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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 September 30, 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 every Interactive Data File required to be submitted 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 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    
¨
 
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: 15,698,181 Common shares, no par value per share, outstanding at November 01, 2018.



PARK NATIONAL CORPORATION
 
CONTENTS
 
Page
PART I.   FINANCIAL INFORMATION
 
 
 
Item 1.  Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
87 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2
Table of Contents

PARK NATIONAL CORPORATION AND SUBSIDARIES
Consolidated Condensed Balance Sheets (Unaudited)
(in thousands, except share and per share data)                    
 
September 30,
2018
 
December 31, 2017
Assets:
 

 
 

Cash and due from banks
$
106,578

 
$
131,946

Money market instruments
38,026

 
37,166

Cash and cash equivalents
144,604

 
169,112

Investment securities:
 

 
 

Debt securities available-for-sale, at fair value (amortized cost of $1,074,605 and $1,097,645 at September 30, 2018 and December 31, 2017, respectively)
1,032,265

 
1,091,881

Debt securities held-to-maturity, at amortized cost (fair value of $344,341 and $363,779 at September 30, 2018 and December 31, 2017, respectively)
350,642

 
357,197

Other investment securities
56,104

 
63,746

Total investment securities
1,439,011

 
1,512,824

 
 
 
 
Loans
5,625,323

 
5,372,483

Allowance for loan losses
(50,246
)
 
(49,988
)
Net loans
5,575,077

 
5,322,495

Bank owned life insurance
190,290

 
189,322

Prepaid assets
99,772

 
97,712

Goodwill and other intangibles
119,999

 
72,334

Premises and equipment, net
57,515

 
55,901

Affordable housing tax credit investments
52,116

 
49,669

Other real estate owned
5,276

 
14,190

Accrued interest receivable
23,907

 
22,164

Mortgage loan servicing rights
10,096

 
9,688

Other
38,828

 
22,209

Total assets
$
7,756,491

 
$
7,537,620

 
 
 
 
Liabilities and Shareholders' Equity:
 

 
 

Deposits:
 

 
 

Noninterest bearing
$
1,727,210

 
$
1,633,941

Interest bearing
4,552,116

 
4,183,385

Total deposits
6,279,326

 
5,817,326

Short-term borrowings
179,818

 
391,289

Long-term debt
400,000

 
500,000

Subordinated notes
15,000

 
15,000

Unfunded commitments in affordable housing tax credit investments
22,282

 
14,282

Accrued interest payable
3,264

 
2,278

Other
47,710

 
41,344

Total liabilities
$
6,947,400

 
$
6,781,519

 
 
 
 
 


 


Shareholders' equity:
 

 
 

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

 
$
—

Common shares (No par value; 20,000,000 shares authorized; 16,586,169 shares issued at September 30, 2018 and 16,150,752 shares issued at December 31, 2017)
357,709

 
307,726

Retained earnings
603,091

 
561,908

Treasury shares (899,637 shares at September 30, 2018 and 862,558 shares at December 31, 2017)
(91,559
)
 
(87,079
)
Accumulated other comprehensive loss, net of taxes
(60,150
)
 
(26,454
)
Total shareholders' equity
809,091

 
756,101

Total liabilities and shareholders’ equity
$
7,756,491

 
$
7,537,620


SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

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PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Income (Unaudited)
(in thousands, except share and per share data)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
Interest and dividend income:
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
Interest and fees on loans
$
69,905

 
$
63,110

 
$
198,803

 
$
184,240

 
 
 
 
 
 
 
 
Interest and dividends on:
 

 
 

 
 
 
 
Obligations of U.S. Government, its agencies and other securities - taxable
7,691

 
6,757

 
22,204

 
20,787

Obligations of states and political subdivisions - tax-exempt
2,205

 
1,974

 
6,557

 
5,098

Other interest income
428

 
1,383

 
1,070

 
2,330

Total interest and dividend income
80,229

 
73,224

 
228,634

 
212,455

 
 
