit as a result of the revaluation of Park’s net deferred tax liabilities and $3.1 million in tax expense as a result of accelerated amortization of qualified affordable housing tax credit investments. The net effect of the Tax Cuts and Jobs Act was an increase to federal income tax expense at Park of $1.2 million.
Park and its subsidiaries do not pay state income tax to the state of Ohio, but pay a franchise tax based on equity. The franchise tax expense is included in "State tax expense" on Park’s Consolidated Statements of Income. Park is also subject to state income tax in various states, including North Carolina and South Carolina. State income tax expense is included in “Income taxes” on Park’s Consolidated Statements of Income. Park’s state income tax expense was $1.2 million and $409,000 for the years ended December 31, 2019 and 2018, respectively.
Unrecognized Tax Benefits
The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2019
|
|
2018
|
|
2017
|
January 1 Balance
|
|
$
|
1,226
|
|
|
$
|
664
|
|
|
$
|
633
|
|
Additions based on tax positions related to the current year
|
|
12
|
|
|
10
|
|
|
117
|
|
Additions for tax positions of prior years
|
|
2
|
|
|
781
|
|
|
—
|
|
Reductions for tax positions of prior years
|
|
(3)
|
|
|
—
|
|
|
(9)
|
|
Reductions due to statute of limitations
|
|
(283)
|
|
|
(229)
|
|
|
(77)
|
|
December 31 Balance
|
|
$
|
954
|
|
|
$
|
1,226
|
|
|
$
|
664
|
|
The amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in the future periods at December 31, 2019, 2018 and 2017 was $0.9 million, $1.1 million and $0.5 million, respectively. Park does not expect the total amount of unrecognized tax benefits to significantly increase or decrease during the next year.
The income (expense) related to interest and penalties recorded on unrecognized tax benefits in the Consolidated Statements of Income for the years ended December 31, 2019, 2018, and 2017 was $7,500, $(79,500), and $(3,500), respectively. The amount accrued for interest and penalties at December 31, 2019, 2018 and 2017 was $146,000, $153,500 and $74,000, respectively.
Park and its subsidiaries are subject to U.S. federal income tax and income tax in various state jurisdictions. The Corporation is subject to routine audits of tax returns by the Internal Revenue Service and states in which we conduct business. No material adjustments have been made on closed federal and state tax audits. Generally, all tax years ended prior to December 31, 2016 are closed to examination by federal and state taxing authorities.
22. Accumulated Other Comprehensive Loss
Other comprehensive income (loss) components, net of income tax, are shown in the following table for the years ended December 31, 2019, 2018 and 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
(in thousands)
|
|
|
Changes in Pension Plan assets and benefit obligations
|
|
Unrealized gains (losses) on AFS debt securities
|
|
Unrealized net holding loss on cash flow hedge
|
|
Total
|
Beginning balance at January 1, 2019
|
|
|
|
$
|
(29,672)
|
|
|
$
|
(20,116)
|
|
|
$
|
—
|
|
|
$
|
(49,788)
|
|
|
Other comprehensive income (loss) before reclassifications (1)
|
|
1,511
|
|
|
37,322
|
|
|
(454)
|
|
|
$
|
38,379
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
1,487
|
|
|
333
|
|
|
—
|
|
|
$
|
1,820
|
|
Net current period other comprehensive income (loss)
|
|
|
|
$
|
2,998
|
|
|
$
|
37,655
|
|
|
$
|
(454)
|
|
|
$
|
40,199
|
|
Ending balance at December 31, 2019
|
|
|
|
$
|
(26,674)
|
|
|
$
|
17,539
|
|
|
$
|
(454)
|
|
|
$
|
(9,589)
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance at January 1, 2018, as previously presented
|
|
|
|
$
|
(23,526)
|
|
|
$
|
(2,928)
|
|
|
$
|
—
|
|
|
$
|
(26,454)
|
|
|
Cumulative effect of change in accounting principle for marketable equity securities, net of tax
|
|
—
|
|
|
(995)
|
|
|
—
|
|
|
(995)
|
|
Beginning balance at January 1, 2018, as adjusted
|
|
|
|
(23,526)
|
|
|
(3,923)
|
|
|
—
|
|
|
(27,449)
|
|
|
Reclassification of disproportionate income tax effects
|
|
(3,175)
|
|
|
(631)
|
|
|
—
|
|
|
(3,806)
|
|
Net current period activity
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss before reclassifications
|
|
(4,046)
|
|
|
(17,586)
|
|
|
—
|
|
|
(21,632)
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
1,075
|
|
|
2,024
|
|
|
—
|
|
|
3,099
|
|
Net current period other comprehensive loss
|
|
|
(2,971)
|
|
|
(15,562)
|
|
|
—
|
|
|
(18,533)
|
|
Ending balance at December 31, 2018
|
|
|
|
$
|
(29,672)
|
|
|
$
|
(20,116)
|
|
|
$
|
—
|
|
|
$
|
(49,788)
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance at January 1, 2017
|
|
|
|
$
|
(14,740)
|
|
|
$
|
(3,005)
|
|
|
$
|
—
|
|
|
$
|
(17,745)
|
|
|
Other comprehensive (loss) gain before reclassifications
|
|
$
|
(9,241)
|
|
|
$
|
1,261
|
|
|
$
|
—
|
|
|
$
|
(7,980)
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
$
|
455
|
|
|
$
|
(1,184)
|
|
|
$
|
—
|
|
|
$
|
(729)
|
|
Net current period other comprehensive (loss) income
|
|
|
$
|
(8,786)
|
|
|
$
|
77
|
|
|
$
|
—
|
|
|
$
|
(8,709)
|
|
Ending balance at December 31, 2017
|
|
|
|
$
|
(23,526)
|
|
|
$
|
(2,928)
|
|
|
$
|
—
|
|
|
$
|
(26,454)
|
|
(1) During the year ended December 31, 2019, Park transferred HTM securities with a fair value of $373.9 million to AFS classification. The transfer occurred at fair value and had a related unrealized gain of $24.2 million ($19.1 million net of taxes), recorded in other comprehensive income.
The following table provides information concerning amounts reclassified out of accumulated other comprehensive loss for the years ended December 31, 2019, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Reclassified from Accumulated Other Comprehensive Loss
|
|
|
|
|
Affected Line Item in the Consolidated Statements of Income
|
|
(In thousands)
|
|
|
|
2019
|
2018
|
2017
|
|
|
Amortization of defined benefit pension items
|
|
|
|
|
|
|
|
|
|
Amortization of net loss
|
|
|
1,882
|
|
1,361
|
|
576
|
|
|
Employee benefits
|
|
Income before income taxes
|
|
|
|
1,882
|
|
1,361
|
|
576
|
|
|
Income before income taxes
|
|
|
Income taxes
|
|
|
395
|
|
286
|
|
121
|
|
|
Income taxes
|
|
|
Net of income tax
|
|
|
$
|
1,487
|
|
$
|
1,075
|
|
$
|
455
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
Unrealized gains & losses on available for sale securities
|
|
|
|
|
|
|
|
|
|
Loss (gain) on the sale of investment securities
|
|
|
$
|
421
|
|
$
|
2,562
|
|
$
|
(1,821)
|
|
|
Net (loss) gain on the sale of investment securities
|
|
Income (loss) before income taxes
|
|
|
|
421
|
|
2,562
|
|
(1,821)
|
|
|
Income before income taxes
|
|
|
Income tax expense (benefit)
|
|
|
88
|
|
538
|
|
(637)
|
|
|
Income taxes
|
|
|
Net of income tax
|
|
|
$
|
333
|
|
$
|
2,024
|
|
$
|
(1,184)
|
|
|
Net income
|
|
23. Earnings Per Common Share
U.S. GAAP requires the reporting of basic and diluted earnings per common share. Basic earnings per common share excludes any dilutive effects of PBRSUs and TBRSUs.
The following table sets forth the computation of basic and diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31
(In thousands, except share data)
|
|
2019
|
|
2018
|
|
2017
|
Numerator:
|
|
|
|
|
|
|
Net income
|
|
$
|
102,700
|
|
|
$
|
110,387
|
|
|
$
|
84,242
|
|
Denominator:
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
16,234,342
|
|
|
15,488,982
|
|
|
15,295,573
|
|
Effect of dilutive PBRSUs and TBRSUs
|
|
95,114
|
|
|
122,507
|
|
|
94,779
|
|
Weighted-average common shares outstanding adjusted for the effect of dilutive PBRSUs and TBRSUs
|
|
16,329,456
|
|
|
15,611,489
|
|
|
15,390,352
|
|
Earnings per common share:
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
6.33
|
|
|
$
|
7.13
|
|
|
$
|
5.51
|
|
Diluted earnings per common share
|
|
$
|
6.29
|
|
|
$
|
7.07
|
|
|
$
|
5.47
|
|
Park awarded 58,740, 48,053 and 45,788 PBRSUs to certain employees during the years ended December 31, 2019, 2018 and 2017, respectively. Park awarded 15,700 TBRSUs to Carolina Alliance Division employees during the year ended December 31, 2019 and awarded 13,637 TBRSUs to NewDominion Division employees during the year ended December 31, 2018.
On April 1, 2019, Park issued 1,037,205 common shares to complete its acquisition of Carolina Alliance. On July 1, 2018, Park issued 435,457 common shares to complete its acquisition of NewDominion. These common shares are included in average common shares outstanding beginning on those dates.
During the years ended December 31, 2019, 2018 and 2017, Park repurchased 86,650, 50,000 and 70,000 common shares, respectively, to fund the PBRSUs, TBRSUs and common shares awarded to directors of Park and to directors of PNB (and its divisions) and repurchased 334,603 common shares during the year ended December 31, 2019 pursuant to Park's previously announced stock repurchase authorizations.
24. Dividend Restrictions
Bank regulators limit the amount of dividends a subsidiary bank can declare in any calendar year without obtaining prior approval. At December 31, 2019, approximately $80.4 million of the total shareholders’ equity of PNB was available for the payment of dividends to the Corporation, without approval by the applicable regulatory authorities.
25. Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit Risk
The Corporation is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include loan commitments and standby letters of credit. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated financial statements.
The Corporation’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Since many of the loan commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan commitments to customers.
The total amounts of off-balance sheet financial instruments with credit risk were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 (In thousands)
|
|
2019
|
|
2018
|
Loan commitments
|
|
$
|
1,309,896
|
|
|
$
|
1,012,820
|
|
Standby letters of credit
|
|
17,195
|
|
|
13,334
|
|
The loan commitments are generally for variable rates of interest.
The Corporation grants retail, commercial and commercial real estate loans to customers primarily located in Ohio, Kentucky, North Carolina and South Carolina with exception of nationwide aircraft loans and nationwide asset based lending to consumer finance companies. The Corporation evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon the extension of credit, is based on management’s credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and real estate.
Although the Corporation has a diversified loan portfolio, a substantial portion of the borrowers’ ability to honor their contracts is dependent upon the economic conditions in each borrower’s geographic location and industry.
26. Loan Servicing
Park serviced sold mortgage loans of $1,447 million at December 31, 2019, compared to $1,389 million at December 31, 2018 and $1,371 million at December 31, 2017. At December 31, 2019, $2.3 million of the sold mortgage loans were sold with recourse compared to $2.5 million at December 31, 2018 and $3.0 million at December 31, 2017. Management closely monitors the delinquency rates on the mortgage loans sold with recourse. As of December 31, 2019 and 2018, management had established a reserve of $25,000 and $60,000, respectively, to account for future loan repurchases.
When Park sells mortgage loans with servicing rights retained, servicing rights are initially recorded at fair value. Park selected the “amortization method” as permissible within U.S. GAAP, whereby the servicing rights capitalized are amortized in proportion to and over the period of estimated future servicing income of the underlying loan. At the end of each reporting period, the carrying value of MSRs is assessed for impairment with a comparison to fair value. MSRs are carried at the lower of their amortized cost or fair value. The amortization of MSRs is included within other service income in the Consolidated Statements of Income.
Activity for MSRs and the related valuation allowance follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 (In thousands)
|
|
2019
|
|
2018
|
|
2017
|
MSRs:
|
|
|
|
|
|
|
Carrying amount, net, beginning of year
|
|
$
|
10,178
|
|
|
$
|
9,688
|
|
|
$
|
9,266
|
|
Additions
|
|
2,355
|
|
|
1,591
|
|
|
1,941
|
|
Amortization
|
|
(1,870)
|
|
|
(1,499)
|
|
|
(1,624)
|
|
Change in valuation allowance
|
|
(593)
|
|
|
398
|
|
|
105
|
|
Carrying amount, net, end of year
|
|
$
|
10,070
|
|
|
$
|
10,178
|
|
|
$
|
9,688
|
|
Valuation allowance:
|
|
|
|
|
|
|
Beginning of year
|
|
$
|
232
|
|
|
$
|
630
|
|
|
$
|
735
|
|
Change in valuation allowance
|
|
593
|
|
|
(398)
|
|
|
(105)
|
|
End of year
|
|
$
|
825
|
|
|
$
|
232
|
|
|
$
|
630
|
|
The fair value of MSRs was $10.1 million and $11.0 million at December 31, 2019 and 2018, respectively. The fair value of MSRs at December 31, 2019 was established using a discount rate of 12% and constant prepayment speeds ranging from 6.60% to 18.42%. The fair value of MSRs at December 31, 2018 was established using a discount rate of 12% and constant prepayment speeds ranging from 4.80% to 17.82%.
Servicing fees included in other service income were $3.6 million, $3.6 million and $3.5 million for the years ended December 31, 2019, 2018 and 2017, respectively.
27. Leases
Park is a lessee in several noncancellable operating lease arrangements, primarily for retail branches, administrative and warehouse buildings, ATMs, and certain office equipment within its Ohio, North Carolina, South Carolina, and Kentucky markets. Certain of these leases contain renewal options for periods ranging from one year to five years. Park’s leases generally do not include termination options for either party to the lease or restrictive financial or other covenants. Payments due under the lease contracts include fixed payments plus, for many of Park’s real estate leases, variable payments such as Park's proportionate share of property taxes, insurance, and common area maintenance.
The Company adopted ASU 2016-02, Leases (ASC 842), using the modified retrospective method as of the date of adoption, January 1, 2019, as permitted by the amendments in ASU 2018-11. As a result, the Company was not required to adjust its comparative period financial information for effects of the adoption of the standard or make the new required lease disclosures for periods prior to the effective date. Upon adoption of this accounting guidance on January 1, 2019, Park recorded an initial ROU asset of $11.0 million, and a lease liability of $11.8 million, and reclassified an existing deferred rent liability of $0.6 million. The impact to the Company's retained earnings, net of the tax impact, was $143,000.
Management elected to adopt the package of transition practical expedients and, therefore, has not reassessed (1) whether existing or expired contracts contain a lease, (2) lease classification for existing or expired leases or (3) the accounting for initial direct costs that were previously capitalized. The Company did not elect the practical expedient to use hindsight for leases existing at the adoption date. Park elected the practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease components. Additionally, Park has elected not to recognize ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or less. The Company recognizes the lease payments associated with its short-term leases as an expense on a cash basis.
Management determines if an arrangement is or contains a lease at contract inception. If an arrangement is determined to be or contain a lease, Park recognizes a ROU asset and a lease liability at the lease commencement date. Leases are classified as operating or finance leases at the lease commencement date. At December 31, 2019, all of Park's leases were classified as operating leases.
Park’s lease liability is initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date. Key estimates and judgments related to the lease liability include how management determines (1) the discount rate it uses to discount the unpaid lease payments to present value, (2) the lease term, and (3) lease payments.
•ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. Generally, management cannot determine the interest rate implicit in the lease because it does not have access to the lessor’s estimated residual value or the amount of the lessor’s deferred initial direct costs. Therefore, Park utilizes its incremental borrowing rate as the discount rate for leases. Park’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. To manage its capital and liquidity needs, Park periodically obtains wholesale funding from the FHLB on an over-collateralized basis. The impact of utilizing an interest rate on an over-collateralized borrowing versus a fully collateralized borrowing is not material. Therefore, the FHLB yield curve was selected by management as a baseline to determine Park’s discount rates for leases.
•The lease term for all of the Company’s leases includes the noncancellable period of the lease plus any additional periods covered by either Park's option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. If a lease contract contains multiple renewal options, management generally models lease cash flows through the first renewal option period unless the contract contains economic incentives or other conditions that increase or decrease the likelihood that additional renewals are reasonably certain to be exercised.
•Lease payments included in the measurement of the lease liability are comprised of the following:
–Fixed payments, including in-substance fixed payments, owed over the lease term;
–For certain of Park's gross real estate leases, non-lease components such as real estate taxes, insurance, and common area maintenance; and
–Variable lease payments that depend on an index or rate, initially measured using the index or rate at the lease commencement date.
The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Park's operating lease ROU asset and lease liability are presented in “Operating lease right-of-use asset" and "Operating lease liability," respectively, on Park's Consolidated Balance Sheets. The carrying amount of Park's ROU asset and lease liability at December 31, 2019 were $13.7 million and $14.5 million, respectively. Park's operating lease expense is recorded in "Occupancy expense" on the Company's Consolidated Statements of Income.
Other information related to operating leases for the year ended December 31, 2019 was as follows:
|
|
|
|
|
|
(Dollars in thousands)
|
Year ended December 31, 2019
|
Lease cost
|
|
Operating lease cost
|
$
|
3,165
|
|
Sublease income
|
(383)
|
|
Total lease cost
|
$
|
2,782
|
|
|
|
Other information
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
Operating cash flows from operating leases
|
$
|
3,192
|
|
ROU assets obtained in exchange for new operating lease liabilities
|
505
|
|
Reductions to ROU assets resulting from reductions to lease obligations
|
$
|
(2,855)
|
|
At December 31, 2019, Park's operating leases had a weighted average remaining term of 7.2 years and a weighted average discount rate of 3.1%.
Undiscounted cash flows included in lease liabilities have expected contractual payments as follows:
|
|
|
|
|
|
(in thousands)
|
December 31, 2019
|
2020
|
$
|
2,921
|
|
2021
|
2,541
|
|
2022
|
2,403
|
|
2023
|
2,294
|
|
2024
|
1,519
|
|
Thereafter
|
4,524
|
|
Total undiscounted minimum lease payments
|
$
|
16,202
|
|
Less: imputed interest
|
(1,720)
|
|
Total lease liabilities
|
$
|
14,482
|
|
In October 2019, the Company entered into a noncancellable operating lease for an additional retail office for an initial term of 10 years, with two five-year renewal options. The lease commences on March 1, 2020 and, therefore, is not recognized as of December 31, 2019. The fixed payments due on an undiscounted basis over the noncancellable 10-year period of the lease are $6.5 million. The Company will assess the lease term at the lease commencement date, but does not presently expect that either of the five-year renewal periods will be exercised.
28. Fair Value
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that Park uses to measure fair value are as follows:
•Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that Park has the ability to access as of the measurement date.
•Level 2: Level 1 inputs for assets or liabilities that are not actively traded. Also consists of an observable market price for a similar asset or liability. This includes the use of “matrix pricing” to value debt securities absent the exclusive use of quoted prices.
•Level 3: Consists of unobservable inputs that are used to measure fair value when observable market inputs are not available. This could include the use of internally developed models, financial forecasting and similar inputs.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal
or most advantageous market for the asset or liability in an orderly transaction between market participants at the balance sheet
date. When possible, the Company looks to active and observable markets to price identical assets or liabilities. When identical
assets and liabilities are not traded in active markets, the Company looks to observable market data for similar assets and liabilities. However, certain assets and liabilities are not traded in observable markets and Park must use other valuation methods to develop a fair value. The fair value of impaired loans is typically based on the fair value of the underlying collateral, which is estimated through third-party appraisals in accordance with Park's valuation requirements under its commercial and real estate loan policies.
