Toggle SGML Header (+)


Section 1: 10-Q (10-Q)

Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2018
  
Commission File Number
1-13006
 
Park National Corporation
(Exact name of registrant as specified in its charter)
 
Ohio
 
31-1179518
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
50 North Third Street, Newark, Ohio 43055
(Address of principal executive offices) (Zip Code)
 
(740) 349-8451
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 Yes   ý   No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes   ý   No   ¨

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

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

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

 Yes   ¨   No   ý

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 15,301,101 Common shares, no par value per share, outstanding at May 1, 2018.




PARK NATIONAL CORPORATION
 
CONTENTS
 
Page
PART I.   FINANCIAL INFORMATION
 
 
 
Item 1.  Financial Statements
 
 
 
 
 
 
 
 
 
 
 
Consolidated Condensed Statements of Cash Flows for the three months ended March 31, 2018 and 2017 (unaudited)
 
 
 
 
 
 
 
 
 
 
68 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2

Table of Contents

PARK NATIONAL CORPORATION AND SUBSIDARIES
Consolidated Condensed Balance Sheets (Unaudited)
(in thousands, except share and per share data)                    
 
March 31,
2018
 
December 31, 2017
Assets:
 

 
 

Cash and due from banks
$
110,163

 
$
131,946

Money market instruments
166,418

 
37,166

Cash and cash equivalents
276,581

 
169,112

Investment securities:
 

 
 

Debt securities available-for-sale, at fair value (amortized cost of $1,079,745 and $1,097,645 at March 31, 2018 and December 31, 2017, respectively)
1,046,910

 
1,091,881

Debt securities held-to-maturity, at amortized cost (fair value of $346,199 and $363,779 at March 31, 2018 and December 31, 2017, respectively)
347,622

 
357,197

Other investment securities
69,824

 
63,746

Total investment securities
1,464,356

 
1,512,824

 
 
 
 
Loans
5,292,349

 
5,372,483

Allowance for loan losses
(48,969
)
 
(49,988
)
Net loans
5,243,380

 
5,322,495

Bank owned life insurance
188,952

 
189,322

Prepaid assets
101,635

 
97,712

Goodwill
72,334

 
72,334

Premises and equipment, net
56,239

 
55,901

Affordable housing tax credit investments
47,818

 
49,669

Other real estate owned
9,055

 
14,190

Accrued interest receivable
20,369

 
22,164

Mortgage loan servicing rights
9,969

 
9,688

Other
28,282

 
22,209

Total assets
$
7,518,970

 
$
7,537,620

 
 
 
 
Liabilities and Shareholders' Equity:
 

 
 

Deposits:
 

 
 

Noninterest bearing
$
1,618,200

 
$
1,633,941

Interest bearing
4,466,094

 
4,183,385

Total deposits
6,084,294

 
5,817,326

Short-term borrowings
184,090

 
391,289

Long-term debt
425,000

 
500,000

Subordinated notes
15,000

 
15,000

Unfunded commitments in affordable housing tax credit investments
14,282

 
14,282

Accrued interest payable
2,024

 
2,278

Other
41,506

 
41,344

Total liabilities
$
6,766,196

 
$
6,781,519

 
 
 
 
 


 


Shareholders' equity:
 

 
 

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

 
$

Common shares (No par value; 20,000,000 shares authorized; 16,150,740 shares issued at March 31, 2018 and 16,150,752 shares issued at December 31, 2017)
307,249

 
307,726

Retained earnings
583,941

 
561,908

Treasury shares (849,637 shares at March 31, 2018 and 862,558 at December 31, 2017)
(85,775
)
 
(87,079
)
Accumulated other comprehensive loss, net of taxes
(52,641
)
 
(26,454
)
Total shareholders' equity
752,774

 
756,101

Total liabilities and shareholders’ equity
$
7,518,970

 
$
7,537,620


SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

3

Table of Contents

PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Income (Unaudited)
(in thousands, except share and per share data)
 
 
Three Months Ended
March 31,
 
2018
 
2017
Interest and dividend income:
 

 
 

 
 
 
 
Interest and fees on loans
$
64,402

 
$
59,908

 
 
 
 
Interest and dividends on:
 

 
 

Obligations of U.S. Government, its agencies and other securities - taxable
6,767

 
7,138

Obligations of states and political subdivisions - tax-exempt
2,174

 
1,460

Other interest income
371

 
249

Total interest and dividend income
73,714

 
68,755

 
 
 
 
Interest expense:
 

 
 

 
 
 
 
Interest on deposits:
 

 
 

Demand and savings deposits
3,290

 
1,614

Time deposits
2,551

 
2,161

 
 
 
 
Interest on borrowings:
 

 
 

Short-term borrowings
575

 
235

Long-term debt
2,448

 
5,793

 
 
 
 
Total interest expense
8,864

 
9,803

 
 
 
 
Net interest income
64,850

 
58,952

 
 
 
 
Provision for loan losses
260

 
876

Net interest income after provision for loan losses
64,590

 
58,076

 
 
 
 
Other income:
 

 
 

Income from fiduciary activities
6,395

 
5,514

Service charges on deposit accounts
2,922

 
3,139

Other service income
4,172

 
2,804

Checkcard fee income
4,002

 
3,761

Bank owned life insurance income
1,009

 
1,103

ATM fees
524

 
542

OREO valuation adjustments
(207
)
 