 
 
 
 
 
 
Interest expense:
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
Interest on deposits:
 

 
 

 
 
 
 
Demand and savings deposits
6,412

 
2,882

 
13,809

 
6,787

Time deposits
3,328

 
2,521

 
8,765

 
7,139

 
 
 
 
 
 
 
 
Interest on borrowings:
 

 
 

 
 
 
 
Short-term borrowings
288

 
197

 
1,283

 
616

Long-term debt
2,525

 
6,073

 
7,509

 
17,632

 
 
 
 
 
 
 
 
Total interest expense
12,553

 
11,673

 
31,366

 
32,174

 
 
 
 
 
 
 
 
Net interest income
67,676

 
61,551

 
197,268

 
180,281

 
 
 
 
 
 
 
 
Provision for loan losses
2,940

 
3,283

 
4,586

 
8,740

Net interest income after provision for loan losses
64,736

 
58,268

 
192,682

 
171,541

 
 
 
 
 
 
 
 
Other income:
 

 
 

 
 
 
 
Income from fiduciary activities
6,418

 
5,932

 
19,479

 
17,471

Service charges on deposit accounts
2,861

 
3,216

 
8,609

 
9,511

Other service income
3,246

 
3,357

 
10,890

 
9,608

Checkcard fee income
4,352

 
3,974

 
12,736

 
11,775

Bank owned life insurance income
2,585

 
1,573

 
4,625

 
3,790

ATM fees
500

 
605

 
1,534

 
1,708

OREO valuation adjustments
(77
)
 
(22
)
 
(398
)
 
(367
)
(Loss) gain on sale of OREO, net
(81
)
 
51

 
4,093

 
204

Net loss on sale of investment securities
—

 
—

 
(2,271
)
 
—

(Loss) gain on equity securities, net
(326
)
 
—

 
3,467

 
—

Other components of net periodic pension benefit income
1,705

 
1,448

 
5,115

 
4,344

Miscellaneous
2,881

 
3,403

 
6,330

 
5,147

Total other income
24,064

 
23,537

 
74,209

 
63,191

 
 
 
 
 
 
 
 
 


4
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PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Income (Unaudited) (Continued)
(in thousands, except share and per share data)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
Other expense:
 

 
 

 
 
 
 
Salaries
$
27,229

 
$
23,302

 
$
76,652

 
$
69,020

Employee benefits
7,653

 
5,943

 
22,312

 
18,617

Occupancy expense
2,976

 
2,559

 
8,482

 
7,759

Furniture and equipment expense
3,807

 
3,868

 
11,969

 
11,126

Data processing fees
2,580

 
1,919

 
6,255

 
5,560

Professional fees and services
8,065

 
6,100

 
20,378

 
16,947

Marketing
1,364

 
1,122

 
3,767

 
3,262

Insurance
1,388

 
1,499

 
4,012

 
4,586

Communication
1,207

 
1,110

 
3,646

 
3,598

State tax expense
1,000

 
912

 
3,063

 
2,918

Amortization of intangibles
289

 
—

 
289

 
—

Miscellaneous
1,758

 
2,925

 
5,333

 
6,330

Total other expense
59,316

 
51,259

 
166,158

 
149,723

 
 
 
 
 
 
 
 
Income before income taxes
29,484

 
30,546

 
100,733

 
85,009

 
 
 
 
 
 
 
 
Income taxes
4,722

 
8,434

 
16,607

 
23,598

 
 
 
 
 
 
 
 
Net income
$
24,762

 
$
22,112

 
$
84,126

 
$
61,411

 
 
 
 
 
 
 
 
Earnings per Common Share:
 
 
 
 
 
 
 
Basic
$
1.58

 
$
1.45

 
$
5.46

 
$
4.01

Diluted
$
1.56

 
$
1.44

 
$
5.41

 
$
3.99

 
 
 
 
 
 
 
 
