PNC_AR2013_FINAL_1 2/18/14 6:09 PM Page 1
T A B L E O F C O N T E N T S
To Our Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Shareholders’ Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Park National Corporation Directors & Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Directors and Officers of Affiliates:
Century National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Fairfield National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Farmers and Savings Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
First-Knox National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
The Park National Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Park National Bank of Southwest Ohio & Northern Kentucky Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Richland Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Second National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Security National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
United Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Unity National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Guardian Finance Company & Scope Aircraft Finance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Management’s Report on Internal Control Over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Financial Statements:
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Consolidated Statements of Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Consolidated Statements of Changes in Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
1
T O O U R S H A R E H O L D E R S
One of our primary internal targets for 2013 was to generate net
income with a leading number of “8”. We were close but, as they
say at the carnival, no cigar was won.
The table below identifies the reduction in troubled assets retained by
SEPH following the sale of the Vision Bank business on February 16,
2012:
(In thousands)
Nonperforming loans
OREO
Total nonperforming assets
SEPH
2013
SEPH/Vision
2012
SEPH/Vision
2011
$36,108
23,224
$59,332
$55,292
21,003
$76,295
$101,380
29,032
$130,412
While work remains to be done, we are pleased with the progress
made since the sale of the Vision Bank business was announced in
late 2011.
Last year, we brought to your attention the leadership Tom Button has
provided in addressing these problem assets. Working with Tom are
Brett Baumeister, president of our Unity National Bank Division, Frank
Wagner, Executive Vice President of our Richland Bank Division, and
Bryan Campolo, Jennifer Corbitt and Deborah Ard who are employed
by our SEPH subsidiary. We are grateful these folks have produced the
results you see summarized above; we look forward to redeploying
their talents here in Ohio.
Another strong driver of our success last year was adding quality loans
to our portfolios. Total loans at The Park National Bank (PNB) grew
by $190 million last year compared to December 31, 2012, a 4.3%
increase. Interest rates continue to be very low. PNB’s bank divisions
have plenty of money to loan and our lenders are eager to serve
customers and prospects alike. Park’s banking model is singularly
unique in Ohio which goes a long way towards attracting and
retaining our great customers.
For the first time in our history, late last year combined trust assets
at our PNB bank divisions exceeded $4 billion. These assets are in
addition to and separate from the $6.6 billion in assets of Park and
reflect confidence in the skills of our trust administration, wealth and
asset management, employee benefit plan administration and various
agency and custodial services offered. Market conditions in general
were favorable last year. This helped fuel the record level of year-end
assets. We’ll accept all the help we can get from external sources, such
as positive market dynamics. A record level of trust assets helped
generate a record level of fiduciary revenue for Park in 2013.
Net income last year was $77.2 million, compared to $78.6 million
in 2012.
While perhaps disappointing on the surface, 2012 results
included the gain on the sale of the Vision Bank business, which
added approximately $14.4 million (after tax) to 2012 net income.
So, comparing performance without the gain from the sale in 2012,
2013 net income was 20% more than 2012. While a bit short of our
internal target, we are generally pleased with 2013 results.
Net income in 2013 was $5.01 per diluted common share, compared
to $4.88 per diluted common share in 2012 and $4.95 per diluted
common share in 2011. Diluted net income per common share
increased by 2.7% in 2013 compared to 2012.
The summary below is instructive as to Park’s results over the past
three years:
(In thousands)
Net income (as reported)
Security gains (after tax)
Sale of Vision Bank business (after tax)
2013
2012
$77,227
$78,630
—
—
—
14,409
$64,221
2011
$82,140
18,739
—
$63,401
Net income, excluding gains
$77,227
The dramatic improvement in the Net income, excluding gains
identified in the above table was due to continued strong performance
of our Ohio-based affiliates coupled with success at SE Property
Holdings, LLC (SEPH). SEPH is our wholly-owned subsidiary charged
with liquidating the legacy assets remaining after the sale of the Vision
Bank business in 2012. Below is a comparison of the results of SEPH
over the past three years, which include results of the Vision Bank
subsidiary during the periods referenced:
(In thousands)
Net income (loss)
Security gains (after tax)
Sale of Vision Bank business (after tax)
SEPH
2013
$142
—
—
SEPH/Vision
2012
SEPH/Vision
2011
$(12,221)
$(25,837)
—
14,409
3,377
—
Net income (loss), excluding gains
$142
$(26,630)
$(29,214)
The improvement for SEPH in 2013 was largely due to $11.8 million
of net recoveries of previously charged-off loans. SEPH also realized
$2 million of other income in 2013 as a result of net gains from the
sale of Other Real Estate Owned (OREO).
2
PNC_AR2013_FINAL_1 2/18/14 6:09 PM Page 3
T O O U R S H A R E H O L D E R S
Last year, we included with this letter a graph of the total return for
Park during the previous five years. A graph with 2013 data follows,
beginning with December 31, 2008, which was near the bear market
low over the previous 12 years. Park continues to compare favorably
with the NASDAQ Bank Stocks Index as well as the SNL Bank and
Thrift Index.
250
225
200
175
150
125
100
75
50
l
e
u
a
V
x
e
d
n
I
12/31/08
12/31/09
12/31/10
12/31/11
12/31/12
12/31/13
PERIOD ENDING
Index
12/31/08
12/31/09
12/31/10
12/31/11
12/31/12
12/31/13
Park National Corporation
NYSE MKT Composite Index
NASDAQ Bank Stocks Index
SNL Bank and Thrift Index
100.00
100.00
100.00
100.00
87.39
135.58
83.70
98.66
114.53
170.28
95.55
110.14
109.23
180.99
85.52
85.64
114.75
192.95
101.50
115.00
158.86
205.80
143.84
157.46
Last year, your board of directors approved cash dividends with
respect to common shares at the historical level of $3.76 per share.
Dividend consistency, reducing troubled assets and generating
respectable levels of net income generally helps positively influence
common stock valuation. Higher values relative to other financial
institution holding companies in turn help position Park to explore
the possibility of attracting other banks and bank holding companies
to join the Park organization. We quickly admit prospects are more
intriguing and promising than they have been over the past several
years.
In an increasingly demanding regulatory environment, we have
much to offer smaller banking organizations. We have demonstrated
the ability to respond quickly and professionally to new regulatory
requirements. And we have the further benefit of scale in talent and
size to offer to other organizations in the future.
As we stated last year, Bill McConnell long ago taught us that strong
capital (we have it), good earnings (we have them) and talented
associates (we have them, too) supply the right ingredients for growth.
We believe we can again consider capitalizing on opportunities to
reasonably expand our presence in markets in Ohio and perhaps
beyond our state lines.
Another very strong attribute of Park, for customers and prospects
alike, is the continued improvement in our technology platform.
To cite just two examples, last year we upgraded our voice and data
communications system and launched an enhanced version of mobile
banking. Strategic investments in technology have improved our
security and dependability, and positioned us to become even more
competitive with much larger banking companies.
Initially unsure of the extent to which our customers would embrace
our new mobile banking app, it soon became clear our customers
were excited about the new technology. Mobile banking usage
exceeded our expectations and industry norms. We suspect our
customer reaction is a precursor of future banking habits and needs.
We continue our unwavering focus on delivering extraordinary
customer service. We train and practice ways to improve results with
customers, virtually every day. We produce a disciplined and concise
message for all associates who participate in a daily exercise that
emphasizes our 15 distinct service standards. Service excellence
is the core foundation of our success.
Results of our frequent customer surveys, at each PNB bank
division, remain superb. There remains a positive correlation
between delivering great customer service and the strong results
at each of our divisions.
We also surveyed our associates last year (an engagement survey
intended to measure the degree to which our associates understand,
embrace and actively promote our organization’s agenda) and the
results were quite good. There is always room for improvement, but
collectively, our associates feel pretty good about who we are, what
we stand for, what we do, and how we do it.
We are sad to acknowledge that William A. Phillips passed away on
June 29th last year. Bill served our Century National Bank Division
headquartered in Zanesville for nearly five decades, and for many of
those years, as the Chief Executive Officer (CEO). He was a member
of the Park board from 1990 until his retirement in 2011. Bill is
missed by his many friends and family, and as a trusted advisor
to all of us who knew and worked with him.
Leadership transitions nearly always bring opportunities. We have
several to report.
We remember when Tom Lyall succeeded Bill Phillips as CEO at
Century National Bank in 1998. Bill prepared Tom for his succession,
just as Tom prepared Pat Nash to be his successor in April 2013. Pat
is now CEO and President of our Century National Bank Division. Tom
remains as the Chairman of the Board of Century, a pattern identical to
how Bill and Tom transitioned their leadership over 15 years ago. Pat
is well suited to be Century’s CEO. And for the record, he did a great
job in his first 8 months on the job.
3
PNC_AR2013_FINAL_1 2/18/14 6:09 PM Page 4
T O O U R S H A R E H O L D E R S
The new role for Dan as Chairman is not nearly as important.
The trick for Dan is to use whatever judgment he has developed
over the years to the benefit of Park, to work to be an agent of, and
not an impediment to, progress and change, while remembering
at all times who is in charge.
We close this message on an upbeat note regarding the future.
We remain excited about the prospects for Park. The banking industry
is in more favor as an investment alternative than it was a year ago,
and economic conditions continue an ever-so-slow march toward
recovery, which should provide more opportunities in 2014.
We are truly blessed to work with associates who consistently
demonstrate the highest levels of integrity in all that is done, with
an unselfish, customer-first focus. It is an honor and privilege to
represent our associates and our organizations to the communities
we serve.
Your continued support as shareholders is valued and welcomed.
We and our colleagues are delighted to serve you and the prospects
you may send our way. We will go all out to make you proud.
C. Daniel DeLawder
Chairman of the Board
David L. Trautman
Chief Executive Officer and President
Last year saw the conclusion of Ken Gosche’s successful 15-year
career at the Farmers & Savings Bank Division based in Loudonville,
Ohio. Ken served the last few years as President of Farmers, and we
wish him the very best in his retirement. Brian Hinkle was named as
Ken’s replacement and took over for Ken on January 1, 2014. We look
forward to working with Brian, a resident of Loudonville and a 9-year
veteran of Farmers.
Lynn Fawcett, senior vice president of PNB, plans to retire later
this spring. Lynn has a long and storied history with Park, beginning
his banking career at our First-Knox National Bank Division in
Mount Vernon. Shortly after First-Knox joined Park in 1997, Lynn,
a CPA, joined the accounting team at Park, and has had several
responsibilities since, including chief internal auditor and the head
of our deposit and retail loan service centers. We wish Lynn the very
best in his upcoming retirement, and we welcome Linda Harris from
our Fairfield National Bank Division as she assumes many of Lynn’s
former responsibilities.
Bill Wilson, the longest tenured senior vice president of PNB, plans to
make his retirement “official” in March 2014. Bill moved to part-time
status in September 2013 in anticipation of his retirement, and agreed
to work for several more months to facilitate a solid transition of his
responsibilities to Bob Kent as our senior lender for Licking County.
Bob has other significant responsibilities as well, including heading up
our specialty finance lines of business operated out of our Columbus,
Ohio office.
Bill has earned his retirement...over 40 years of service, and the
last 20 or so as our most prolific lender and virtually an icon of
commercial banking in Licking County. We shall miss him and
wish him the very best.
Effective January 1, 2014, David Trautman assumed the leadership of
both Park National Corporation and The Park National Bank. In terms
of titles, he became President and Chief Executive Officer of both. Dan
DeLawder continues as Chairman, but is no longer the boss. To quote
from our 1998 Letter to our Shareholders “Leadership transitions
are sometimes difficult, often awkward.” The quote captured the
sentiments of Bill McConnell and Dan DeLawder when Dan
assumed the CEO role in 1999.
Continuing from 1998: “The two of us are not quite certain how all
this will play out, but we know we can make it work. We’ve worked
together in harmony for a lot of years and intend to continue. Besides,
we have a model for such a transition in our experience when John
Alford stepped down as CEO. John provided a role model for us in
lots of ways.”
David and Dan have at least two highly successful predecessor models
to emulate.
David’s charge is clear...he is to continue and improve upon the
record of a successful financial services enterprise. While this may
be clear, it is anything but easy. Fortunately, an extremely talented and
dedicated leadership team is in place to assist him.
4
PNC_AR2013_FINAL_1 2/18/14 6:09 PM Page 5
F I N A N C I A L H I G H L I G H T S
(In thousands, except per share data)
2013
2012
Earnings:
Total interest income
Total interest expense
Net interest income
Net income available to common shareholders (x)
Per Share:
Net income per common share – basic (x)
Net income per common share – diluted (x)
Cash dividends declared
Common book value (end of period)
At Year-End:
Total assets
Deposits
Loans
Investment securities
Total borrowings
Total shareholders’ equity
Ratios:
Return on average common equity (x)
Return on average assets (x)
Efficiency ratio
$ 262,947
$ 285,735
41,922
221,025
77,227
5.01
5.01
3.76
42.29
$6,638,347
4,789,994
4,620,505
1,424,234
1,132,820
651,747
11.96%
1.15%
63.78%
50,420
235,315
75,205
4.88
4.88
3.76
42.20
$6,642,803
4,716,032
4,450,322
1,581,751
1,206,076
650,366
11.41%
1.11%
57.07%
(x) Reported measure uses net income available to common shareholders. Net income available to common
shareholders is calculated as net income less preferred share dividends and accretion, associated with the
preferred shares issued to the U.S. Treasury under the Capital Purchase Program.
Percent
Change
–7.98%
–16.85%
–6.07%
2.69%
2.66%
2.66%
—
0.21%
–0.07%
1.57%
3.82%
–9.96%
–6.07%
0.21%
4.82%
3.60%
11.76%
5
PNC_AR2013_FINAL_1 2/18/14 6:09 PM Page 6
S H A R E H O L D E R S ’
I N F O R M A T I O N
STOCK LISTING:
NYSE MKT Symbol – PRK
CUSIP #700658107
GENERAL SHAREHOLDER INQUIRIES:
Park National Corporation
Brady T. Burt, Secretary
50 North Third Street
Post Office Box 3500
Newark, Ohio 43058-3500
740/349-3927
DIVIDEND REINVESTMENT PLAN:
The Corporation offers a plan whereby participating shareholders can purchase additional
Park National Corporation common shares through automatic reinvestment of their regular
quarterly cash dividends. All commissions and fees connected with the purchase and
safekeeping of the shares are paid by the Corporation. Details of the plan and an enrollment
card can be obtained by contacting the Corporation’s Stock Transfer Agent and Registrar as
indicated below.
DIRECT DEPOSIT OF DIVIDENDS:
The Corporation’s shareholders may have their dividend payments directly deposited into
their checking, savings or money market account. This direct deposit of dividends is free for
all share holders. If you have any questions or need an enrollment form, please contact the
Corporation’s Stock Transfer Agent and Registrar as indicated below.