(73
)
Gain on sale of OREO, net
4,321

 
100

Net loss on sale of investment securities
(2,271
)
 

Unrealized gain on equity securities
3,489

 

Other components of net periodic benefit income
1,705

 
1,448

Miscellaneous
842

 
617

Total other income
26,903

 
18,955

 
 
 
 
 


4

Table of Contents

PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Income (Unaudited) (Continued)
(in thousands, except share and per share data)
 
 
Three Months Ended
March 31,
 
2018
 
2017
Other expense:
 

 
 

Salaries
$
25,320

 
$
22,717

Employee benefits
7,029

 
6,468

Occupancy expense
2,936

 
2,635

Furniture and equipment expense
4,149

 
3,618

Data processing fees
1,773

 
1,965

Professional fees and services
6,190

 
4,829

Marketing
1,218

 
1,056

Insurance
1,428

 
1,570

Communication
1,250

 
1,333

State tax expense
1,105

 
1,063

Miscellaneous
1,910

 
1,656

Total other expense
54,308

 
48,910

 
 
 
 
Income before income taxes
37,185

 
28,121

 
 
 
 
Federal income taxes
6,062

 
7,854

 
 
 
 
Net income
$
31,123

 
$
20,267

 
 
 
 
Earnings per Common Share:
 
 
 
Basic
$
2.04

 
$
1.32

Diluted
$
2.02

 
$
1.31

 
 
 
 
Weighted average common shares outstanding
 

 
 

Basic
15,288,332

 
15,312,059

Diluted
15,431,328

 
15,432,769

 
 
 
 
Cash dividends declared
$
0.94

 
$
0.94

 
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 



5

Table of Contents


PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Comprehensive Income (Unaudited)
(in thousands)
 
 
Three Months Ended
March 31,
 
2018
 
2017
Net income
$
31,123

 
$
20,267

 
 
 
 
Other comprehensive (loss) income, net of tax:
 
 
 
Net loss realized on sale of securities, net of income tax benefit of $538
2,024

 

Unrealized net holding (loss) gain on debt securities available-for-sale, net of federal income tax effect of $(6,223) and $550 for the three months ended March 31, 2018 and 2017, respectively
(23,410
)
 
1,022

Other comprehensive (loss) income
$
(21,386
)
 
$
1,022

 
 
 
 
Comprehensive income
$
9,737

 
$
21,289

 
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


6

Table of Contents


PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Changes in Shareholders' Equity (Unaudited)
(in thousands, except share and per share data)
  
 
 
Preferred
Shares
 
Common
Shares
 
Retained
Earnings
 
Treasury
Shares
 
Accumulated
Other
Comprehensive
(Loss) Income
Balance at January 1, 2017
 
$

 
$
305,826

 
$
535,631

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

 
 

 
20,267

 
 

 
 

Other comprehensive income, net of tax
 
 

 
 
 
 
 
 
 
1,022

Dividends on common shares at $0.94 per share
 
 

 
 

 
(14,460
)
 
 

 
 

Cash payment for fractional common shares in dividend reinvestment plan
 
 

 
(1
)
 
 

 
 

 
 

Issuance of 9,674 common shares under share-based compensation awards, net of 3,293 common shares withheld to pay employee income taxes
 
 
 
(795
)
 
(197
)
 
$
645

 
 
Repurchase of 50,000 common shares to be held as treasury shares
 
 
 
 
 
 
 
$
(5,425
)
 
 
Share-based compensation expense
 
 
 
826

 
 
 
 
 
 
Balance at March 31, 2017
 
$


$
305,856

 
$
541,241

 
$
(86,252
)
 
$
(16,723
)
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2018, as previously presented
 
$

 
$
307,726

 
$
561,908

 
$
(87,079
)
 
$
(26,454
)
Cumulative effect of change in accounting principle for marketable equity securities, net of tax
 
 
 
 
 
1,917

 
 
 
(995
)
Balance at January 1, 2018, as adjusted
 

 
307,726

 
563,825

 
(87,079
)
 
(27,449
)
Reclassification of disproportionate income tax effects
 
 
 
 
 
3,806

 
 
 
(3,806
)
Net income
 
 

 


 
31,123

 


 


Other comprehensive loss, net of tax
 
 

 


 


 


 
(21,386
)
Dividends on common shares at $0.94 per share
 
 

 


 
(14,496
)
 


 


Cash payment for fractional common shares in dividend reinvestment plan
 
 

 
(1
)
 


 


 


Issuance of 18,800 common shares under share-based compensation awards, net of 5,879 common shares withheld to pay employee income taxes
 
 
 
(1,597
)
 
(317
)
 
1,304

 
 
Share-based compensation expense
 
 
 
1,121

 
 
 
 
 
 
Balance at March 31, 2018
 
$

 
$
307,249

 
$
583,941

 
$
(85,775
)
 
$
(52,641
)
 
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


7

Table of Contents


PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows (Unaudited)
(in thousands)
 
Three Months Ended
March 31,
 
2018
 
2017
Operating activities:
 

 
 

Net income
$
31,123

 
$
20,267

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

 
 