Weighted average common shares outstanding
 

 
 

 
 
 
 
Basic
15,686,542

 
15,287,974

 
15,420,135

 
15,299,039

Diluted
15,832,734

 
15,351,590

 
15,560,666

 
15,394,199

 
 
 
 
 
 
 
 
Cash dividends declared
$
0.96

 
$
0.94

 
$
3.11

 
$
2.82

 
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 



5
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PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Comprehensive Income (Unaudited)
(in thousands)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
24,762

 
$
22,112

 
$
84,126

 
$
61,411

 
 
 
 
 
 
 
 
Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
Net loss realized on sale of securities, net of income tax benefit of $538 for the nine months ended September 30, 2018
—

 
—

 
2,024

 
—

Unrealized net holding (loss) gain on debt securities available-for-sale, net of federal income tax effect of $(1,364) and $380 for the three months ended September 30, 2018 and 2017, and $(8,217) and $2,551 for the nine months ended September 30, 2018 and 2017, respectively
(5,141
)
 
707

 
(30,919
)
 
4,740

Other comprehensive (loss) income
$
(5,141
)
 
$
707

 
$
(28,895
)
 
$
4,740

 
 
 
 
 
 
 
 
Comprehensive income
$
19,621

 
$
22,819

 
$
55,231

 
$
66,151

 
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


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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
 
 

 
 

 
61,411

 
 

 
 

Other comprehensive income, net of tax
 
 

 
 
 
 
 
 
 
4,740

Dividends on common shares at $2.82 per share
 
 

 
 

 
(43,411
)
 
 

 
 

Cash payment for fractional common shares in dividend reinvestment plan
 
 

 
(4
)
 
 

 
 

 
 

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 70,000 common shares to be held as treasury shares
 
 
 
 
 
 
 
$
(7,378
)
 
 
Share-based compensation expense
 
 
 
2,116

 
 
 
 
 
 
Balance at September 30, 2017
 
$
—


$
307,143

 
$
553,434

 
$
(88,205
)
 
$
(13,005
)
 
 
 
 
 
 
 
 
 
 
 
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
 
 

 


 
84,126

 


 


Other comprehensive loss, net of tax
 
 

 


 


 


 
(28,895
)
Dividends on common shares at $3.11 per share
 
 

 


 
(48,349
)
 


 


Cash payment for fractional common shares in dividend reinvestment plan
 
 

 
(3
)
 


 


 


Issuance of 435,457 common shares for the acquisition of NewDominion Bank
 
 
 
48,519

 
 
 
 
 
 
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

 
 
Repurchase of 50,000 common shares to be held as treasury shares
 
 
 
 
 
 
 
(5,784
)
 
 
Share-based compensation expense
 
 
 
3,064

 
 
 
 
 
 
Balance at September 30, 2018
 
$
—

 
$
357,709

 
$
603,091

 
$
(91,559
)
 
$
(60,150
)
 
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


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PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows (Unaudited)
(in thousands)
 
Nine Months Ended
September 30,
 
2018
 
2017
Operating activities:
 

 
 

Net income
$
84,126

 
$
61,411

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

 
 

Provision for loan losses
4,586

 
8,740

Amortization of loan fees and costs, net
(4,631
)
 
(4,352
)
Increase in prepaid dealer premiums
(1,399
)
 
(4,313
)
Provision for depreciation
6,446

 
6,463

Amortization of investment securities, net
932

 
1,013

Realized net investment securities losses
2,271

 
—

Gain on equity securities, net
(3,467
)
 
—

Amortization of prepayment penalty on long-term debt
—

 
4,711

Loan originations to be sold in secondary market
(153,093
)
 
(168,255
)
Proceeds from sale of loans in secondary market
154,544

 
170,703

Gain on sale of loans in secondary market
(3,604
)
 
(3,431
)
Share-based compensation expense
3,064

 
2,116

OREO valuation adjustments
398

 
367

Gain on sale of OREO, net
(4,093
)
 