STOCK TRANSFER AGENT AND REGISTRAR:
The Park National Bank Shareholder Services
located at First-Knox National Bank,
Division of The Park National Bank
Post Office Box 1270
One South Main Street
Mount Vernon, Ohio 43050-1270
740/399-5208, 800/837-5266 Ext. 5208
shareholderservices@firstknox.com
FORM 10-K:
All forms filed by the Corporation with the SEC (including our Form 10-K for 2013) are
available on our website by clicking on the “Documents/SEC Filings” section of the “Investor
Relations” page. These forms may also be obtained, without charge, by contacting the
Secretary as indicated above.
INTERNET ADDRESS:
www.parknationalcorp.com
E-MAIL:
Brady T. Burt
bburt@parknationalbank.com
6
PARKNATIONAL
C O R P O R A T I O N
Total Financial Service Centers: 129
Total ATMs: 144
Website: ParkNationalCorp.com
Asset Size: $6.6 billion
Headquarters: Newark, Ohio
NYSE MKT: PRK
Donna M. Alvarado
President
AGUILA International
Maureen H. Buchwald
Owner
Glen Hill Orchards, LLC
Brady T. Burt
Chief Financial Officer
Park National Corporation
C. Daniel DeLawder
Chairman
Park National Corporation
Harry O. Egger
Vice Chairman
Park National Corporation
F.W. Englefield, IV
President
Englefield, Inc.
Stephen J. Kambeitz
President and CFO
RC Olmstead
William T. McConnell
Chairman of the
Executive Committee
Timothy S. McLain
Vice President
McLain, Hill, Rugg &
Associates, Inc.
Dr. Charles Noble, Sr.
Retired
Shiloh Missionary
Baptist Church
John J. O’Neill
Chairman
Southgate Corporation
Robert E. O’Neill
President
Southgate Corporation
Rick R. Taylor
President
Jay Industries, Inc.
David L. Trautman
President
Park National Corporation
Lee Zazworsky
President
Mid State Systems, Inc.
Officer Listing
Chairman of the Executive Committee
William T. McConnell
Chairman
C. Daniel DeLawder
Vice Chairman
Harry O. Egger
President
David L. Trautman
Chief Financial Officer
Brady T. Burt
7
Offices: 16 ATMs: 14
Website: CenturyNationalBank.com
Phone: 740.454.2521 or 800.321.7061
Facebook: /CenturyNationalBank
Chairman: Thomas M. Lyall
President: Patrick L. Nash
Counties Served: Athens, Coshocton,
Hocking, Muskingum, Perry, Tuscarawas
Zanesville - North Military*
990 Military Road
Zanesville, Ohio 43701-1387
740.454.8505
Zanesville - South*
2127 Maysville Avenue
Zanesville, Ohio 43701-5748
740.455.7301
Zanesville - South Maysville*
2810 Maysville Pike
Zanesville, Ohio 43701-8577
740.455.3169
*Includes Automated Teller Machine
Tuscarawas
County
Coshocton
County
Coshocton
Newcomerstown
Dresden
New Concord
Zanesville [9]
Muskingum
County
Main Office - Zanesville
14 South Fifth Street
Post Office Box 1515
Zanesville, Ohio 43702-1515
740.454.2521
Athens*
898 East State Street
Athens, Ohio 45701-2115
740.593.7756
Coshocton*
100 Downtowner Plaza
Coshocton, Ohio 43812-1921
740.623.0114
Zanesville - Consumer Lending
and Collections Center
33 South Fifth Street
Zanesville, Ohio 43701-3510
740.455.7260
Zanesville - East*
1705 East Pike
Zanesville, Ohio 43701-6601
740.455.7305
Zanesville - Kroger*
3387 Maple Avenue
Zanesville, Ohio 43701-1338
740.455.7326
Dresden*
91 West Dave Longaberger Avenue
Dresden, Ohio 43821-9726
740.754.2265
Zanesville - Lending Center*
505 Market Street
Zanesville, Ohio 43701-3610
740.454.6892
Logan*
61 North Market Street
Logan, Ohio 43138-1272
740.385.5621
Zanesville - North*
1201 Brandywine Boulevard
Zanesville, Ohio 43701-1086
740.455.7285
New Concord*
1 West Main Street
New Concord, Ohio 43762-1218
740.826.7676
New Lexington*
206 North Main Street
New Lexington, Ohio 43764-1263
740.342.4103
Newcomerstown*
220 East State Street
Newcomerstown, Ohio 43832-1451
740.498.4103
8
Perry
County
New
Lexington
Logan
Hocking
County
Athens
Athens
County
Advisory Board
Michael L. Bennett
Second Capital Consulting, LLC
Ronald A. Bucci
Stoneware Properties and
General Graphics Promotional
Products, LLC
Clint W. Cameron
Cameron Drilling
Ward D. Coffman, III
Coffman Law Offices
Officer Listing
Chairman
Thomas M. Lyall
President
Patrick L. Nash
Senior Vice Presidents
James C. Blythe
Barbara A. Gibbs
Michael F. Whiteman
Robert D. Goodrich, II
Retired, Wendy’s Management
Group, Inc.
Thomas M. Lyall
Chairman, Century
National Bank
Thomas L. Sieber
Retired, Hospital
Administrator
Patrick L. Hennessey
P&D Transportation, Inc.
Henry C. Littick, II
Southeastern Ohio
Broadcasting Systems, Inc.
Timothy S. McLain, CPA
McLain, Hill, Rugg and
Associates, Inc.
Patrick L. Nash
President,
Century National Bank
Dr. Anne C. Steele
Muskingum University
Dr. Robert J. Thompson
Neurological Associates of
Southeastern Ohio, Inc.
Vice Presidents
Joseph P. Allen
Derek A. Boothe
Theresa M. Gilligan
Brian E. Hall
Janice A. Hutchison
Jeffrey C. Jordan
Brian G. Kaufman
Bruce D. Kolopajlo
Mark A. Longstreth
Rebecca R. Porteus
Jody D. Spencer*
Thomas N. Sulens
Assistant Vice Presidents
Ann M. Gildow
Susan A. Lasure
Karen D. Lowe
Jodi C. Pagath
Terri L. Sidwell
Cynthia J. Snider
Banking Officers
Stephen A. Haren
Amy M. Pinson
Administrative Officers
Molly J. Allen
Jana R. Brandon
Jessica L. Cranz
Lynn M. Garrison
Amber M. Gibson
Noelle K. Jarrett
Sandra D. Jones
Alaina J. Joseph
Paula L. Meadows
William J. Murphy**
Saundra W. Pritchard
Emila S. Smith
Beth A. Stillwell
Susan L. Summers
Elaine L. White
*Trust Officer
**Assistant Trust Officer
9
Offices: 11 ATMs: 15
Website: FairfieldNationalBank.com
Phone: 740.653.7242 or 800.324.7353
Facebook: /FairfieldNationalBank
President: Stephen G. Wells
Counties Served: Fairfield, Franklin
Off-Site ATM Locations
Lancaster - Fairfield Medical Center (2)
401 North Ewing Street
Lancaster - Ohio University - Lancaster
1570 Granville Pike
*Includes Automated Teller Machine
**Includes Automated Teller Machine
Drive-up and Inside
Lancaster - Memorial Drive*
1280 North Memorial Drive
Lancaster, Ohio 43130
740.653.1422
Lancaster - West Fair*
1001 West Fair Avenue
Lancaster, Ohio 43130
740.653.1199
Pickerington - Central - Kroger*
1045 Hill Road North
Pickerington, Ohio 43147
614.759.1522
Pickerington - North - Kroger**
7833 Refugee Road NW
Pickerington, Ohio 43147
614.833.5613
Reynoldsburg - Slate Ridge*
1988 Baltimore-Reynoldsburg Road
(Route 256)
Reynoldsburg, Ohio 43068
614.868.1988
Franklin
County
Reynoldsburg
Pickerington [2]
Canal Winchester
Baltimore
Fairfield
County
Lancaster [6]
FAIRFIELD
NATIONAL
BANK
DIVISION OF THE PARK NATIONAL BANK
Main Office - Lancaster
143 West Main Street
Post Office Box 607
Lancaster, Ohio 43130-0607
740.653.7242
Main Office Drive-Thru*
150 West Wheeling Street
Lancaster, Ohio 43130-3707
740.653.7242
Baltimore*
1301 West Market Street
Baltimore, Ohio 43105-1044
740.862.4104
Canal Winchester - Kroger*
6095 Gender Road
Canal Winchester, Ohio 43110
614.920.2454
Lancaster - East Main*
1001 East Main Street
Lancaster, Ohio 43130
740.653.5598
Lancaster - East Main Street - Kroger*
1141 East Main Street
Post Office Box 607
Lancaster, Ohio 43130-0607
740.653.9375
Lancaster - Meijer*
2900 Columbus-Lancaster Road
Post Office Box 607
Lancaster, Ohio 43130-0607
740.687.1000
10
FAIRFIELD
NATIONAL
BANK
DIVISION OF THE PARK NATIONAL BANK
Advisory Board
Charles P. Bird, Ph.D.
Retired, Ohio University
Leonard F. Gorsuch
Fairfield Homes, Inc.
Jonathan W. Nusbaum, M.D.
Retired, Surgeon
Paul Van Camp
P.V.C. Limited
Dean DeRolph
Kumler Collision and
Automotive
Jennifer Johns Friel
Midwest Fabricating
Company
Officer Listing
President
Stephen G. Wells
Senior Vice President
Timothy D. Hall
Vice Presidents
Richard E. Baker, II
Daniel R. Bates
Linda M. Harris
Scott A. Reed
Laura F. Tussing*
Eleanor V. Hood
The Lancaster Festival
S. Alan Risch
Risch Drug Stores, Inc.
James McLain, II
McLain, Hill, Rugg and
Associates, Inc.
Mina H. Ubbing
Healthcare Executive
Stephen G. Wells
President, Fairfield
National Bank
Assistant Vice Presidents
Molly S. Bates
Jamey L. Binkley
Trudy M. Reeb
Kim I. Sheldon
Heather N. Wiley
Banking Officers
Grace R. Cline
Andrew J. Connell
Daniel J. Fawcett
Melissa J. McMullen
Michael D. Mitchell
Cynthia A. Moore
Sean P. Murnane
Jason A. Saul
Luann K. Snyder
Allison G. Spangler
Tina L. Taley
Administrative Officers
Vincent E. Carpico
Eric W. Croft
EJ Gurile, III
Tiffany J. Ruckman
Jessica L. Seipel
*Trust Officer
11
Offices: 3 ATMs: 4
Website: FarmersandSavings.com
Phone: 419.994.4115 or 855.345.0899
Facebook: /FarmersBank
President: Kenneth G. Gosche
County Served: Ashland
Off-Site ATM Location
Loudonville - Stake’s Short Stop
3052 State Route 3
*Includes Automated Teller Machine
Ashland
County
Ashland
Perrysville
Loudonville
Main Office - Loudonville*
120 North Water Street
Post Office Box 179
Loudonville, Ohio 44842-0179
419.994.4115
Ashland*
1161 East Main Street
Ashland, Ohio 44805-2831
419.281.1590
Perrysville*
112 North Bridge Street
Post Office Box 156
Perrysville, Ohio 44864-0156
419.938.5622
Advisory Board
Patricia A. Byerly
Retired, Byerly-Lindsey
Funeral Home
Kenneth G. Gosche
President, Farmers and
Savings Bank
Chris D. Tuttle
Amish Oak Furniture
Company, Inc.
Gordon E. Yance
Chairman of the Board,
First-Knox National Bank
Timothy R. Cowen
Cowen Truck Line, Inc.
Roger E. Stitzlein
Loudonville Farmers Equity
Vice Presidents
Sharon E. Blubaugh
George T. Keffalas
Assistant Vice President
Gregory A. Henley
Banking Officer
Todd A. Geren
Officer Listing
President
Kenneth G. Gosche
Executive Vice President
Brian R. Hinkle
12
Offices: 10 ATMs: 17
Website: FirstKnox.com
Phone: 740.399.5500 or 800.837.5266
Facebook: /FirstKnoxNationalBank
President: Vickie A. Sant
Counties Served: Holmes, Knox, Morrow,
Richland
Mount Vernon - Blackjack Road*
8641 Blackjack Road
Mount Vernon, Ohio 43050-9485
740.399.5260
Mount Vernon - Coshocton Avenue*
810 Coshocton Avenue
Mount Vernon, Ohio 43050-1922
740.397.5551
Mount Vernon - Operations Center
105 West Vine Street
Post Office Box 1270
Mount Vernon, Ohio 43050-1270
740.399.5500
Off-Site ATM Locations
Fredericktown - Fast Freddies
89 South Main Street
Gambier - Kenyon College Bookstore
106 Gaskin Avenue
Howard - Apple Valley
21973 Coshocton Road
Millersburg - BAGS
88 East Jackson Street
Mount Gilead - Morrow County Hospital
651 West Marion Road
Mount Vernon - Colonial City Lanes
110 Mount Vernon Avenue
Mount Vernon - COTC - Ariel Hall
236 South Main Street
Mount Vernon - Knox Community Hospital
1330 Coshocton Road
Mount Vernon
11 West Vine Street
*Includes Automated Teller Machine
Richland
County
Mount Gilead [2]
Bellville
Morrow
County
Fredericktown
Danville
Mount Vernon [3]
Centerburg
Knox
County
Holmes
County
Millersburg
13
Main Office - Mount Vernon
One South Main Street
Post Office Box 1270
Mount Vernon, Ohio 43050-1270
740.399.5500
Bellville*
154 Main Street
Bellville, Ohio 44813-1237
419.886.3711
Centerburg*
35 West Main Street
Post Office Box F
Centerburg, Ohio 43011-0870
740.628.6136
Danville*
4 South Market Street
Post Office Box 29
Danville, Ohio 43014-0029
740.599.6686
Fredericktown*
137 North Main Street
Fredericktown, Ohio 43019-1109
740.694.2035
Millersburg*
225 North Clay Street
Millersburg, Ohio 44654-1101
330.674.2610
Mount Gilead
17 West High Street
Mount Gilead, Ohio 43338-1212
419.946.9010
Mount Gilead - Edison*
504 West High Street
Mount Gilead, Ohio 43338-1296
419.947.4686
Advisory Board
Maureen H. Buchwald
Glen Hill Orchards, LLC
William B. Levering
Levering Management, Inc.
Mark R. Ramser
Ohio Cumberland Gas Co.
Roger E. Stitzlein
Loudonville Farmers Equity
James J. Cullers
Mediation and Arbitration
Services
Daniel L. Mathie
Critchfield, Critchfield &
Johnston, Ltd.