Assets and Liabilities Measured at Fair Value on a Recurring Basis:
The following table presents assets and liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2019 using:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance at December 31, 2019
|
Assets
|
|
|
|
|
|
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
$
|
—
|
|
|
$
|
320,491
|
|
|
$
|
—
|
|
|
$
|
320,491
|
|
U.S. Government sponsored entities’ asset-backed securities
|
|
—
|
|
|
889,210
|
|
|
—
|
|
|
889,210
|
|
Equity securities
|
|
1,537
|
|
|
—
|
|
|
456
|
|
|
1,993
|
|
Mortgage loans held for sale
|
|
—
|
|
|
12,278
|
|
|
—
|
|
|
12,278
|
|
Mortgage IRLCs
|
|
—
|
|
|
221
|
|
|
—
|
|
|
221
|
|
Loan interest rate swaps
|
|
—
|
|
|
1,870
|
|
|
—
|
|
|
1,870
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value swap
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
226
|
|
|
$
|
226
|
|
Borrowing interest rate swap
|
|
—
|
|
|
575
|
|
|
—
|
|
|
$
|
575
|
|
Loan interest rate swaps
|
|
—
|
|
|
1,870
|
|
|
—
|
|
|
$
|
1,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2018 using:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance at December 31, 2018
|
Assets
|
|
|
|
|
|
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
U.S. Government sponsored entities’ asset-backed securities
|
|
$
|
—
|
|
|
$
|
1,003,421
|
|
|
$
|
—
|
|
|
$
|
1,003,421
|
|
Equity securities
|
|
1,225
|
|
|
—
|
|
|
424
|
|
|
1,649
|
|
Mortgage loans held for sale
|
|
—
|
|
|
4,158
|
|
|
—
|
|
|
4,158
|
|
Mortgage IRLCs
|
|
—
|
|
|
87
|
|
|
—
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value swap
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
226
|
|
|
$
|
226
|
|
There were no transfers between Level 1 and Level 2 during 2019 or 2018. Management’s policy is to transfer assets or liabilities from one level to another when the methodology to obtain the fair value changes such that there are more or fewer unobservable inputs as of the end of the reporting period.
The following methods and assumptions were used by the Company in determining fair value of the financial assets and liabilities discussed above:
Interest rate swaps: The fair values of interest rate swaps are based on valuation models using observable market
data as of the measurement date (Level 2).
Investment securities: Fair values for investment securities are based on quoted market prices, where available (Level 1). If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows (Level 3).
Fair value swap: The fair value of the swap agreement entered into with the purchaser of the Visa Class B shares represents an internally developed estimate of the exposure based upon probability-weighted potential Visa litigation losses.
Mortgage Interest Rate Lock Commitments (IRLCs): Mortgage IRLCs are based on current secondary market pricing and are classified as Level 2.
Mortgage loans held for sale: Mortgage loans held for sale are carried at their fair value. Mortgage loans held for sale are estimated using security prices for similar product types and, therefore, are classified in Level 2.
The table below is a reconciliation of the beginning and ending balances of the Level 3 inputs for the years ended December 31, 2019 and 2018, for financial instruments measured on a recurring basis and classified as Level 3:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 Fair Value Measurements
|
|
|
|
|
(In thousands)
|
|
Equity Securities
|
|
Fair Value Swap
|
Balance at January 1, 2019
|
|
$
|
424
|
|
|
$
|
(226)
|
|
Total Gains (Losses)
|
|
|
|
|
Included in other income
|
|
32
|
|
|
—
|
|
Balance at December 31, 2019
|
|
$
|
456
|
|
|
$
|
(226)
|
|
|
|
|
|
|
Balance at January 1, 2018
|
|
$
|
417
|
|
|
$
|
(226)
|
|
Total Gains (Losses)
|
|
|
|
|
Included in other income
|
|
7
|
|
|
—
|
|
Balance at December 31, 2018
|
|
$
|
424
|
|
|
$
|
(226)
|
|
Assets and liabilities measured at fair value on a nonrecurring basis:
The following methods and assumptions were used by the Company in determining the fair value of assets and liabilities measured at fair value on a nonrecurring basis described below:
Impaired Loans: At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Collateral dependent impaired loans carried at fair value have been partially charged-off or receive specific allocations of the allowance for loan losses. For collateral dependent loans, fair value is generally based on real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales approach and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments result in a Level 3 classification of the inputs for determining fair value. Collateral is then adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. Additionally, updated independent valuations are obtained annually for all impaired loans in accordance with Company policy.
OREO: Assets acquired through or in lieu of loan foreclosure are initially recorded at fair value less costs to sell when acquired. The carrying value of OREO is not re-measured to fair value on a recurring basis, but is subject to fair value adjustments when the carrying value exceeds the fair value, less estimated selling costs. Fair value is based on recent real estate appraisals and is updated at least annually. These appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales approach and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments result in a Level 3 classification of the inputs for determining fair value.
Appraisals for both collateral dependent impaired loans and OREO are performed by licensed appraisers. Appraisals are generally obtained to support the fair value of collateral. In general, there are three types of appraisals received by the Company: real estate appraisals, income approach appraisals, and lot development loan appraisals. These are discussed below:
•Real estate appraisals typically incorporate measures such as recent sales prices for comparable properties. Appraisers may make adjustments to the sales prices of the comparable properties as deemed appropriate based on the age,
condition or general characteristics of the subject property. Management generally applies a 15% discount to real estate appraised values which management expects will cover all disposition costs (including selling costs). This 15% is based on historical discounts to appraised values on sold OREO properties.
•Income approach appraisals typically incorporate the annual net operating income of the business divided by an appropriate capitalization rate, as determined by the appraiser. Management generally applies a 15% discount to income approach appraised values which management expects will cover all disposition costs (including selling costs).
•Lot development loan appraisals are typically performed using a discounted cash flow analysis. Appraisers determine an anticipated absorption period and a discount rate that takes into account an investor’s required rate of return based on recent comparable sales. Management generally applies a 6% discount to lot development appraised values, which is an additional discount above the net present value calculation included in the appraisal, to account for selling costs.
Other repossessed assets: Other repossessed assets are initially recorded at fair value less costs to sell when acquired. The carrying value of other repossessed assets is not re-measured to fair value on a recurring basis, but is subject to fair value adjustments when the carrying value exceeds the fair value, less estimated selling costs. As of December 31, 2019 and 2018, other repossessed assets largely consisted of aircraft acquired as part of a loan workout. Fair value is based on Aircraft Bluebook and VREF Aircraft Value Reference values based on the model of aircraft and adjustments for flight hours, features and other variables. Such adjustments result in a Level 3 classification of the inputs for determining fair value.
MSRs: MSRs are carried at the lower of cost or fair value. MSRs do not trade in active, open markets with readily observable prices. For example, sales of MSRs do occur, but precise terms and conditions typically are not readily available. As such, management, with the assistance of a third-party specialist, determines fair value based on the discounted value of the future cash flows estimated to be received. Significant inputs include the discount rate and assumed prepayment speeds utilized. The calculated fair value is then compared to market values where possible to ascertain the reasonableness of the valuation in relation to current market expectations for similar products. Accordingly, MSRs are classified as Level 2.
The following tables present assets and liabilities measured at fair value on a nonrecurring basis. Collateral dependent impaired loans are carried at fair value if they have been charged down to fair value or if a specific valuation allowance has been established. A new cost basis is established at the time a property is initially recorded in OREO. OREO properties are carried at fair value if a devaluation has been taken to the property's value subsequent to the initial measurement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2019 Using:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance at December 31, 2019
|
Impaired loans recorded at fair value:
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,873
|
|
|
$
|
1,873
|
|
Residential real estate
|
|
—
|
|
|
—
|
|
|
217
|
|
|
217
|
|
Total impaired loans recorded at fair value
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,090
|
|
|
$
|
2,090
|
|
|
|
|
|
|
|
|
|
|
MSRs
|
|
$
|
—
|
|
|
$
|
5,797
|
|
|
$
|
—
|
|
|
$
|
5,797
|
|
|
|
|
|
|
|
|
|
|
OREO recorded at fair value:
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
—
|
|
|
—
|
|
|
2,295
|
|
|
2,295
|
|
Residential real estate
|
|
—
|
|
|
—
|
|
|
738
|
|
|
738
|
|
Total OREO recorded at fair value
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,033
|
|
|
$
|
3,033
|
|
|
|
|
|
|
|
|
|
|
Other repossessed assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,599
|
|
|
$
|
3,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2018 Using:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance at December 31, 2018
|
Impaired loans recorded at fair value:
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,059
|
|
|
$
|
4,059
|
|
Construction real estate
|
|
—
|
|
|
—
|
|
|
1,635
|
|
|
1,635
|
|
Residential real estate
|
|
—
|
|
|
—
|
|
|
705
|
|
|
705
|
|
Total impaired loans recorded at fair value
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,399
|
|
|
$
|
6,399
|
|
|
|
|
|
|
|
|
|
|
MSRs
|
|
$
|
—
|
|
|
$
|
1,169
|
|
|
$
|
—
|
|
|
$
|
1,169
|
|
|
|
|
|
|
|
|
|
|
OREO recorded at fair value:
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
—
|
|
|
—
|
|
|
2,295
|
|
|
2,295
|
|
Construction real estate
|
|
—
|
|
|
—
|
|
|
729
|
|
|
729
|
|
Residential real estate
|
|
—
|
|
|
—
|
|
|
650
|
|
|
650
|
|
Total OREO recorded at fair value
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,674
|
|
|
$
|
3,674
|
|
|
|
|
|
|
|
|
|
|
Other repossessed assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,464
|
|
|
$
|
3,464
|
|
The table below provides additional detail on those impaired loans which are recorded at fair value as well as the remaining impaired loan portfolio not included above. The remaining impaired loans consist of loans which are not collateral dependent as well as loans carried at cost as the fair value of the underlying collateral or the present value of expected future cash flows on each of the loans exceeded the book value for each respective credit.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
(In thousands)
|
|
Recorded Investment
|
|
Prior Charge-Offs
|
|
Specific Valuation Allowance
|
|
Carrying Balance
|
Impaired loans recorded at fair value
|
|
$
|
2,167
|
|
|
$
|
313
|
|
|
$
|
77
|
|
|
$
|
2,090
|
|
Remaining impaired loans
|
|
75,324
|
|
|
406
|
|
|
5,153
|
|
|
70,171
|
|
Total impaired loans
|
|
$
|
77,491
|
|
|
$
|
719
|
|
|
$
|
5,230
|
|
|
$
|
72,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
(In thousands)
|
|
Recorded Investment
|
|
Prior Charge-Offs
|
|
Specific Valuation Allowance
|
|
Carrying Balance
|
Impaired loans recorded at fair value
|
|
$
|
6,503
|
|
|
$
|
3,630
|
|
|
$
|
104
|
|
|
$
|
6,399
|
|
Remaining impaired loans
|
|
41,641
|
|
|
7,616
|
|
|
2,169
|
|
|
39,472
|
|
Total impaired loans
|
|
$
|
48,144
|
|
|
$
|
11,246
|
|
|
$
|
2,273
|
|
|
$
|
45,871
|
|
The expense from credit adjustments related to impaired loans carried at fair value for the years ended December 31, 2019, 2018 and 2017 was $0.2 million, $0.4 million, and $1.6 million, respectively.