(204
)
Bank owned life insurance income
(4,625
)
 
(3,790
)
Investment in qualified affordable housing tax credits amortization
5,553

 
5,592

 
 
 
 
Changes in assets and liabilities:
 

 
 

Decrease (increase) in other assets
6,575

 
(5,603
)
Increase (decrease) in other liabilities
4,536

 
(4,502
)
Net cash provided by operating activities
$
98,119

 
$
66,666

 
 
 
 
Investing activities:
 

 
 

Proceeds from the redemption/repurchase of Federal Home Loan Bank stock
$
7,004

 
$
—

Proceeds from sales of securities
244,399

 
—

Proceeds from calls and maturities of:
 

 
 

Available-for-sale debt securities
151,860

 
128,736

Held-to-maturity debt securities
10,102

 
12,264

Purchases of:
 

 
 

Available-for-sale debt securities
(373,372
)
 
(29,684
)
Held-to-maturity debt securities
(4,946
)
 
(96,293
)
Equity securities
(2,590
)
 
—

Net loan paydowns (originations), portfolio loans
12,027

 
(95,808
)
  Proceeds from the sale of OREO
11,919

 
2,363

  Life insurance death benefits
4,028

 
1,037

  Purchases of premises and equipment
(7,145
)
 
(4,995
)
Cash received from acquisitions, net
12,270

 
—

Net cash provided by (used in) investing activities
$
65,556

 
$
(82,380
)
 
 
 
 

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PARK NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows (Unaudited) (Continued)
(in thousands)
 
Nine Months Ended
September 30,
 
2018
 
2017
Financing activities:
 

 
 

Net increase in deposits
$
177,626

 
$
452,366

Net decrease in short-term borrowings
(211,471
)
 
(201,899
)
Proceeds from issuance of long-term debt
25,000

 
150,000

Repayment of subordinated notes
—

 
(30,000
)
Repayment of long-term debt
(125,000
)
 
—

Value of common shares withheld to pay employee income taxes
(610
)
 
(347
)
Repurchase of common shares to be held as treasury shares
(5,784
)
 
(7,378
)
Cash dividends paid
(47,944
)
 
(43,122
)
Net cash (used in) provided by financing activities
$
(188,183
)
 
$
319,620

 
 
 
 
(Decrease) increase in cash and cash equivalents
(24,508
)
 
303,906

 
 
 
 
Cash and cash equivalents at beginning of year
169,112

 
146,446

 
 
 
 
Cash and cash equivalents at end of period
$
144,604

 
$
450,352

 
 
 
 
Supplemental disclosures of cash flow information:
 

 
 

 
 
 
 
Cash paid for:
 

 
 

Interest
$
30,424

 
$
31,743

 
 
 
 
Income taxes
$
5,525

 
$
18,690

 
 
 
 
Non-cash items:
 
 
 
Loans transferred to OREO
$
1,037

 
$
2,991

 
 
 
 
Loans transferred to repossessed assets
$
11,379

 
$
—

 
 
 
 
New commitments in affordable housing tax credit investments
$
8,000

 
$
7,000


SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


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PARK NATIONAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation
 
The accompanying unaudited consolidated condensed financial statements included in this report have been prepared for Park National Corporation (sometimes also referred to as the “Registrant”) and its subsidiaries. Unless the context otherwise requires, references to "Park", the "Corporation" or the "Company" and similar terms mean Park National Corporation and its subsidiaries. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results of operations for the interim periods included herein have been made. The results of operations for the three-month and nine-month periods ended September 30, 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 statements 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 But Not Yet Effective Accounting Standards

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

Adoption of New Accounting Pronouncements

ASU 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 (loss) 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 20 - 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 reflected in 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

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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, $1.3 million and $89,000 was recorded in the first, second and third quarters of 2018, respectively, 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 16 - Fair Value, 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 condensed 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 14 - Benefit Plans, 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 under 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 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 early adoption of this guidance on July 1, 2018 did not have an impact on Park's consolidated financial statements. Park will apply this guidance to future transactions.