Provision for loan losses
260

 
876

Amortization of loan fees and costs, net
(1,506
)
 
(1,386
)
Increase in prepaid dealer premiums
(471
)
 
(2,401
)
Provision for depreciation
2,135

 
2,121

Amortization of investment securities, net
405

 
258

Realized net investment securities losses
2,271

 

Unrealized gain on equity securities
(3,489
)
 

Amortization of prepayment penalty on long-term debt

 
1,559

Loan originations to be sold in secondary market
(40,379
)
 
(42,370
)
Proceeds from sale of loans in secondary market
38,769

 
46,848

Gain on sale of loans in secondary market
(945
)
 
(787
)
Share-based compensation expense
1,121

 
826

OREO valuation adjustments
207

 
73

Gain on sale of OREO, net
(4,321
)
 
(100
)
Bank owned life insurance income
(1,009
)
 
(1,103
)
Investment in qualified affordable housing tax credits amortization
1,851

 
1,864

 
 
 
 
Changes in assets and liabilities:
 

 
 

Increase in other assets
(1,159
)
 
(3,366
)
Decrease in other liabilities
(2,891
)
 
(63
)
Net cash provided by operating activities
$
21,972

 
$
23,116

 
 
 
 
Investing activities:
 

 
 

Proceeds from sales of securities
$
252,055

 
$

Proceeds from calls and maturities of:
 

 
 

Available-for-sale debt securities
41,097

 
40,382

Held-to-maturity debt securities
1,652

 
5,990

Purchases of:
 

 
 

Available-for-sale debt securities
(270,005
)
 

Held-to-maturity debt securities

 
(30,943
)
Equity securities
(101
)
 

Net loan paydowns (originations), portfolio loans
82,288

 
(46,115
)
  Proceeds from the sale of OREO
9,816

 
674

  Life insurance death benefits
1,379

 
74

  Purchases of premises and equipment, net
(2,473
)
 
(1,379
)
Net cash provided by (used in) investing activities
$
115,708

 
$
(31,317
)
 
 
 
 

8

Table of Contents

 
 
 
 
PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows (Unaudited) (Continued)
(in thousands)
 
Three Months Ended
March 31,
 
2018
 
2017
Financing activities:
 

 
 

Net increase in deposits
$
266,968

 
$
398,604

Net decrease in short-term borrowings
(207,199
)
 
(174,932
)
Proceeds from issuance of long-term debt
25,000

 
50,000

Repayment of long-term debt
(100,000
)
 

Value of common shares withheld to pay employee income taxes
(610
)
 
(347
)
Repurchase of common shares to be held as treasury shares

 
(5,425
)
Cash dividends paid
(14,370
)
 
(14,373
)
Net cash (used in) provided by financing activities
$
(30,211
)
 
$
253,527

 
 
 
 
Increase in cash and cash equivalents
107,469

 
245,326

 
 
 
 
Cash and cash equivalents at beginning of year
169,112

 
146,446

 
 
 
 
Cash and cash equivalents at end of period
$
276,581

 
$
391,772

 
 
 
 
Supplemental disclosures of cash flow information:
 

 
 

 
 
 
 
Cash paid for:
 

 
 

Interest
$
9,118

 
$
9,765

 
 
 
 
Income taxes
$

 
$
7,500

 
 
 
 
Non-cash items:
 
 
 
Loans transferred to OREO
$
628

 
$
448

 
 
 
 
Securities purchase commitments
$
2,448

 
$


SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


9

Table of Contents


PARK NATIONAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation
 
The accompanying unaudited consolidated condensed financial statements included in this report have been prepared for Park National Corporation (sometimes also referred to as the “Registrant”) and its subsidiaries. Unless the context otherwise requires, references to "Park", the "Corporation" or the "Company" and similar terms mean Park National Corporation and its subsidiaries. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results of operations for the interim periods included herein have been made. The results of operations for the three-month periods ended March 31, 2018 are not necessarily indicative of the operating results to be anticipated for the fiscal year ending December 31, 2018.
 
The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and footnotes necessary for a fair presentation of the condensed balance sheets, condensed statements of income, condensed statements of comprehensive income, condensed statements of changes in shareholders’ equity and condensed statements of cash flows in conformity with United States ("U.S.") generally accepted accounting principles (“U.S. GAAP”). These financial statements should be read in conjunction with the consolidated financial statements incorporated by reference in the Annual Report on Form 10-K of Park for the fiscal year ended December 31, 2017 from Park’s 2017 Annual Report to Shareholders (“Park's 2017 Annual Report”). Prior period financial statement reflect the retrospective application of Accounting Standards Update ("ASU") 2017-07 - Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This change in classification had no effect on reported net income.
 
Park’s significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in Park’s 2017 Annual Report. For interim reporting purposes, Park follows the same basic accounting policies, as updated by the information contained in this report, and considers each interim period an integral part of an annual period.
 