Vickie A. Sant
President, First-Knox
National Bank
Gordon E. Yance
Chairman, Retired President,
First-Knox National Bank
Ronald J. Hawk
Danville Feed and Supply, Inc.
Noel C. Parrish
NOE, Inc.
R. Daniel Snyder
Retired Director, Snyder
Funeral Homes, Inc.
Assistant Vice Presidents
Barbara A. Barry
Mark D. Blanchard
Heather A. Brayshaw
Phyllis D. Colopy
Rachelle E. Dallas
Deborah S. Dove
Debra E. Holiday
R. Edward Kline
James S. Meyer
Banking Officers
Dusty C. Au
Nicholas R. Blanchard
Lance E. Dill
Wendi M. Fowler*
Todd M. Hawkins
David E. Humphrey
Mary A. Loyd
Sherry L. Snyder
Administrative Officers
Nicole S. Au
Gabriel J. Aufrance
Levi D. Curry
Deborah J. Daniels
Krystal E. Drye
Kassandra L. Hoeflich
Cynthia K. Hogle
Erin C. Kelty
Jeffrey A. Kinney
Darrell E. Lee
Paulina S. McQuigg
Tiffany D. Stefano
*Trust Officer
Officer Listing
Chairman
Gordon E. Yance
President
Vickie A. Sant
Senior Vice Presidents
Cheri L. Butcher*
Julie A. Leonard
Mark P. Leonard
W. Douglas Leonard
Vice Presidents
Robert E. Boss
Cynthia L. Higgs
James W. Hobson
Jesse L. Marlow
Jerry D. Simon
Joan M. Stout
Todd P. Vermilya
14
PARK
NATIONAL BANK
Offices: 18 ATMs: 23
Website: ParkNationalBank.com
Phone: 740.349.8451 or 888.545.4762
Facebook: /ParkNationalBank
Chairman: C. Daniel DeLawder
President: David L. Trautman
Counties Served: Franklin, Licking
Main Office - Newark*
50 North Third Street
Post Office Box 3500
Newark, Ohio 43058-3500
740.349.8451
Columbus
140 East Town Street, Suite 1400
Columbus, Ohio 43215
614.228.0063
Gahanna - Kroger*
1365 Stoneridge Drive
Gahanna, Ohio 43230
614.475.5213
Granville*
119 East Broadway
Granville, Ohio 43023
740.587.0238
Heath - Southgate*
567 Hebron Road
Heath, Ohio 43056
740.522.3176
Heath - 30th Street*
800 South 30th Street
Heath, Ohio 43056
740.522.5693
Hebron*
103 East Main Street
Post Office Box 268
Hebron, Ohio 43025
740.928.2691
Johnstown*
60 West Coshocton Street
Post Office Box 446
Johnstown, Ohio 43031
740.967.1831
Kirkersville
177 East Main Street
Post Office Box 38
Kirkersville, Ohio 43033
740.927.2301
Newark - Deo Drive - Kroger*
245 Deo Drive, Suite A
Newark, Ohio 43058
740.349.3946
Newark - Dugway*
1495 Granville Road
Newark, Ohio 43055
740.349.3947
Newark - Eastland*
1008 East Main Street
Newark, Ohio 43055
740.349.3942
Newark - McMillen*
1633 West Main Street
Newark, Ohio 43055
740.349.3944
Newark - 21st Street*
990 North 21st Street
Newark, Ohio 43055
740.349.3943
Pataskala - Kroger**
350 East Broad Street
Pataskala, Ohio 43062
740.927.8113
Reynoldsburg - Kroger*
8460 East Main Street
Reynoldsburg, Ohio 43068
614.861.7074
Utica*
33 South Main Street
Post Office Box 486
Utica, Ohio 43080
740.892.3841
Franklin
County
Worthington*
7140 North High Street
Worthington, Ohio 43085
614.841.0123
Operations Centers
21 South First Street
and 22 South First Street
Newark, Ohio 43055
740.349.8633
Off-Site ATM Locations
Granville - Denison University
Slayter Hall
Granville - Kendal at Granville
2158 Columbus Road
Hebron - Kroger
600 East Main Street
Newark - Licking Memorial Hospital
1320 West Main Street
Newark - OSU-N/COTC Campus
1179 University Drive
Reynoldsburg - Kroger
6962 East Main Street
*Includes Automated Teller Machine
**Includes Automated Teller Machine
Drive-up and Inside
Worthington
Gahanna
Utica
Johnstown
Licking
County
Granville
Pataskala
Newark [6]
Heath [2]
Columbus
Reynoldsburg
Hebron
Kirkersville
15
PARK
PARK
NATIONAL BANK
NATIONAL BANK
Board of Directors
Board of Directors
Donna M. Alvarado
Donna M. Alvarado
AGUILA International
AGUILA International
Stephen J. Kambietz
Stephen J. Kambietz
RC Olmstead
RC Olmstead
C. Daniel DeLawder
C. Daniel DeLawder
Chairman, Park National Bank
Chairman, Park National Bank
F.W. Englefield, IV
F.W. Englefield, IV
Englefield, Inc.
Englefield, Inc.
Officer Listing
Officer Listing
William T. McConnell
William T. McConnell
Chairman of the Executive
Chairman of the Executive
Committee
Committee
Dr. Charles Noble, Sr.
Dr. Charles Noble, Sr.
Retired, Shiloh Missionary
Retired, Shiloh Missionary
Baptist Church
Baptist Church
John J. O’Neill
John J. O’Neill
Southgate Corporation
Southgate Corporation
Robert E. O’Neill
Robert E. O’Neill
Southgate Corporation
Southgate Corporation
J. Gilbert Reese
J. Gilbert Reese
Director Emeritus
Director Emeritus
David L. Trautman
David L. Trautman
President, Park National Bank
President, Park National Bank
Lee Zazworsky
Lee Zazworsky
Mid State Systems, Inc.
Mid State Systems, Inc.
Chairman of the
Chairman of the
Executive Committee
Executive Committee
William T. McConnell
William T. McConnell
Chairman
Chairman
C. Daniel DeLawder
C. Daniel DeLawder
President
President
David L. Trautman
David L. Trautman
Senior Vice Presidents
Senior Vice Presidents
Adrienne M. Brokaw
Adrienne M. Brokaw
Brady T. Burt
Brady T. Burt
Thomas J. Button
Thomas J. Button
Thomas M. Cummiskey*
Thomas M. Cummiskey*
Lynn B. Fawcett
Lynn B. Fawcett
Timothy J. Lehman
Timothy J. Lehman
Laura B. Lewis
Laura B. Lewis
Matthew R. Miller
Matthew R. Miller
Cheryl L. Snyder
Cheryl L. Snyder
Paul E. Turner
Paul E. Turner
Jeffrey A. Wilson
Jeffrey A. Wilson
William R. Wilson
William R. Wilson
Vice Presidents
Vice Presidents
Linda K. Ampadu
Linda K. Ampadu
Alice M. Browning
Alice M. Browning
James M. Buskirk*
James M. Buskirk*
Bryan M. Campolo
Bryan M. Campolo
Peter G. Cassanos
Peter G. Cassanos
Cynthia H. Crane
Cynthia H. Crane
Kathleen O. Crowley
Kathleen O. Crowley
April R. Dusthimer
April R. Dusthimer
Kelly A. Edds
Kelly A. Edds
Joan L. Franks
Joan L. Franks
John S. Gard*
John S. Gard*
Jeffrey C. Gluntz
Jeffrey C. Gluntz
Scott C. Green
Scott C. Green
16
Damon P. Howarth*
Damon P. Howarth*
Daniel L. Hunt
Daniel L. Hunt
Steven J. Klein
Steven J. Klein
William P. Kleven
William P. Kleven
Teresa M. Kroll*
Teresa M. Kroll*
Craig M. Larson
Craig M. Larson
Kelly M. Maloney
Kelly M. Maloney
Carl H. Mayer
Carl H. Mayer
Lydia E. Miller
Lydia E. Miller
Terry C. Myers*
Terry C. Myers*
Jason L. Painley
Jason L. Painley
Gregory M. Rhoads
Gregory M. Rhoads
Karen K. Rice
Karen K. Rice
Scott R. Robertson
Scott R. Robertson
David J. Rohde
David J. Rohde
David F. Romes
David F. Romes
Ralph H. Root, III
Ralph H. Root, III
Alan C. Rothweiler
Alan C. Rothweiler
Christine S. Schneider
Christine S. Schneider
Michael R. Shannon
Michael R. Shannon
Robert G. Springer
Robert G. Springer
Robin L. Stein
Robin L. Stein
Julie L. Strohacker*
Julie L. Strohacker*
Sandra S. Travis
Sandra S. Travis
Erin E. Tschanen
Erin E. Tschanen
Berkley C. Tuggle, Jr.
Berkley C. Tuggle, Jr.
Daniel H. Turben
Daniel H. Turben
Stanley A. Uchida
Stanley A. Uchida
John B. Uible*
John B. Uible*
Monte J. VanDeusen
Monte J. VanDeusen
Bradden E. Waltz
Bradden E. Waltz
Barbara A. Wilson
Barbara A. Wilson
Christa D. Wright
Christa D. Wright
J. Bradley Zellar*
J. Bradley Zellar*
Brent A. Barnes
Brent A. Barnes
Gail A. Blizzard
Gail A. Blizzard
Sharon L. Bolen
Sharon L. Bolen
Jill A. Brewer
Jill A. Brewer
Beverly A. Clark*
Beverly A. Clark*
Amber L. Cummins*
Amber L. Cummins*
Lori L. Drake
Lori L. Drake
Amanda K. Evans
Amanda K. Evans
Catherine J. Evans
Catherine J. Evans
Jill S. Evans
Jill S. Evans
Brenda M. Frakes
Brenda M. Frakes
David W. Hardy*
David W. Hardy*
Louise A. Harvey
Louise A. Harvey
Chris R. Hiner
Chris R. Hiner
Cynthia L. Kissel
Cynthia L. Kissel
Candy J. Lehman
Candy J. Lehman
Bethany B. Lewis
Bethany B. Lewis
Daniel K. Maloney
Daniel K. Maloney
Julia E. McCormack
Julia E. McCormack
Ronald C. McLeish
Ronald C. McLeish
Jennifer L. Morehead
Jennifer L. Morehead
Cynthia A. Neely
Cynthia A. Neely
Mareion A. Royster*
Mareion A. Royster*
Melinda S. Smith
Melinda S. Smith
Lisa E. Stranger
Lisa E. Stranger
Lori B. Tabler
Lori B. Tabler
Angie D. Treadway
Angie D. Treadway
Brian S. Urquhart
Brian S. Urquhart
Scott A. VanHorn
Scott A. VanHorn
Jenny L. Ward
Jenny L. Ward
Megan C. Warman*
Megan C. Warman*
Carol S. Whetstone*
Carol S. Whetstone*
D. Bradley Wilkins
D. Bradley Wilkins
Rose M. Wilson
Rose M. Wilson
Assistant Vice Presidents
Assistant Vice Presidents
Eric M. Baker*
Eric M. Baker*
Renee L. Baker
Renee L. Baker
Banking Officers
Banking Officers
Kathy L. Allen
Kathy L. Allen
Corey S. Alton
Corey S. Alton
Michelle L. Arnold
Michelle L. Arnold
Thomas E. Ballard
Thomas E. Ballard
Stephen E. Buchanan
Stephen E. Buchanan
Danielle A.M. Burns
Danielle A.M. Burns
Jacqueline L. Davis
Jacqueline L. Davis
Aaron T. Dunifon
Aaron T. Dunifon
Brian J. Elder
Brian J. Elder
Andrew J. Fackler
Andrew J. Fackler
Jennifer S. Favand
Jennifer S. Favand
Kathryn S. Firestone
Kathryn S. Firestone
Jerrod F. Gambs
Jerrod F. Gambs
Tammy L. Gast
Tammy L. Gast
Ellen P. Hempleman
Ellen P. Hempleman
Teresa A. Hennessy
Teresa A. Hennessy
Candy L. Holbrook
Candy L. Holbrook
Cynthia R. Hollis
Cynthia R. Hollis
Andrew H. Knoesel
Andrew H. Knoesel
Kimberly G. McDonough
Kimberly G. McDonough
Diane M. Oberfield*
Diane M. Oberfield*
Sherri L. Pembrook
Sherri L. Pembrook
Leda J. Rutledge
Leda J. Rutledge
Ruth Y. Sawyer
Ruth Y. Sawyer
Charles F. Schultz
Charles F. Schultz
Jennifer L. Shanaberg
Jennifer L. Shanaberg
Administrative Officers
Administrative Officers
Stephanie J. Allen
Stephanie J. Allen
Jessica J. Altman
Jessica J. Altman
Lindsay M. Alton
Lindsay M. Alton
Larry M. Bailey
Larry M. Bailey
Jennifer F. Bobb**
Jennifer F. Bobb**
Brad G. Chance
Brad G. Chance
Erica L. Chance
Erica L. Chance
Johanna M. Clay
Johanna M. Clay
Beth A. Cook
Beth A. Cook
Nathan T. Cook
Nathan T. Cook
Jennifer G. Corbitt
Jennifer G. Corbitt
Shawna L. Corder
Shawna L. Corder
Scott D. Dorn
Scott D. Dorn
Michael D. Dudgeon
Michael D. Dudgeon
Teresa K. Faris
Teresa K. Faris
Adrienne L. Fisher
Adrienne L. Fisher
Andrea J. Ford
Andrea J. Ford
Bradley B. Feightner, Jr.
Bradley B. Feightner, Jr.