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 federal corporate income tax rate enacted under the Tax Cuts and Jobs Act. 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 effective 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.


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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 effective as of January 1, 2018.

Issued But 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 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 and is in the process of implementing a software solution to assist in the adoption of this ASU. 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 2018-10 - Codification Improvements to Topic 842, Leases: In July 2018, the FASB issued ASU 2018-10 - Codification Improvements to Topic 842, Leases. This ASU includes amendments that clarify certain aspects of the guidance issued in ASU 2016-02. Park will consider this clarification in determining the appropriate adoption of ASU 2016-02, effective for annual and interim reporting periods within those annual periods, beginning after December 15, 2018.

ASU 2018-11 - Leases (Topic 842): Targeted Improvements: In July 2018, the FASB issued ASU 2018-11 - Leases (Topic 842): Targeted Improvements. This ASU amends the guidance in ASU 2016-02 which is not yet effective. The amendments in the ASU provide entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings for the period of adoption. Additionally, this amendment provides lessors with a practical expedient, by class of asset, to not separate nonlease components from the associated lease component and, instead, to account for those components as a single component if certain criteria are met. Park will consider this clarification in determining the appropriate adoption of ASU 2016-02, effective for annual and interim reporting periods within those annual periods, beginning after December 15, 2018.

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ASU 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement: In August 2018, the FASB issued ASU 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement by removing, modifying and adding certain requirements. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of this ASU. An entity is permitted to early adopt and remove or modify disclosures upon issuance of the ASU and delay adoption of the additional disclosures until their effective date. The adoption of this guidance will not have an impact on Park’s consolidated financial statements, but will impact disclosures.

ASU 2018-14 - Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans: In August 2018, the FASB issued ASU 2018-14 - Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. This 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.

Note 3 - Business Combinations

On July 1, 2018, NewDominion Bank, a North Carolina state-chartered bank (“NewDominion”), merged with and into The Park National Bank, the national bank subsidiary of Park ("PNB"), with PNB continuing as the surviving entity pursuant to the Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), dated as of January 22, 2018, by and among Park, PNB, and NewDominion. In accordance with the Merger Agreement, NewDominion shareholders were permitted to make an election to receive for their shares of NewDominion common stock either $1.08 in cash without interest (the cash consideration) or 0.01023 of a Park common share, plus cash in lieu of any fractional Park common share (the stock consideration). Based on the terms of the Merger Agreement, the aggregate consideration to be paid in the merger was subject to proration and allocation procedures to ensure that 60 percent of the shares of NewDominion common stock outstanding immediately prior to the completion of the merger were exchanged for the stock consideration and that the remaining 40 percent of the shares of NewDominion common stock outstanding immediately prior to the completion of the merger were to be exchanged for the cash consideration, including, in each case, shares of NewDominion common stock subject to NewDominion options and restricted stock awards.

Purchase consideration consisted of 435,457 Park common shares, valued at $48.5 million, and $30.7 million in cash to acquire 91.45% of NewDominion outstanding common shares. The remaining 8.55% of NewDominion's outstanding common shares were previously held by Park. Park recognized a gain of $3.5 million as a result of remeasuring to fair value its 8.55% equity interest in NewDominion held before the business combination. The gain is included in "(Loss) gain on equity securities, net" in the consolidated condensed statements of income. The acquisition is expected to provide additional revenue growth and geographic diversification.

NewDominion's results of operations were included in Park’s results beginning July 1, 2018. For the nine months ended September 30, 2018, Park recorded merger-related expenses of $3.6 million associated with the NewDominion acquisition. Of this $3.6 million in expense, $1.8 million is included within "Professional fees and services", $1.6 million is included within "Salaries", $78,000 is included within "Employee benefits", and $197,000 is included within "Miscellaneous", in each case within "Other expense" on the consolidated condensed statements of income.