Note 2 - Adoption of New Accounting Pronouncements and Issued Not Yet Effective Accounting Standards

The following is a summary of new accounting pronouncements impacting Park's consolidated financial statements, and issued not yet effective accounting standards:

Adoption of New Accounting Pronouncements

ASU 2014-09 - Revenue from Contracts with Customers (Topic 606): In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU creates a new topic, Topic 606, to provide guidance on revenue recognition for entities that enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosures are required to provide quantitative and qualitative information regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. The majority of the Company's revenues come from interest income and other sources, including loans, leases, securities and derivatives, that are outside the scope of ASC 606. Certain services that fall within the scope of ASC 606 are presented within Other Income and are recognized as revenue as the Company satisfies its obligation to the customer. Services within the scope of ASC 606 include income from fiduciary activities, service charges on deposit accounts, other service income, checkcard fee income, ATM fees, and gain on sale of OREO, net. The adoption of this guidance on January 1, 2018 did not have a material impact on Park's consolidated financial statements. However, the adoption of this standard resulted in additional disclosures beginning with the first quarter 2018 Form 10-Q. Reference Note 19, Revenue from Contracts with Customers, for further discussion on the Company's accounting policies for revenue sources within the scope of ASC 606.

ASU 2016-01 - Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. In January 2016, the FASB issued ASU 2016-01 - Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. Changes to the current U.S. GAAP model primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, this ASU clarifies guidance related to the

10

Table of Contents

valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale ("AFS") securities. The new guidance is effective for annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2017. The adoption of this guidance on January 1, 2018 resulted in an $1.9 million increase to beginning retained earnings and a $995,000 increase to beginning accumulated other comprehensive loss. Additional income of $3.2 million was recorded in the first quarter of 2018 as a result of changes to the accounting for equity investments. Further, beginning with the first quarter of 2018, Park's fair value disclosures in Note 14 have incorporated the revised disclosure requirements for financial investments.

ASU 2016-15 - Statement of Cash Flows (Topic 203): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force):  In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 203): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force).  This ASU provides guidance on eight specific cash flow issues where then current GAAP was either unclear or did not include specific guidance. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2017.  The adoption of this guidance on January 1, 2018 did not have an impact on Park's consolidated financial statements. As such transactions arise, management will utilize the updated guidance in providing disclosures within Park’s consolidated statements of cash flows. 

ASU 2017-07 - Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost: In March 2017, the FASB issued ASU 2017-07 - Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This ASU requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. As a result of the adoption of this guidance on January 1, 2018, all prior periods have been recast to separately record the service cost component and other components of net benefit cost. For all periods presented, this resulted in an increase in other income and an offsetting increase in other expense with no change to net income. See Note 12 for further details.

ASU 2017-09 - Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting: In May 2017, the FASB issued ASU 2017-09 - Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU amends the guidance concerning which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. The adoption of this guidance on January 1, 2018 did not impact Park's consolidated financial statements.

ASU 2018-02 - Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income: In February 2018, the FASB issued ASU 2018-02 - Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects, resulting from the newly - enacted federal corporate income tax rate. The amount of the reclassification is the difference between the historical federal corporate income tax rate and the newly-enacted 21% federal corporate income tax rate. The guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted for interim or annual periods. The early adoption of this guidance on January 1, 2018 resulted in a $3.8 million increase to Park's accumulated other comprehensive loss and a $3.8 million increase to retained earnings.

ASU 2018-03 - Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. In February 2018, the FASB issued ASU 2018-03 - Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This ASU includes amendments that clarify certain aspects of the guidance issued in ASU 2016-01. Park considered this clarification in determining the appropriate adoption of ASU 2016-01 on January 1, 2018.

Issued Not Yet Effective Accounting Standards

ASU 2016-02 - Leases (Topic 842): In February 2016, the FASB issued ASU 2016-02 - Leases (Topic 842). This ASU will require all organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Additional qualitative and quantitative disclosures will be required so that users can understand more about the nature of an entity’s leasing activities. The new guidance is effective for annual reporting periods

11

Table of Contents

and interim reporting periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted. Management is currently analyzing data on leased assets. The adoption of this guidance is expected to increase both assets and liabilities, but is not expected to have a material impact on Park's consolidated statement of income.

ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments: In June 2016, FASB issued ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new guidance replaces the incurred loss model with an expected loss model, which is referred to as the current expected credit loss ("CECL") model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables, held-to-maturity ("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 guidance is effective for annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted for annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2018.

Management is currently evaluating the impact of the adoption of this guidance on Park's consolidated financial statements. We anticipate that the adoption of the CECL model will result in a material increase to Park's allowance for loan losses. Management has established a committee to oversee the implementation of the CECL model and is currently in the process of implementing a software solution to assist in the adoption of this ASU. Management plans to run our current allowance model and a CECL model concurrently for 12 months prior to the adoption of this guidance on January 1, 2020.

ASU 2017-08 - Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities: In March 2017, the FASB issued ASU 2017-08 - Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. This ASU amends the amortization period for certain purchased callable debt securities held at a premium. It shortens the amortization period for the premium to the earliest call date. Under current U.S. GAAP, premiums on callable debt securities generally are amortized to the maturity date. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted for interim or annual periods. The adoption of this guidance is not expected to have a material impact on Park's consolidated financial statements.

ASU 2017-12 - Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities: In August 2017, the FASB issued ASU 2017-12 - Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This ASU amends the current guidance with the objective of improving the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. In addition, this ASU amends the current guidance to simplify the application of the hedge accounting guidance. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted for interim or annual periods. The adoption of this guidance is not expected to have a material impact on Park's consolidated financial statements. Park is considering the early adoption of this guidance.