MSRs totaled $10.1 million at December 31, 2019. Of this $10.1 million MSR carrying balance, $5.8 million was recorded at fair value and included a valuation allowance of $0.8 million. The remaining $4.3 million was recorded at cost, as the fair value exceeded cost at December 31, 2019. At December 31, 2018, MSRs totaled $10.2 million. Of this $10.2 million MSR carrying balance, $1.2 million was recorded at fair value and included a valuation allowance of $0.2 million. The remaining $9.0 million was recorded at cost, as the fair value exceeded cost at December 31, 2018. The (expense) income related to MSRs carried at fair value for the years ended December 31, 2019, 2018 and 2017 was $(0.6) million, $0.4 million and $0.1 million, respectively.
Total OREO held by Park at December 31, 2019 and 2018 was $4.0 million and $4.3 million, respectively. Approximately 75% and 85% of OREO held by Park at December 31, 2019 and 2018, respectively, was carried at fair value due to fair value
adjustments made subsequent to the initial OREO measurement. At December 31, 2019 and 2018, OREO held at fair value, less estimated selling costs, amounted to $3.0 million and $3.7 million, respectively. The net expense related to OREO fair value adjustments was $0.2 million, $0.5 million and $0.5 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Other repossessed assets totaled $4.2 million at December 31, 2019, of which $3.6 million were recorded at fair value. Other repossessed asset totaled $4.0 million at December 31, 2018, of which $3.5 million were recorded at fair value. There was no expense related to fair value adjustments on other repossessed assets for the year ended December 31, 2019. The net expense related to other repossessed asset fair value adjustments was $269,000 for the year ended December 31, 2018. There was no expense related to fair value adjustments on other repossessed assets for the year ended December 31, 2017.
The following tables present quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Fair Value
|
|
Valuation Technique
|
|
Unobservable Input(s)
|
|
Range (Weighted Average)
|
Impaired loans:
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
1,873
|
|
|
Sales comparison approach
|
|
|
Adj to comparables
|
|
|
0.0% - 56.0% (26.5%)
|
|
|
|
|
|
Cost approach
|
|
Accumulated depreciation
|
|
93.1% (93.1%)
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
217
|
|
|
Sales comparison approach
|
|
|
Adj to comparables
|
|
|
0.0% - 53.5% (10.8%)
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned:
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
2,295
|
|
|
Sales comparison approach
|
|
|
Adj to comparables
|
|
|
0.9% - 68.4% (34.7%)
|
|
|
|
|
|
Income approach
|
|
|
Capitalization rate
|
|
|
13.0% (13.0%)
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
738
|
|
|
Sales comparison approach
|
|
|
Adj to comparables
|
|
|
4.6% - 54.6% (39.2%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Fair Value
|
|
Valuation Technique
|
|
Unobservable Input(s)
|
|
Range (Weighted Average)
|
Impaired loans:
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
4,059
|
|
|
Sales comparison approach
|
|
|
Adj to comparables
|
|
|
0.0% - 107.5% (31.1%)
|
|
|
|
|
|
Income approach
|
|
Capitalization rate
|
|
9.5% - 10.8% (10.6%)
|
|
|
|
|
Cost approach
|
|
Accumulated depreciation
|
|
4.2% - 90.1% (11.0%)
|
|
|
|
|
|
|
|
|
|
Construction real estate
|
|
$
|
1,635
|
|
|
Sales comparison approach
|
|
|
Adj to comparables
|
|
|
5.0% - 90.0% (26.1%)
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
705
|
|
|
Sales comparison approach
|
|
|
Adj to comparables
|
|
|
0.0% - 40.0% (13.2%)
|
|
|
|
|
|
Income approach
|
|
|
Capitalization rate
|
|
|
10.5% (10.5%)
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned:
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
2,295
|
|
|
Sales comparison approach
|
|
|
Adj to comparables
|
|
|
0.9% - 68.4% (34.7%)
|
|
|
|
|
|
Income approach
|
|
|
Capitalization rate
|
|
|
13.0% (13.0%)
|
|
|
|
|
|
|
|
|
|
|
Construction real estate
|
|
$
|
729
|
|
|
Sales comparison approach
|
|
|
Adj to comparables
|
|
|
0.0% - 45.0% (21.7%)
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
650
|
|
|
Sales comparison approach
|
|
|
Adj to comparables
|
|
|
30.4% - 54.6% (42.5%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets Measured at Net Asset Value:
Park's portfolio of equity investments in limited partnerships which provide mezzanine funding ("Partnership Investments") are
valued using the NAV practical expedient in accordance with ASC 820.
As of December 31, 2019 and December 31, 2018, Park had Partnerships Investments with a NAV of $11.9 million and $11.0 million, respectively. As of December 31, 2019 and December 31, 2018, Park had $8.5 million and $6.1 million in unfunded commitments related to these Partnership Investments. For the years ended December 31, 2019 and 2018, Park recognized income of $4.8 million and $1.4 million, respectively, related to these Partnership Investments.
The fair value of financial instruments at December 31, 2019 and December 31, 2018, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
|
|
|
(In thousands)
|
|
Carrying value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total fair value
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and money market instruments
|
|
$
|
159,956
|
|
|
$
|
159,956
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
159,956
|
|
Investment securities (1)
|
|
1,209,701
|
|
|
—
|
|
|
1,209,701
|
|
|
—
|
|
|
1,209,701
|
|
Other investment securities (2)
|
|
1,993
|
|
|
1,537
|
|
|
—
|
|
|
456
|
|
|
1,993
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale
|
|
12,278
|
|
|
—
|
|
|
12,278
|
|
|
—
|
|
|
12,278
|
|
Mortgage IRLCs
|
|
221
|
|
|
—
|
|
|
221
|
|
|
—
|
|
|
221
|
|
Impaired loans carried at fair value
|
|
2,090
|
|
|
—
|
|
|
—
|
|
|
2,090
|
|
|
2,090
|
|
Other loans, net
|
|
6,430,136
|
|
|
—
|
|
|
—
|
|
|
6,426,869
|
|
|
6,426,869
|
|
Loans receivable, net
|
|
$
|
6,444,725
|
|
|
$
|
—
|
|
|
$
|
12,499
|
|
|
$
|
6,428,959
|
|
|
$
|
6,441,458
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
$
|
1,139,131
|
|
|
$
|
—
|
|
|
$
|
1,145,537
|
|
|
$
|
—
|
|
|
$
|
1,145,537
|
|
Other
|
|
1,273
|
|
|
1,273
|
|
|
—
|
|
|
—
|
|
|
1,273
|
|
Deposits (excluding demand deposits)
|
|
$
|
1,140,404
|
|
|
$
|
1,273
|
|
|
$
|
1,145,537
|
|
|
$
|
—
|
|
|
$
|
1,146,810
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
230,657
|
|
|
$
|
—
|
|
|
$
|
230,657
|
|
|
$
|
—
|
|
|
$
|
230,657
|
|
Long-term debt
|
|
192,500
|
|
|
—
|
|
|
200,726
|
|
|
—
|
|
|
200,726
|
|
Subordinated notes
|
|
15,000
|
|
|
—
|
|
|
14,372
|
|
|
—
|
|
|
14,372
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments - assets:
|
|
|
|
|
|
|
|
|
|
|
Loan interest rate swaps
|
|
1,870
|
|
|
—
|
|
|
1,870
|
|
|
—
|
|
|
1,870
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments - liabilities:
|
|
|
|
|
|
|
|
|
|
|
Fair value swap
|
|
$
|
226
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
226
|
|
|
$
|
226
|
|
Borrowing interest rate swap
|
|
575
|
|
|
—
|
|
|
575
|
|
|
—
|
|
|
575
|
|
Loan interest rate swaps
|
|
1,870
|
|
|
—
|
|
|
1,870
|
|
|
—
|
|
|
1,870
|
|
(1) Includes AFS debt securities.