Goodwill of $40.4 million arising from the acquisition consisted largely of synergies and the cost savings resulting from the combining of the operations of the PNB and NewDominion. The goodwill is not deductible for income tax purposes as the transaction was accounted for as a tax-free exchange.


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The following table summarizes the consideration paid for NewDominion and the amounts of the assets acquired and liabilities assumed at their fair value:

(in thousands)
 
Consideration
 
Cash
$
30,684

Equity instruments
48,519

Previous 8.55% investment in NewDominion
7,000

Fair value of total consideration transferred
$
86,203

 
 
Recognized amounts of identifiable assets acquired and liabilities assumed
 
Cash and cash equivalents
$
42,954

Securities
1,954

Loans
272,753

Premises and equipment
940

Core deposit intangibles
6,249

Trade name intangible
1,300

Other assets
6,133

Total assets acquired
$
332,283

 
 
Deposits
284,231

Other liabilities
2,254

Total liabilities assumed
286,485

 
 
Net identifiable assets
45,798

 
 
Goodwill
$
40,405


Park accounted for the NewDominion acquisition using the acquisition method of accounting and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date, in accordance with FASB ASC Topic 805, Business Combinations. The fair value measurements of assets acquired and liabilities assumed are subject to refinement for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available. Park continues to finalize the fair values of loans, intangible assets, and deferred taxes. As a result, the fair value adjustments are preliminary and may change as information becomes available. Fair value adjustments will be finalized no later than July 2019.    

The fair value of net assets acquired includes fair value adjustments to loans that were not considered impaired as of the acquisition date.  The fair value adjustments were determined using discounted contractual cash flows.  However, Park believes that all contractual cash flows related to these loans will be collected.  As such, these loans were not considered impaired at the acquisition date and were not subject to the guidance relating to purchased credit impaired loans, which have shown evidence of credit deterioration since origination.  Loans acquired that were not subject to these requirements included non-impaired loans with a fair value and gross contractual amounts receivable of $267.9 million and $272.9 million, respectively, on the date of acquisition.


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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
$
19,246

 
$
19,138

Commercial real estate
119,434

 
117,638

Construction real estate:
 
 
 
Commercial
22,494

 
22,235

Mortgage
8,391

 
8,111

Residential real estate:
 
 
 
Commercial
14,798

 
14,797

Mortgage
50,295

 
48,714

HELOC
37,651

 
36,688

Consumer
541

 
539

Purchased credit impaired
5,069

 
4,893

Total loans
$
277,919

 
$
272,753


The following table presents supplemental pro forma information as if the acquisition had occurred at the beginning of 2017. The unaudited pro forma information includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, 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 dates.

 
Nine months ended September 30,
(dollars in thousands, except per share data)
2018
 
2017
Net interest income
204,074

 
190,461

Net income
88,102

 
62,775

Basic earnings per share
5.61

 
3.99

Diluted earnings per share
5.51

 
3.97



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Note 4 – Loans
 
The composition of the loan portfolio, by class of loan, as of September 30, 2018 and December 31, 2017 was as follows:
 
 
September 30, 2018
 
 
December 31, 2017
(In thousands)
Loan
Balance
 
Accrued
Interest
Receivable
 
Recorded
Investment
 
 
Loan
Balance
 
Accrued
Interest
Receivable
 
Recorded
Investment
Commercial, financial and agricultural *
$
1,031,500

 
$
5,606

 
$
1,037,106

 
 
$
1,053,453

 
$
4,413

 
$
1,057,866

Commercial real estate *
1,302,630

 
5,169

 
1,307,799

 
 
1,167,607

 
4,283

 
1,171,890

Construction real estate:
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
151,757

 
474

 
152,231

 
 
125,389

 
401

 
125,790

Mortgage
65,842

 
158

 
66,000

 
 
52,203

 
133

 
52,336

Installment
2,597

 
8

 
2,605

 
 