Bradley D. Gard
Bradley D. Gard
Paul J. Gassman
Paul J. Gassman
Tracy A. Grimm
Tracy A. Grimm
Asher D. Hunter
Asher D. Hunter
Amber L. Keirns
Amber L. Keirns
Lisa A. Keller
Lisa A. Keller
Abigail C. Leibold
Abigail C. Leibold
Natasha D. McKee
Natasha D. McKee
Denise A. Miller**
Denise A. Miller**
Aaron B. Mueller
Aaron B. Mueller
Angela J. Muncie
Angela J. Muncie
Kathy K. Myers**
Kathy K. Myers**
Rodger D. Orr
Rodger D. Orr
Karen L. Pavone
Karen L. Pavone
Jeffrey A. Pillow
Jeffrey A. Pillow
Lauren M. Preidis**
Lauren M. Preidis**
Lacie M. Priest
Lacie M. Priest
Mark D. Ridenbaugh
Mark D. Ridenbaugh
Rhonda L. Rodgers
Rhonda L. Rodgers
Alice M. Schlaegel
Alice M. Schlaegel
Jessica L. Schorger
Jessica L. Schorger
Stephanie M. Tanner
Stephanie M. Tanner
Michelle M. Tipton
Michelle M. Tipton
Ginger R. Varner
Ginger R. Varner
Barry H. Winters
Barry H. Winters
*Trust Officer
*Trust Officer
**Assistant Trust Officer
**Assistant Trust Officer
Offices: 9 ATMs: 8
Website: BankWithPark.com
Phone: 513.576.0600 or 888.474.7275
Facebook: /BankWithPark
President: David J. Gooch
Counties Served: Butler, Clermont,
Hamilton, Boone (KY)
West Chester*
8366 Princeton-Glendale Road
West Chester, Ohio 45069
513.346.2000
*Includes Automated Teller Machine
Butler
County
West Chester
Hamilton
County
Milford
Eastgate
Anderson
Owensville
Amelia [2]
Clermont
County
New Richmond
Florence
Boone
County
Florence
600 Meijer Drive, Suite 303
Florence, Kentucky 41042
859.647.2722
Milford*
25 Main Street
Milford, Ohio 45150
513.831.4400
New Richmond*
100 Western Avenue
New Richmond, Ohio 45157
513.553.3131
Owensville*
5100 State Route 132
Owensville, Ohio 45160
513.732.2131
Daniel L. Earley
Chairman, Retired President,
Park National Bank of Southwest
Ohio and Northern Kentucky
David J. Gooch
President,
Park National Bank of Southwest
Ohio and Northern Kentucky
Martin J. Grunder, Jr.
Grunder Landscaping Co.
Thomas E. Niehaus
Vorys Advisors, LLC
Richard W. Holmes
Retired,
PricewaterhouseCoopers, LLP
Chris S. Smith
Clermont County Convention
& Visitors Bureau
Larry H. Maxey
Synchronic Business Solutions
Vice Presidents
Jay F. Berliner
Jason D. Hughes
William L. Jennewein*
Timothy A. Kemper
Louis J. Prabell
Ginger L. Vining
Joseph A. Wagner
John F. Winkler, II*
Assistant Vice Presidents
Matthew M. Bauer
Matthew D. Colwell
Kim J. Cunningham
Sam J. DeBonis
James E. Hyson
Kelley J. Jensen
Banking Officers
Jason O. Verhoff
Cyndy H. Wright
Administrative Officers
Jana M. Beal
James P. Beck
Stephanie D. Fahrnbach
Michael W. Miller
April Prather
Michelle M. Sandlin
*Trust Officer
17
Main Office - Eastgate*
4550 Eastgate Boulevard
Cincinnati, Ohio 45245
513.753.0900
Amelia - Main Street*
5 West Main Street
Amelia, Ohio 45102
513.753.5700
Amelia - Ohio Pike*
1187 Ohio Pike
Amelia, Ohio 45102
513.753.7283
Anderson*
1075 Nimitzview Drive
Cincinnati, Ohio 45230
513.232.9599
Advisory Board
Nicholas L. Berning
Retired,
Berning Financial Consulting
Thomas J. Button
Senior Vice President
Park National Bank
Officer Listing
President
David J. Gooch
Senior Vice Presidents
Edward L. Brady
Jennifer K. Fischer
Adam T. Stypula
Offices: 12 ATMs: 13
Website: RichlandBank.com
Phone: 419.525.8700 or 800.525.8702
Facebook: /RichlandBank
President: John A. Brown
County Served: Richland
Main Office - Mansfield*
3 North Main Street
Post Office Box 355
Mansfield, Ohio 44901-0355
419.525.8700
Butler*
85 Main Street
Butler, Ohio 44822-9618
419.883.3291
Lexington*
276 East Main Street
Lexington, Ohio 44904-1300
419.884.1054
Mansfield - Ashland Road*
797 Ashland Road
Mansfield, Ohio 44905-2075
419.589.6321
Mansfield - Cook Road*
460 West Cook Road
Mansfield, Ohio 44907-2395
419.756.3696
Mansfield - Lexington Avenue - Kroger*
1500 Lexington Avenue
Mansfield, Ohio 44907-2632
419.756.3587
Mansfield - Madison - Kroger*
1060 Ashland Road
Mansfield, Ohio 44905-8797
419.589.7481
Mansfield - Marion Avenue*
50 Marion Avenue
Mansfield, Ohio 44903-2302
419.524.3310
Mansfield - Springmill*
889 North Trimble Road
Mansfield, Ohio 44906-2009
419.747.4821
Mansfield - West Park*
1255 Park Avenue West
Mansfield, Ohio 44906-2810
419.529.5822
Ontario*
325 North Lexington-Springmill Road
Ontario, Ohio 44906-1218
419.529.4112
Shelby - Mansfield Avenue*
155 Mansfield Avenue
Shelby, Ohio 44875-1832
419.347.3111
Off-Site ATM Locations
Mansfield - Ashland University School
of Nursing
1020 South Trimble Road
*Includes Automated Teller Machine
Richland
County
Shelby
Ontario
Mansfield [8]
Lexington
Butler
18
Advisory Board
Ronald L. Adams
Retired, DAI Emulsions, Inc.
Michael L. Chambers
J&B Acoustical
Mark Breitinger
Milark Industries
John A. Brown
President, Richland Bank
Benjamin A. Goldman
Retired, Superior Building
Services
Timothy J. Lehman
Chairman of the Board,
Senior Vice President,
Park National Bank
Grant E. Milliron
Milliron Industries
Shirley Monica
S.S.M., Inc.
Linda H. Smith
Ashwood, LLC
Rick R. Taylor
Jay Industries, Inc.
Officer Listing
President
John A. Brown
Executive Vice President
Frank W. Wagner, II
Senior Vice President
Donald R. Harris, Jr.
Vice Presidents
Charla A. Irvin*
Michael A. Jefferson
Rebecca J. Toomey
Assistant Vice Presidents
Edward F. Adams
Edward A. Brauchler
Jimmy D. Burton
Edward E. Duffey
Susan A. Fanello
Barbara A. Miller
Jeffrey A. Parton
Alexander M. Rocks
Sheryl L. Smith
Linda M. Whited
Banking Officers
John Q. Cleland
Carol L. Davis
Beth K. Malaska
Barbara L. Schopp-Miller
Administrative Officers
Jessica L. Gribben
Clayton J. Herold
Janis L. Hoover
Tyler A. Krummel*
Kristie L. Massa
Jennifer A. Schneeg
Deborah A. Sweet
Michael C. Whisler
*Trust Officer
19
Offices: 9 ATMs: 7
Offices: 9 ATMs: 7
Website: SecondNational.com
Website: SecondNational.com
Phone: 937.548.2122 or 855.548.2122
Phone: 937.548.2122 or 855.548.2122
Facebook: /SecondNationalBank
Facebook: /SecondNationalBank
President: John E. Swallow
President: John E. Swallow
Counties Served: Darke, Mercer
Counties Served: Darke, Mercer
Versailles*
Versailles*
101 West Main Street
101 West Main Street
Versailles, Ohio 45380
Versailles, Ohio 45380
937.526.3287
937.526.3287
*Includes Automated Teller Machine
*Includes Automated Teller Machine
Mercer
County
Mercer
County
Celina
Celina
Fort Recovery
Fort Recovery
Darke
County
Darke
County
Versailles
Versailles
Greenville [5]
Greenville [5]
Arcanum
Arcanum
Marvin J. Stammen
Retired President,
Marvin J. Stammen
Second National Bank
Retired President,
Second National Bank
John E. Swallow
President, Second
John E. Swallow
National Bank
President, Second
National Bank
Administrative Officers
Administrative Officers
Antonia T. Baker
Melanie A. Smith
Antonia T. Baker
Melanie A. Smith
*Trust Officer
*Trust Officer
Greenville - North*
Greenville - North*
1302 Wagner Avenue
1302 Wagner Avenue
Greenville, Ohio 45331
Greenville, Ohio 45331
937.548.5068
937.548.5068
Greenville - South
Greenville - South
Located inside the Brethren
Located inside the Brethren
Retirement Community
Retirement Community
750 Chestnut Street
750 Chestnut Street
Greenville, Ohio 45331
Greenville, Ohio 45331
937.548.5435
937.548.5435
Greenville - Third and Walnut*
Greenville - Third and Walnut*
175 East Third Street
175 East Third Street
Greenville, Ohio 45331
Greenville, Ohio 45331
937.548.2036
937.548.2036
Greenville - Walmart*
Greenville - Walmart*
1501 Wagner Avenue
1501 Wagner Avenue
Greenville, Ohio 45331
Greenville, Ohio 45331
937.548.4563
937.548.4563
Neil J. Diller
Cooper Farms, Inc.
Neil J. Diller
Cooper Farms, Inc.
Philip M. Fullenkamp
Celina Insurance Group
Philip M. Fullenkamp
Celina Insurance Group
Jeffrey E. Hittle
Hittle Buick GMC, Inc.
Jeffrey E. Hittle
Hittle Buick GMC, Inc.
Wesley M. Jetter
Ft. Recovery Industries
Wesley M. Jetter
Ft. Recovery Industries
Thomas J. Lawson
Thomas J. Lawson
Eric J. McKee
Daniel G. Schmitz
Eric J. McKee
Brian A. Wagner
Daniel G. Schmitz
Brian A. Wagner
Assistant Vice Presidents
Assistant Vice Presidents
Kimberly A. Baker
Gerald O. Beatty
Kimberly A. Baker
Gerald O. Beatty
Alexa J. Clark
Debby J. Folkerth
Alexa J. Clark
Debby J. Folkerth
Vicki L. Neff
Vicki L. Neff
Cynthia J. Riffle
Shane D. Stonebraker
Cynthia J. Riffle
Shane D. Stonebraker
Banking Officers
Banking Officers
Michael R. Henry
Michael R. Henry
Harvey B. Hole, III
Zachary L. Newbauer
Harvey B. Hole, III
Zachary L. Newbauer
Stephen C. Schulte
Gregory P. Schwartz
Stephen C. Schulte
Gregory P. Schwartz
Main Office - Greenville
Main Office - Greenville
499 South Broadway
499 South Broadway
Post Office Box 130
Post Office Box 130
Greenville, Ohio 45331
Greenville, Ohio 45331
937.548.2122
937.548.2122
Arcanum*
Arcanum*
603 North Main Street
603 North Main Street
Arcanum, Ohio 45304
Arcanum, Ohio 45304
937.692.5191
937.692.5191
Celina*
Celina*
800 North Main Street
800 North Main Street
Celina, Ohio 45822
Celina, Ohio 45822
419.268.0049
419.268.0049
Fort Recovery*
Fort Recovery*
117 North Wayne Street
117 North Wayne Street
Ft. Recovery, Ohio 45846
Ft. Recovery, Ohio 45846
419.375.4101
419.375.4101
Advisory Board
Advisory Board
Tyeis Baker-Baumann
Rebsco, Inc.
Tyeis Baker-Baumann
Rebsco, Inc.
Wayne G. Deschambeau
Wayne HealthCare
Wayne G. Deschambeau
Wayne HealthCare
Officer Listing
Officer Listing
President
John E. Swallow
President
John E. Swallow
Executive Vice President
Steven C. Badgett
Executive Vice President
Steven C. Badgett
Vice Presidents
C. Russell Badgett
Vice Presidents
C. Russell Badgett
D. Todd Durham*
Joy D. Greer
D. Todd Durham*
Joy D. Greer
20
Offices: 21 ATMs: 28
Website: SecurityNationalBank.com
Phone: 937.324.6800 or 800.836.1557
Facebook: /SECNationalBank
President: William C. Fralick
Counties Served: Champaign, Clark,
Fayette, Greene, Madison, Warren
Off-Site ATM Locations
Plain City - Shell Gas Station
440 South Jefferson Avenue
Springfield
2051 North Bechtle Avenue
Springfield - Clark State
Community College
570 East Leffel Lane
Springfield - Regional Medical Center
222 West North Street
Springfield - Wittenberg University -
Student Center
738 Woodlawn Avenue
Springfield - Wittenberg University -
HPER Center
250 Bill Edwards Drive
Urbana - Champaign County
Community Center
1512 South US Highway 68
Yellow Springs - Young’s Jersey Dairy
6880 Springfield-Xenia Road
*Includes Automated Teller Machine
North
Lewisburg
Champaign
County
Urbana [2]
Mechanicsburg
Plain City
New Carlisle
Park Layne
Medway
Enon
Greene
County
Northridge
Springfield [5]
Clark
County
South
Charleston
Madison
County
Xenia [2]
Jamestown
Jeffersonville
Springboro
Warren
County
Fayette
County
21
Springboro*
720 Gardner Road
Springboro, Ohio 45066
937.748.6700
Springfield - Derr Road - Kroger*
2989 Derr Road
Springfield, Ohio 45503
937.342.9411
Springfield - East Main*
2730 East Main Street
Springfield, Ohio 45503
937.325.0351
Springfield - North Limestone*
1756 North Limestone Street
Springfield, Ohio 45503
937.390.3688
Springfield - Northridge*
1600 Moorefield Road
Springfield, Ohio 45503
937.390.3088
Springfield - Western*
920 West Main Street
Springfield, Ohio 45504
937.322.0152
Urbana*
1 Monument Square
Urbana, Ohio 43078
937.653.1226
Urbana - Scioto Street*
828 Scioto Street
Urbana, Ohio 43078
937.653.1290
Xenia Downtown*
161 East Main Street
Xenia, Ohio 45385
937.372.9211
Xenia Plaza*
82 North Allison Avenue
Xenia, Ohio 45385
937.372.9214
Main Office - Springfield*
40 South Limestone Street
Springfield, Ohio 45502
937.324.6800
Enon*
3680 Marion Drive
Enon, Ohio 45323
937.864.7318
Jamestown*
82 West Washington Street
Jamestown, Ohio 45335
937.675.7311
Jeffersonville*
2 South Main Street
Jeffersonville, Ohio 43128
740.426.6384
Mechanicsburg*
2 South Main Street
Mechanicsburg, Ohio 43044
937.834.3387
Medway*
130 West Main Street
Medway, Ohio 45341
937.849.1393
New Carlisle*
201 North Main Street
New Carlisle, Ohio 45344
937.845.3811
New Carlisle - Park Layne*
2035 South Dayton-Lakeview Road
New Carlisle, Ohio 45344
937.849.1331
North Lewisburg*
8 West Maple Street
North Lewisburg, Ohio 43060
937.747.2911
Plain City
105 West Main Street
Plain City, Ohio 43064
614.873.5521
South Charleston*
102 South Chillicothe Street
South Charleston, Ohio 45368
937.462.8368
Advisory Board
R. Andrew Bell
Brower Insurance Agency, LLC
Rick D. Cole
Colepak, Inc.
