NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1 – Basis of Presentation
The accompanying unaudited consolidated condensed financial statements included in this report have been prepared for Park National Corporation (sometimes also referred to as the “Registrant”) and its subsidiaries. Unless the context otherwise requires, references to "Park", the "Corporation" or the "Company" and similar terms mean Park National Corporation and its subsidiaries. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results of operations for the interim periods included herein have been made. The results of operations for the three-month period ended March 31, 2020 are not necessarily indicative of the operating results to be anticipated for the year ending December 31, 2020.
The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and footnotes necessary for a fair presentation of the condensed balance sheets, condensed statements of income, condensed statements of comprehensive income, condensed statements of changes in shareholders’ equity and condensed statements of cash flows in conformity with U.S. GAAP. These financial statements should be read in conjunction with the consolidated financial statements included in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA in the Annual Report on Form 10-K of Park for the fiscal year ended December 31, 2019 ("Park's 2019 Form 10-K"). Certain prior period amounts have been reclassified to conform to the current period presentation.
Park’s significant accounting policies are described in Note 1 Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Park’s 2019 Form 10-K. For interim reporting purposes, Park follows the same basic accounting policies, as updated by the information contained in this report, and considers each interim period an integral part of an annual period.
The COVID-19 pandemic has caused significant, unprecedented disruption around the world that has affected daily living and negatively impacted the global economy. The effects of COVID-19 pandemic may meaningfully impact significant estimates such as the allowance for loan losses, goodwill, mortgage servicing rights, and pension plan obligations and related expenses. Additionally, the pandemic may particularly impact certain loan concentrations in the hotel, restaurant, arts, entertainment, and recreation, real estate, healthcare, and rental and leasing industries.
Note 2 - Adoption of New Accounting Pronouncements and Issued But Not Yet Effective Accounting Standards
The following is a summary of new accounting pronouncements impacting Park's consolidated financial statements, and issued accounting standards not yet effective for Park:
Adoption of New Accounting Pronouncements
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 for 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 on January 1, 2020 did not have an impact on Park’s consolidated financial statements, but did impact disclosures.
ASU 2020-04 - Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting: In March 2020, the FASB issued ASU 2020-04 - Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this ASU are effective from March 12, 2020 through December 31, 2022. The adoption of this guidance did not have a material impact on Park's consolidated financial statements, but Park will consider this guidance as contracts are transitioned from LIBOR to another reference rate.
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 was to have been effective for Park for annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2019.
Section 4014 of the CARES Act provides financial institutions with optional temporary relief from having to comply with ASU 2016-13 including the CECL methodology for estimating the allowance for credit losses. This temporary relief will expire on the earlier of the date on which the national emergency concerning the COVID-19 outbreak declared by the President on March 15, 2020 terminates or December 31, 2020, with adoption being effective retrospectively as of January 1, 2020.
Park elected to delay the implementation of CECL following the approval of the CARES Act. The CECL standard requires
financial institutions to calculate an allowance utilizing a reasonable and supportable forecast period which Park has established
as a one-year period. Much is still unknown about the economic impact of COVID-19 including the duration of the pandemic,
future government programs that may be established as a result of the pandemic, and the resiliency of the U.S. economy,
making any forecast subject to large fluctuations in the coming months. In this unprecedented situation, Park believes that
adoption of the CECL model in the first quarter 2020 would have added an unnecessary level of subjectivity and volatility to
the calculation of the allowance for credit losses.
With the delay, 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 January 1, 2020. Management has developed a qualitative credit model and is completing the process of validation. Management is still finalizing the analysis of qualitative factors, to capture inherent risks, which are not included within the quantitative credit 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 is using 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 change in the allowance for credit losses as compared to Park's historical ALLL is primarily due to required increases for residential mortgage, home equity, and installment loans to address 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 have low reserve levels under the incurred loss 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 will 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. 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 exist at the adoption date.
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 are to 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. The adoption of the provisions related to the same topics as ASU 2016-01 on January 1, 2020 did not 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 related to the same topics as ASU 2017-12 are effective as of January 1, 2020. This ASU allows entities, like Park, that 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 has 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 ASC related to five topics. The amendments make the ASC 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.
ASU 2020-01 - Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815: In January 2020, the FASB issued ASU 2020-01 - Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. This ASU represents changes to clarify certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815. These amendments improve current U.S. GAAP by reducing diversity in practice and increasing comparability of the accounting for these transactions. The amendments in this ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance will not have a material impact on Park's consolidated financial statements.
ASU 2020-02 - Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842): In February 2020, the FASB issued ASU 2020-02 - Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842). This ASU represents changes to clarify or improve the ASC. The amendments make the ASC easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. It also addresses transition and open effective date information for Topic 842. Park will consider these clarifications and improvements in determining the appropriate adoption of ASU 2016-13.
ASU 2020-03 - Codification Improvements to Financial Instruments: In March 2020, the FASB issued ASU 2020-03 - Codification Improvements to Financial Instruments. This ASU represents changes to clarify or improve the ASC related to seven topics. The amendments make the ASC easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. Issues 1, 2, 3, 4 and 5 are conforming amendments and for public entities were effective upon the issuance of the standard. Issues 6 and 7 are amendments that affect the guidance in ASU 2016-13. Park will consider these clarifications and improvements in determining the appropriate adoption of ASU 2016-13.
Note 3 - Business Combinations
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 transactions completed by the CABF Merger Agreement (the "Carolina Alliance acquisition"), CABF shareholders received 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 Carolina Alliance 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 three months ended March 31, 2020 and 2019, Park recorded merger-related expenses of $234,000 and $205,000, respectively, associated with the Carolina Alliance acquisition.
Goodwill of $46.9 million arising from the Carolina Alliance 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 in the Carolina Alliance acquisition 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 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 believed that all contractual cash flows related to these loans would 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 Carolina Alliance acquisition had occurred as of January 1, 2019. 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.
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|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
(dollars in thousands, except per share data)
|
2020
|
2019
|
|
Net interest income
|
$
|
76,254
|
|
$
|
75,114
|
|
|
Net income
|
$
|
22,540
|
|
$
|
27,220
|
|
|
Basic earnings per share
|
$
|
1.38
|
|
$
|
1.63
|
|
|
Diluted earnings per share
|
$
|
1.37
|
|
$
|
1.62
|
|
Note 4 – 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. For the three-month periods ended March 31, 2020 and 2019, there were no investment securities deemed to be other-than-temporarily impaired.
Investment securities at March 31, 2020, were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities AFS (In thousands)
|
|
Amortized
Cost
|
|
Gross
Unrealized
Holding
Gains
|
|
Gross
Unrealized
Holding
Losses
|
|
Fair Value
|
|
Obligations of states and political subdivisions
|
|
$
|
302,329
|
|
|
$
|
18,516
|
|
|
$
|
79
|
|
|
$
|
320,766
|
|
|
U.S. Government sponsored entities' asset-backed securities
|
|
836,860
|
|
|
26,900
|
|
|
127
|
|
|
863,633
|
|
|
Total
|
|
$
|
1,139,189
|
|
|
$
|
45,416
|
|
|
$
|
206
|
|
|
$
|
1,184,399
|
|
Investment securities in an unrealized loss position at March 31, 2020, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss position for less than 12 months
|
|
|
|
Unrealized loss position for 12 months or longer
|
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Fair value
|
|
Unrealized
losses
|
|
Fair value
|
|
Unrealized
losses
|
|
Fair
value
|
|
Unrealized
losses
|
|
Debt securities AFS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
$
|
3,164
|
|
|
$
|
79
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,164
|
|
|
$
|
79
|
|
|
U.S. Government sponsored entities' asset-backed securities
|
|
—
|
|
|
—
|
|
|
21,057
|
|
|
127
|
|
|
21,057
|
|
|
127
|
|
|
Total
|
|
$
|
3,164
|
|
|
$
|
79
|
|
|
$
|
21,057
|
|
|
$
|
127
|
|
|
$
|
24,221
|
|
|
$
|
206
|
|
Investment securities at December 31, 2019, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities AFS (In thousands)
|
|
Amortized
Cost
|
|
Gross
Unrealized
Holding
Gains
|
|
Gross
Unrealized
Holding
Losses
|
|
Fair Value
|
|
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
|
|
Investment securities in an unrealized loss position at December 31, 2019, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss position for less than 12 months
|
|
|
|
Unrealized loss position for 12 months or longer
|
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Fair value
|
|
Unrealized
losses
|
|
Fair value
|
|
Unrealized
losses
|
|
Fair
value
|
|
Unrealized
losses
|
|
Debt securities AFS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Management does not believe any of the unrealized losses at March 31, 2020 or December 31, 2019 represented other-than-temporary impairment. The unrealized losses 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.
Park’s U.S. Government sponsored entities' asset-backed securities consist primarily of 15-year residential mortgage-backed securities and collateralized mortgage obligations.
The amortized cost and estimated fair value of investments in debt securities at March 31, 2020, 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 of principal repayments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities AFS (In thousands)
|
|
Amortized
cost
|
|
Fair value
|
|
Tax equivalent yield (1)
|
|
|
|
|
|
|
|
|
|
U.S. Government sponsored entities' asset-backed securities
|
|
$
|
836,860
|
|
|
$
|
863,633
|
|
|
2.39
|
%
|
|
|
|
|
|
|
|
|
|
Obligations of state and political subdivisions:
|
|
|
|
|
|
|
|
Due five through ten years
|
|
$
|
38,050
|
|
|
$
|
40,271
|
|
|
3.80
|
%
|
|
Due over ten years
|
|
264,279
|
|
|
280,495
|
|
|
3.66
|
%
|
|
Total (1)
|
|
$
|
302,329
|
|
|
$
|
320,766
|
|
|
3.68
|
%
|
(1) The tax equivalent yield for certain obligations of state and political subdivisions includes the effects of a taxable equivalent adjustment using a 21% federal corporate income tax rate.
There were no sales of investment securities during the three-month periods ended March 31, 2020 or 2019.
Investment securities having an amortized cost of $597 million and $585 million at March 31, 2020 and December 31, 2019, respectively, were pledged to collateralize government and trust department deposits in accordance with federal and state requirements, to secure repurchase agreements sold and as collateral for FHLB advance borrowings.
Note 5 – Other Investment Securities
Other investment securities consist of stock investments in the FHLB, the FRB, and equity securities. The FHLB and FRB 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 NAV practical expedient in accordance with ASC 820.