3,878

 
13

 
3,891

Residential real estate:
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
403,147

 
1,156

 
404,303

 
 
393,094

 
1,029

 
394,123

Mortgage
1,140,648

 
1,719

 
1,142,367

 
 
1,110,426

 
1,516

 
1,111,942

HELOC
221,632

 
964

 
222,596

 
 
203,178

 
974

 
204,152

Installment
15,556

 
43

 
15,599

 
 
18,526

 
53

 
18,579

Consumer
1,287,382

 
3,773

 
1,291,155

 
 
1,241,736

 
3,808

 
1,245,544

Leases
2,632

 
40

 
2,672

 
 
2,993

 
36

 
3,029

Total loans
$
5,625,323

 
$
19,110

 
$
5,644,433

 
 
$
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 $12.4 million at September 30, 2018 and $12.2 million at December 31, 2017, which represented a net deferred income position in both periods. At September 30, 2018, loans included a purchase accounting adjustment of $5.1 million, which represented a net deferred income position. This fair market value adjustment 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 $1.1 million and $1.9 million had been reclassified to loans at September 30, 2018 and December 31, 2017, respectively, and are included in the commercial, financial and agricultural loan class above.


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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 September 30, 2018 and December 31, 2017:
 
 
 
September 30, 2018
(In thousands)
 
Nonaccrual
Loans
 
Accruing
TDRs
 
Loans Past Due
90 Days or More
and Accruing
 
Total
Nonperforming
Loans
Commercial, financial and agricultural
 
$
15,837

 
$
264

 
$
16

 
$
16,117

Commercial real estate
 
22,806

 
2,999

 
—

 
25,805

Construction real estate:
 
 

 
 

 
 

 
 

Commercial
 
2,016

 
—

 
—

 
2,016

Mortgage
 
16

 
16

 
—

 
32

Installment
 
21

 
12

 
—

 
33

Residential real estate:
 
 

 
 

 
 

 
 

Commercial
 
2,786

 
127

 
—

 
2,913

Mortgage
 
17,411

 
8,175

 
720

 
26,306

HELOC
 
1,901

 
1,251

 
144

 
3,296

Installment
 
410

 
1,074

 
—

 
1,484

Consumer
 
3,450

 
789

 
1,203

 
5,442

Total loans
 
$
66,654

 
$
14,707

 
$
2,083

 
$
83,444

 
 
 
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


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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 September 30, 2018 and December 31, 2017.

 
 
September 30, 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
 
$
16,101

 
$
16,026

 
$
75

 
 
$
18,064

 
$
18,039

 
$
25

Commercial real estate
 
25,805

 
25,805

 
—

 
 
18,142

 
18,142

 
—

Construction real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
2,016

 
2,016

 
—

 
 
1,324

 
1,324

 
—

Mortgage
 
32

 
—

 
32

 
 
100

 
—

 
100

Installment
 
33

 
—

 
33

 
 
52

 
—

 
52

Residential real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
2,913

 
2,913

 
—

 
 
19,059

 
19,059

 
—

Mortgage
 
25,586

 
—

 
25,586

 
 
27,607

 
—

 
27,607

HELOC
 
3,152

 
—

 
3,152

 
 
2,618

 
—

 
2,618

Installment
 
1,484

 
—

 
1,484

 
 
1,202

 
—

 
1,202

Consumer
 
4,239

 
—

 
4,239

 
 
4,065

 
—

 
4,065

Total loans
 
$
81,361

 
$
46,760

 
$
34,601

 
 
$
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 September 30, 2018 and December 31, 2017.
 