Harry O. Egger
Chairman, Retired President,
Security National Bank
William C. Fralick
President, Security
National Bank
Alicia Hupp
Sweet Manufacturing
Company
Larry E. Kaffenbarger
Kaffenbarger Truck
Equipment Company
Thomas P. Loftis
Midland Properties, Inc.
John McKinnon
Clark Schaffer Hackett & Co.
Scott D. Michael
Michael Farms, Inc.
Dr. Karen E. Rafinski
Clark State Community
College
Chester L. Walthall
Heat-Treating, Inc.
Robert A. Warren
Hauck Bros., Inc.
Officer Listing
President
William C. Fralick
Executive Vice President
Jeffrey A. Darding
Senior Vice Presidents
Thomas A. Goodfellow
Andrew J. Irick
Vice Presidents
Timothy L. Bunnell
Connie P. Craig
Margaret L. Foley*
Thomas B. Keehner
James A. Kreckman*
James E. Leathley
Patrick K. Rastatter
Thomas C. Ruetenik
David A. Snyder
Michael B. Warnecke
Darlene S. Williams
Assistant Vice Presidents
Sharon K. Boysel
Rachel M. Brewer*
Margaret A. Chapman
Mary M. Demaree
Catherine L. Hill*
R. Kathy Johnson
Sarah E. Lemon
Andrew S. Peyton
Mark B. Robertson
Gary J. Seitz
Terri L. Wyatt*
Banking Officers
Teresa L. Belliveau*
Administrative Officers
Jacqueline Folck
Margaret A. Horstman
Joanna S. Jaques
Benjamin L. Kitchen
Mark D. Klingler
Dawn Poole
Rita A. Riley
Jeffrey S. Williams
*Trust Officer
22
Marion - Barks Road*
129 Barks Road East
Marion, Ohio 43302
740.383.3355
Marion - Walmart Super Center*
1546 Marion-Mt. Gilead Road
Marion, Ohio 43302
740.389.2224
Prospect*
105 North Main Street
Prospect, Ohio 43342
740.494.2131
Offices: 7 ATMs: 8
Website: UnitedBankOhio.com
Phone: 419.562.3040 or 800.448.9010
Facebook: /UnitedBankOhio
President: Donald R. Stone
Counties Served: Crawford, Marion
Off-Site ATM Location
Bucyrus - East Pointe Shopping Center
211 Stetzer Road South
*Includes Automated Teller Machine
Crawford
County
Bucyrus
Crestline
Galion
Marion
County
Caledonia
Marion [2]
Prospect
Main Office - Bucyrus*
401 South Sandusky Avenue
Post Office Box 568
Bucyrus, Ohio 44820
419.562.3040
Caledonia*
140 East Marion Street
Caledonia, Ohio 43314
419.845.2721
Crestline*
245 North Seltzer Street
Post Office Box 186
Crestline, Ohio 44827-0186
419.683.1010
Galion*
8 Public Square
Galion, Ohio 44833
419.468.2231
Advisory Board
Lois J. Fisher
Lois J. Fisher & Assoc.
Kenneth A. Parr, Jr.
Parr Insurance Agency, Inc.
Donald R. Stone
President, United Bank
Michele McElligott
Certified Public Accountant,
Avita Health System
Douglas M. Schilling
Schilling Graphics, Inc.
Douglas Wilson
Owner, Doug’s Toggery and
Realtor, Craig A. Miley Realty
& Auction, Ltd.
Officer Listing
President
Donald R. Stone
Vice President
Scott E. Bennett
Senior Vice President
Anne S. Cole
Assistant Vice Presidents
James W. Chapman
Floyd J. Farmer
Banking Officers
Jennifer J. Kuns
David J. Lauthers
J. Stephen McDonald
Shawneeta D. Shuff
Kriste A. Slagle
Administrative Officer
James A. DeSimone
23
Offices: 6 ATMs: 7
Website: UnityNationalBk.com
Phone: 937.615.1042 or 800.778.3342
Facebook: /UnityNationalBank
President: Brett A. Baumeister
County Served: Miami
Off-Site ATM Location
Troy - Upper Valley Medical Center
3130 North Dixie Highway
*Includes Automated Teller Machine
1 Troy Walmart Office closed 1/31/14
Miami
County
Piqua [3]
Troy [2]
Tipp City
Tipp City*
1176 West Main Street
Tipp City, Ohio 45371
937.667.4888
Troy*
1314 West Main Street
Troy, Ohio 45373
937.339.6626
Troy - Walmart*1
1801 West Main Street
Troy, Ohio 45373
937.332.6820
Main Office - Piqua*
215 North Wayne Street
Piqua, Ohio 45356
937.615.1042
Administrative Office - Piqua
212 North Main Street
Post Office Box 913
Piqua, Ohio 45356
937.773.0752
Piqua - Sunset*
1603 Covington Avenue
Piqua, Ohio 45356
937.778.4617
Piqua - Walmart*
1300 East Ash Street
Piqua, Ohio 45356
937.773.9000
Advisory Board
Dr. Richard N. Adams
Representative of Ohio
General Assembly
Michael C. Bardo
Retired, Hartzell
Industries, Inc.
Tamara Baird-Ganley
Baird Funeral Home
Brett A. Baumeister
President, Unity National Bank
Thomas E. Dysinger
Dysinger & Associates, LLC
Timothy Johnston
Self-employed Consultant
Dr. Douglas D. Hulme
Oakview Veterinary Hospital
W. Samuel Robinson
Murray, Wells, Wendeln &
Robinson CPAs, Inc.
Officer Listing
President
Brett A. Baumeister
Vice Presidents
G. Dwayne Cooper
Nathan E. Counts
John E. Frigge
24
Assistant Vice Presidents
Dean F. Brewer
Lisa L. Feeser
Scott E. Rasor
Carol L. Van Culin
Banking Officers
Mary E. Clevenger
Douglas R. Eakin
Kenneth S. Magoteaux
Administrative Officers
Vicki L. Burke*
Kyle M. Cooper
Melinda M. Curtis
Brock A. Heath
*Trust Officer
GUARDIAN
FINANCE C OMPANY
Home Office - Hilliard
2479 Hilliard-Rome Road
Hilliard, Ohio 43026
877.277.0345
Lancaster
137 West Main Street
Lancaster, Ohio 43130
740.654.6959
Springfield
1017 North Bechtle Avenue
Springfield, Ohio 45504
937.323.1011
Centerville
687 Lyons Road
Centerville, Ohio 45459
937.434.2773
Mansfield
3 North Main Street, Suite 302
Mansfield, Ohio 44902
419.525.4006
Heath
619 Hebron Road
Heath, Ohio 43056
740.788.8766
Officer Listing
Springfield
Clark
County
Montgomery
County
Centerville
Chairman
Earl W. Osborne
President
Matthew R. Marsh
Assistant Vice President
Patrick A. Borges
Banking Officer
Tracy L. Morgan
Administrative Officers
Charles L. Harris
Valerie J. Morgan
Mary E. Parsell
April D. Storie
Richland
County
Mansfield
Licking
County
Heath
Fairfield
County
Lancaster
Franklin
County
Hilliard
Columbus
140 East Town Street, Suite 1400
Columbus, Ohio 43215
614.221.5773
Officer Listing
Franklin
County
Columbus
President
Robert N. Kent, Jr.
Executive Vice President
Charles W. Sauter
Banking Officer
Linda M. Staubach
Administrative Officer
Michael J. Smith
25
PNC_AR2013_FINAL_1 2/18/14 6:09 PM Page 7
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
Management’s discussion and analysis presents the financial condition and
results of operations for Park National Corporation and its subsidiaries (unless
the context otherwise requires, collectively, “Park” or the “Corporation”).
This discussion should be read in conjunction with the consolidated financial
statements and related notes and the five-year summary of selected financial
data. Management’s discussion and analysis contains forward-looking state-
ments that are provided to assist in the understanding of anticipated future
financial performance. Forward-looking statements provide current expec -
tations or forecasts of future events and are not guarantees of future
performance. The forward-looking statements are based on management’s
expectations and are subject to a number of risks and uncertainties. Although
management believes that the expectations reflected in such forward-looking
statements are reasonable, actual results may differ materially from those
expressed or implied in such statements. Risks and uncertainties that could
cause actual results to differ materially include, without limitation: Park’s ability
to execute its business plan successfully and within the expected timeframe;
general economic and financial market conditions, and the uneven spread
of positive impacts of the recovery on the economy, specifically the real estate
markets and the credit markets, either nationally or in the states in which
Park and its subsidiaries do business, may be worse or slower than expected
which could adversely impact the demand for loan, deposit and other financial
services as well as increase loan delinquencies and defaults; changes in interest
rates and prices may adversely impact the value of securities, loans, deposits
and other financial instruments and the interest rate sensitivity of our consoli-
dated balance sheet; changes in consumer spending, borrowing and saving
habits; changes in unemployment; asset/liability repricing risks and liquidity
risks; our liquidity requirements could be adversely affected by changes to
regulations governing bank capital and liquidity standards as well as by changes
in our assets and liabilities; competitive factors among financial services organi-
zations could increase significantly, including product and pricing pressures
and our ability to attract, develop and retain qualified bank pro fessionals; the
nature, timing and effect of changes in banking regulations or other regulatory
or legislative requirements affecting the respective businesses of Park and its
subsidiaries, including changes in laws and regulations concerning taxes,
accounting, banking, securities and other aspects of the financial services
industry, specifically the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (the “Dodd-Frank Act”), as well as future regulations
which will be adopted by the relevant regulatory agencies, including the
Consumer Financial Protection Bureau, to implement the Dodd-Frank Act’s
provisions, the Budget Control Act of 2011, the American Taxpayer Relief
Act of 2012 and the Basel III regulatory capital reforms; the effect of changes
in accounting policies and practices, as may be adopted by the Financial
Accounting Standards Board, the SEC, the Public Company Accounting Oversight
Board and other regulatory agencies, and the accuracy of our assumptions and
estimates used to prepare our financial statements; the effect of fiscal and gov-
ernmental policies of the United States federal government; the adequacy of our
risk management program; a failure in or breach of our operational or security
systems or infrastructure, or those of our third-party vendors and other service
providers, including as a result of cyber attacks; demand for loans in the
respective market areas served by Park and its subsidiaries; the outcome
of future negotiations surrounding the United States debt and budget, which
may be adverse due to its impact on tax increases, governmental spending
and consumer confidence and spending; and other risk factors relating to the
banking industry as detailed from time to time in Park’s reports filed with the
SEC including those described in “Item 1A. Risk Factors” of Part I of Park’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2013.
Park does not undertake, and specifically disclaims any obligation, to publicly
release the results of any revisions that may be made to update any forward-
looking statement to reflect the events or circumstances after the date on
which the forward-looking statement was made, or reflect the occurrence
of unanticipated events, except to the extent required by law.
26
OVERVIEW
Net income for 2013 was $77.2 million, compared to $78.6 million in 2012
and $82.1 million in 2011. Net income available to common shareholders was
$77.2 million for 2013, compared to $75.2 million in 2012 and $76.3 million
in 2011. Diluted earnings per common share were $5.01, $4.88 and $4.95 for
2013, 2012 and 2011, respectively.
Net income for 2012 included the gain from the sale of the Vision Bank
(“Vision”) business of $22.2 million ($14.4 million after-tax). Results for
2011 included gains of $28.8 million ($18.7 million after-tax) from the sale
of investment securities. Excluding the gain from the sale of the Vision business
and gains from the sale of securities, net income for 2012 and 2011, would
have been $64.2 million and $63.4 million, respectively.
The table below reflects the net income (loss) by segment for each of the fiscal
years ended December 31, 2013, 2012 and 2011. Park’s segments include The
Park National Bank (“PNB”), Guardian Financial Services Company (“GFSC”),
SE Property Holdings, LLC (“SEPH”) and Park Parent Company. For 2011, the
table includes the net loss at Vision, also considered an operating segment until
the sale of the Vision business.
Table 1 – Net Income (Loss) by Segment
(In thousands)
PNB
GFSC
Park Parent Company
Ohio-based operations
Vision Bank
SEPH
Total Park
2013
2012
2011
$75,594
$87,106
$106,851
2,888
(1,397)
$77,085
—
142
$77,227
3,550
195
$90,851
—
(12,221)
$78,630
2,721
(1,595)
$107,977
(22,526)
(3,311)
$ 82,140
The “Park Parent Company” above excludes the results for SEPH, an entity
which is winding down commensurate with its primary objective of problem
asset disposition. Management considers the “Ohio-based operations” results
to reflect the business of Park and its subsidiaries going forward. The dis -
cussion below provides additional information regarding Park’s operating
segments.
Tables 2 through 6 show the components of net income for 2013, 2012 and
2011 for Park National Corporation and its wholly-owned subsidiaries. The
subsidiaries that will be reviewed in the tables are PNB, SEPH (including Vision
through February 16, 2012), GFSC and Parent Company for Park (excludes
SEPH results). We have also included summary balance sheet information.
Table 2 – PNB – Summary Income Statement
For the years ended December 31,
(In thousands)
Net interest income
Provision for loan losses
Other income
Security gains
Operating expenses
Income before taxes
Federal income taxes
Net income
Net income excluding security gains
Balances at December 31,
(In thousands)
Assets
Loans
Deposits
2013
2012
2011
$ 210,781
14,039
70,841
—
165,665
$ 101,918
26,324
$
$
75,594
75,594
$ 221,758
16,678
70,739
—
156,516
$ 119,303
32,197
$
$
87,106
87,106
$ 236,282
30,220
67,348
23,634
146,235
$ 150,809
43,958
$ 106,851
$
91,489
2013
2012
2011
$6,524,098
4,559,406
4,896,405
$6,502,579
4,369,173
4,814,107
$6,281,747
4,172,424
4,611,646
PNC_AR2013_FINAL_1 2/18/14 6:09 PM Page 8
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
Net income for PNB of $75.6 million was a decrease of $11.5 million from the
$87.1 million of net income in 2012. The majority of the decrease was a result
of a decline in net interest income and increased operating expenses, offset by a
decline in the provision for loan losses. Excluding the after-tax impact of secu-
rity gains in 2011, PNB’s net income was $91.5 million, compared to $87.1
million in 2012. The $4.4 million decrease in net income in 2012, compared to
net income excluding the after-tax impact of security gains in 2011, was due to
decreased net interest income and an increase in operating expenses, offset by
a decline in the provision for loan losses and an increase to fee income.