The carrying amounts of other investment securities at March 31, 2020 and December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 31, 2020
|
|
December 31, 2019
|
|
FHLB stock
|
|
$
|
28,843
|
|
|
$
|
30,060
|
|
|
FRB stock
|
|
14,653
|
|
|
14,653
|
|
|
Equity investments carried at fair value
|
|
1,982
|
|
|
1,993
|
|
|
Equity investments carried at modified cost (1)
|
|
2,689
|
|
|
2,689
|
|
|
Equity investments carried at net asset value
|
|
20,521
|
|
|
20,411
|
|
|
Total other investment securities
|
|
$
|
68,688
|
|
|
$
|
69,806
|
|
(1) There have been no impairments, downward adjustments, or upward adjustments made to equity investments carried at modified cost.
During the three months ended March 31, 2020 and 2019, the FHLB repurchased 12,163 and 54,053 shares, respectively, of FHLB stock with a book value of $1.2 million and $5.4 million, respectively. During the three months ended March 31, 2019, Park purchased 51,722 shares of FRB stock, with a book value of $2.6 million. No shares of FRB stock were purchased during the three months ended March 31, 2020.
During the three months ended March 31, 2020 and 2019, $(769,000) and $121,000, respectively, of unrealized (losses) gains on equity investments carried at fair value were recorded within "(Loss) gain on equity securities, net" on the Consolidated Condensed Statements of Income. During the three months ended March 31, 2020 and 2019, $(0.2) million and $1.6 million, respectively, of (losses) gains on equity investments carried at NAV were recorded within “(Loss) gain on equity securities, net” on the Consolidated Condensed Statements of Income.
Note 6 – Loans
The composition of the loan portfolio, by class of loan, at March 31, 2020 and December 31, 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
(In thousands)
|
Loan
Balance
|
|
Accrued
Interest
Receivable
|
|
Recorded
Investment
|
|
|
Loan
Balance
|
|
Accrued
Interest
Receivable
|
|
Recorded
Investment
|
|
Commercial, financial and agricultural *
|
$
|
1,202,857
|
|
|
$
|
4,577
|
|
|
$
|
1,207,434
|
|
|
|
$
|
1,185,110
|
|
|
$
|
4,393
|
|
|
$
|
1,189,503
|
|
|
Commercial real estate *
|
1,627,426
|
|
|
5,617
|
|
|
1,633,043
|
|
|
|
1,609,413
|
|
|
5,571
|
|
|
1,614,984
|
|
|
Construction real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
232,327
|
|
|
722
|
|
|
233,049
|
|
|
|
233,637
|
|
|
826
|
|
|
234,463
|
|
|
Mortgage
|
101,401
|
|
|
243
|
|
|
101,644
|
|
|
|
96,574
|
|
|
228
|
|
|
96,802
|
|
|
Installment
|
1,350
|
|
|
5
|
|
|
1,355
|
|
|
|
1,488
|
|
|
4
|
|
|
1,492
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
466,002
|
|
|
1,187
|
|
|
467,189
|
|
|
|
479,081
|
|
|
1,339
|
|
|
480,420
|
|
|
Mortgage
|
1,178,621
|
|
|
1,490
|
|
|
1,180,111
|
|
|
|
1,176,316
|
|
|
1,381
|
|
|
1,177,697
|
|
|
HELOC
|
220,571
|
|
|
934
|
|
|
221,505
|
|
|
|
224,766
|
|
|
1,113
|
|
|
225,879
|
|
|
Installment
|
11,775
|
|
|
31
|
|
|
11,806
|
|
|
|
12,563
|
|
|
32
|
|
|
12,595
|
|
|
Consumer
|
1,451,297
|
|
|
4,206
|
|
|
1,455,503
|
|
|
|
1,452,375
|
|
|
4,314
|
|
|
1,456,689
|
|
|
Leases
|
28,892
|
|
|
17
|
|
|
28,909
|
|
|
|
30,081
|
|
|
20
|
|
|
30,101
|
|
|
Total loans
|
$
|
6,522,519
|
|
|
$
|
19,029
|
|
|
$
|
6,541,548
|
|
|
|
$
|
6,501,404
|
|
|
$
|
19,221
|
|
|
$
|
6,520,625
|
|
* Included within each of commercial, financial and agricultural loans and commercial real estate loans is an immaterial amount of consumer loans that are not broken out by class.
Loans are shown net of deferred origination fees, costs and unearned income of $16.3 million at both March 31, 2020 and December 31, 2019, which represented a net deferred income position at each date. At March 31, 2020 and December 31, 2019, loans included purchase accounting adjustments of $10.4 million and $11.7 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 $1.6 million and $2.2 million had been reclassified to loans at March 31, 2020 and December 31, 2019, respectively, and are included in the commercial, financial and agricultural loan class above.
Credit Quality
The following tables present the recorded investment in nonaccrual loans, accruing TDRs, and loans past due 90 days or more and still accruing by class of loan at March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
(In thousands)
|
|
Nonaccrual
Loans
|
|
Accruing
TDRs
|
|
Loans Past Due
90 Days or More
and Accruing
|
|
Total
Nonperforming
Loans
|
|
Commercial, financial and agricultural
|
|
$
|
21,330
|
|
|
$
|
8,224
|
|
|
$
|
18
|
|
|
$
|
29,572
|
|
|
Commercial real estate
|
|
43,950
|
|
|
6,197
|
|
|
638
|
|
|
50,785
|
|
|
Construction real estate:
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
452
|
|
|
—
|
|
|
—
|
|
|
452
|
|
|
Mortgage
|
|
18
|
|
|
95
|
|
|
—
|
|
|
113
|
|
|
Installment
|
|
—
|
|
|
18
|
|
|
—
|
|
|
18
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
5,581
|
|
|
—
|
|
|
—
|
|
|
5,581
|
|
|
Mortgage
|
|
14,383
|
|
|
8,806
|
|
|
636
|
|
|
23,825
|
|
|
HELOC
|
|
1,600
|
|
|
997
|
|
|
6
|
|
|
2,603
|
|
|
Installment
|
|
367
|
|
|
2,005
|
|
|
4
|
|
|
2,376
|
|
|
Consumer
|
|
2,544
|
|
|
1,076
|
|
|
366
|
|
|
3,986
|
|
|
Leases
|
|
129
|
|
|
—
|
|
|
187
|
|
|
316
|
|
|
Total loans
|
|
$
|
90,354
|
|
|
$
|
27,418
|
|
|
$
|
1,855
|
|
|
$
|
119,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 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
|
|
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 at March 31, 2020 and December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
(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
|
|
$
|
29,554
|
|
|
$
|
29,542
|
|
|
$
|
12
|
|
|
|
$
|
33,125
|
|
|
$
|
33,088
|
|
|
$
|
37
|
|
|
Commercial real estate
|
|
50,147
|
|
|
50,147
|
|
|
—
|
|
|
|
41,791
|
|
|
41,791
|
|
|
—
|
|
|
Construction real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
452
|
|
|
452
|
|
|
—
|
|
|
|
453
|
|
|
453
|
|
|
—
|
|
|
Mortgage
|
|
113
|
|
|
—
|
|
|
113
|
|
|
|
109
|
|
—
|
|
|
109
|
|
Installment
|
|
18
|
|
|
—
|
|
|
18
|
|
|
|
77
|
|
—
|
|
|
77
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
5,581
|
|
|
5,581
|
|
|
—
|
|
|
|
2,025
|
|
|
2,025
|
|
|
—
|
|
|
Mortgage
|
|
23,189
|
|
|
—
|
|
|
23,189
|
|
|
|
24,097
|
|
|
—
|
|
|
24,097
|
|
|
HELOC
|
|
2,597
|
|
|
—
|
|
|
2,597
|
|
|
|
3,072
|
|
|
—
|
|
|
3,072
|
|
|
Installment
|
|
2,372
|
|
|
—
|
|
|
2,372
|
|
|
|
2,426
|
|
|
—
|
|
|
2,426
|
|
|
Consumer
|
|
3,620
|
|
|
—
|
|
|
3,620
|
|
|
|
4,069
|
|
|
—
|
|
|
4,069
|
|
|
Leases
|
|
129
|
|
|
129
|
|
|
—
|
|
|
|
134
|
|
|
134
|
|
|
—
|
|
|
Total loans
|
|
$
|
117,772
|
|
|
$
|
85,851
|
|
|
$
|
31,921
|
|
|
|
$
|
111,378
|
|
|
$
|
77,491
|
|
|
$
|
33,887
|
|
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 at March 31, 2020 and December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
(In thousands)
|
|
Unpaid Principal Balance
|
|
Recorded Investment
|
|
Allowance for Loan Losses Allocated
|
|
|
Unpaid Principal Balance
|
|
Recorded Investment
|
|
Allowance for Loan Losses Allocated
|
|
With no related allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural
|
|
$
|
17,334
|
|
|
$
|
17,137
|
|
|
$
|
—
|
|
|
|
$
|
21,194
|
|
|
$
|
21,010
|
|
|
$
|
—
|
|
|
Commercial real estate
|
|
49,676
|
|
|
49,593
|
|
|
—
|
|
|
|
41,696
|
|
|
41,471
|
|
|
—
|
|
|
Construction real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
452
|
|
|
452
|
|
|
—
|
|
|
|
453
|
|
|
453
|
|
|
—
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
5,545
|
|
|
5,478
|
|
|
—
|
|
|
|
1,921
|
|
|
1,854
|
|
|
—
|
|
|
Leases
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
With an allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural
|
|
12,586
|
|
|
12,405
|
|
|
5,365
|
|
|
|
12,289
|
|
|
12,078
|
|
|
5,104
|
|
|
Commercial real estate
|
|
554
|
|
|
554
|
|
|
96
|
|
|
|
320
|
|
|
320
|
|
|
35
|
|
|
Construction real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
103
|
|
|
103
|
|
|
25
|
|
|
|
171
|
|
|
171
|
|
|
42
|
|
|
Leases
|
|
129
|
|
|
129
|
|
|
45
|
|
|
|
134
|
|
|
134
|
|
|
49
|
|
|
Total
|
|
$
|
86,379
|
|
|
$
|
85,851
|
|
|
$
|
5,531
|
|
|
|
$
|
78,178
|
|
|
$
|
77,491
|
|
|
$
|
5,230
|
|
Management’s general practice is to proactively charge down loans individually evaluated for impairment to the fair value of the underlying collateral. At March 31, 2020 and December 31, 2019, there were $0.6 million and $0.5 million, respectively, of partial charge-offs on loans individually evaluated for impairment with no related allowance recorded and $181,000 and $210,000, respectively, of partial charge-offs on loans individually evaluated for impairment that also had a specific reserve allocated.