12

Table of Contents

Note 3 – Loans
 
The composition of the loan portfolio, by class of loan, as of March 31, 2018 and December 31, 2017 was as follows:
 
 
March 31, 2018
 
 
December 31, 2017
(In thousands)
Loan
Balance
 
Accrued
Interest
Receivable
 
Recorded
Investment
 
 
Loan
Balance
 
Accrued
Interest
Receivable
 
Recorded
Investment
Commercial, financial and agricultural *
$
1,000,786

 
$
4,243

 
$
1,005,029

 
 
$
1,053,453

 
$
4,413

 
$
1,057,866

Commercial real estate *
1,156,563

 
4,047

 
1,160,610

 
 
1,167,607

 
4,283

 
1,171,890

Construction real estate:
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
126,561

 
375

 
126,936

 
 
125,389

 
401

 
125,790

Mortgage
51,379

 
119

 
51,498

 
 
52,203

 
133

 
52,336

Installment
3,244

 
11

 
3,255

 
 
3,878

 
13

 
3,891

Residential real estate:
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
389,766

 
1,043

 
390,809

 
 
393,094

 
1,029

 
394,123

Mortgage
1,097,166

 
1,327

 
1,098,493

 
 
1,110,426

 
1,516

 
1,111,942

HELOC
194,158

 
904

 
195,062

 
 
203,178

 
974

 
204,152

Installment
17,570

 
49

 
17,619

 
 
18,526

 
53

 
18,579

Consumer
1,252,251

 
3,462

 
1,255,713

 
 
1,241,736

 
3,808

 
1,245,544

Leases
2,905

 
46

 
2,951

 
 
2,993

 
36

 
3,029

Total loans
$
5,292,349

 
$
15,626

 
$
5,307,975

 
 
$
5,372,483

 
$
16,659

 
$
5,389,142

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

Loans are shown net of deferred origination fees, costs and unearned income of $12.3 million at March 31, 2018 and $12.2 million at December 31, 2017, which represented a net deferred income position in both periods.

Overdrawn deposit accounts of $1.4 million and $1.9 million had been reclassified to loans at March 31, 2018 and December 31, 2017, respectively, and are included in the commercial, financial and agricultural loan class above.


13

Table of Contents

Credit Quality
 
The following tables present the recorded investment in nonaccrual loans, accruing troubled debt restructurings ("TDRs"), and loans past due 90 days or more and still accruing by class of loan as of March 31, 2018 and December 31, 2017:
 
 
 
March 31, 2018
(In thousands)
 
Nonaccrual
Loans
 
Accruing
TDRs
 
Loans Past Due
90 Days or More
and Accruing
 
Total
Nonperforming
Loans
Commercial, financial and agricultural
 
$
25,985

 
$
1,088

 
$

 
$
27,073

Commercial real estate
 
14,213

 
4,770

 

 
18,983

Construction real estate:
 
 

 
 

 
 

 
 

Commercial
 
960

 
433

 

 
1,393

Mortgage
 

 
16

 

 
16

Installment
 
43

 
6

 

 
49

Residential real estate:
 
 

 
 

 
 

 
 

Commercial
 
2,674

 
222

 

 
2,896

Mortgage
 
16,856

 
10,022

 
669

 
27,547

HELOC
 
1,482

 
882

 
47

 
2,411

Installment
 
527

 
695

 

 
1,222

Consumer
 
3,411

 
623

 
690

 
4,724

Total loans
 
$
66,151

 
$
18,757

 
$
1,406

 
$
86,314

 
 
 
December 31, 2017
(In thousands)
 
Nonaccrual
Loans
 
Accruing
TDRs
 
Loans Past Due
90 Days or More
and Accruing
 
Total
Nonperforming
Loans
Commercial, financial and agricultural
 
$
16,773

 
$
1,291

 
$

 
$
18,064

Commercial real estate
 
12,979

 
5,163

 

 
18,142

Construction real estate:
 
 

 
 

 
 

 
 
Commercial
 
986

 
338

 

 
1,324

Mortgage
 
8

 
92

 

 
100

Installment
 
52

 

 

 
52

Residential real estate:
 
 

 
 

 
 

 
 

Commercial
 
18,835

 
224

 

 
19,059

Mortgage
 
16,841

 
10,766

 
568

 
28,175

HELOC
 
1,593

 
1,025

 
14

 
2,632

Installment
 
586

 
616

 
7

 
1,209

Consumer
 
3,403

 
662

 
1,256

 
5,321

Total loans
 
$
72,056

 
$
20,177

 
$
1,845

 
$
94,078


14

Table of Contents

The following table provides additional information regarding those nonaccrual loans and accruing TDR loans that were individually evaluated for impairment and those collectively evaluated for impairment, as of March 31, 2018 and December 31, 2017.