(2) Excludes FHLB stock and FRB stock which are carried at their respective redemption values, investment securities accounted for at modified cost as these
investments do not have a readily determinable fair value, and Partnership Investments valued using the NAV practical expedient.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
|
|
|
(In thousands)
|
|
Carrying value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total fair value
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and money market instruments
|
|
$
|
167,214
|
|
|
$
|
167,214
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
167,214
|
|
Investment securities (1)
|
|
1,355,229
|
|
|
—
|
|
|
1,354,843
|
|
|
—
|
|
|
1,354,843
|
|
Other investment securities (2)
|
|
1,649
|
|
|
1,225
|
|
|
—
|
|
|
424
|
|
|
1,649
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
4,158
|
|
|
—
|
|
|
4,158
|
|
|
—
|
|
|
4,158
|
|
Mortgage IRLCs
|
|
87
|
|
|
—
|
|
|
87
|
|
|
—
|
|
|
87
|
|
Impaired loans carried at fair value
|
|
6,399
|
|
|
—
|
|
|
—
|
|
|
6,399
|
|
|
6,399
|
|
Other loans, net
|
|
5,629,976
|
|
|
—
|
|
|
—
|
|
|
5,570,136
|
|
|
5,570,136
|
|
Loans receivable, net
|
|
$
|
5,640,620
|
|
|
$
|
—
|
|
|
$
|
4,245
|
|
|
$
|
5,576,535
|
|
|
$
|
5,580,780
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
$
|
1,043,177
|
|
|
$
|
—
|
|
|
$
|
1,044,620
|
|
|
$
|
—
|
|
|
$
|
1,044,620
|
|
Other
|
|
1,267
|
|
|
1,267
|
|
|
—
|
|
|
—
|
|
|
1,267
|
|
Deposits (excluding demand deposits)
|
|
$
|
1,044,444
|
|
|
$
|
1,267
|
|
|
$
|
1,044,620
|
|
|
$
|
—
|
|
|
$
|
1,045,887
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
221,966
|
|
|
$
|
—
|
|
|
$
|
221,966
|
|
|
$
|
—
|
|
|
$
|
221,966
|
|
Long-term debt
|
|
400,000
|
|
|
—
|
|
|
400,203
|
|
|
—
|
|
|
400,203
|
|
Subordinated notes
|
|
15,000
|
|
|
—
|
|
|
12,959
|
|
|
—
|
|
|
12,959
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments - liabilities:
|
|
|
|
|
|
|
|
|
|
|
Fair value swap
|
|
$
|
226
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
226
|
|
|
$
|
226
|
|
(1) Includes AFS debt securities and HTM debt securities.
(2) Excludes FHLB stock and FRB stock which are carried at their respective redemption values, investment securities accounted for at modified cost as these
investments do not have a readily determinable fair value, and Partnership Investments valued using the NAV practical expedient.
29. Capital Ratios
Financial institution regulators have established guidelines for minimum capital ratios for banks, thrifts and bank holding companies. During the first quarter of 2015, Park adopted the Basel III regulatory capital framework as approved by the federal banking agencies. The adoption of this framework modified the calculation of the various capital ratios, added an additional ratio, common equity tier 1, and revised the adequately and well-capitalized thresholds under the prompt corrective action regulations applicable to PNB. Additionally, under this framework, in order to avoid limitations on capital distributions, including dividend payments and stock repurchases, Park must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer began to phase in starting on January 1, 2016 at 0.625% and effective January 1, 2019, was fully phased in at 2.50%. The capital conservation buffer was phased in from 0.0% for 2015 to being fully phased in at 2.50% at January 1, 2019. The amounts shown below as the adequately capitalized ratio plus capital conservation buffer includes the fully phased-in 2.50% buffer. The Federal Reserve Board also adopted requirements Park must maintain to be deemed "well-capitalized" and to remain a financial holding company.
Each of PNB and Park met each of the well-capitalized ratio guidelines applicable to it at December 31, 2019. The following table indicates the capital ratios for PNB and Park at December 31, 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
Leverage
|
|
Tier 1
Risk-Based
|
|
Common Equity Tier 1
|
|
Total
Risk-Based
|
PNB
|
8.62
|
%
|
|
11.05
|
%
|
|
11.05
|
%
|
|
12.25
|
%
|
Park
|
9.64
|
%
|
|
12.33
|
%
|
|
12.11
|
%
|
|
13.19
|
%
|
Adequately capitalized ratio
|
4.00
|
%
|
|
6.00
|
%
|
|
4.50
|
%
|
|
8.00
|
%
|
Adequately capitalized ratio plus capital conservation buffer
|
4.00
|
%
|
|
8.50
|
%
|
|
7.00
|
%
|
|
10.50
|
%
|
Well-capitalized ratio - PNB
|
5.00
|
%
|
|
8.00
|
%
|
|
6.50
|
%
|
|
10.00
|
%
|
Well-capitalized ratio - Park
|
N/A
|
|
|
6.00
|
%
|
|
N/A
|
|
|
10.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
|
|
|
|
|
|
Leverage
|
|
Tier 1
Risk-Based
|
|
Common Equity Tier 1
|
|
Total
Risk-Based
|
PNB
|
8.29
|
%
|
|
11.01
|
%
|
|
11.01
|
%
|
|
12.30
|
%
|
Park
|
10.04
|
%
|
|
13.30
|
%
|
|
13.04
|
%
|
|
14.19
|
%
|
Adequately capitalized ratio
|
4.00
|
%
|
|
6.00
|
%
|
|
4.50
|
%
|
|
8.00
|
%
|
Adequately capitalized ratio plus capital conservation buffer
|
4.00
|
%
|
|
8.50
|
%
|
|
7.00
|
%
|
|
10.50
|
%
|
Well-capitalized ratio - PNB
|
5.00
|
%
|
|
8.00
|
%
|
|
6.50
|
%
|
|
10.00
|
%
|
Well-capitalized ratio - Park
|
N/A
|
|
|
6.00
|
%
|
|
N/A
|
|
|
10.00
|
%
|
The following table reflects various measures of capital for Park and PNB:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Adequately Capitalized
|
|
|
|
To Be Well-Capitalized
|
|
|
(In thousands)
|
|
Actual Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
At December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Risk-Based Capital
(to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
PNB
|
|
$
|
810,880
|
|
|
12.25
|
%
|
|
$
|
529,480
|
|
|
8.00
|
%
|
|
$
|
661,850
|
|
|
10.00
|
%
|
Park
|
|
877,108
|
|
|
13.19
|
%
|
|
532,169
|
|
|
8.00
|
%
|
|
665,211
|
|
|
10.00
|
%
|
Tier 1 Risk-Based Capital
(to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
PNB
|
|
$
|
731,071
|
|
|
11.05
|
%
|
|
$
|
397,110
|
|
|
6.00
|
%
|
|
$
|
529,480
|
|
|
8.00
|
%
|
Park
|
|
820,312
|
|
|
12.33
|
%
|
|
399,127
|
|
|
6.00
|
%
|
|
399,127
|
|
|
6.00
|
%
|
Leverage Ratio
(to average total assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
PNB
|
|
$
|
731,071
|
|
|
8.62
|
%
|
|
$
|
339,092
|
|
|
4.00
|
%
|
|
$
|
423,866
|
|
|
5.00
|
%
|
Park
|
|
820,312
|
|
|
9.64
|
%
|
|
340,412
|
|
|
4.00
|
%
|
|
N/A
|
|
|
N/A
|
|
Common Equity Tier 1
(to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
PNB
|
|
$
|
731,071
|
|
|
11.05
|
%
|
|
$
|
297,832
|
|
|
4.50
|
%
|
|
$
|
430,202
|
|
|
6.50
|
%
|
Park
|
|
805,312
|
|
|
12.11
|
%
|
|
299,345
|
|
|
4.50
|
%
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Risk-Based Capital
(to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
PNB
|
|
$
|
709,101
|
|
|
12.30
|
%
|
|
$
|
461,293
|
|
|
8.00
|
%
|
|
$
|
576,617
|
|
|
10.00
|
%
|
Park
|
|
826,006
|
|
|
14.19
|
%
|
|
465,732
|
|
|
8.00
|
%
|
|
582,166
|
|
|
10.00
|
%
|
Tier 1 Risk-Based Capital
(to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
PNB
|
|
$
|
634,909
|
|
|
11.01
|
%
|
|
$
|
345,970
|
|
|
6.00
|
%
|
|
$
|
461,293
|
|
|
8.00
|
%
|
Park
|
|
774,369
|
|
|
13.30
|
%
|
|
349,299
|
|
|
6.00
|
%
|
|
349,299
|
|
|
6.00
|
%
|
Leverage Ratio
(to average total assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
PNB
|
|
$
|
634,909
|
|
|
8.29
|
%
|
|
$
|
306,485
|
|
|
4.00
|
%
|
|
$
|
383,106
|
|
|
5.00
|
%
|
Park
|
|
774,369
|
|
|
10.04
|
%
|
|
308,397
|
|
|
4.00
|
%
|
|
N/A
|
|
|
N/A
|
|
Common Equity Tier 1
(to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
PNB
|
|
634,909
|
|
|
11.01
|
%
|
|
259,478
|
|
|
4.50
|
%
|
|
374,801
|
|
|
6.50
|
%
|
Park
|
|
759,369
|
|
|
13.04
|
%
|
|
261,975
|
|
|
4.50
|
%
|
|
N/A
|
|
|
N/A
|
|
30. Segment Information
The Corporation is a financial holding company headquartered in Newark, Ohio. The operating segments for the Corporation are PNB and GFSC. "All Other", which primarily consists of Park as the "Parent Company" and SEPH, is shown to reconcile the segment totals to the consolidated statements of income.