The allowance for loan losses included specific reserves related to loans individually evaluated for impairment at March 31, 2020 and December 31, 2019, of $5.5 million and $5.2 million, respectively. These loans with specific reserves had a recorded investment of $13.2 million and $12.7 million at March 31, 2020 and December 31, 2019, 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 in the loans. Interest income on accruing TDRs individually evaluated for impairment continues to be recorded on an accrual basis. The following table presents the average recorded investment and interest income recognized subsequent to impairment on loans individually evaluated for impairment as of and for the three months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2020
|
|
|
|
|
|
|
Three Months Ended
March 31, 2019
|
|
|
|
|
|
(In thousands)
|
|
Recorded Investment at March 31, 2020
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
|
|
Recorded Investment at March 31, 2019
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
|
Commercial, financial and agricultural
|
|
$
|
29,542
|
|
|
$
|
31,657
|
|
|
$
|
204
|
|
|
|
$
|
14,844
|
|
|
$
|
14,924
|
|
|
$
|
47
|
|
|
Commercial real estate
|
|
50,147
|
|
|
44,457
|
|
|
481
|
|
|
|
31,138
|
|
|
28,851
|
|
|
271
|
|
|
Construction real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
452
|
|
|
424
|
|
|
4
|
|
|
|
2,879
|
|
|
2,239
|
|
|
12
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
5,581
|
|
|
2,925
|
|
|
23
|
|
|
|
2,046
|
|
|
2,588
|
|
|
20
|
|
|
Leases
|
|
129
|
|
|
132
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
|
$
|
85,851
|
|
|
$
|
79,595
|
|
|
$
|
712
|
|
|
|
$
|
50,907
|
|
|
$
|
48,602
|
|
|
$
|
350
|
|
The following tables present the aging of the recorded investment in past due loans at March 31, 2020 and December 31, 2019 by class of loan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
(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
|
$
|
5,229
|
|
|
$
|
12,515
|
|
|
$
|
17,744
|
|
|
$
|
1,189,690
|
|
|
$
|
1,207,434
|
|
|
Commercial real estate
|
1,844
|
|
|
1,604
|
|
|
3,448
|
|
|
1,629,595
|
|
|
1,633,043
|
|
|
Construction real estate:
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
—
|
|
|
25
|
|
|
25
|
|
|
233,024
|
|
|
233,049
|
|
|
Mortgage
|
176
|
|
|
—
|
|
|
176
|
|
|
101,468
|
|
|
101,644
|
|
|
Installment
|
30
|
|
|
—
|
|
|
30
|
|
|
1,325
|
|
|
1,355
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
55
|
|
|
1,002
|
|
|
1,057
|
|
|
466,132
|
|
|
467,189
|
|
|
Mortgage
|
12,786
|
|
|
8,021
|
|
|
20,807
|
|
|
1,159,304
|
|
|
1,180,111
|
|
|
HELOC
|
490
|
|
|
737
|
|
|
1,227
|
|
|
220,278
|
|
|
221,505
|
|
|
Installment
|
221
|
|
|
249
|
|
|
470
|
|
|
11,336
|
|
|
11,806
|
|
|
Consumer
|
5,868
|
|
|
1,096
|
|
|
6,964
|
|
|
1,448,539
|
|
|
1,455,503
|
|
|
Leases
|
30
|
|
|
187
|
|
|
217
|
|
|
28,692
|
|
|
28,909
|
|
|
Total loans
|
$
|
26,729
|
|
|
$
|
25,436
|
|
|
$
|
52,165
|
|
|
$
|
6,489,383
|
|
|
$
|
6,541,548
|
|
(1) Includes an aggregate of $1.9 million of loans past due 90 days or more and accruing. The remaining loans were past due nonaccrual loans.
(2) Includes an aggregate of $66.8 million of nonaccrual loans which were current in regards to contractual principal and interest payments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 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 loans were past due nonaccrual loans.
(2) Includes an aggregate of $66.3 million of nonaccrual loans which were 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 at March 31, 2020 and December 31, 2019 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 March 31, 2020 and December 31, 2019 for all commercial loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
5 Rated
|
|
6 Rated
|
|
Nonaccrual and Accruing TDRs
|
|
Purchase Credit Impaired (1)
|
|
Pass-Rated
|
|
Recorded
Investment
|
|
Commercial, financial and agricultural *
|
$
|
11,490
|
|
|
$
|
—
|
|
|
$
|
29,554
|
|
|
$
|
620
|
|
|
$
|
1,165,770
|
|
|
$
|
1,207,434
|
|
|
Commercial real estate *
|
9,793
|
|
|
186
|
|
|
50,147
|
|
|
9,337
|
|
|
1,563,580
|
|
|
1,633,043
|
|
|
Construction real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
4,857
|
|
|
—
|
|
|
452
|
|
|
1,032
|
|
|
226,708
|
|
|
233,049
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
549
|
|
|
26
|
|
|
5,581
|
|
|
1,583
|
|
|
459,450
|
|
|
467,189
|
|
|
Leases
|
—
|
|
|
—
|
|
|
129
|
|
|
340
|
|
|
28,440
|
|
|
28,909
|
|
|
Total commercial loans
|
$
|
26,689
|
|
|
$
|
212
|
|
|
$
|
85,863
|
|
|
$
|
12,912
|
|
|
$
|
3,443,948
|
|
|
$
|
3,569,624
|
|
* Included within each of commercial, financial and agricultural loans and commercial real estate loans is an immaterial amount of consumer loans that are not broken out by class.
(1) There were no loans acquired with deteriorated credit quality which were nonaccrual or TDRs at March 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
5 Rated
|
|
6 Rated
|
|
Nonaccrual and Accruing TDRs
|
|
Purchase 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 each of commercial, financial and agricultural loans and commercial real estate loans is an immaterial amount of consumer loans that are not broken out by class.
(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.
Loans and Leases Acquired with Deteriorated Credit Quality
In conjunction with the NewDominion Bank 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 March 31, 2020 and December 31, 2019 was $2.9 million and $3.0 million, respectively, while the outstanding customer balance was $3.0 million and $3.2 million, respectively. At March 31, 2020 and December 31, 2019, an allowance for loan losses of $6,000 and $101,000, respectively, had been recognized related to the acquired impaired loans.
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 March 31, 2020 and December 31, 2019 was $10.9 million and $11.3 million, respectively, while the outstanding customer balance was $13.3 million and $13.8 million, respectively. At March 31, 2020 and December 31, 2019, an allowance for loan losses of $113,000 and $167,000, respectively, had been recognized related to the acquired impaired loans and leases.
Troubled Debt Restructurings
Management typically 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.
Additionally, Park is working with borrowers impacted by the COVID-19 pandemic and providing modifications to include either interest only deferral or principal and interest deferral, in each case, for initial periods up to 90 days. A majority of these modifications are excluded from TDR classification under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators. In accordance with this guidance, modified loans will be considered current and will continue to accrue interest during the deferral period.
Certain other loans which were modified during the three-month periods ended March 31, 2020 and March 31, 2019 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.
At March 31, 2020 and December 31, 2019, there were $26.6 million and $34.3 million, respectively, of TDRs included in the nonaccrual loan totals. At March 31, 2020 and December 31, 2019, $15.9 million and $23.2 million, respectively, of these nonaccrual TDRs were performing in accordance with the terms of the restructured note. At March 31, 2020 and December 31, 2019, loans with a recorded investment of $27.4 million and $21.3 million, respectively, were included in accruing TDR loan totals. Management will continue to review the restructured loans and may determine it is appropriate to move certain nonaccrual TDRs to accrual status in the future.
At March 31, 2020 and December 31, 2019, Park had commitments to lend $10.7 million and $7.9 million, respectively, of additional funds to borrowers whose outstanding loan terms had been modified in a TDR.
At March 31, 2020 and December 31, 2019, there were $2.1 million and $2.2 million, respectively, of specific reserves related to TDRs. Modifications made in 2020 and 2019 were largely the result of renewals and extending the maturity date of the loans at terms consistent with the original notes. 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. There were no additional specific reserves recorded during either of the three-month periods ended March 31, 2020 or March 31, 2019 as a result of TDRs identified in the period.
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 did 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 if 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. There were no TDR classifications removed during the three-month period ended March 31, 2020. The TDR classification was removed on $23,000 of loans during the three-month period ended March 31, 2019.
The terms of certain other loans were modified during the three-month periods ended March 31, 2020 and March 31, 2019 that did not meet the definition of a TDR. Excluding COVID-19 related modifications, there were $0.1 million of substandard commercial loans modified during the three-month period ended March 31, 2020 which did not meet the definition of a TDR. There were no substandard commercial loans modified during the three-month period ended March 31, 2019 which did not meet the definition of a TDR. Excluding COVID-19 related modifications, consumer loans modified during the three-month
period ended March 31, 2020 which did not meet the definition of a TDR had a total recorded investment of $12.2 million. Consumer loans with a recorded investment of $7.2 million were modified during the three-month periods ended March 31, 2019, and did not meet the definition of a TDR. 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 $270,000 and $440,000 of modified PCI loans that were accounted for under a pooled approach as of March 31, 2020 and December 31, 2019, respectively, that did not meet the definition of a TDR.
Through March 31, 2020, Park modified $248.1 million of commercial loans and $5.0 million of consumer loans in COVID-19 related modifications. Of these COVID-19 modifications, $5.5 million of commercial loans and $27,000 of consumer loans were already classified as TDRs due to previous modifications. The remaining loans met the exclusion criteria for TDR accounting either in Section 4013 of the CARES Act or applicable interagency guidance.