 
 
March 31, 2018
 
 
December 31, 2017
(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
 
$
27,073

 
$
27,050

 
$
23

 
 
$
18,064

 
$
18,039

 
$
25

Commercial real estate
 
18,983

 
18,983

 

 
 
18,142

 
18,142

 

Construction real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
1,393

 
1,393

 

 
 
1,324

 
1,324

 

Mortgage
 
16

 

 
16

 
 
100

 

 
100

Installment
 
49

 

 
49

 
 
52

 

 
52

Residential real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
2,896

 
2,896

 

 
 
19,059

 
19,059

 

Mortgage
 
26,878

 

 
26,878

 
 
27,607

 

 
27,607

HELOC
 
2,364

 

 
2,364

 
 
2,618

 

 
2,618

Installment
 
1,222

 

 
1,222

 
 
1,202

 

 
1,202

Consumer
 
4,034

 

 
4,034

 
 
4,065

 

 
4,065

Total loans
 
$
84,908

 
$
50,322

 
$
34,586

 
 
$
92,233

 
$
56,564

 
$
35,669

 
All of the loans individually evaluated for impairment were evaluated using the fair value of the underlying collateral or the present value of expected future cash flows as the measurement method.
 
The following table presents loans individually evaluated for impairment by class of loan, together with the related allowance recorded, as of March 31, 2018 and December 31, 2017.
 
 
 
March 31, 2018
 
 
December 31, 2017
(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
 
$
27,201

 
$
22,255

 
$

 
 
$
19,899

 
$
14,704

 
$

Commercial real estate
 
18,370

 
17,901

 

 
 
18,974

 
18,060

 

Construction real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
1,264

 
1,265

 

 
 
2,788

 
1,324

 

Residential real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
3,107

 
2,786

 

 
 
19,346

 
19,012

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
With an allowance recorded:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial, financial and agricultural
 
7,082

 
4,795

 
1,165

 
 
5,394

 
3,335

 
681

Commercial real estate
 
1,524

 
1,082

 
29

 
 
137

 
82

 
2

Construction real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
1,592

 
128

 
8

 
 

 

 

Residential real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
123

 
110

 
5

 
 
47

 
47

 
1

Consumer
 

 

 

 
 

 

 

Total
 
$
60,263

 
$
50,322

 
$
1,207

 
 
$
66,585

 
$
56,564

 
$
684


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, 2018 and December 31, 2017, there were $5.8 million and $7.9 million, respectively, of partial charge-offs on loans individually evaluated for impairment with no related allowance recorded and $4.2 million and $2.1 million, respectively, of partial charge-offs on loans individually evaluated for impairment that also had a specific reserve allocated.

15

Table of Contents

The allowance for loan losses included specific reserves related to loans individually evaluated for impairment at March 31, 2018 and December 31, 2017 of $1.2 million and $0.7 million, respectively. These loans with specific reserves had a recorded investment of $6.1 million and $3.5 million as of March 31, 2018 and December 31, 2017, respectively.
 
Interest income on nonaccrual loans individually evaluated for impairment is recognized on a cash basis only when Park expects to receive the entire recorded investment of the loan. Interest income on accruing TDRs individually evaluated for impairment continues to be recorded on an accrual basis. The following table presents the average recorded investment and interest income recognized subsequent to impairment on loans individually evaluated for impairment as of and for the three months ended March 31, 2018 and March 31, 2017:

 
Three Months Ended
March 31, 2018
 
 
Three Months Ended
March 31, 2017
(In thousands)
Recorded Investment as of March 31, 2018
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
 
Recorded Investment as of March 31, 2017
 
Average
Recorded
Investment
 
Interest
Income
Recognized
Commercial, financial and agricultural
$
27,050

 
$
20,078

 
$
174

 
 
$
22,542

 
$
19,471

 
$
220

Commercial real estate
18,983

 
18,193

 
202

 
 
22,732

 
23,297

 
231

Construction real estate:
 
 
 
 
 
 
 
 
 
 
 
 
   Commercial
1,393

 
1,377

 
14

 
 
2,041

 
2,096

 
15

Residential real estate:
 
 
 
 
 
 
 
 
 
 
 
 
   Commercial
2,896

 
11,215

 
31

 
 
22,803

 
23,081

 
345

Consumer

 

 

 
 
9

 
5

 

Total
$
50,322

 
$
50,863

 
$
421

 
 
$
70,127

 
$
67,950

 
$
811


The following tables present the aging of the recorded investment in past due loans as of March 31, 2018 and December 31, 2017 by class of loan. 

 
March 31, 2018
(In thousands)
Accruing Loans
Past Due 30-89
Days
 
Past Due 
Nonaccrual
Loans and Loans Past
Due 90 Days or
More and 
Accruing (1)
 
Total Past Due
 
Total Current (2)
 
Total Recorded
Investment
Commercial, financial and agricultural
$
1,483

 
$
13,100

 
$
14,583

 
$
990,446

 
$
1,005,029

Commercial real estate
210

 
2,748

 
2,958

 
1,157,652

 
1,160,610

Construction real estate:
 

 
 

 
 

 
 

 
 

Commercial

 

 

 
126,936

 
126,936

Mortgage
84

 

 
84

 
51,414

 
51,498

Installment
49

 
3

 
52

 
3,203

 
3,255

Residential real estate:
 

 
 

 
 

 
 

 
 

Commercial
413

 
1,023

 
1,436

 
389,373

 
390,809

Mortgage
9,465

 
8,010

 
17,475

 
1,081,018

 
1,098,493

HELOC
570

 
729

 
1,299

 
193,763

 
195,062

Installment
268

 
215

 
483

 
17,136

 
17,619

Consumer
7,567

 
1,798

 
9,365

 
1,246,348

 
1,255,713

Leases

 

 

 
2,951

 
2,951

Total loans
$
20,109

 
$
27,626

 
$
47,735

 
$
5,260,240

 
$
5,307,975

(1) Includes $1.4 million of loans past due 90 days or more and accruing. The remaining loans were past due nonaccrual loans.
(2) Includes $39.9 million of nonaccrual loans which were current in regards to contractual principal and interest payments.