U.S. GAAP requires management to disclose information about the different types of business activities in which a company engages and also information on the different economic environments in which a company operates, so that the users of the financial statements can better understand a company’s performance, better understand the potential for future cash flows, and make more informed judgments about the company as a whole. Park’s current operating segments are in line with U.S. GAAP as: (i) discrete financial information is available for each operating segment and (ii) the segments are aligned with internal reporting to Park’s Chief Executive Officer, who is the chief operating decision-maker.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating results for the year ended December 31, 2019 (In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
PNB
|
|
|
GFSC
|
|
All Other
|
|
Total
|
Net interest income (expense)
|
|
$
|
293,130
|
|
|
|
$
|
5,013
|
|
|
$
|
(406)
|
|
|
$
|
297,737
|
|
Provision for (recovery of) loan losses
|
|
8,356
|
|
|
|
754
|
|
|
(2,939)
|
|
|
6,171
|
|
Other income
|
|
92,392
|
|
|
|
170
|
|
|
4,631
|
|
|
97,193
|
|
Other expense
|
|
237,433
|
|
|
|
3,478
|
|
|
23,077
|
|
|
263,988
|
|
Income (loss) before income taxes
|
|
139,733
|
|
|
|
951
|
|
|
(15,913)
|
|
|
124,771
|
|
Income tax expense (benefit)
|
|
26,133
|
|
|
|
189
|
|
|
(4,251)
|
|
|
22,071
|
|
Net income (loss)
|
|
$
|
113,600
|
|
|
|
$
|
762
|
|
|
$
|
(11,662)
|
|
|
$
|
102,700
|
|
Balances at December 31, 2019
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
8,521,537
|
|
|
|
$
|
27,593
|
|
|
$
|
9,247
|
|
|
$
|
8,558,377
|
|
Loans
|
|
6,481,644
|
|
|
|
28,143
|
|
|
(8,383)
|
|
|
6,501,404
|
|
Deposits
|
|
7,125,111
|
|
|
|
3,919
|
|
|
(76,418)
|
|
|
7,052,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating results for the year ended December 31, 2018 (In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
PNB
|
|
|
GFSC
|
|
All Other
|
|
Total
|
Net interest income
|
|
$
|
258,547
|
|
|
|
$
|
5,048
|
|
|
$
|
3,303
|
|
|
$
|
266,898
|
|
Provision for (recovery of) loan losses
|
|
7,569
|
|
|
|
1,328
|
|
|
(952)
|
|
|
7,945
|
|
Other income
|
|
88,981
|
|
|
|
187
|
|
|
11,933
|
|
|
101,101
|
|
Other expense
|
|
206,843
|
|
|
|
3,245
|
|
|
18,667
|
|
|
228,755
|
|
Income (loss) before income taxes
|
|
133,116
|
|
|
|
662
|
|
|
(2,479)
|
|
|
131,299
|
|
Income tax expense (benefit)
|
|
23,644
|
|
|
|
141
|
|
|
(2,873)
|
|
|
20,912
|
|
Net income
|
|
$
|
109,472
|
|
|
|
$
|
521
|
|
|
$
|
394
|
|
|
$
|
110,387
|
|
Balances at December 31, 2018
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
7,753,848
|
|
|
|
$
|
31,388
|
|
|
$
|
19,072
|
|
|
$
|
7,804,308
|
|
Loans
|
|
5,671,173
|
|
|
|
32,664
|
|
|
(11,705)
|
|
|
5,692,132
|
|
Deposits
|
|
6,334,796
|
|
|
|
4,142
|
|
|
(78,078)
|
|
|
6,260,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating results for the year ended December 31, 2017 (In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
PNB
|
|
|
GFSC
|
|
All Other
|
|
Total
|
Net interest income
|
|
$
|
235,243
|
|
|
|
$
|
5,839
|
|
|
$
|
2,677
|
|
|
$
|
243,759
|
|
Provision for (recovery of) loan losses
|
|
9,898
|
|
|
|
1,917
|
|
|
(3,258)
|
|
|
8,557
|
|
Other income
|
|
82,742
|
|
|
|
103
|
|
|
3,584
|
|
|
86,429
|
|
Other expense
|
|
185,891
|
|
|
|
3,099
|
|
|
14,172
|
|
|
203,162
|
|
Income (loss) before income taxes
|
|
122,196
|
|
|
|
926
|
|
|
(4,653)
|
|
|
118,469
|
|
Income tax expense (benefit)
|
|
34,881
|
|
|
|
666
|
|
|
(1,320)
|
|
|
34,227
|
|
Net income (loss)
|
|
$
|
87,315
|
|
|
|
$
|
260
|
|
|
$
|
(3,333)
|
|
|
$
|
84,242
|
|
Balances at December 31, 2017
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
7,467,851
|
|
|
|
$
|
32,077
|
|
|
$
|
37,692
|
|
|
$
|
7,537,620
|
|
Loans
|
|
5,339,255
|
|
|
|
33,385
|
|
|
(157)
|
|
|
5,372,483
|
|
Deposits
|
|
5,896,676
|
|
|
|
3,449
|
|
|
(82,799)
|
|
|
5,817,326
|
|
The operating results in the "All Other" column are used to reconcile the segment totals to the Consolidated Statements of Income. The reconciling amounts for consolidated total assets, loans and deposits consist of the elimination of intersegment borrowings, intersegment loans, intersegment deposits, and the assets of the Parent Company and SEPH which were not eliminated.
The following is a reconciliation of financial information for the reportable segments to the Corporation’s consolidated totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Net Interest Income
|
|
Depreciation Expense
|
|
Other Expense
|
|
Income Taxes
|
|
Assets
|
|
Deposits
|
Totals for reportable segments
|
|
$
|
298,143
|
|
|
$
|
9,112
|
|
|
$
|
231,799
|
|
|
$
|
26,322
|
|
|
$
|
8,549,130
|
|
|
$
|
7,129,030
|
|
Elimination of intersegment items
|
|
1,250
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(19,231)
|
|
|
(76,418)
|
|
All other totals - not eliminated
|
|
(1,656)
|
|
|
—
|
|
|
23,077
|
|
|
(4,251)
|
|
|
28,478
|
|
|
—
|
|
Totals
|
|
$
|
297,737
|
|
|
$
|
9,112
|
|
|
$
|
254,876
|
|
|
$
|
22,071
|
|
|
$
|
8,558,377
|
|
|
$
|
7,052,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Net Interest Income
|
|
Depreciation Expense
|
|
Other Expense
|
|
Income Taxes
|
|
Assets
|
|
Deposits
|
Totals for reportable segments
|
|
$
|
263,595
|
|
|
$
|
8,585
|
|
|
$
|
201,503
|
|
|
$
|
23,785
|
|
|
$
|
7,785,236
|
|
|
$
|
6,338,938
|
|
Elimination of intersegment items
|
|
1,275
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13,482)
|
|
|
(78,078)
|
|
All other totals - not eliminated
|
|
2,028
|
|
|
—
|
|
|
18,667
|
|
|
(2,873)
|
|
|
32,554
|
|
|
—
|
|
Totals
|
|
$
|
266,898
|
|
|
$
|
8,585
|
|
|
$
|
220,170
|
|
|
$
|
20,912
|
|
|
$
|
7,804,308
|
|
|
$
|
6,260,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Net Interest Income
|
|
Depreciation Expense
|
|
Other Expense
|
|
Income Taxes
|
|
Assets
|
|
Deposits
|
Totals for reportable segments
|
|
$
|
241,082
|
|
|
$
|
8,644
|
|
|
$
|
180,346
|
|
|
$
|
35,547
|
|
|
$
|
7,499,928
|
|
|
$
|
5,900,125
|
|
Elimination of intersegment items
|
|
1,500
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11,211)
|
|
|
(82,799)
|
|
All other totals - not eliminated
|
|
1,177
|
|
|
—
|
|
|
14,172
|
|
|
(1,320)
|
|
|
48,903
|
|
|
—
|
|
Totals
|
|
$
|
243,759
|
|
|
$
|
8,644
|
|
|
$
|
194,518
|
|
|
$
|
34,227
|
|
|
$
|
7,537,620
|
|
|
$
|
5,817,326
|
|
31. Parent Company Statements
The Parent Company statements should be read in conjunction with the consolidated financial statements and the information set forth below. Investments in subsidiaries are accounted for using the equity method of accounting.