The following tables detail the number of contracts modified as TDRs during the three-month periods ended March 31, 2020 and March 31, 2019, as well as the recorded investment of these contracts at March 31, 2020 and March 31, 2019. The recorded investment pre- and post-modification is generally the same due to the fact that Park does not typically forgive principal.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2020
|
|
|
|
|
|
|
|
(In thousands)
|
|
Number of
Contracts
|
|
Accruing
|
|
Nonaccrual
|
|
Total
Recorded
Investment
|
|
Commercial, financial and agricultural
|
|
4
|
|
|
$
|
—
|
|
|
$
|
1,094
|
|
|
$
|
1,094
|
|
|
Commercial real estate
|
|
2
|
|
|
1,136
|
|
|
60
|
|
|
1,196
|
|
|
Construction real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Mortgage
|
|
1
|
|
|
11
|
|
|
—
|
|
|
11
|
|
|
Installment
|
|
1
|
|
|
15
|
|
|
—
|
|
|
15
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Mortgage
|
|
6
|
|
|
111
|
|
|
280
|
|
|
391
|
|
|
HELOC
|
|
3
|
|
|
101
|
|
|
9
|
|
|
110
|
|
|
Installment
|
|
8
|
|
|
110
|
|
|
17
|
|
|
127
|
|
|
Consumer
|
|
57
|
|
|
112
|
|
|
352
|
|
|
464
|
|
|
Total loans
|
|
82
|
|
|
$
|
1,596
|
|
|
$
|
1,812
|
|
|
$
|
3,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2019
|
|
|
|
|
|
|
|
(In thousands)
|
|
Number of
Contracts
|
|
Accruing
|
|
Nonaccrual
|
|
Total
Recorded
Investment
|
|
Commercial, financial and agricultural
|
|
5
|
|
|
$
|
—
|
|
|
$
|
472
|
|
|
$
|
472
|
|
|
Commercial real estate
|
|
2
|
|
|
—
|
|
|
2,215
|
|
|
2,215
|
|
|
Construction real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
1
|
|
|
480
|
|
|
—
|
|
|
480
|
|
|
Mortgage
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Installment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Mortgage
|
|
8
|
|
|
54
|
|
|
510
|
|
|
564
|
|
|
HELOC
|
|
3
|
|
|
—
|
|
|
81
|
|
|
81
|
|
|
Installment
|
|
8
|
|
|
94
|
|
|
95
|
|
|
189
|
|
|
Consumer
|
|
69
|
|
|
24
|
|
|
535
|
|
|
559
|
|
|
Total loans
|
|
96
|
|
|
$
|
652
|
|
|
$
|
3,908
|
|
|
$
|
4,560
|
|
Of those loans which were modified and determined to be a TDR during the three-month period ended March 31, 2020, $0.3 million were on nonaccrual status at December 31, 2019. Of those loans which were modified and determined to be a TDR during the three-month period ended March 31, 2019, $0.7 million were on nonaccrual status at December 31, 2018.
The following tables present the recorded investment in loans which were modified as TDRs within the previous 12 months and for which there was a payment default during the three-month periods ended March 31, 2020 and March 31, 2019, respectively. For these tables, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2020
|
|
|
|
|
Three Months Ended
March 31, 2019
|
|
|
|
(In thousands)
|
Number of
Contracts
|
|
Recorded
Investment
|
|
|
Number of
Contracts
|
|
Recorded
Investment
|
|
Commercial, financial and agricultural
|
2
|
|
|
$
|
4,068
|
|
|
|
6
|
|
|
$
|
153
|
|
|
Commercial real estate
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
Construction real estate:
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
Mortgage
|
1
|
|
|
77
|
|
|
|
—
|
|
|
—
|
|
|
Installment
|
1
|
|
|
15
|
|
|
|
—
|
|
|
—
|
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
Mortgage
|
4
|
|
|
443
|
|
|
|
3
|
|
|
68
|
|
|
HELOC
|
4
|
|
|
71
|
|
|
|
5
|
|
|
68
|
|
|
Installment
|
1
|
|
|
17
|
|
|
|
1
|
|
|
28
|
|
|
Consumer
|
36
|
|
|
369
|
|
|
|
40
|
|
|
343
|
|
|
Leases
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
Total loans
|
49
|
|
|
$
|
5,060
|
|
|
|
55
|
|
|
$
|
660
|
|
Of the $5.1 million in modified TDRs which defaulted during the three-month period ended March 31, 2020, $4.5 million were accruing loans and $0.5 million were nonaccrual loans. Of the $0.7 million in modified TDRs which defaulted during the three-month period ended March 31, 2019, $9,000 were accruing loans and $0.7 million were nonaccrual loans.
Note 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 of the Notes to the Consolidated Financial Statements included in Park's 2019 Form 10-K.
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 have been 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, percent change in Ohio GDP, 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 March 31, 2020 and 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. The environmental loss factors were updated in the first quarter of 2020 to consider the economic impact of the COVID-19 pandemic. These factors were increased from 0.60% at December 31, 2019 to 0.675% at March 31, 2020. This was the result of adjusting the factors for Ohio unemployment, percent change in Ohio GDP and the consumer confidence near the top end of Park's established range. This increase considered the current economic environment as a result of the COVID-19 pandemic, modification programs Park has put in place, and the overall uncertainty of the economic impact of the pandemic. Management will continue to evaluate this estimate of incurred losses as new information becomes available.
For the consumer portfolio, a specific COVID-19 factor was added to each segment equal to 25% of the 120-month historical loss factor. This increase considers the payment deferrals being provided to consumer loan customers as well as the likely delays in delinquencies and charge-offs as a result.
Much is still unknown about the economic impact of COVID-19, including the duration of the pandemic, future government programs that may be established as a result of the pandemic, and the resiliency of the U.S. economy. Management will continue to evaluate this estimate of incurred losses as new information becomes available. Given uncertainty about the magnitude and length of the COVID-19 pandemic and related economic shutdown, additional loan loss provisions may be required that would adversely impact earnings in future periods.
The activity in the allowance for loan losses for the three-month periods ended March 31, 2020 and March 31, 2019 is summarized in the following tables.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Commercial,
financial and
agricultural
|
|
Commercial
real estate
|
|
Construction
real estate
|
|
Residential
real estate
|
|
Consumer
|
|
Leases
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
20,203
|
|
|
$
|
10,229
|
|
|
$
|
5,311
|
|
|
$
|
8,610
|
|
|
$
|
12,211
|
|
|
$
|
115
|
|
|
$
|
56,679
|
|
|
Charge-offs
|
523
|
|
|
—
|
|
|
6
|
|
|
71
|
|
|
2,085
|
|
|
—
|
|
|
2,685
|
|
|
Recoveries
|
700
|
|
|
300
|
|
|
230
|
|
|
96
|
|
|
1,030
|
|
|
—
|
|
|
2,356
|
|
|
Net (recoveries)/charge-offs
|
(177)
|
|
|
(300)
|
|
|
(224)
|
|
|
(25)
|
|
|
1,055
|
|
|
—
|
|
|
329
|
|
|
Provision/(recovery)
|
1,164
|
|
|
1,062
|
|
|
(42)
|
|
|
382
|
|
|
2,572
|
|
|
15
|
|
|
5,153
|
|
|
Ending balance
|
$
|
21,544
|
|
|
$
|
11,591
|
|
|
$
|
5,493
|
|
|
$
|
9,017
|
|
|
$
|
13,728
|
|
|
$
|
130
|
|
|
$
|
61,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Commercial,
financial and
agricultural
|
|
Commercial
real estate
|
|
Construction
real estate
|
|
Residential
real estate
|
|
Consumer
|
|
Leases
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
16,777
|
|
|
$
|
9,768
|
|
|
$
|
4,463
|
|
|
$
|
8,731
|
|
|
$
|
11,773
|
|
|
$
|
—
|
|
|
$
|
51,512
|
|
|
Charge-offs
|
198
|
|
|
54
|
|
|
—
|
|
|
29
|
|
|
2,706
|
|
|
—
|
|
|
2,987
|
|
|
Recoveries
|
416
|
|
|
59
|
|
|
88
|
|
|
382
|
|
|
1,400
|
|
|
—
|
|
|
2,345
|
|
|
Net (recoveries)/charge-offs
|
(218)
|
|
|
(5)
|
|
|
(88)
|
|
|
(353)
|
|
|
1,306
|
|
|
—
|
|
|
642
|
|
|
Provision
|
342
|
|
|
420
|
|
|
13
|
|
|
86
|
|
|
1,637
|
|
|
—
|
|
|
2,498
|
|
|
Ending balance
|
$
|
17,337
|
|
|
$
|
10,193
|
|
|
$
|
4,564
|
|
|
$
|
9,170
|
|
|
$
|
12,104
|
|
|
$
|
—
|
|
|
$
|
53,368
|
|
Loans collectively evaluated for impairment in the following tables include all performing loans at March 31, 2020 and December 31, 2019, 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 March 31, 2020 and December 31, 2019, which are evaluated for impairment in accordance with U.S. GAAP (see Note 1 - Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Park’s 2019 Form 10-K).