Table 3 – GFSC – Summary Income Statement
For the years ended December 31,
(In thousands)
Net interest income
Provision for loan losses
Other income
Operating expenses
Income before taxes
Federal income taxes
Net income
Balances at December 31,
(In thousands)
Assets
Loans
Deposits
2013
$ 8,741
1,175
11
3,133
$ 4,444
1,556
$ 2,888
2013
$47,115
47,228
7,159
2012
$ 9,156
859
—
2,835
$ 5,462
1,912
$ 3,550
2012
$49,926
50,082
8,358
2011
$ 8,693
2,000
—
2,506
$ 4,187
1,466
$ 2,721
2011
$46,682
47,111
8,013
Net income for GFSC was $2.9 million for the year ended December 31, 2013,
a decrease of $662,000, or 18.6%, from $3.5 million for 2012. The decrease
in income was primarily due to a decline in net interest income and an increase
in provision for loan losses.
The table below provides financial results for SEPH for the years ended
December 31, 2013, 2012 and 2011. The results for fiscal year 2012 include
the results for Vision through February 16, 2012, the date that Vision was
merged with and into SEPH. Also included below are the financial results
for Vision for the year ended December 31, 2011.
Table 4 – SEPH/Vision – Summary Income Statement
For the years ended December 31,
(In thousands)
Net interest (expense) income
(Recovery of) Provision for
loan losses
Other income (loss)
Security gains
Gain on sale of Vision business
Operating expenses
Income (loss) before
taxes (benefit)
Federal income taxes
(benefit)
Net income (loss)
Net income (loss),
excluding security gains
and gain on sale of
Vision business
Balances at December 31,
(In thousands)
Assets
Assets held for sale (1)
Loans
OREO
Deposits
Liabilities held for sale (2)
SEPH
2013
SEPH
2012
SEPH
2011
Vision
2011
$ (1,325)
$
(341)
$
(974)
$ 27,078
(11,799)
1,956
—
—
12,211
17,882
(736)
—
22,167
22,032
—
(3,039)
—
—
1,082
31,052
1,422
5,195
—
31,379
$ 219
$ (18,824)
$ (5,095)
$ (28,736)
77
142
$
(6,603)
(1,784)
(6,210)
$ (12,221)
$ (3,311)
$ (22,526)
$
142
$ (26,630)
$ (3,311)
$ (25,903)
SEPH
2013
$72,781
—
38,014
23,224
—
—
SEPH
2012
$104,428
—
59,178
21,003
—
—
SEPH
2011
$34,989
—
—
29,032
—
—
Vision
2011
$650,935
382,462
123,883
—
32
536,186
(1) The assets held for sale represent the loans and other assets at Vision that were sold in the
first quarter of 2012.
(2) The liabilities held for sale represent the deposits and other liabilities at Vision that were sold
in the first quarter of 2012.
SEPH’s assets primarily include performing and nonperforming loans, as well
as OREO assets, that were not sold to Centennial as part of the sale of the Vision
business on February 16, 2012. Net income for SEPH was $142,000 for the year
ended December 31, 2013, compared to a net loss of $12.2 million for the year
ended December 31, 2012, and a net loss for the combined SEPH/Vision of
$25.8 million for the year ended December 31, 2011. The primary drivers of
income/loss for SEPH are (1) charge-offs on loans retained following the sale
of the Vision business which result in a dollar for dollar provision for loan loss,
(2) recoveries on loans previously charged off, (3) gain/loss on the sale of
OREO properties, (4) OREO devaluation adjustments based on appraisals
received annually and (5) the expense associated with working down the
portfolio of loans and OREO, including legal and third-party workout specialist
costs.
The table below reflects the results for Park’s Parent Company (excludes results
for SEPH, which is a separate reportable segment) for the fiscal years ended
December 31, 2013, 2012 and 2011. Park’s Parent Company, included within
“All Other” in Note 23 in the Notes to the Consolidated Financial Statements,
also includes eliminations between Park’s other segments.
Table 5 – Park Parent Company – Summary Income Statement
For the years ended December 31,
(In thousands)
Net interest income
Provision for loan losses
Other income
Operating expenses
Loss before income tax benefit
Federal income tax benefit
Net (loss) income
2013
$ 2,828
—
469
7,520
$(4,223)
(2,826)
$(1,397)
2012
$ 4,742
—
233
6,585
$(1,610)
(1,805)
$
195
2011
$ 2,155
—
350
7,115
$(4,610)
(3,015)
$(1,595)
For the year ended December 31, 2013, Park’s Parent Company had a net
loss of $1.4 million, compared to net income of $195,000 for the year ended
December 31, 2012, and a net loss of $1.6 million in 2011. Net interest income
for Park’s Parent Company included interest income on loans from Park to
SEPH and on subordinated debt investments by Park with PNB, which were
eliminated in the consolidated Park totals. Additionally, net interest income
included interest expense related to the $35.25 million (10 percent coupon
with a maturity date of December 23, 2019 and an earliest prepayment date of
December 23, 2014) and $30 million (7 percent coupon with a maturity date
of April 20, 2022 and an earliest prepayment date of April 20, 2017) of subor-
dinated notes issued by Park in December 2009 and April 2012, respectively.
Table 6 – Park – Summary Income Statement
For the years ended December 31,
(In thousands)
Net interest income
Provision for loan losses
Other income
Gain on sale of Vision business
Security gains
Operating expenses
Income before taxes
State income taxes
Federal income taxes
Net income
Net income, excluding security
gains and gain on sale of
Vision business
Balances at December 31,
(In thousands)
Assets
Assets held for sale (1)
Loans
Deposits
Liabilities held for sale (2)
2013
2012
2011
$ 221,025
3,415
73,277
—
—
188,529
$ 235,315
35,419
70,236
22,167
—
187,968
$ 273,234
63,272
66,081
—
28,829
188,317
$ 102,358
$ 104,331
$ 116,555
—
25,131
—
25,701
6,088
28,327
$
77,227
$
78,630
$
82,140
$
77,227
$
64,221
$
63,401
2013
2012
2011
$6,638,347
—
4,620,505
4,789,994
—
$6,642,803
—
4,450,322
4,716,032
—
$6,972,245
382,462
4,317,099
4,465,114
536,186
(1) The assets held for sale represent the loans and other assets at Vision that were sold in the
first quarter of 2012.
(2) The liabilities held for sale represent the deposits and other liabilities at Vision that were sold
in the first quarter of 2012.
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ISSUANCE OF PREFERRED SHARES AND
EMERGENCY ECONOMIC STABILIZATION ACT
On October 3, 2008, Congress passed the Emergency Economic Stabilization
Act of 2008 (“EESA”), which created the Troubled Asset Relief Program
(“TARP”) and provided the Secretary of the Treasury with broad authority
to implement certain actions to help restore stability and liquidity to U.S.
markets. The Capital Purchase Program (the “CPP”) was announced by
the U.S. Department of the Treasury (the “U.S. Treasury”) on October 14,
2008 as part of TARP.
On December 23, 2008, Park completed the sale to the U.S. Treasury of $100
million of newly-issued Park non-voting preferred shares as part of the CPP.
Park entered into a Securities Purchase Agreement and a Letter Agreement with
the U.S. Treasury on December 23, 2008. Pursuant to these agreements, Park
issued and sold to the U.S. Treasury (i) 100,000 of Park’s Fixed Rate Cumulative
Perpetual Preferred Shares, Series A, each without par value and having a
liquidation preference of $1,000 per share (the “Series A Preferred Shares”),
and (ii) a warrant (the “Warrant”) to purchase 227,376 Park common shares
at an exercise price of $65.97 per share, for an aggregate purchase price of
$100 million. The Warrant had a ten-year term. All of the proceeds from the
sale of the Series A Preferred Shares and the Warrant by Park to the U.S.
Treasury under the CPP qualified as Tier 1 capital for regulatory purposes.
The allocation between the Series A Preferred Shares and the Warrant at
December 23, 2008, the date of issuance, was $95.7 million and $4.3 million,
respectively. The discount on the Series A Preferred Shares of $4.3 million
was accreted through retained earnings using the level yield method over a
60-month period. GAAP requires Park to measure earnings per share using
earnings available to common shareholders. Therefore, the Consolidated
Statements of Income reflect a line item for “Preferred share dividends and
accretion” and a line item for “Income available to common shareholders”.
On April 25, 2012, Park entered into a Letter Agreement with the U.S. Treasury
pursuant to which Park repurchased the 100,000 Series A Preferred Shares for
a purchase price of $100 million plus pro rata accrued and unpaid dividends.
Total consideration of $101.0 million included accrued and unpaid dividends
of $1.0 million. In addition to the accrued and unpaid dividends of $1.0
million, the charge to retained earnings, resulting from the repurchase of
the Series A Preferred Shares, was $1.6 million on April 25, 2012.
On May 2, 2012, Park entered into a Letter Agreement pursuant to which
Park repurchased from the U.S. Treasury the Warrant to purchase 227,376
Park common shares for consideration of $2.8 million, or $12.50 per Park
common share.
The dividends and accretion on the Series A Preferred Shares totaled $3.4
million for 2012 and $5.9 million for 2011. The accretion of the discount
was $1.9 million in 2012 and $856,000 in 2011. Income available to common
shareholders is net income minus the preferred share dividends and accretion.
Income available to common shareholders was $77.2 million for 2013, $75.2
million for 2012, and $76.3 million for 2011.
See Note 25 of the Notes to Consolidated Financial Statements for additional
information on the Series A Preferred Shares.
DIVIDENDS ON COMMON SHARES
Cash dividends declared on common shares were $3.76 in 2013, 2012 and
2011. The quarterly cash dividend on common shares was $0.94 per share
for each quarter of 2013, 2012 and 2011.
CRITICAL ACCOUNTING POLICIES
The significant accounting policies used in the development and presentation
of Park’s consolidated financial statements are listed in Note 1 of the Notes to
Consolidated Financial Statements. The accounting and reporting policies of
Park conform with GAAP and general practices within the financial services
industry. The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and the accompanying notes.
Actual results could differ from those estimates.
The determination of the allowance for loan and lease losses (“ALLL”) involves
a higher degree of judgment and complexity than Park’s other significant
accounting policies. The ALLL is calculated with the objective of maintaining a
reserve level believed by management to be sufficient to absorb probable
incurred credit losses in the loan portfolio. Management’s determination of the
adequacy of the ALLL is based on periodic evaluations of the loan portfolio and
of current economic conditions. However, this evaluation is inherently subjec-
tive as it requires material estimates, including expected default probabilities,
the loss given default, the amounts and timing of expected future cash flows on
impaired loans, and estimated losses based on historical loss experience and
current economic conditions. All of these factors may be susceptible to signifi-
cant change. To the extent that actual results differ from management estimates,
additional loan loss provisions may be required that would adversely impact
earnings for future periods. Refer to the “CREDIT EXPERIENCE – Provision for
Loan Losses” section for additional discussion.
Other real estate owned (“OREO”), property acquired through foreclosure,
is recorded at estimated fair value less anticipated selling costs (net realizable
value). If the net realizable value is below the carrying value of the loan on
the date of transfer of the OREO, the difference is charged off against the ALLL.
Subsequent declines in value (OREO devaluations) are reported as adjustments
to the carrying amount of OREO and are expensed within other income. Gains
or losses not previously recognized, resulting from the sale of OREO, are recog-
nized within other income on the date of sale. At December 31, 2013, OREO
totaled $34.6 million, a decrease of 3.1%, compared to $35.7 million at
December 31, 2012.
In accordance with GAAP, management utilizes the fair value hierarchy, which
has the objective of maximizing the use of observable market inputs. The
accounting guidance also requires disclosures regarding the inputs used to
calculate fair value. These inputs are classified as Level 1, 2, and 3. Level 3
inputs are those with significant unobservable inputs that reflect a company’s
own assumptions about the market for a particular instrument. Some of the
inputs could be based on internal models and/or cash flow analyses. The large
majority of Park’s financial assets valued using Level 2 inputs consist of avail-
able-for-sale (“AFS”) securities. The fair value of these AFS securities is
obtained largely by the use of matrix pricing, which is a mathematical technique
widely used in the financial services industry to value debt securities without
relying exclusively on quoted market prices for the specific securities but rather
by relying on the securities’ relationship to other benchmark quoted securities.
The accounting for goodwill and other intangible assets also involves a higher
degree of judgment than most other significant accounting policies. GAAP
establishes standards for the amortization of acquired intangible assets and
the impairment assessment of goodwill. Goodwill arising from business com -
binations represents the value attributable to unidentifiable intangible assets
in the business acquired. Park’s goodwill relates to the value inherent in the
banking industry and that value is dependent upon the ability of PNB, Park’s
bank subsidiary, to provide quality, cost-effective banking services in a com -
petitive marketplace. The goodwill value is supported by revenue that is in part
driven by the volume of business transacted. A decrease in earnings resulting
from a decline in the customer base, the inability to deliver cost-effective
services over sustained periods or significant credit problems can lead to
impairment of goodwill that could adversely impact earnings in future periods.
GAAP requires an annual evaluation of goodwill for impairment, or more fre-
quently if events or changes in circumstances indicate that the asset might be
impaired by assessing qualitative factors to determine whether it is more likely
than not that the fair value of a reporting unit is less than its carrying amount.
If after assessing these events or circumstances, it is concluded that it is more
likely than not that the fair value of a reporting unit is less than its carrying
amount, then performance of the second step of the impairment test is
28
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required. If the carrying amount of the goodwill exceeds the fair value,
an impairment charge must be recorded in an amount equal to the excess.
At December 31, 2013, on a consolidated basis, Park had $72.3 million
of goodwill, which was not subject to periodic amortization.
The determination of pension plan obligations and related expenses requires
the use of assumptions to estimate the amount of benefits that employees
earn while working, as well as the present value of those benefits. Annual
pension expense is principally based on four components: (1) the value of
benefits earned by employees for working during the year (service cost),
(2) the increase in the liability due to the passage of time (interest cost),
and (3) other gains and losses, reduced by (4) the expected return on
plan assets for our pension plan.
Significant assumptions used to measure our annual pension expense include:
■ the interest rate used to determine the present value of liabilities (discount
rate);
■ certain employee-related factors, such as turnover, retirement age and
mortality;
■ the expected return on assets in our funded plans; and
■ for pension expense, the rate of salary increases for plans where benefits
are based on earnings
Our assumptions reflect our historical experience and management’s best
judgment regarding future expectations. Due to the significant management
judgment involved, our assumptions could have a material impact on the
measurement of our pension plan expense and obligation.
ABOUT OUR BUSINESS
Through its Ohio-based banking divisions, Park is engaged in the commercial
banking and trust business, generally in small to medium population Ohio
communities. Management believes there is a significant number of consumers
and businesses which seek long-term relationships with community-based
financial institutions of quality and strength. While not engaging in activities
such as foreign lending, nationally syndicated loans or investment banking,
Park attempts to meet the needs of its customers for commercial, real estate
and consumer loans, consumer and commercial leases, and investment,
fiduciary and deposit services.