Cash represents non-interest bearing deposits with PNB. Net cash provided by operating activities reflects cash payments (received from subsidiaries) for income taxes of $4.1 million, $3.9 million and $3.3 million in 2019, 2018 and 2017, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Balance Sheets
|
|
|
|
|
December 31, 2019 and 2018
|
|
|
|
|
(In thousands)
|
|
2019
|
|
2018
|
Assets:
|
|
|
|
|
Cash
|
|
$
|
73,663
|
|
|
$
|
75,094
|
|
Investment in subsidiaries
|
|
912,162
|
|
|
727,227
|
|
Debentures receivable from PNB
|
|
25,000
|
|
|
25,000
|
|
Other receivables from subsidiaries
|
|
9,168
|
|
|
546
|
|
Other investments
|
|
5,001
|
|
|
6,619
|
|
Other assets
|
|
20,620
|
|
|
20,518
|
|
Total assets
|
|
$
|
1,045,614
|
|
|
$
|
855,004
|
|
Liabilities:
|
|
|
|
|
Long-term debt
|
|
42,500
|
|
|
—
|
|
Subordinated notes
|
|
15,000
|
|
|
15,000
|
|
Other payables to subsidiaries
|
|
10,092
|
|
|
101
|
|
Other liabilities
|
|
9,008
|
|
|
7,397
|
|
Total liabilities
|
|
76,600
|
|
|
22,498
|
|
Total shareholders’ equity
|
|
969,014
|
|
|
832,506
|
|
Total liabilities and shareholders’ equity
|
|
$
|
1,045,614
|
|
|
$
|
855,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Statements of Income
|
|
|
|
|
|
|
for the years ended December 31, 2019, 2018 and 2017
|
|
|
|
|
|
|
(In thousands)
|
|
2019
|
|
2018
|
|
2017
|
Income:
|
|
|
|
|
|
|
Dividends from subsidiaries
|
|
$
|
97,500
|
|
|
$
|
100,000
|
|
|
$
|
60,000
|
|
Interest and dividends
|
|
1,250
|
|
|
1,275
|
|
|
1,500
|
|
Gain on sale of investment securities
|
|
—
|
|
|
—
|
|
|
1,821
|
|
Other
|
|
4,634
|
|
|
6,068
|
|
|
1,405
|
|
Total income
|
|
103,384
|
|
|
107,343
|
|
|
64,726
|
|
Expense:
|
|
|
|
|
|
|
Interest expense
|
|
1,950
|
|
|
617
|
|
|
1,073
|
|
Other, net
|
|
19,804
|
|
|
14,619
|
|
|
8,805
|
|
Total expense
|
|
21,754
|
|
|
15,236
|
|
|
9,878
|
|
Income before income taxes and equity in undistributed income of subsidiaries
|
|
81,630
|
|
|
92,107
|
|
|
54,848
|
|
Income tax benefit
|
|
4,242
|
|
|
4,010
|
|
|
2,695
|
|
Income before equity in undistributed income of subsidiaries
|
|
85,872
|
|
|
96,117
|
|
|
57,543
|
|
Equity in undistributed income of subsidiaries
|
|
16,828
|
|
|
14,270
|
|
|
26,699
|
|
Net income
|
|
$
|
102,700
|
|
|
$
|
110,387
|
|
|
$
|
84,242
|
|
Other comprehensive income (loss) (1)
|
|
40,199
|
|
|
(18,533)
|
|
|
(8,709)
|
|
Comprehensive income
|
|
$
|
142,899
|
|
|
$
|
91,854
|
|
|
$
|
75,533
|
|
(1) See Consolidated Statements of Comprehensive Income for other comprehensive income (loss) detail.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Cash Flows
|
|
|
|
|
|
|
for the years ended December 31, 2019, 2018 and 2017
|
|
|
|
|
|
|
(In thousands)
|
|
2019
|
|
2018
|
|
2017
|
Operating activities:
|
|
|
|
|
|
|
Net income
|
|
$
|
102,700
|
|
|
$
|
110,387
|
|
|
$
|
84,242
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
Undistributed income of subsidiaries
|
|
(16,828)
|
|
|
(14,270)
|
|
|
(26,699)
|
|
Compensation expense for issuance of treasury shares to directors
|
|
1,325
|
|
|
1,109
|
|
|
1,241
|
|
Share-based compensation expense
|
|
4,999
|
|
|
3,954
|
|
|
2,701
|
|
Realized net investment security gains
|
|
—
|
|
|
—
|
|
|
(1,821)
|
|
Gain on equity securities, net
|
|
(4,204)
|
|
|
(3,267)
|
|
|
—
|
|
(Increase) decrease in other assets
|
|
(8,544)
|
|
|
(2,073)
|
|
|
205
|
|
Increase (decrease) in other liabilities
|
|
10,006
|
|
|
(163)
|
|
|
475
|
|
Net cash provided by operating activities
|
|
89,454
|
|
|
95,677
|
|
|
60,344
|
|
Investing activities:
|
|
|
|
|
|
|
Proceeds from sales of securities
|
|
—
|
|
|
—
|
|
|
2,265
|
|
Outlays for business acquisitions
|
|
(28,630)
|
|
|
(30,684)
|
|
|
—
|
|
Other, net
|
|
5,723
|
|
|
60
|
|
|
—
|
|
Net cash (used in) provided by investing activities
|
|
(22,907)
|
|
|
(30,624)
|
|
|
2,265
|
|
Financing activities:
|
|
|
|
|
|
|
Cash dividends paid
|
|
(69,113)
|
|
|
(63,013)
|
|
|
(57,493)
|
|
Repayment of subordinated notes
|
|
—
|
|
|
—
|
|
|
(30,000)
|
|
Proceeds from issuance of long term debt
|
|
50,000
|
|
|
—
|
|
|
—
|
|
Repayment of long term debt
|
|
(7,500)
|
|
|
—
|
|
|
—
|
|
Repurchase of treasury shares
|
|
(40,535)
|
|
|
(5,784)
|
|
|
(7,378)
|
|
Cash payment for fractional shares
|
|
(3)
|
|
|
(4)
|
|
|
(6)
|
|
Value of common shares withheld to pay employee income taxes
|
|
(827)
|
|
|
(610)
|
|
|
(347)
|
|
Net cash used in financing activities
|
|
(67,978)
|
|
|
(69,411)
|
|
|
(95,224)
|
|
Decrease in cash
|
|
(1,431)
|
|
|
(4,358)
|
|
|
(32,615)
|
|
|
|
|
|
|
|
|
Cash at beginning of year
|
|
75,094
|
|
|
79,452
|
|
|
112,067
|
|
Cash at end of year
|
|
$
|
73,663
|
|
|
$
|
75,094
|
|
|
$
|
79,452
|
|
32. Revenue from Contracts with Customers
The Company adopted ASC 606 using the modified retrospective method applied to all contracts not completed as of January 1, 2018. Results for reporting periods beginning on and after January 1, 2018 are presented under ASC 606 while prior period amounts continue to be reported in accordance with legacy U.S. GAAP. The adoption of ASC 606 did not result in a change to the accounting for any of the in-scope revenue streams. As such, no cumulative effect adjustment was recorded.
All of Park's revenue from contracts with customers within the scope of ASC 606 is recognized within "Other income" in the Consolidated Statements of Income. The following table presents Park's sources of other income by revenue stream and operating segment for the years ended December 31, 2019, December 31, 2018 and December 31, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2019
|
|
|
|
|
|
|
Revenue by Operating Segment (in thousands)
|
|
PNB
|
|
GFSC
|
|
All Other
|
|
Total
|
Income from fiduciary activities
|
|
|
|
|
|
|
|
|
Personal trust and agency accounts
|
|
$
|
9,001
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,001
|
|
Employee benefit and retirement-related accounts
|
|
7,178
|
|
|
—
|
|
|
—
|
|
|
7,178
|
|
Investment management and investment advisory agency accounts
|
|
10,024
|
|
|
—
|
|
|
—
|
|
|
10,024
|
|
Other
|
|
1,565
|
|
|
—
|
|
|
—
|
|
|
1,565
|
|
Service charges on deposit accounts
|
|
|
|
|
|
|
|
|
Non-sufficient funds (NSF) fees
|
|
7,073
|
|
|
—
|
|
|
—
|
|
|
7,073
|
|
Demand deposit account (DDA) charges
|
|
3,105
|
|
|
—
|
|
|
—
|
|
|
3,105
|
|
Other
|
|
657
|
|
|
—
|
|
|
—
|
|
|
657
|
|
Other service income (1)
|
|
|
|
|
|
|
|
|
Credit card
|
|
2,354
|
|
|
7
|
|
|
—
|
|
|
2,361
|
|
HELOC
|
|
403
|
|
|
—
|
|
|
4
|
|
|
407
|
|
Installment
|
|
256
|
|
|
—
|
|
|
(83)
|
|
|
173
|
|
Real estate
|
|
11,167
|
|
|
—
|
|
|
(9)
|
|
|
11,158
|
|
Commercial
|
|
1,259
|
|
|
—
|
|
|
142
|
|
|
1,401
|
|
Debit card fee income
|
|
20,250
|
|
|
—
|
|
|
—
|
|
|
20,250
|
|
Bank owned life insurance income (2)
|
|
4,168
|
|
|
—
|
|
|
389
|
|
|
4,557
|
|
ATM fees
|
|
1,828
|
|
|
—
|
|
|
—
|
|
|
1,828
|
|
OREO valuation adjustments (2)
|
|
(225)
|
|
|
—
|
|
|
—
|
|
|
(225)
|
|
Loss on the sale of OREO, net
|
|
(110)
|
|
|
—
|
|
|
(112)
|
|
|
(222)
|
|
Net loss on the sale of investment securities (2)
|
|
(421)
|
|
|
—
|
|
|
—
|
|
|
(421)
|
|
Gain on equity securities, net (2)
|
|
913
|
|
|
—
|
|
|
4,205
|
|
|
5,118
|
|
Other components of net periodic pension benefit income (2)
|
|
4,587
|
|
|
54
|
|
|
91
|
|
|
4,732
|
|
Miscellaneous (3)
|
|
7,360
|
|
|
109
|
|
|
4
|
|
|
7,473
|
|
Total other income
|
|
$
|
92,392
|
|
|
$
|
170
|
|
|
$
|
4,631
|
|
|
$
|
97,193
|
|
(1) Of the $15.5 million of revenue included within "Other service income", approximately $4.9 million is within the scope of ASC 606, with the remaining $10.6 million consisting primarily of residential real estate loan fees which are out of scope.
(2) Not within the scope of ASC 606.
(3) "Miscellaneous" income includes brokerage income, safe deposit box rentals, and miscellaneous bank fees totaling $7.5 million, all of which are within the scope of ASC 606.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2018
|
|
|
|
|
|
|
Revenue by Operating Segment (in thousands)
|
|
PNB
|
|
GFSC
|
|
All Other
|
|
Total
|
Income from fiduciary activities
|
|
|
|
|
|
|
|
|
Personal trust and agency accounts
|
|
$
|
8,495
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,495
|
|
Employee benefit and retirement-related accounts
|
|
6,863
|
|
|
—
|
|
|
—
|
|
|
6,863
|
|
Investment management and investment advisory agency accounts
|
|
9,352
|
|
|
—
|
|
|
—
|
|
|
9,352
|
|
Other
|
|
1,583
|
|
|
—
|
|
|
—
|
|
|
1,583
|
|
Service charges on deposit accounts
|
|
|
|
|
|
|
|
|
Non-sufficient funds (NSF) fees
|
|
7,483
|
|
|
—
|
|
|
—
|
|
|
7,483
|
|
Demand deposit account (DDA) charges
|
|
3,310
|
|
|
—
|
|
|
—
|
|
|
3,310
|
|
Other
|
|
668
|
|
|
—
|
|
|
—
|
|
|
668
|
|
Other service income (1)
|
|
|
|
|
|
|
|
|
Credit card
|
|
2,212
|
|
|
27
|
|
|
—
|
|
|
2,239
|
|
HELOC
|
|
471
|
|
|
—
|
|
|
—
|
|
|
471
|
|
Installment
|
|
243
|
|
|
—
|
|
|
—
|
|
|
243
|
|
Real estate
|
|
9,079
|
|
|
—
|
|
|
—
|
|
|
9,079
|
|
Commercial
|
|
1,153
|
|
|
—
|
|
|
1,081
|
|
|
2,234
|
|
Debit card fee income
|
|
17,317
|
|
|
—
|
|
|
—
|
|
|
17,317
|
|
Bank owned life insurance income (2)
|
|
4,903
|
|
|
—
|
|
|
1,912
|
|
|
6,815
|
|
ATM fees
|
|
1,978
|
|
|
—
|
|
|
—
|
|
|
1,978
|
|
OREO valuation adjustments (2)
|
|
(272)
|
|
|
—
|
|
|
(219)
|
|
|
(491)
|
|
Gain on the sale of OREO, net
|
|
1,440
|
|
|
—
|
|
|
2,795
|
|
|
4,235
|
|
Net loss on sale of investment securities (2)
|
|
(2,271)
|
|
|
—
|
|
|
—
|
|
|
(2,271)
|
|
Gain on equity securities, net (2)
|
|
549
|
|
|
—
|
|
|
4,067
|
|
|
4,616
|
|
Other components of net periodic pension benefit income (2)
|
|
6,609
|
|
|
75
|
|
|
136
|
|
|
6,820
|
|
Gain on the sale of non-performing loans
|
|
660
|
|
|
—
|
|
|
2,166
|
|
|
2,826
|
|
Miscellaneous (3)
|
|
7,156
|
|
|
85
|
|
|
(5)
|
|
|
7,236
|
|
Total other income
|
|
$
|
88,981
|
|
|
$
|
187
|
|
|
$
|
11,933
|
|
|
$
|
101,101
|
|
(1) Of the $14.3 million of revenue included within "Other service income", approximately $5.5 million is within the scope of ASC 606, with the remaining $8.8 million consisting primarily of residential real estate loan fees which are out of scope.