The composition of the allowance for loan losses at March 31, 2020 and December 31, 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
|
$
|
5,365
|
|
|
$
|
96
|
|
|
$
|
—
|
|
|
$
|
25
|
|
|
$
|
—
|
|
|
$
|
45
|
|
|
$
|
5,531
|
|
|
Collectively evaluated for impairment
|
16,138
|
|
|
11,487
|
|
|
5,493
|
|
|
8,922
|
|
|
13,728
|
|
|
85
|
|
|
55,853
|
|
|
Acquired with deteriorated credit quality
|
41
|
|
|
8
|
|
|
—
|
|
|
70
|
|
|
—
|
|
|
—
|
|
|
119
|
|
|
Total ending allowance balance
|
$
|
21,544
|
|
|
$
|
11,591
|
|
|
$
|
5,493
|
|
|
$
|
9,017
|
|
|
$
|
13,728
|
|
|
$
|
130
|
|
|
$
|
61,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
$
|
29,500
|
|
|
$
|
49,984
|
|
|
$
|
452
|
|
|
$
|
5,581
|
|
|
$
|
—
|
|
|
$
|
129
|
|
|
$
|
85,646
|
|
|
Loans collectively evaluated for impairment
|
1,172,741
|
|
|
1,568,199
|
|
|
333,500
|
|
|
1,868,949
|
|
|
1,451,296
|
|
|
28,423
|
|
|
6,423,108
|
|
|
Loans acquired with deteriorated credit quality
|
616
|
|
|
9,243
|
|
|
1,126
|
|
|
2,439
|
|
|
1
|
|
|
340
|
|
|
13,765
|
|
|
Total ending loan balance
|
$
|
1,202,857
|
|
|
$
|
1,627,426
|
|
|
$
|
335,078
|
|
|
$
|
1,876,969
|
|
|
$
|
1,451,297
|
|
|
$
|
28,892
|
|
|
$
|
6,522,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a percentage of loan balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
18.19
|
%
|
|
0.19
|
%
|
|
—
|
%
|
|
0.45
|
%
|
|
—
|
%
|
|
34.88
|
%
|
|
6.46
|
%
|
|
Loans collectively evaluated for impairment
|
1.38
|
%
|
|
0.73
|
%
|
|
1.65
|
%
|
|
0.48
|
%
|
|
0.95
|
%
|
|
0.30
|
%
|
|
0.87
|
%
|
|
Loans acquired with deteriorated credit quality
|
6.66
|
%
|
|
0.09
|
%
|
|
—
|
%
|
|
2.87
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
Total
|
1.79
|
%
|
|
0.71
|
%
|
|
1.64
|
%
|
|
0.48
|
%
|
|
0.95
|
%
|
|
0.45
|
%
|
|
0.94
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
$
|
29,542
|
|
|
$
|
50,147
|
|
|
$
|
452
|
|
|
$
|
5,581
|
|
|
$
|
—
|
|
|
$
|
129
|
|
|
$
|
85,851
|
|
|
Loans collectively evaluated for impairment
|
1,177,272
|
|
|
1,573,559
|
|
|
334,467
|
|
|
1,872,578
|
|
|
1,455,502
|
|
|
28,440
|
|
|
6,441,818
|
|
|
Loans acquired with deteriorated credit quality
|
620
|
|
|
9,337
|
|
|
1,129
|
|
|
2,452
|
|
|
1
|
|
|
340
|
|
|
13,879
|
|
|
Total ending recorded investment
|
$
|
1,207,434
|
|
|
$
|
1,633,043
|
|
|
$
|
336,048
|
|
|
$
|
1,880,611
|
|
|
$
|
1,455,503
|
|
|
$
|
28,909
|
|
|
$
|
6,541,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 or modification post acquisition. These loans had a balance of $5,000, a recorded investment of $6,000, and no allowance as of December 31, 2019.
Note 8 – Loans Held For Sale
Mortgage loans held for sale are carried at their fair value. At March 31, 2020 and December 31, 2019, respectively, Park had $23.9 million and $12.3 million in mortgage loans held for sale. These amounts are included in loans on the Consolidated Condensed 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 $23.6 million and $12.1 million at March 31, 2020 and December 31, 2019, respectively. The gain expected upon sale was $328,000 and $153,000 at March 31, 2020 and December 31, 2019, respectively. None of these loans were 90 days or more past due or on nonaccrual status as of March 31, 2020 or December 31, 2019.
Note 9 – Goodwill and Other Intangible Assets
The following table shows the activity in goodwill and other intangible assets for the three months ended March 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Goodwill
|
|
Other
intangible assets
|
|
Total
|
|
December 31, 2018
|
|
$
|
112,739
|
|
|
$
|
6,971
|
|
|
$
|
119,710
|
|
|
Acquired goodwill and other intangible assets
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Amortization
|
|
—
|
|
|
289
|
|
|
289
|
|
|
March 31, 2019
|
|
$
|
112,739
|
|
|
$
|
6,682
|
|
|
$
|
119,421
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
$
|
159,595
|
|
|
$
|
11,523
|
|
|
$
|
171,118
|
|
|
Acquired goodwill and other intangible assets
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Amortization
|
|
—
|
|
|
606
|
|
|
606
|
|
|
March 31, 2020
|
|
$
|
159,595
|
|
|
$
|
10,917
|
|
|
$
|
170,512
|
|
Park evaluates goodwill for impairment during the second quarter 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 Park's reporting unit, PNB, was not impaired. During the first quarter of 2020, management determined that the deterioration in general economic conditions as a result of the COVID-19 pandemic and responses thereto represented a triggering event prompting an evaluation of goodwill impairment. Based on the analysis performed during the first quarter of 2020, the Company determined that goodwill was not impaired.
Acquired Intangible Assets
The following table shows the balance of acquired intangible assets as of March 31, 2020 and December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
December 31, 2019
|
|
|
|
(in thousands)
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Other intangible assets:
|
|
|
|
|
|
|
|
|
|
Core deposit intangible assets
|
|
$
|
14,456
|
|
|
$
|
3,539
|
|
|
$
|
14,456
|
|
|
$
|
2,933
|
|
|
Trade name intangible assets
|
|
1,300
|
|
|
1,300
|
|
|
1,300
|
|
|
1,300
|
|
|
Total
|
|
$
|
15,756
|
|
|
$
|
4,839
|
|
|
$
|
15,756
|
|
|
$
|
4,233
|
|
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 represents a definite useful life asset, and impairment was recorded during the fourth quarter of 2019.
Core deposit intangible assets are being amortized, on an accelerated basis, over a period of ten years. Aggregate amortization expense was $606,000 and $289,000 for the three months ended March 31, 2020 and 2019, respectively.
Estimated amortization expense related to core deposit intangible assets for each of the next five years follows:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Total
|
|
Nine months ending December 31, 2020
|
|
$
|
1,657
|
|
|
2021
|
|
1,798
|
|
|
2022
|
|
1,487
|
|
|
2023
|
|
1,323
|
|
|
2024
|
|
1,215
|
|
Note 10 – Investment 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 its goals associated with the Community Reinvestment Act.
The table below details the balances of Park’s affordable housing tax credit investments and related unfunded commitments at March 31, 2020 and December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
March 31, 2020
|
December 31, 2019
|
|
Affordable housing tax credit investments
|
|
$
|
51,241
|
|
$
|
53,070
|
|
|
Unfunded commitments
|
|
23,348
|
|
25,894
|
|
Commitments are funded when capital calls are made by the general partner. Park expects that the current commitments will be funded between 2020 and 2029.
Park recognized amortization expense of $1.8 million for each of the three months ended March 31, 2020 and 2019, which was included within the provision for income taxes. Additionally, during the three months ended March 31, 2020 and 2019, Park recognized tax credits and other benefits from its affordable housing tax credit investments of $1.7 million and $2.2 million, respectively, which was included within the provision for income taxes.
Note 11 – 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 amounts of foreclosed real estate properties held at March 31, 2020 and December 31, 2019 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)
|
|
March 31, 2020
|
|
December 31, 2019
|
|
OREO:
|
|
|
|
|
|
Commercial real estate
|
|
$
|
2,295
|
|
|
$
|
2,295
|
|
|
Construction real estate
|
|
530
|
|
|
879
|
|
|
Residential real estate
|
|
775
|
|
|
855
|
|
|
Total OREO
|
|
$
|
3,600
|
|
|
$
|
4,029
|
|
|
|
|
|
|
|
|
Loans in process of foreclosure:
|
|
|
|
|
|
Residential real estate
|
|
$
|
2,978
|
|
|
$
|
3,959
|
|
In addition to real estate, Park may also repossess different types of collateral. As of March 31, 2020 and December 31, 2019, Park had $4.1 million and $4.2 million, respectively, in other repossessed assets which are included in "Other assets" on the Consolidated Condensed Balance Sheets. For both periods presented, the other repossessed assets largely consisted of an aircraft acquired as part of a loan workout.
Note 12 – Loan Servicing
Park serviced sold mortgage loans of $1.47 billion at March 31, 2020, $1.45 billion at December 31, 2019 and $1.39 billion at March 31, 2019. At March 31, 2020, $2.3 million of the sold mortgage loans were sold with recourse, compared to $2.3 million at December 31, 2019 and $2.4 million at March 31, 2019. Management closely monitors the delinquency rates on the mortgage loans sold with recourse. At March 31, 2020 and December 31, 2019, management had established reserves of $3,000 and $25,000, respectively, to account for expected losses on loan repurchases.
When Park sells mortgage loans with servicing rights retained, these 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 with respect to 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 Condensed Statements of Income.
Activity for MSRs and the related valuation allowance follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
(In thousands)
|
|
2020
|
|
2019
|
|
Mortgage servicing rights:
|
|
|
|
|
|
Carrying amount, net, beginning of period
|
|
$
|
10,070
|
|
|
$
|
10,178
|
|
|
Additions
|
|
731
|
|
|
262
|
|
|
Amortization
|
|
(507)
|
|
|
(301)
|
|
|
Changes in valuation allowance
|
|
(1,526)
|
|
|
(57)
|
|
|
Carrying amount, net, end of period
|
|
$
|
8,768
|
|
|
$
|
10,082
|
|
|
|
|
|
|
|
|
Valuation allowance:
|
|
|
|
|
|
Beginning of period
|
|
$
|
825
|
|
|
$
|
232
|
|
|
Changes in valuation allowance
|
|
1,526
|
|
|
57
|
|
|
End of period
|
|
$
|
2,351
|
|
|
$
|
289
|
|
Servicing fees included in other service income were $0.9 million for each of the three months ended March 31, 2020 and 2019.
Note 13 - 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 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) the 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 March 31, 2020 and 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 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 Condensed Balance Sheets. The carrying amount of Park's ROU asset and lease liability at March 31, 2020 was $20.7 million and $21.5 million, respectively. At December 31, 2019, the carrying amount of Park's ROU asset and lease liability was $13.7 million and $14.5 million, respectively. Park's operating lease expense is recorded in "Occupancy expense" on the Company's Consolidated Condensed Statements of Income.
Other information related to operating leases for the three months ended March 31, 2020 and 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Three Months Ended
March 31, 2020
|
|
Three Months Ended
March 31, 2019
|
|
Lease cost
|
|
|
|
|
Operating lease cost
|
$
|
848
|
|
|
$
|
663
|
|
|
Sublease income
|
(97)
|
|
|
(93)
|
|
|
Total lease cost
|
$
|
751
|
|
|
$
|
570
|
|
|
|
|
|
|
|
Other information
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
$
|
872
|
|
|
$
|
656
|
|
|
ROU assets obtained in exchange for new operating lease liabilities
|
$
|
7,755
|
|
|
$
|
—
|
|
|
Reductions to ROU assets resulting from reductions to lease obligations
|
$
|
(756)
|
|
|
$
|
(578)
|
|
At March 31, 2020 and December 31, 2019, Park's operating leases had a weighted average remaining term of 8.1 years and 7.2 years, respectively. The weighted average discount rate of Park's operating leases was 2.6% and 3.1% at March 31, 2020 and December 31, 2019, respectively.