16

Table of Contents

 
December 31, 2017
(in thousands)
Accruing Loans
Past Due 30-89
Days
 
Past Due 
Nonaccrual
Loans and Loans Past
Due 90 Days or
More and 
Accruing
(1)
 
Total Past Due
 
Total Current (2)
 
Total Recorded
Investment
Commercial, financial and agricultural
$
145

 
$
1,043

 
$
1,188

 
$
1,056,678

 
$
1,057,866

Commercial real estate
856

 
2,360

 
3,216

 
1,168,674

 
1,171,890

Construction real estate:
 

 
 

 
 
 
 

 
 

Commercial
29

 

 
29

 
125,761

 
125,790

Mortgage
256

 

 
256

 
52,080

 
52,336

Installment
54

 
19

 
73

 
3,818

 
3,891

Residential real estate:
 

 
 

 
 

 
 

 
 

Commercial
16

 
1,586

 
1,602

 
392,521

 
394,123

Mortgage
11,515

 
9,232

 
20,747

 
1,091,195

 
1,111,942

HELOC
616

 
876

 
1,492

 
202,660

 
204,152

Installment
239

 
253

 
492

 
18,087

 
18,579

Consumer
11,515

 
2,407

 
13,922

 
1,231,622

 
1,245,544

Leases

 

 

 
3,029

 
3,029

Total loans
$
25,241

 
$
17,776

 
$
43,017

 
$
5,346,125

 
$
5,389,142

(1) Includes $1.8 million of loans past due 90 days or more and accruing. The remaining loans were past due nonaccrual loans.
(2) Includes $56.1 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 as of March 31, 2018 and December 31, 2017 is included in the tables above. The past due information is the primary credit quality indicator within the following classes of loans: (1) mortgage loans and installment loans in the construction real estate segment; (2) mortgage loans, HELOC and installment loans in the residential real estate segment; and (3) consumer loans. The primary credit indicator for commercial loans is based on an internal grading system that grades commercial loans on a scale from 1 to 8. Credit grades are continuously monitored by the responsible loan officer and adjustments are made when appropriate. A grade of 1 indicates little or no credit risk and a grade of 8 is considered a loss. Commercial loans that are pass-rated (graded an 1 through a 4) are considered to be of acceptable credit risk. Commercial loans graded a 5 (special mention) are considered to be watch list credits and a higher loan loss reserve percentage is allocated to these loans. Loans classified as special mention have potential weaknesses that require management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of Park’s credit position at some future date. Commercial loans graded a 6 (substandard), also considered to be watch list credits, are considered to represent higher credit risk and, as a result, a higher loan loss reserve percentage is allocated to these loans. Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or the value of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that Park will sustain some loss if the deficiencies are not corrected. Commercial loans that are graded a 7 (doubtful) are shown as nonaccrual and Park generally charges these loans down to their fair value by taking a partial charge-off or recording a specific reserve. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Certain 6-rated loans and all 7-rated loans are 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.
 

17

Table of Contents

The tables below present the recorded investment by loan grade at March 31, 2018 and December 31, 2017 for all commercial loans:
 
 
March 31, 2018
(In thousands)
5 Rated
 
6 Rated
 
Nonaccrual and Accruing TDRs
 
Pass-Rated
 
Recorded
Investment
Commercial, financial and agricultural *
$
475

 
$
130

 
$
27,073

 
$
977,351

 
$
1,005,029

Commercial real estate *
2,176

 

 
18,983

 
1,139,451

 
1,160,610

Construction real estate:
 

 
 

 
 

 
 

 
 

Commercial

 
344

 
1,393

 
125,199

 
126,936

Residential real estate:
 

 
 

 
 

 
 

 
 

Commercial
412

 

 
2,896

 
387,501

 
390,809

Leases

 

 

 
2,951

 
2,951

Total commercial loans
$
3,063

 
$
474

 
$
50,345

 
$
2,632,453

 
$
2,686,335

 * 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.

 
December 31, 2017
(In thousands)
5 Rated
 
6 Rated
 
Nonaccrual and Accruing TDRs
 
Pass-Rated
 
Recorded
Investment
Commercial, financial and agricultural *
$
17,272

 
$
153

 
$
18,064

 
$
1,022,377

 
$
1,057,866

Commercial real estate *
5,322

 
457

 
18,142

 
1,147,969

 
1,171,890

Construction real estate:
 

 
 

 
 

 
 

 
 

Commercial
278

 

 
1,324

 
124,188

 
125,790

Residential real estate:
 

 
 

 
 

 
 

 
 

Commercial
216

 
1

 
19,059

 
374,847

 
394,123

Leases

 

 

 
3,029

 
3,029

Total Commercial Loans
$
23,088

 
$
611

 
$
56,589

 
$
2,672,410

 
$
2,752,698

 * 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.