Park’s subsidiaries compete for deposits and loans with other banks,
savings associations, credit unions and other types of financial institutions.
At December 31, 2013, Park operated 129 financial service offices (including
those of GFSC) and a network of 144 automated teller machines in 28 Ohio
counties and one county in northern Kentucky.
A summary of financial data, average loans and average deposits, for Park’s
bank subsidiaries and their divisions for 2013, 2012 and 2011 is shown
in Table 7. See Note 23 of the Notes to Consolidated Financial Statements for
additional financial information for the Corporation’s operating segments.
Please note that the financial statements for various divisions of PNB are not
reported on a separate basis and, therefore, net income is not included in the
summary financial data below.
Table 7 – Park Affiliate Financial Data
(In thousands)
Park National Bank:
Park National
Bank Division
Security National
Bank Division
First-Knox National
Bank Division
Century National
Bank Division
Richland
Bank Division
Fairfield National
Bank Division
Second National
Bank Division
Park National SW &
N KY Bank Division
United Bank,
N.A. Division
Unity National
Bank Division
Farmers & Savings
Bank Division
Scope Aircraft
Finance
SEPH/Vision Bank
GFSC
Parent Company,
including consolidating
entries
2013
2012
2011
Average
Loans
Average
Deposits
Average
Loans
Average
Deposits
Average
Loans
Average
Deposits
$1,348,466
$1,355,805
$1,286,751
$1,354,196
$1,206,520
$1,387,223
432,259
780,525
412,388
767,560
394,605
685,428
540,452
538,142
513,976
507,237
493,158
482,537
618,144
482,002
604,382
480,536
573,056
460,825
240,692
444,364
248,421
439,420
244,687
422,261
251,567
398,260
245,064
394,239
236,467
383,358
323,880
308,970
302,185
290,870
281,749
281,347
324,386
216,134
291,297
218,407
329,690
240,213
85,761
193,823
92,258
196,841
95,528
193,685
160,123
153,814
147,956
149,537
146,965
145,051
100,189
84,802
95,661
75,684
97,228
71,386
182,794
47,625
49,687
7
18
8,172
175,019
133,306
48,987
9
67,737
8,524
156,681
582,221
45,957
9
575,784
8,093
(191,244)
(105,098)
(186,990)
(115,400)
(171,001)
(144,711)
Consolidated
Totals
$4,514,781
$4,859,740
$4,410,661
$4,835,397
$4,713,511
$5,192,489
SOURCE OF FUNDS
Deposits: Park’s major source of funds is deposits from individuals,
businesses and local government entities. These deposits consist of
non-interest bearing and interest bearing deposits.
Average total deposits were $4,860 million in 2013, compared to $4,835
million in 2012, and $5,192 million in 2011.
Total deposits were $4,790 million at December 31, 2013, compared to $4,716
million at December 31, 2012. This represents an increase in total deposits of
$74 million or 1.6% in 2013. The increase in total deposits in 2013 was pre-
dominately in Park’s non-interest bearing checking accounts, interest bearing
transaction accounts, and interest bearing savings accounts.
Table 8 – Year-End Deposits
December 31,
(In thousands)
Non-interest bearing checking
Interest bearing transaction
accounts
Savings
All other time deposits
Other
2013
2012
$1,193,553
$1,137,290
1,145,525
1,124,994
1,324,659
1,263
1,088,617
1,038,356
1,450,424
1,345
Change
$ 56,263
56,908
86,638
(125,765)
(82)
Total
$4,789,994
$4,716,032
$ 73,962
29
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The average interest rate paid on interest bearing deposits was 0.35% in 2013,
compared to 0.49% in 2012, and 0.66% in 2011. The average cost of interest
bearing deposits for each quarter of 2013 was 0.31% for the fourth quarter,
0.33% for the third quarter, 0.36% for the second quarter and 0.39% for the
first quarter.
Short-Term Borrowings: Short-term borrowings consist of securities sold
under agreements to repurchase, Federal Home Loan Bank advances, federal
funds purchased and other borrowings. These funds are used to manage the
Corporation’s liquidity needs and interest rate sensitivity risk. The average rate
paid on short-term borrowings generally moves closely with changes in market
interest rates for short-term investments. The average rate paid on short-term
borrowings was 0.22% in 2013, compared to 0.26% in 2012 and 0.28% in
2011.
The year-end balance for short-term borrowings was $242 million at December
31, 2013, compared to $344 million at December 31, 2012 and $264 million
at December 31, 2011. The decrease from 2012 to 2013 and the increase from
2011 to 2012 were due to investment security purchases at year-end 2012 that
were temporarily funded through the use of short-term borrowings.
Long-Term Debt: Long-term debt primarily consists of borrowings from the
Federal Home Loan Bank and repurchase agreements with investment banking
firms. The average balance of long-term debt and the average cost of long-term
debt includes the subordinated debentures and subordinated notes discussed in
the following section. In 2013, average long-term debt was $871 million, com-
pared to $908 million in 2012 and $882 million in 2011. Average total debt
(long-term and short-term) was $1,124 million in 2013, compared to $1,166
million in 2012 and $1,179 million in 2011. Average total debt decreased by
$42 million or 3.6% in 2013 compared to 2012 and decreased by $13 million
or 1.1% in 2012 compared to 2011. Average long-term debt was 77% of
average total debt in 2013, compared to 78% in 2012 and 75% in 2011.
On November 30, 2012, Park’s bank subsidiary, PNB, restructured $300 million
of fixed rate repurchase agreement borrowings with a third-party investment
banking firm. The restructuring reduced the weighted average interest rate paid
on the debt from 4.04% to 1.75% and extended the weighted average maturity
from 4.4 years to 5.0 years. A $25 million prepayment penalty was paid by PNB
to the third-party investment banking firm as part of the restructuring which will
be amortized over the five-year remaining term of the restructured borrowing.
The effective rate on the restructured borrowing is 3.40%, including the impact
of the prepayment penalty amortization.
The average interest rate paid on long-term debt was 3.26% for 2013,
compared to 3.45% for 2012 and 3.42% for 2011.
Subordinated Debenture/Notes: Park assumed, with the 2007 Vision
acquisition, $15.5 million of floating rate junior subordinated notes. The
$15.5 million of junior subordinated notes were purchased by Vision
Bancshares Trust I (“Trust I”) following the issuance of Trust I’s $15.0
million of floating rate preferred securities. The interest rate on these junior
subordinated notes adjusts every quarter at 148 basis points above the three-
month LIBOR interest rate. The maturity date for the junior subordinated notes
is December 30, 2035 and the junior subordinated notes may be prepaid after
December 30, 2010. These junior subordinated notes qualify as Tier 1 capital
under current Federal Reserve Board guidelines.
Park’s bank subsidiary, PNB, issued a $25 million subordinated debenture on
December 28, 2007. The interest rate on this subordinated debenture adjusted
every quarter, while it was outstanding, at 200 basis points above the three-
month LIBOR interest rate. The maturity date for the subordinated debenture
was December 29, 2017 and the subordinated debenture was eligible to be
prepaid after December 28, 2012. On January 2, 2008, Park entered into a “pay
fixed-receive floating” interest rate swap agreement for a notional amount of
$25 million with a maturity date of December 28, 2012. This interest rate swap
agreement was designed to hedge the cash flows pertaining to the $25 million
subordinated debenture until December 28, 2012. Management converted the
30
cash flows related to this subordinated debenture to a fixed interest rate of
6.01% through the use of the interest rate swap. This subordinated debenture
qualified as Tier 2 capital under the applicable regulations of the Office of the
Comptroller of the Currency of the United States of America (the “OCC”) and
the Federal Reserve Board. This subordinated debenture was paid off in full on
December 31, 2012.
On December 23, 2009, Park issued an aggregate principal amount of $35.25
million of subordinated notes to 38 purchasers. These subordinated notes
have a fixed annual interest rate of 10% with quarterly interest payments. The
maturity date of these subordinated notes is December 23, 2019. These subor-
dinated notes may be prepaid by Park at any time after December 23, 2014.
The subordinated notes qualify as Tier 2 capital under applicable rules and
regulations of the Federal Reserve Board. Each subordinated note was pur-
chased at a purchase price of 100% of the principal amount by an accredited
investor.
On April 20, 2012, Park issued an aggregate principal amount of $30.0 million
of subordinated notes to 56 purchasers. These subordinated notes have a fixed
annual interest rate of 7% with quarterly interest payments. The maturity date
of these subordinated notes is April 20, 2022. The subordinated notes may be
prepaid by Park at any time after April 20, 2017. The subordinated notes qualify
as Tier 2 capital under applicable rules and regulations of the Federal Reserve
Board. Each subordinated note was purchased at a purchase price of 100%
of the principal amount by an accredited investor.
See Note 11 of the Notes to Consolidated Financial Statements for additional
information about the subordinated notes.
Shareholders’ Equity: The ratio of tangible shareholders’ equity [share -
holders’ equity ($651.7 million) less goodwill and other intangible assets
($72.3 million)] to tangible assets [total assets ($6,638 million) less goodwill
and other intangible assets ($72.3 million)] was 8.82% at December 31, 2013,
compared to 8.79% at December 31, 2012 and 9.68% at December 31, 2011.
The ratio of tangible shareholders’ equity to tangible assets for the fiscal year
ended December 31, 2011 reflected the issuance of $100 million of Park Series
A Preferred Shares to the U.S. Treasury on December 23, 2008, which remained
outstanding. As previously discussed, Park repurchased the $100 million of
Park Series A Preferred Shares from the U.S. Treasury on April 25, 2012.
Excluding the balance of Series A Preferred Shares, the ratio of tangible
common shareholders’ equity to tangible assets was 8.25% at December
31, 2011.
In accordance with GAAP, Park reflects any unrealized holding gain or loss on
available for sale (“AFS”) securities, change in funded status of pension plan
or unrealized net holding gain/loss on cash flow hedge, net of income taxes,
as accumulated other comprehensive income (loss) which is part of Park’s
shareholders’ equity.
The unrealized net holding loss, net of income taxes, on AFS securities was
$29.8 million at year-end 2013, compared to unrealized net holding gains, net
of income taxes, of $9.6 million at year-end 2012 and $12.7 million at year-end
2011. The unrealized net holding loss at December 31, 2013 was the result of
increases in long-term interest rates during the year.
In accordance with GAAP, Park adjusts accumulated other comprehensive
income (loss) to recognize the net actuarial gain or loss reflected in the
funding status of Park’s pension plan. See Note 13 of the Notes to Consolidated
Financial Statements for information on the accounting for Park’s pension plan.
Pertaining to the funding status of the pension plan, Park recognized net
comprehensive income of $21.5 million in 2013 and net comprehensive
loss of $6.2 million and $5.0 million in 2012 and 2011, respectively. The net
comprehensive income in 2013 was due to positive investment returns in 2013
and changes in actuarial assumptions, primarily an increase in the discount rate
from 4.47% at December 31, 2012 to 5.30% at December 31, 2013. The net
comprehensive loss in each of 2012 and 2011 was due to changes in actuarial
assumptions, primarily changes in the discount rate. The actuarial loss more
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than offset the positive investment returns to the pension plan in each of 2011
and 2012. At year-end 2013, the balance in accumulated other comprehensive
income/(loss) pertaining to the pension plan was $(5.6) million, compared
to $(27.1) million at December 31, 2012 and $(20.9) million at December
31, 2011.
Park also recognized net comprehensive income with respect to the
unrealized net holding gain of $0.6 million, and $0.5 million for the years
ended December 31, 2012 and 2011, respectively, due to the mark-to-
market of the $25 million (notional amount) cash flow hedge that expired
on December 28, 2012. See Note 19 of the Notes to Consolidated Financial
Statements for information on the accounting for Park’s derivative instruments,
including this cash flow hedge.
INVESTMENT OF FUNDS
Loans: Average loans were $4,515 million in 2013, compared to $4,411
million in 2012, and $4,714 million in 2011. The average yield on loans was
5.02% in 2013, compared to 5.35% in 2012, and 5.61% in 2011. The average
prime lending rate was 3.25% in each of 2013, 2012 and 2011. Approximately
50% of Park’s loan balances mature or reprice within one year (see Table 30).
The yield on average loan balances for each quarter of 2013 was 4.95% for
each of the fourth quarter and third quarter, 5.08% for the second quarter and
5.13% for the first quarter. At December 31, 2013, loan balances were $4,621
million, compared to $4,450 million at year-end 2012, an increase of $171
million or 3.8%. The loan growth of $171 million in 2013 was due to increases
in loans of $190 million at PNB, offset by a decline of $2.8 million at GFSC and
a decline in legacy Vision loans held by SEPH of $21 million. The increase in
loans experienced at PNB in 2013 was primarily related to continued demand
for 1-4 family mortgages, which increased by $87 million. PNB also had a $68
million increase in the consumer loan portfolio and a $35 million increase in
the commercial loan portfolio.
Year-end residential real estate loans were $1,800 million, $1,713 million,
and $1,629 million in 2013, 2012, and 2011, respectively. Residential real
estate loans increased by $87 million or 5.1% in 2013 and increased by $84
million or 5.2% in 2012. The increases in 2012 and 2013 were primarily due
to management’s decision to continue to retain certain of the 15-year, fixed-rate
mortgage loans originated during the year. The balance of 15-year, fixed-rate
mortgage loans was $329 million at December 31, 2011, with a weighted
average interest rate of 3.79%. This 15-year, fixed-rate mortgage loan product
increased by $142 million to $471 million at December 31, 2012, and had a
weighted average interest rate of 3.62%. At December 31, 2013, the 15-year,
fixed-rate mortgage loan product increased by $141 million to $612 million
and had a weighted average interest rate of 3.50%.
The long-term, fixed-rate residential mortgage loans that Park originates
are generally sold in the secondary market and Park typically retains servicing
on these loans. As mentioned above, during 2010, Park began to retain on its
balance sheet certain of the 15-year, fixed-rate residential mortgage loans that
it originated. The balance of sold fixed-rate residential mortgage loans, in which
Park has maintained the servicing rights, was $1,326 million at year-end 2013,
compared to $1,311 million at year-end 2012 and $1,347 million at year-end
2011.
Year-end consumer loans were $724 million, $652 million, and $617 million
in 2013, 2012 and 2011, respectively. Consumer loans increased by $72 million
or 11.0% in 2013 and increased by $35 million or 5.7% in 2012. The increase
in consumer loans in 2013 and 2012 was primarily due to an increase in
automobile lending in Ohio.