Undiscounted cash flows included in lease liabilities have expected contractual payments as follows:
|
|
|
|
|
|
|
|
(in thousands)
|
March 31, 2020
|
|
9 months ending December 31, 2020
|
$
|
2,720
|
|
|
2021
|
3,352
|
|
|
2022
|
3,220
|
|
|
2023
|
3,118
|
|
|
2024
|
2,350
|
|
|
Thereafter
|
9,001
|
|
|
Total undiscounted minimum lease payments
|
$
|
23,761
|
|
|
Present value adjustment
|
(2,279)
|
|
|
Total lease liabilities
|
$
|
21,482
|
|
Note 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 Condensed 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 March 31, 2020 and December 31, 2019, Park's repurchase agreement borrowings totaled $168 million and $176 million, respectively. These borrowings were collateralized with U.S. government and agency securities with a fair value of $218 million and $200 million at March 31, 2020 and December 31, 2019, respectively. Declines in the value of the collateral would require Park to pledge additional securities. As of March 31, 2020 and December 31, 2019, Park had $703 million and $756 million, respectively, of available unpledged securities.
The table below shows the remaining contractual maturity of repurchase agreements by collateral pledged at March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
(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
|
|
$
|
168,373
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
168,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Note 15 - 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 at both March 31, 2020 and December 31, 2019 were designated as cash flow hedges of certain FHLB advances.
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 $34.7 million at March 31, 2020 and $35.5 million at December 31, 2019.
All of the Company's interest rate swaps were determined to be fully effective during the three months ended March 31, 2020. 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 income 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 March 31, 2020 and December 31, 2019 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
December 31, 2019
|
|
|
|
(In thousands, except weighted average data)
|
|
Borrowing Derivatives
|
|
Loan Derivatives
|
|
Borrowing Derivatives
|
|
Loan Derivatives
|
|
Notional amounts
|
|
$
|
25,000
|
|
|
$
|
34,650
|
|
|
$
|
25,000
|
|
|
$
|
35,503
|
|
|
Weighted average pay rates
|
|
2.595
|
%
|
|
4.685
|
%
|
|
2.595
|
%
|
|
4.695
|
%
|
|
Weighted average receive rates
|
|
1.836
|
%
|
|
4.685
|
%
|
|
2.002
|
%
|
|
4.695
|
%
|
|
Weighted average maturity (years)
|
|
2.2
|
|
10.1
|
|
2.5
|
|
10.2
|
|
Unrealized losses
|
|
$
|
1,186
|
|
|
$
|
—
|
|
|
$
|
575
|
|
|
$
|
—
|
|
Interest (expense) income recorded on swap transactions was $(46,000) and $8,000 for the three-month periods ended March 31, 2020 and 2019, respectively.
Interest Rate Swaps
The following table presents the net gains (losses), net of income taxes, recorded in AOCI and the Consolidated Condensed Statements of Income related to interest rate swaps for the three-month periods ended March 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2020
|
|
|
|
(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
|
|
$
|
(483)
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 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
|
|
$
|
(206)
|
|
$
|
—
|
|
$
|
—
|
|
The following tables reflect the interest rate swaps included in the Consolidated Condensed Balance Sheets as of March 31, 2020 and December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 31, 2020
|
|
|
|
|
|
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
|
|
34,650
|
|
|
4,617
|
|
|
Matched interest rate swaps with counterparty
|
|
—
|
|
|
—
|
|
|
Total included in other assets
|
|
$
|
34,650
|
|
|
$
|
4,617
|
|
|
|
|
|
|
|
|
Included in other liabilities:
|
|
|
|
|
|
Borrowing derivatives - interest rate swaps related to FHLB advances
|
|
$
|
25,000
|
|
|
$
|
(1,186)
|
|
|
Loan derivatives - instruments associated with loans
|
|
|
|
|
|
Matched interest rate swaps with borrower
|
|
—
|
|
|
—
|
|
|
Matched interest rate swaps with counterparty
|
|
34,650
|
|
|
(4,617)
|
|
|
Total included in other liabilities
|
|
$
|
59,650
|
|
|
$
|
(5,803)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 Condensed Consolidated Statements of Income.
At March 31, 2020 and December 31, 2019, Park had $88.0 million and $15.9 million, respectively, of interest rate lock commitments. The fair value of these mortgage banking derivatives was reflected by a derivative asset of $1.0 million and $221,000 at March 31, 2020 and December 31, 2019, 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 March 31, 2020, the fair value of the swap liability of $226,000 was an estimate of the exposure based upon probability-weighted potential Visa litigation losses.
Note 16 – Accumulated Other Comprehensive (Loss) Income
Other comprehensive income (loss) components, net of income tax, are shown in the following table for the three-month periods ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
Changes in pension plan assets and benefit obligations
|
|
Unrealized net holding loss on cash flow hedge
|
|
Unrealized gains (losses) on AFS debt securities
|
|
Total
|
|
Beginning balance at January 1, 2020
|
|
|
|
$
|
(26,674)
|
|
|
$
|
(454)
|
|
|
$
|
17,539
|
|
|
$
|
(9,589)
|
|
|
|
Other comprehensive (loss) income before reclassifications
|
|
—
|
|
|
(483)
|
|
|
18,176
|
|
|
17,693
|
|
|
Net current period other comprehensive (loss) income
|
|
|
—
|
|
|
(483)
|
|
|
18,176
|
|
|
17,693
|
|
|
Ending balance at March 31, 2020
|
|
|
|
$
|
(26,674)
|
|
|
$
|
(937)
|
|
|
$
|
35,715
|
|
|
$
|
8,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance at January 1, 2019
|
|
|
$
|
(29,672)
|
|
|
$
|
—
|
|
|
$
|
(20,116)
|
|
|
$
|
(49,788)
|
|
|
|
Other comprehensive loss (income) before reclassifications
|
|
—
|
|
|
(206)
|
|
|
14,541
|
|
|
14,335
|
|
|
Net current period other comprehensive (loss) income
|
|
|
—
|
|
|
(206)
|
|
|
14,541
|
|
|
14,335
|
|
|
Ending balance at March 31, 2019
|
|
|
$
|
(29,672)
|
|
|
$
|
(206)
|
|
|
$
|
(5,575)
|
|
|
$
|
(35,453)
|
|
During the three-month periods ended March 31, 2020 and 2019, there were no reclassifications out of accumulated other comprehensive income (loss).
Note 17 – Earnings Per Common Share
The following table sets forth the computation of basic and diluted earnings per common share for the three months ended March 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
(In thousands, except share and per common share data)
|
|
2020
|
|
2019
|
|
|
Numerator:
|
|
|
|
|
|
|
Net income
|
|
$
|
22,372
|
|
|
$
|
25,455
|
|
|
|
Denominator:
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
16,303,602
|
|
|
15,651,541
|
|
|
|
Effect of dilutive PBRSUs and TBRSUs
|
|
122,279
|
|
|
93,236
|
|
|
|
Weighted-average common shares outstanding adjusted for the effect of dilutive PBRSUs and TBRSUs
|
|
16,425,881
|
|
|
15,744,777
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
1.37
|
|
|
$
|
1.63
|
|
|
|
Diluted earnings per common share
|
|
$
|
1.36
|
|
|
$
|
1.62
|
|
|
Park awarded 62,265 and 58,740 PBRSUs to certain employees during the three months ended March 31, 2020 and 2019, respectively. Park repurchased 76,000 and 86,650 common shares during the three months ended March 31, 2020 and 2019, respectively, to fund the PBRSUs, TBRSUs and common shares to be awarded to directors of Park and to directors of Park's subsidiary PNB (and its divisions).
Note 18 – Segment Information
The Corporation is a financial holding company headquartered in Newark, Ohio. The reportable segments for the Corporation are its chartered national bank subsidiary, PNB (headquartered in Newark, Ohio), 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 Condensed Statements of Income.
Management is required 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 the company’s performance, better understand the potential for future cash flows, and make more informed judgments about the company as a whole. Park has two reportable segments, as: (i) discrete financial information is available for each reportable 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 three months ended March 31, 2020
|
|
|
|
|
|
|
|
(In thousands)
|
|
PNB
|
|
GFSC
|
|
All Other
|
|
Total
|
|
Net interest income (expense)
|
|
$
|
75,214
|
|
|
$
|
1,152
|
|
|
$
|
(83)
|
|
|
$
|
76,283
|
|
|
Provision for (recovery of) loan losses
|
|
5,534
|
|
|
277
|
|
|
(658)
|
|
|
5,153
|
|
|
Other income (loss)
|
|
23,481
|
|
|
32
|
|
|
(1,027)
|
|
|
22,486
|
|
|
Other expense
|
|
61,368
|
|
|
765
|
|
|
4,143
|
|
|
66,276
|
|
|
Income (loss) before income taxes
|
|
$
|
31,793
|
|
|
$
|
142
|
|
|
$
|
(4,595)
|
|
|
$
|
27,340
|
|
|
Income tax expense (benefit)
|
|
5,885
|
|
|
30
|
|
|
(947)
|
|
|
4,968
|
|
|
Net income (loss)
|
|
$
|
25,908
|
|
|
$
|
112
|
|
|
$
|
(3,648)
|
|
|
$
|
22,372
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets (at March 31, 2020)
|
|
$
|
8,673,683
|
|
|
$
|
24,354
|
|
|
$
|
21,254
|
|
|
$
|
8,719,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results for the three months ended March 31, 2019
|
|
|
|
|
|
|
|
(In thousands)
|
|
PNB
|
|
GFSC
|
|
All Other
|
|
Total
|
|
Net interest income
|
|
$
|
66,282
|
|
|
$
|
1,325
|
|
|
$
|
169
|
|
|
$
|
67,776
|
|
|
Provision for (recovery of) loan losses
|
|
2,440
|
|
|
145
|
|
|
(87)
|
|
|
2,498
|
|
|
Other income
|
|
20,708
|
|
|
32
|
|
|
1,285
|
|
|
22,025
|
|
|
Other expense
|
|
51,974
|
|
|
845
|
|
|
4,008
|
|
|
56,827
|
|
|
Income (loss) before income taxes
|
|
$
|
32,576
|
|
|
$
|
367
|
|
|
$
|
(2,467)
|
|
|
$
|
30,476
|
|
|
Income tax expense (benefit)
|
|
5,884
|
|
|
80
|
|
|
(943)
|
|
|
5,021
|
|
|
Net income (loss)
|
|
$
|
26,692
|
|
|
$
|
287
|
|
|
$
|
(1,524)
|
|
|
$
|
25,455
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets (at March 31, 2019)
|
|
$
|
7,801,148
|
|
|
$
|
30,238
|
|
|
$
|
20,860
|
|
|
$
|
7,852,246
|
|
The operating results in the “All Other” column are used to reconcile the segment totals to the Consolidated Condensed Statements of Income for the three-month periods ended March 31, 2020 and 2019. The reconciling amounts for consolidated total assets for the periods ended March 31, 2020 and 2019 consisted of the elimination of intersegment borrowings and the assets of the Parent Company and SEPH which were not eliminated.