 
 
September 30, 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
 
$
18,067

 
$
12,801

 
$
—

 
 
$
19,899

 
$
14,704

 
$
—

Commercial real estate
 
24,518

 
24,004

 
—

 
 
18,974

 
18,060

 
—

Construction real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
4,829

 
2,016

 
—

 
 
2,788

 
1,324

 
—

Residential real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
3,004

 
2,716

 
—

 
 
19,346

 
19,012

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
With an allowance recorded:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial, financial and agricultural
 
5,317

 
3,225

 
1,716

 
 
5,394

 
3,335

 
681

Commercial real estate
 
1,832

 
1,801

 
71

 
 
137

 
82

 
2

Construction real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
—

 
—

 
—

 
 
—

 
—

 
—

Residential real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
200

 
197

 
59

 
 
47

 
47

 
1

Consumer
 
—

 
—

 
—

 
 
—

 
—

 
—

Total
 
$
57,767

 
$
46,760

 
$
1,846

 
 
$
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 September 30, 2018 and December 31, 2017, there were $8.9 million and $7.9 million, respectively, of partial charge-offs on loans individually evaluated for impairment with no related allowance recorded. At both September 30, 2018 and December 31, 2017, there were $2.1 million of partial charge-offs on loans individually evaluated for impairment that also had a specific reserve allocated.

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The allowance for loan losses included specific reserves related to loans individually evaluated for impairment at September 30, 2018 and December 31, 2017 of $1.8 million and $0.7 million, respectively. These loans with specific reserves had a recorded investment of $5.2 million and $3.5 million as of September 30, 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 and nine months ended September 30, 2018 and September 30, 2017:

 
Three Months Ended
September 30, 2018
 
 
Three Months Ended
September 30, 2017
(In thousands)
Recorded Investment as of September 30, 2018
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
 
Recorded Investment as of September 30, 2017
 
Average
Recorded
Investment
 
Interest
Income
Recognized
Commercial, financial and agricultural
$
16,026

 
$
23,247

 
$
187

 
 
$
29,848

 
$
28,412

 
$
398

Commercial real estate
25,805

 
26,428

 
268

 
 
22,995

 
22,241

 
192

Construction real estate:
 
 
 
 
 
 
 
 
 
 
 
 
   Commercial
2,016

 
2,246

 
4

 
 
1,460

 
1,554

 
18

Residential real estate:
 
 
 
 
 
 
 
 
 
 
 
 
   Commercial
2,913

 
2,758

 
26

 
 
19,298

 
20,365

 
46

Consumer
—

 
—

 
—

 
 
8

 
8

 
—

Total
$
46,760

 
$
54,679

 
$
485

 
 
$
73,609

 
$
72,580

 
$
654


 
Nine Months Ended
September 30, 2018
 
 
Nine Months Ended
September 30, 2017
(In thousands)
Recorded Investment as of September 30, 2018
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
 
Recorded Investment as of September 30, 2017
 
Average
Recorded
Investment
 
Interest
Income
Recognized
Commercial, financial and agricultural
$
16,026

 
$
22,686

 
$
506

 
 
$
29,848

 
$
23,770

 
$
738

Commercial real estate
25,805

 
21,582

 
671

 
 
22,995

 
22,470

 
663

Construction real estate:
 
 
 
 
 
 
 
 
 
 
 
 
   Commercial
2,016

 
1,661

 
31

 
 
1,460

 
1,830

 
49

Residential real estate:
 
 
 
 
 
 
 
 
 
 
 
 
   Commercial
2,913

 
6,086

 
84

 
 
19,298

 
20,876

 
452

Consumer
—

 
—

 
—

 
 
8

 
7

 
—

Total
$
46,760

 
$
52,015

 
$
1,292

 
 
$
73,609

 
$
68,953

 
$
1,902




19
Table of Contents

The following tables present the aging of the recorded investment in past due loans as of September 30, 2018 and December 31, 2017 by class of loan. 

 
September 30, 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
$
2,769

 
$
1,817

 
$
4,586

 
$
1,032,520

 
$
1,037,106

Commercial real estate
96

 
1,425

 
1,521

 
1,306,278

 
1,307,799

Construction real estate:
 

 
 

 
 

 
 

 
 

Commercial
—

 
1,837