Troubled Debt Restructurings ("TDRs")
 
Management classifies loans as TDRs when a borrower is experiencing financial difficulties and Park has granted a concession to the borrower as part of a modification or in the loan renewal process. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of the borrower's debt in the foreseeable future without the modification. This evaluation is performed in accordance with the Company’s internal underwriting policy. Management’s policy is to modify loans by extending the term or by granting a temporary or permanent contractual interest rate below the market rate, not by forgiving debt. A court's discharge of a borrower's debt in a Chapter 7 bankruptcy is considered a concession when the borrower does not reaffirm the discharged debt.

Certain loans which were modified during the three-month periods ended March 31, 2018 and March 31, 2017 did not meet the definition of a TDR as the modification was a delay in a payment that was considered to be insignificant. Management considers a forbearance period of up to three months or a delay in payment of up to 30 days to be insignificant. TDRs may be classified as accruing if the borrower has been current for a period of at least six months with respect to loan payments and management expects that the borrower will be able to continue to make payments in accordance with the terms of the restructured note. Management reviews all accruing TDRs quarterly to ensure payments continue to be made in accordance with the modified terms.
 
Quarterly, management reviews renewals/modifications of loans previously identified as TDRs to consider if it is appropriate to remove the TDR classification. If the borrower is no longer experiencing financial difficulty and the renewal/modification did

18

Table of Contents

not contain a concessionary interest rate or other concessionary terms, management considers the potential removal of the TDR classification. If deemed appropriate, the TDR classification is removed 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. The TDR classification was removed on $324,000 of loans during the three-month period ended March 31, 2018. There were no TDR classifications removed during the three-month period ended March 31, 2017.

At March 31, 2018 and December 31, 2017, there were $24.0 million and $38.5 million, respectively, of TDRs included in the nonaccrual loan totals. At March 31, 2018 and December 31, 2017, $18.5 million and $32.4 million, respectively, of these nonaccrual TDRs were performing in accordance with the terms of the restructured note. As of March 31, 2018 and December 31, 2017, loans with a recorded investment of $18.8 million and $20.2 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, 2018 and December 31, 2017, Park had commitments to lend $0.8 million and $1.3 million, respectively, of additional funds to borrowers whose outstanding loan terms had been modified in a TDR.
 
There were $0.7 million and $0.5 million of specific reserves related to TDRs at March 31, 2018 and December 31, 2017, respectively. Modifications made in 2017 and 2018 were largely the result of renewals and extending the maturity date of the loan at terms consistent with the original note. These modifications were deemed to be TDRs primarily due to Park’s conclusion that the borrower would likely not have qualified for similar terms through another lender. Many of the modifications deemed to be TDRs were previously identified as impaired loans, and thus were also previously evaluated for impairment under Accounting Standards Codification (ASC) 310.  Additional specific reserves of $10,000 and $280,000 were recorded during the three-month periods ended March 31, 2018 and March 31, 2017, respectively, as a result of TDRs identified in the respective periods.

The terms of certain other loans were modified during the three-month periods ended March 31, 2018 and March 31, 2017 that did not meet the definition of a TDR. There were no modified substandard commercial loans which did not meet the definition of a TDR at March 31, 2018. Modified substandard commercial loans which did not meet the definition of a TDR had a total recorded investment of $113,000 at March 31, 2017. The renewal/modification of these loans: (1) resulted in a delay in a payment that was considered to be insignificant, or (2) resulted in Park obtaining additional collateral or guarantees that improved the likelihood of the ultimate collection of the loans such that each modification was deemed to be at market terms.
Consumer loans modified during the three-month periods ended March 31, 2018 and March 31, 2017 which did not meet the definition of a TDR had a total recorded investment of $6.0 million and $1.4 million, respectively. Many of these loans were to borrowers who were not experiencing financial difficulties but who were looking to reduce their cost of funds.


19

Table of Contents

The following tables detail the number of contracts modified as TDRs during the three-month periods ended March 31, 2018 and March 31, 2017, as well as the recorded investment of these contracts at March 31, 2018 and March 31, 2017. 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, 2018
(In thousands)
Number of
Contracts
 
Accruing
 
Nonaccrual
 
Total
Recorded
Investment
Commercial, financial and agricultural
4

 
$

 
$
55

 
$
55

Commercial real estate
3

 

 
249

 
249

Construction real estate:
 
 
 
 
 
 
 
  Commercial
1

 
63

 

 
63

  Mortgage

 

 

 

  Installment

 

 

 

Residential real estate:
 
 
 
 
 
 
 
  Commercial

 

 

 

  Mortgage
9

 

 
650

 
650

  HELOC
2

 
251

 
88

 
339

  Installment
5

 
102

 
13

 
115

Consumer
50

 
13

 
351

 
364

Total loans
74

 
$
429

 
$
1,406

 
$
1,835


 
Three Months Ended
March 31, 2017
(In thousands)
Number of
Contracts
 
Accruing
 
Nonaccrual
 
Total
Recorded
Investment
Commercial, financial and agricultural
6

 
$
3,079

 
$
1,019

 
$
4,098