Note 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. As of March 31, 2020, there were 18,732 common shares subject to 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 March 31, 2020, 537,735 common shares were available for future grants under the 2017 Employees 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 March 31, 2020, 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 the three months ended March 31, 2020, the Compensation Committee of the Board of Directors of Park granted awards of PBRSUs, under the 2017 Employees LTIP, covering an aggregate of 62,265 common shares to certain employees of Park and its subsidiaries. During the three months ended March 31, 2019, the Compensation Committee of the Board of Directors of Park 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. As of March 31, 2020, Park has nonvested PBRSUs as well as TBRSUs. 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 three months ended March 31, 2020 follows:
|
|
|
|
|
|
|
|
|
Common shares subject to PBRSUs and TBRSUs
|
|
Nonvested at January 1, 2020
|
194,722
|
|
|
Granted
|
62,265
|
|
|
Vested
|
(36,674)
|
|
|
Forfeited
|
(688)
|
|
|
Adjustment for performance conditions of PBRSUs (1)
|
(5,399)
|
|
|
Nonvested at March 31, 2020 (2)
|
214,226
|
|
(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 March 31, 2020, an aggregate of 180,626 PBRSUs and TBRSUs are expected to vest.
On March 31, 2020, an aggregate of 36,674 of the PBRSUs granted in 2016 and 2017 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 11,646 common shares were withheld to satisfy employee income tax withholding obligations. This resulted in a net number of 25,028 common shares being issued to employees of Park. On March 31, 2019, 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.
Share-based compensation expense of $1.3 million and $1.4 million was recognized for the three-month periods ended March 31, 2020 and 2019, respectively.
The following table details expected additional share-based compensation expense related to PBRSUs and TBRSUs outstanding at March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
Nine months ending December 31, 2020
|
|
$
|
3,663
|
|
|
2021
|
|
3,614
|
|
|
2022
|
|
2,389
|
|
|
2023
|
|
1,002
|
|
|
2024
|
|
163
|
|
|
Total
|
|
$
|
10,831
|
|
Note 20 – Benefit Plans
Park has a noncontributory defined benefit pension plan (the "Pension Plan") covering substantially all of its employees. The Pension Plan provides benefits based on an employee’s years of service and compensation.
There were no Pension Plan contributions for either of the three-month periods ended March 31, 2020 and 2019.
The following table shows the components of net periodic pension benefit expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
Affected Line Item in the Consolidated
Condensed Statements of Income
|
|
(In thousands)
|
|
2020
|
|
2019
|
|
|
|
Service cost
|
|
$
|
2,080
|
|
|
$
|
1,468
|
|
|
Employee benefits
|
|
|
Interest cost
|
|
1,320
|
|
|
1,373
|
|
|
Other components of net
periodic pension benefit income
|
|
|
Expected return on plan assets
|
|
(3,603)
|
|
|
(3,026)
|
|
|
Other components of net
periodic pension benefit income
|
|
|
Recognized net actuarial loss and prior service costs
|
|
294
|
|
|
470
|
|
|
Other components of net
periodic pension benefit income
|
|
|
Net periodic pension benefit expense
|
|
$
|
91
|
|
|
$
|
285
|
|
|
|
Park 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 tax law. The expense for the Corporation related to the SERP Agreements for the three months ended March 31, 2020 and 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
Affected Line Item in the Consolidated
Condensed Statement of Income
|
|
(In thousands)
|
|
2020
|
|
2019
|
|
|
|
Service cost
|
|
$
|
364
|
|
|
$
|
201
|
|
|
Employee benefits
|
|
|
Interest cost
|
|
134
|
|
|
165
|
|
|
Miscellaneous expense
|
|
|
Total SERP expense
|
|
$
|
498
|
|
|
$
|
366
|
|
|
|
Note 21 – 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 March 31, 2020 using:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance at March 31, 2020
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
—
|
|
|
320,766
|
|
|
|
|
320,766
|
|
|
U.S. Government sponsored entities’ asset-backed securities
|
|
—
|
|
|
863,633
|
|
|
—
|
|
|
863,633
|
|
|
Equity securities
|
|
1,519
|
|
|
—
|
|
|
463
|
|
|
1,982
|
|
|
Mortgage loans held for sale
|
|
—
|
|
|
23,901
|
|
|
—
|
|
|
23,901
|
|
|
Mortgage IRLCs
|
|
—
|
|
|
1,035
|
|
|
—
|
|
|
1,035
|
|
|
Loan interest rate swaps
|
|
—
|
|
|
4,617
|
|
|
—
|
|
|
4,617
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Fair value swap
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
226
|
|
|
$
|
226
|
|
|
Borrowing interest rate swap
|
|
—
|
|
|
1,186
|
|
|
—
|
|
|
1,186
|
|
|
Loan interest rate swaps
|
|
—
|
|
|
4,617
|
|
|
—
|
|
|
4,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
The following methods and assumptions were used by the Company in determining the 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: 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 market prices for similar product types and, therefore, are classified in Level 2.
The tables below present a reconciliation of the beginning and ending balances of the Level 3 inputs for the three months ended March 31, 2020 and 2019, for financial instruments measured on a recurring basis and classified as Level 3:
Level 3 Fair Value Measurements
Three months ended March 31, 2020 and 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Equity
Securities
|
|
Fair value
swap
|
|
Balance at January 1, 2020
|
|
$
|
456
|
|
|
$
|
(226)
|
|
|
Total gains/(losses)
|
|
|
|
|
|
Included in other income
|
|
7
|
|
|
—
|
|
|
Balance at March 31, 2020
|
|
$
|
463
|
|
|
$
|
(226)
|
|
|
|
|
|
|
|
|
Balance at January 1, 2019
|
|
$
|
424
|
|
|
$
|
(226)
|
|
|
Total gains/(losses)
|
|
|
|
|
|
Included in other income
|
|
9
|
|
|
—
|
|
|
Balance at March 31, 2019
|
|
$
|
433
|
|
|
$
|
(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 the 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% discount 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 March 31, 2020 and December 31, 2019, other repossessed assets primarily 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. 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. As of March 31, 2020, there were no PCI loans carried at fair value. 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 with respect to the property's value subsequent to the initial measurement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2020 using:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance at March 31, 2020
|
|
Impaired loans recorded at fair value:
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,990
|
|
|
$
|
1,990
|
|
|
Residential real estate
|
|
—
|
|
|
—
|
|
|
164
|
|
|
164
|
|
|
Total impaired loans recorded at fair value
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,154
|
|
|
$
|
2,154
|
|
|
|
|
|
|
|
|
|
|
|
|
MSRs
|
|
$
|
—
|
|
|
$
|
8,762
|
|
|
$
|
—
|
|
|
$
|
8,762
|
|
|
|
|
|
|
|
|
|
|
|
|
OREO recorded at fair value:
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
—
|
|
|
—
|
|
|
2,295
|
|
|
2,295
|
|
|
Residential real estate
|
|
—
|
|
|
—
|
|
|
682
|
|
|
682
|
|
|
Total OREO recorded at fair value
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,977
|
|
|
$
|
2,977
|
|
|
|
|
|
|
|
|
|
|
|
|
Other repossessed assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,599
|
|
|
$
|
3,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
(In thousands)
|
|
Recorded Investment
|
|
Prior Charge-Offs
|
|
Specific Valuation Allowance
|
|
Carrying Balance
|
|
Impaired loans recorded at fair value
|
|
$
|
2,275
|
|
|
$
|
313
|
|
|
$
|
121
|
|
|
$
|
2,154
|
|
|
Remaining impaired loans
|
|
83,576
|
|
|
420
|
|
|
5,410
|
|
|
78,166
|
|
|
Total impaired loans
|
|
$
|
85,851
|
|
|
$
|
733
|
|
|
$
|
5,531
|
|
|
$
|
80,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
The expense from credit adjustments related to impaired loans carried at fair value was $57,000 and $33,000 for the three-month periods ended March 31, 2020 and 2019, respectively.
MSRs totaled $8.8 million at March 31, 2020. Of this $8.8 million MSR carrying balance, all but $6,000 was recorded at fair value and included a valuation allowance of $2.4 million. At December 31, 2019, MSRs totaled $10.1 million. 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. The expense related to MSRs carried at fair value during the three months ended March 31, 2020 and 2019 was $1.5 million and $57,000, respectively.
Total OREO held by Park at March 31, 2020 and December 31, 2019 was $3.6 million and $4.0 million, respectively. Approximately 83% and 75% of OREO held by Park at March 31, 2020 and December 31, 2019, respectively, was carried at fair value due to fair value adjustments made subsequent to the initial OREO measurement. At each of March 31, 2020 and December 31, 2019, OREO held at fair value, less estimated selling costs, amounted to $3.0 million and $3.0 million, respectively. The net expense related to OREO fair value adjustments was $2,000 and $27,000 for the three-month periods ended March 31, 2020 and 2019, respectively.
Other repossessed assets totaled $4.1 million at March 31, 2020, of which $3.6 million was recorded at fair value. Other repossessed assets totaled $4.2 million at December 31, 2019, of which $3.6 million was recorded at fair value. There was no expense related to fair value adjustments on other repossessed assets for either of the three-month periods ended March 31, 2020 and 2019.