(2) Not within the scope of ASC 606.
(3) "Miscellaneous" income includes brokerage income, safe deposit box rentals, and miscellaneous bank fees totaling $7.2 million, all of which are within the scope of ASC 606.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2017 (4)
|
|
|
|
|
|
|
Revenue by Operating Segment (in thousands)
|
|
PNB
|
|
GFSC
|
|
All Other
|
|
Total
|
Income from fiduciary activities
|
|
|
|
|
|
|
|
|
Personal trust and agency accounts
|
|
$
|
7,752
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,752
|
|
Employee benefit and retirement-related accounts
|
|
6,234
|
|
|
—
|
|
|
—
|
|
|
6,234
|
|
Investment management and investment advisory agency accounts
|
|
8,386
|
|
|
—
|
|
|
—
|
|
|
8,386
|
|
Other
|
|
1,363
|
|
|
—
|
|
|
—
|
|
|
1,363
|
|
Service charges on deposit accounts
|
|
|
|
|
|
|
|
|
Non-sufficient funds (NSF) fees
|
|
8,122
|
|
|
—
|
|
|
—
|
|
|
8,122
|
|
Demand deposit account (DDA) charges
|
|
3,847
|
|
|
—
|
|
|
—
|
|
|
3,847
|
|
Other
|
|
684
|
|
|
—
|
|
|
—
|
|
|
684
|
|
Other service income (1)
|
|
|
|
|
|
|
|
|
Credit card
|
|
1,987
|
|
|
(6)
|
|
|
—
|
|
|
1,981
|
|
HELOC
|
|
474
|
|
|
—
|
|
|
4
|
|
|
478
|
|
Installment
|
|
387
|
|
|
—
|
|
|
—
|
|
|
387
|
|
Real estate
|
|
8,974
|
|
|
—
|
|
|
31
|
|
|
9,005
|
|
Commercial
|
|
1,118
|
|
|
—
|
|
|
193
|
|
|
1,311
|
|
Debit card fee income
|
|
15,798
|
|
|
—
|
|
|
—
|
|
|
15,798
|
|
Bank owned life insurance income (2)
|
|
4,441
|
|
|
—
|
|
|
417
|
|
|
4,858
|
|
ATM fees
|
|
2,253
|
|
|
—
|
|
|
—
|
|
|
2,253
|
|
OREO valuation adjustments (2)
|
|
(458)
|
|
|
—
|
|
|
—
|
|
|
(458)
|
|
Gain on the sale of OREO, net
|
|
239
|
|
|
—
|
|
|
12
|
|
|
251
|
|
Net gain on sale of investment securities (2)
|
|
—
|
|
|
—
|
|
|
1,821
|
|
|
1,821
|
|
Gain on equity securities, net (2)
|
|
11
|
|
|
—
|
|
|
1,199
|
|
|
1,210
|
|
Other components of net periodic pension benefit income (2)
|
|
5,616
|
|
|
63
|
|
|
115
|
|
|
5,794
|
|
Miscellaneous (3)
|
|
5,514
|
|
|
46
|
|
|
(208)
|
|
|
5,352
|
|
Total other income
|
|
$
|
82,742
|
|
|
$
|
103
|
|
|
$
|
3,584
|
|
|
$
|
86,429
|
|
(1) Of the $13.2 million of revenue included within "Other service income", approximately $4.4 million is within the scope of ASC 606, with the remaining $8.8 million consisting primarily of residential real estate loan fees which are out of scope.
(2) Not within the scope of ASC 606.
(3) "Miscellaneous" income includes brokerage income, safe deposit box rentals, and miscellaneous bank fees totaling $5.4 million, all of which are within the scope of ASC 606.
(4) The Corporation elected the modified retrospective approach of adoption; therefore, prior period balances are presented under legacy U.S. GAAP and may not be comparable to current year presentation.
A description of Park's material revenue streams accounted for under ASC 606 follows:
Income from fiduciary activities (gross): Park earns fiduciary fee income and investment brokerage fees from its contracts
with trust customers for various fiduciary and investment-related services. These fees are earned over time as the Company
provides the contracted monthly and quarterly services and are generally assessed based on the market value of the trust assets.
Service charges on deposit accounts and ATM fees: The Corporation earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Corporation fulfills the customer's request. Account maintenance fees, which relate primarily to monthly maintenance, are generally recognized at the end of the month, representing the period over which the Corporation satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer's account balance.
Other service income: Other service income includes income from 1) the sale and servicing of loans sold to the secondary market, 2) incentive income from third-party credit card issuers, and 3) loan customers for various loan-related activities and
services. These fees are generally recognized at a point in time following the completion of a loan sale or related service activity.
Debit card fee income: Park earns interchange fees from debit cardholder transactions conducted primarily through the Visa
payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and
are recognized daily, net of card network fees, concurrently with the transaction processing services provided to the cardholder.
Gain or loss on sale of OREO, net: The Corporation records a gain or loss from the sale of OREO when control of the
property transfers to the buyer, which generally occurs at the time of delivery of an executed deed. When Park finances the sale
of OREO to the buyer, the Corporation assesses whether the buyer is committed to perform the buyer's obligation under the
contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is
derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining
the gain or loss on the sale, the Corporation adjusts the transaction price and related gain (loss) on sale if a significant financing
component is present.
33. Quarterly Financial Data (Unaudited)
The following table is a summary of selected quarterly results of operations for the years ended December 31, 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
(Dollars in thousands, except share data)
|
|
March 31
|
|
June 30
|
|
Sept. 30
|
|
Dec. 31
|
2019:
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
81,856
|
|
|
$
|
92,226
|
|
|
$
|
94,589
|
|
|
$
|
91,829
|
|
Interest expense
|
|
14,080
|
|
|
16,375
|
|
|
17,488
|
|
|
14,820
|
|
Net interest income
|
|
67,776
|
|
|
75,851
|
|
|
77,101
|
|
|
77,009
|
|
Provision for (recovery of) loan losses
|
|
2,498
|
|
|
1,919
|
|
|
1,967
|
|
|
(213)
|
|
Income before income taxes
|
|
30,476
|
|
|
26,548
|
|
|
37,532
|
|
|
30,215
|
|
Net income
|
|
25,455
|
|
|
22,163
|
|
|
31,146
|
|
|
23,936
|
|
Per common share data:
|
|
|
|
|
|
|
|
|
Net income per common share - basic
|
|
1.63
|
|
|
1.34
|
|
|
1.90
|
|
|
1.46
|
|
Net income per common share - diluted
|
|
1.62
|
|
|
1.33
|
|
|
1.89
|
|
|
1.45
|
|
Weighted-average common shares outstanding - basic
|
|
15,651,541
|
|
|
16,560,545
|
|
|
16,382,798
|
|
|
16,342,485
|
|
Weighted-average common shares equivalent - diluted
|
|
15,744,777
|
|
|
16,642,571
|
|
|
16,475,741
|
|
|
16,454,553
|
|
2018:
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
73,714
|
|
|
$
|
74,691
|
|
|
$
|
80,229
|
|
|
$
|
82,167
|
|
Interest expense
|
|
8,864
|
|
|
9,949
|
|
|
12,553
|
|
|
12,537
|
|
Net interest income
|
|
64,850
|
|
|
64,742
|
|
|
67,676
|
|
|
69,630
|
|
Provision for loan losses
|
|
260
|
|
|
1,386
|
|
|
2,940
|
|
|
3,359
|
|
Income before income taxes
|
|
37,185
|
|
|
34,064
|
|
|
29,484
|
|
|
30,566
|
|
Net income
|
|
31,123
|
|
|
28,241
|
|
|
24,762
|
|
|
26,261
|
|
Per common share data:
|
|
|
|
|
|
|
|
|
Net income per common share - basic
|
|
2.04
|
|
|
1.85
|
|
|
1.58
|
|
|
1.67
|
|
Net income per common share - diluted
|
|
2.02
|
|
|
1.83
|
|
|
1.56
|
|
|
1.67
|
|
Weighted-average common shares outstanding - basic
|
|
15,288,332
|
|
|
15,285,532
|
|
|
15,686,542
|
|
|
15,695,522
|
|
Weighted-average common shares equivalent - diluted
|
|
15,431,625
|
|
|
15,417,607
|
|
|
15,832,734
|
|
|
15,764,548
|
|
The sum of the quarterly earnings per share data presented in the table may not equal the annual results due to rounding and the impact of dilutive common shares on the annual versus the quarterly earnings per share calculation.