The following tables present qualitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Fair Value
|
|
Valuation Technique
|
|
Unobservable Input(s)
|
|
Range
(Weighted Average) (1)
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
1,990
|
|
|
Sales comparison approach
|
|
|
Adj to comparables
|
|
|
0.0% - 139.0% (21.4%)
|
|
|
|
|
|
Income approach
|
|
|
Capitalization rate
|
|
|
20.0% (20.0%)
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
164
|
|
|
Sales comparison approach
|
|
|
Adj to comparables
|
|
|
0.0% - 53.5% (14.2%)
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
682
|
|
|
Sales comparison approach
|
|
|
Adj to comparables
|
|
|
4.6% - 54.6% (39.4%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Fair Value
|
|
Valuation Technique
|
|
Unobservable Input(s)
|
|
Range
(Weighted Average) (1)
|
|
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%)
|
(1) Unobservable inputs were weighted by the relative fair value of the instruments.
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.
At March 31, 2020 and December 31, 2019, Park had Partnership Investments with a NAV of $12.7 million and $11.9 million, respectively. At March 31, 2020 and December 31, 2019, Park had $7.8 million and $8.5 million, respectively, in unfunded commitments related to these Partnership Investments. For the three-month periods ended March 31, 2020 and 2019, Park recognized a loss of $204,000 and income of $1.6 million, respectively, related to these Partnership Investments.
The fair value of certain financial instruments at March 31, 2020 and December 31, 2019, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
|
|
|
|
(In thousands)
|
|
Carrying value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total fair value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and money market instruments
|
|
$
|
320,920
|
|
|
$
|
320,920
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
320,920
|
|
|
Investment securities (1)
|
|
1,184,399
|
|
|
—
|
|
|
1,184,399
|
|
|
—
|
|
|
1,184,399
|
|
|
Other investment securities (2)
|
|
1,982
|
|
|
1,519
|
|
|
—
|
|
|
463
|
|
|
1,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
23,901
|
|
|
—
|
|
|
23,901
|
|
|
—
|
|
|
23,901
|
|
|
Mortgage IRLCs
|
|
1,035
|
|
|
—
|
|
|
1,035
|
|
|
—
|
|
|
1,035
|
|
|
Impaired loans carried at fair value
|
|
2,154
|
|
|
—
|
|
|
—
|
|
|
2,154
|
|
|
2,154
|
|
|
Other loans, net
|
|
6,433,926
|
|
|
—
|
|
|
—
|
|
|
6,451,435
|
|
|
6,451,435
|
|
|
Loans receivable, net
|
|
$
|
6,461,016
|
|
|
$
|
—
|
|
|
$
|
24,936
|
|
|
$
|
6,453,589
|
|
|
$
|
6,478,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
1,060,835
|
|
|
—
|
|
|
1,069,209
|
|
|
—
|
|
|
1,069,209
|
|
|
Other
|
|
2,667
|
|
|
2,667
|
|
|
—
|
|
|
—
|
|
|
2,667
|
|
|
Deposits (excluding demand deposits)
|
|
$
|
1,063,502
|
|
|
$
|
2,667
|
|
|
$
|
1,069,209
|
|
|
$
|
—
|
|
|
$
|
1,071,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
193,373
|
|
|
$
|
—
|
|
|
$
|
193,373
|
|
|
$
|
—
|
|
|
$
|
193,373
|
|
|
Long-term debt
|
|
140,000
|
|
|
—
|
|
|
150,782
|
|
|
—
|
|
|
150,782
|
|
|
Subordinated notes
|
|
15,000
|
|
|
—
|
|
|
13,635
|
|
|
—
|
|
|
13,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments - assets:
|
|
|
|
|
|
|
|
|
|
|
|
Loan interest rate swaps
|
|
$
|
4,617
|
|
|
$
|
—
|
|
|
$
|
4,617
|
|
|
$
|
—
|
|
|
$
|
4,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments - liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Fair value swap
|
|
$
|
226
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
226
|
|
|
$
|
226
|
|
|
Borrowing interest rate swap
|
|
1,186
|
|
|
—
|
|
|
1,186
|
|
|
—
|
|
|
1,186
|
|
|
Loan interest rate swaps
|
|
4,617
|
|
|
—
|
|
|
4,617
|
|
|
—
|
|
|
4,617
|
|
(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, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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.
Note 22 - Revenue from Contracts with Customers
All of Park's revenue from contracts with customers within the scope of ASC 606 is recognized within "Other income" in the Consolidated Condensed Statements of Income. The following table presents the Corporation's sources of other income by revenue stream and operating segment for the three-month periods ended March 31, 2020 and March 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2020
|
|
|
|
|
|
|
|
Revenue by Operating Segment (in thousands)
|
|
PNB
|
|
GFSC
|
|
All Other
|
|
Total
|
|
Income from fiduciary activities
|
|
|
|
|
|
|
|
|
|
Personal trust and agency accounts
|
|
$
|
2,171
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,171
|
|
|
Employee benefit and retirement-related accounts
|
|
1,916
|
|
|
—
|
|
|
—
|
|
|
1,916
|
|
|
Investment management and investment advisory agency accounts
|
|
2,642
|
|
|
—
|
|
|
—
|
|
|
2,642
|
|
|
Other
|
|
384
|
|
|
—
|
|
|
—
|
|
|
384
|
|
|
Service charges on deposit accounts
|
|
|
|
|
|
|
|
|
|
Non-sufficient funds (NSF) fees
|
|
1,615
|
|
|
—
|
|
|
—
|
|
|
1,615
|
|
|
Demand deposit account (DDA) charges
|
|
761
|
|
|
—
|
|
|
—
|
|
|
761
|
|
|
Other
|
|
152
|
|
|
—
|
|
|
—
|
|
|
152
|
|
|
Other service income (1)
|
|
|
|
|
|
|
|
|
|
Credit card
|
|
596
|
|
|
1
|
|
|
—
|
|
|
597
|
|
|
HELOC
|
|
98
|
|
|
—
|
|
|
—
|
|
|
98
|
|
|
Installment
|
|
53
|
|
|
—
|
|
|
—
|
|
|
53
|
|
|
Real estate
|
|
2,647
|
|
|
—
|
|
|
—
|
|
|
2,647
|
|
|
Commercial
|
|
371
|
|
|
—
|
|
|
—
|
|
|
371
|
|
|
Debit card fee income
|
|
4,960
|
|
|
—
|
|
|
—
|
|
|
4,960
|
|
|
Bank owned life insurance income (2)
|
|
1,166
|
|
|
—
|
|
|
82
|
|
|
1,248
|
|
|
ATM fees
|
|
412
|
|
|
—
|
|
|
—
|
|
|
412
|
|
|
Loss on sale of OREO, net
|
|
(196)
|
|
|
—
|
|
|
—
|
|
|
(196)
|
|
|
Gain (loss) on equity securities, net (2)
|
|
166
|
|
|
—
|
|
|
(1,139)
|
|
|
(973)
|
|
|
Other components of net periodic pension benefit income (2)
|
|
1,940
|
|
|
24
|
|
|
24
|
|
|
1,988
|
|
|
Miscellaneous (3)
|
|
1,627
|
|
|
7
|
|
|
6
|
|
|
1,640
|
|
|
Total other income
|
|
$
|
23,481
|
|
|
$
|
32
|
|
|
$
|
(1,027)
|
|
|
$
|
22,486
|
|
(1) Of the $3.8 million of aggregate revenue included within "Other service income", approximately $2.3 million is within the scope of ASC 606, with the remaining $1.5 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 $1.6 million, all of which are within scope of ASC 606.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2019
|
|
|
|
|
|
|
|
Revenue by Operating Segment (in thousands)
|
|
PNB
|
|
GFSC
|
|
All Other
|
|
Total
|
|
Income from fiduciary activities
|
|
|
|
|
|
|
|
|
|
Personal trust and agency accounts
|
|
$
|
2,301
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,301
|
|
|
Employee benefit and retirement-related accounts
|
|
1,670
|
|
|
—
|
|
|
—
|
|
|
1,670
|
|
|
Investment management and investment advisory agency accounts
|
|
2,381
|
|
|
—
|
|
|
—
|
|
|
2,381
|
|
|
Other
|
|
371
|
|
|
—
|
|
|
—
|
|
|
371
|
|
|
Service charges on deposit accounts
|
|
|
|
|
|
|
|
|
|
Non-sufficient funds (NSF) fees
|
|
1,616
|
|
|
—
|
|
|
—
|
|
|
1,616
|
|
|
Demand deposit account (DDA) charges
|
|
780
|
|
|
—
|
|
|
—
|
|
|
780
|
|
|
Other
|
|
163
|
|
|
—
|
|
|
—
|
|
|
163
|
|
|
Other service income (1)
|
|
|
|
|
|
|
|
|
|
Credit card
|
|
597
|
|
|
3
|
|
|
—
|
|
|
600
|
|
|
HELOC
|
|
95
|
|
|
—
|
|
|
4
|
|
|
99
|
|
|
Installment
|
|
74
|
|
|
—
|
|
|
(4)
|
|
|
70
|
|
|
Real estate
|
|
1,757
|
|
|
—
|
|
|
—
|
|
|
1,757
|
|
|
Commercial
|
|
292
|
|
|
—
|
|
|
—
|
|
|
292
|
|
|
Debit card fee income
|
|
4,369
|
|
|
—
|
|
|
—
|
|
|
4,369
|
|
|
Bank owned life insurance income (2)
|
|
898
|
|
|
—
|
|
|
108
|
|
|
1,006
|
|
|
ATM fees
|
|
440
|
|
|
—
|
|
|
—
|
|
|
440
|
|
|
Loss on sale of OREO, net
|
|
(12)
|
|
|
—
|
|
|
—
|
|
|
(12)
|
|
|
Gain on equity securities, net (2)
|
|
589
|
|
|
—
|
|
|
1,153
|
|
|
1,742
|
|
|
Other components of net periodic pension benefit income (2)
|
|
1,147
|
|
|
13
|
|
|
23
|
|
|
1,183
|
|
|
Miscellaneous (3)
|
|
1,180
|
|
|
16
|
|
|
1
|
|
|
1,197
|
|
|
Total other income
|
|
$
|
20,708
|
|
|
$
|
32
|
|
|
$
|
1,285
|
|
|
$
|
22,025
|
|
(1) Of the $2.8 million of aggregate revenue included within "Other service income", approximately $1.2 million is within the scope of ASC 606, with the remaining $1.6 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 $1.2 million, all of which are within scope of ASC 606.
A description of Park's 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.