On a combined basis, year-end commercial, financial and agricultural loans,
construction real estate loans and commercial real estate loans totaled $2,094
million, $2,082 million, and $2,070 million for 2013, 2012 and 2011, respec-
tively. These combined loan totals increased by $12 million or 0.6% in each
of 2013 and 2012. The increase in 2013 was primarily due to increases in
commercial real estate loans of $20.2 million and commercial, financial and
agricultural loans of $1.5 million, offset by a decline in construction real estate
loans of $9.4 million. The increase in 2012 was primarily due to an increase in
commercial, financial and agricultural loans of $80.1 million, offset by declines
in construction real estate loans of $52.0 million and commercial real estate
loans of $16.4 million.
Table 9 reports year-end loan balances by type of loan for the past five years.
Table 9 – Loans by Type
December 31,
(In thousands)
Commercial, financial
and agricultural
Construction
real estate
Residential
real estate
Commercial
real estate
Consumer
Leases
Total loans
2013
2012
2011
2010
2009
$ 825,432
$ 823,927
$ 743,797
$ 737,902
$ 751,277
156,116
165,528
217,546
406,480
495,518
1,799,547
1,713,645
1,628,618
1,692,209
1,555,390
1,112,273
723,733
3,404
$4,620,505
1,092,164
651,930
3,128
$4,450,322
1,108,574
616,505
2,059
$4,317,099
1,226,616
666,871
2,607
$4,732,685
1,130,672
704,430
3,145
$4,640,432
Table 10 – Selected Loan Maturity Distribution
December 31, 2013
(In thousands)
Commercial, financial
and agricultural
Construction real estate
Commercial real estate
Total
Total of these selected loans due
after one year with:
Fixed interest rate
Floating interest rate
One Year
or Less (1)
$348,481
63,817
91,545
Over One
Through
Five Years
Over
Five
Years
Total
$331,033
17,122
122,817
$ 145,918
75,177
898,011
$ 825,432
156,116
1,112,373
$503,843
$470,972
$1,119,106
$2,093,921
296,107
174,865
146,246
972,860
$ 442,353
$1,147,725
(1) Nonaccrual loans of $76.3 million are included within the one year or less classification above.
Investment Securities: Park’s investment securities portfolio is structured
to minimize credit risk, provide liquidity and contribute to earnings. As
conditions change over time, Park’s overall interest rate risk, liquidity needs
and potential return on the investment portfolio will change. Management
regularly evaluates the securities in the investment portfolio as circumstances
evolve. Circumstances that could result in the sale of a security include: to
better manage interest rate risk; to meet liquidity needs; or to improve the
overall yield in the investment portfolio.
Park classifies the majority of its securities as AFS (see Note 4 of the Notes to
Consolidated Financial Statements). These securities are carried on the books
at their estimated fair value with the unrealized holding gain or loss, net of
federal taxes, accounted for as accumulated other comprehensive income
(loss). The securities that are classified as AFS are free to be sold in future
periods in carrying out Park’s investment strategies.
Park classifies certain types of U.S. Government sponsored entity collateralized
mortgage obligations (“CMOs”) that it purchases as held-to-maturity. A classifi-
cation of held-to-maturity means that Park has the positive intent and the ability
to hold these securities until maturity. Park classifies certain types of CMOs as
held-to-maturity because these securities are generally not as liquid as the other
U.S. Government sponsored entities’ asset-backed securities that Park classifies
as AFS. At year-end 2013, Park’s held-to-maturity securities portfolio was $182
million, compared to $401 million at year-end 2012, and $820 million at year-
end 2011. Park purchased $208 million of CMOs in 2013, $388 million of
CMOs in 2012, and $628 million of CMOs in 2011. All of the CMOs, mortgage-
backed securities, and callable notes in Park’s investment portfolio were issued
by a U.S. Government sponsored entity.
Average taxable investment securities were $1,377 million in 2013, compared
to $1,610 million in 2012 and $1,841 million in 2011. The average yield on
taxable securities was 2.67% in 2013, compared to 3.14% in 2012 and 3.74%
in 2011. Average tax-exempt investment securities were $1.0 million in 2013,
compared to $3.1 million in 2012 and $8 million in 2011. The average tax-
equivalent yield on tax-exempt investment securities was 7.07% in 2013,
compared to 7.03% in 2012 and 7.17% in 2011.
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Total investment securities (at amortized cost) were $1,470 million at
December 31, 2013, compared to $1,567 million and $1,689 million at
December 31, 2012 and December 31, 2011, respectively. Management pur-
chased investment securities totaling $583 million in 2013, $1,227 million in
2012 and $1,268 million in 2011. Proceeds from repayments and maturities of
investment securities were $605 million in 2013, $1,348 million in 2012 and
$1,013 million in 2011. The increase in proceeds from repayments and maturi-
ties in 2012 was primarily due to accelerated prepayments of U.S. Government
sponsored entities’ mortgage-backed securities and U.S. Government sponsored
entity CMOs and also from U.S. Government sponsored entity callable notes
being called.
Proceeds from sales of investment securities were $75 million in 2013. These
securities were sold at book value; thus there was no gain or loss recognized.
There were no sales of investment securities in 2012. Proceeds from sales of
investment securities were $610 million in 2011. Park realized net gains on
the sale of these securities on a pre-tax basis of $28.8 million in 2011.
At year-end 2013, 2012 and 2011, the average tax-equivalent yield on the
total investment portfolio was 2.53%, 2.76%, and 3.31%, respectively. The
weighted average remaining maturity of the total investment portfolio was
6.5 years at December 31, 2013, 2.1 years at December 31, 2012 and 1.7
years at December 31, 2011. Obligations of the U.S. Treasury and other U.S.
Government sponsored entities and U.S. Government sponsored entities’ asset-
backed securities were approximately 95.2% of the total investment portfolio
at year-end 2013, approximately 95.7% of the total investment portfolio at
year-end 2012 and approximately 95.7% of the total investment portfolio
at year-end 2011.
The average maturity of the investment portfolio would lengthen if long-term
interest rates increase as the principal repayments from mortgage-backed
securities and CMOs would be reduced and callable U.S. Government spon-
sored entity notes would extend to their maturity dates. At year-end 2013,
management estimated that the average maturity of the investment portfolio
would lengthen to 6.9 years with a 100 basis point increase in long-term inter-
est rates and to 7.3 years with a 200 basis point increase in long-term interest
rates. Likewise, the average maturity of the investment portfolio would shorten
if long-term interest rates decrease as the principal repayments from mortgage-
backed securities and CMOs would increase as borrowers would refinance their
mortgage loans and the callable U.S. Government sponsored entity notes would
shorten to their call dates. At year-end 2013, management estimated that the
average maturity of the investment portfolio would decrease to 2.5 years with a
100 basis point decrease in long-term interest rates and to 1.8 years with a 200
basis point decrease in long-term interest rates.
Table 11 sets forth the carrying value of investment securities, as well as the per-
centage held within each category at year-end 2013, 2012 and 2011:
Table 11 – Investment Securities
December 31,
(In thousands)
Obligations of U.S. Treasury and other
U.S. Government sponsored entities
Obligations of states and political subdivisions
U.S. Government asset-backed securities
Federal Home Loan Bank stock
Federal Reserve Bank stock
Equities
Total
Investments by category as a percentage
of total investment securities
Obligations of U.S. Treasury and other
U.S. Government sponsored entities
Obligations of states and political subdivisions
U.S. Government asset-backed securities
Federal Home Loan Bank stock
Federal Reserve Bank stock
Equities
2013
2012
2011
$ 525,136
240
830,292
59,031
6,876
2,659
$ 695,727
1,573
816,322
59,031
6,876
2,222
$ 371,657
4,652
1,262,527
60,728
6,876
2,033
$1,424,234
$1,581,751
$1,708,473
36.9%
—%
58.3%
4.1%
0.5%
0.2%
44.0%
0.1%
51.7%
3.7%
0.4%
0.1%
21.8%
0.3%
73.9%
3.5%
0.4%
0.1%
Total
100.0%
100.0%
100.0%
ANALYSIS OF EARNINGS
Park’s principal source of earnings is net interest income, the difference
between total interest income and total interest expense. Net interest income
results from average balances outstanding for interest earning assets and
interest bearing liabilities in conjunction with the average rates earned and
paid on them. (See Table 12 for three years of history on the average balances
of the balance sheet categories and the average rates earned on interest earning
assets and the average rates paid on interest bearing liabilities.)
Net interest income decreased by $14.3 million or 6.1% to $221.0 million
for 2013, compared to a decrease of $37.9 million or 13.9% to $235.3 million
for 2012. The tax equivalent net yield on interest earning assets (net interest
margin) was 3.61% for 2013, compared to 3.83% for 2012 and 4.14% for
2011. The net interest rate spread (the difference between rates received for
interest earning assets and the rates paid for interest bearing liabilities) was
3.43% for 2013, compared to 3.62% for 2012 and 3.94% for 2011. The
decrease in net interest income in 2013 was due to the decline in the net
interest spread to 3.43%, while total interest earning assets only declined by
approximately $25 million. The decrease in net interest income in 2012 was
due to the decline in the net interest spread to 3.62% from 3.94% and due to
the sale of the Vision business on February 16, 2012. The average balance of
interest earning assets decreased by $451 million, or 6.8%, to $6,190 million
in 2012, largely as a result of the sale of the Vision business.
The average yield on interest earning assets was 4.29% in 2013, compared to
4.64% in 2012 and 5.03% in 2011. On a quarterly basis for 2013, the average
yield on interest earning assets was 4.24% for the fourth quarter, 4.19% for the
third quarter, 4.31% for the second quarter and 4.41% for the first quarter.
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Table 12 – Distribution of Assets, Liabilities and Shareholders’ Equity
December 31,
(In thousands)
ASSETS
Interest earning assets:
Loans (1) (2)
Taxable investment securities
Tax-exempt investment securities (3)
Money market instruments
Total interest earning assets
Non-interest earning assets:
Allowance for loan losses
Cash and due from banks
Premises and equipment, net
Other assets
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest bearing liabilities:
Transaction accounts
Savings deposits
Time deposits
Total interest bearing deposits
Short-term borrowings
Long-term debt (4)
Total interest bearing liabilities
Non-interest bearing liabilities:
Demand deposits
Other
Total non-interest bearing liabilities
Shareholders’ equity
TOTAL
Daily
Average
2013
Interest
Average
Rate
Daily
Average
2012
Interest
Average
Rate
Daily
Average
2011
Interest
Average
Rate
$236,184
50,549
217
408
287,358
5.35%
3.14%
7.03%
0.25%
4.64%
$ 1,411
1,072
15,921
18,404
678
31,338
50,420
0.11%
0.11%
1.03%
0.49%
0.26%
3.45%
1.02%
$226,816
36,686
69
678
264,249
5.02%
2.66%
7.07%
0.25%
4.29%
$
927
846
11,235
13,008
544
28,370
41,922
0.07%
0.08%
0.81%
0.35%
0.22%
3.26%
0.86%
$4,514,781
1,376,913
974
272,851
6,165,519
(56,860)
110,796
56,303
427,215
$6,702,973
$1,251,305
1,098,860
1,392,196
3,742,361
253,123
870,538
4,866,022
1,117,379
74,039
1,191,418
645,533
$6,702,973
$4,410,661
1,610,044
3,087
166,319
6,190,111
(61,995)
119,410
54,917
464,363
$6,766,806
$1,239,417
1,006,321
1,540,863
3,786,601
258,661
907,704
4,952,966
1,048,796
75,312
1,124,108
689,732
$6,766,806
$264,192
68,873
575
178
333,818
5.60%
3.74%
7.15%
0.23%
5.03%
$
2,686
1,126
23,842
27,654
823
30,169
58,646
0.19%
0.12%
1.31%
0.66%
0.28%
3.42%
1.09%
$4,713,511
1,840,842
8,038
78,593
6,640,984
(128,512)
124,649
69,507
499,543
$7,206,171
$1,430,492
946,406
1,816,506
4,193,404
297,537
881,921
5,372,862
999,085
90,351
1,089,436
743,873
$7,206,171
Net interest earnings
Net interest spread
Net yield on interest earning assets (net interest margin)
$222,327
$236,938
$275,172
3.43%
3.61%
3.62%
3.83%
3.94%
4.14%
(1) Loan income includes loan related fee income of $1.9 million in 2013, $3.1 million in 2012 and $2.4 million in 2011. Loan income also includes the effects of taxable equivalent adjustments using a 35%
tax rate in 2013, 2012 and 2011. The taxable equivalent adjustment was $1.3 million in 2013, $1.5 million in 2012, and $1.7 million in 2011.
(2) For the purpose of the computation, nonaccrual loans are included in the daily average loans outstanding.
(3)
(4)
Interest income on tax-exempt investment securities includes the effects of taxable equivalent adjustments using a 35% tax rate in 2013, 2012 and 2011. The taxable equivalent adjustments were $24
thousand in 2013, $77 thousand in 2012, and $204 thousand in 2011.
Includes subordinated debenture and subordinated notes.
The average rate paid on interest bearing liabilities was 0.86% in 2013,
compared to 1.02% in 2012 and 1.09% in 2011. On a quarterly basis for 2013,
the average rate paid on interest bearing liabilities was 0.83% for the fourth
quarter, 0.84% for the third quarter, 0.88% for the second quarter and 0.90%
for the first quarter.
The following table displays (for each quarter of 2013) the average balance
of interest earning assets, the net interest income and the tax equivalent net
interest margin.
Table 13 – Quarterly Net Interest Margin
(In thousands)
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2013
Average Interest
Earning Assets
Net Interest
Income
Tax Equivalent
Net Interest Margin
$6,125,403
6,112,621
6,219,809
6,202,796
$6,165,519
$ 55,453
54,712
54,960
55,900
$221,025
3.70%
3.61%
3.52%
3.59%
3.61%
In the following table, the change in tax equivalent interest due to both volume
and rate has been allocated to volume and rate changes in proportion to the
relationship of the absolute dollar amounts of the change in each.
Table 14 – Volume/Rate Variance Analysis
Change from 2012 to 2013
Total
Rate
Volume
Change from 2011 to 2012
Total
Rate
Volume
(In thousands)
Increase (decrease) in:
Interest income:
Total loans
$ 5,464 $(14,832) $ (9,368) $(16,271) $(11,737) $(28,008)
Taxable investments
Tax-exempt investments
Money market
instruments
Total interest
income
Interest expense:
(6,744)
(149)
(7,119)
1
(13,863)
(148)
(8,038)
(348)
(10,286)
(10)
(18,324)
(358)
270
—
270
213
17
230
(1,159)
(21,950)
(23,109)
(24,444)
(22,016)
(46,460)
Transaction accounts
Savings accounts
Time deposits
Short-term borrowings
Long-term debt
$
13 $
95
(1,458)
(16)
(1,266)
(497) $
(321)
(3,228)
(118)
(1,702)
(484) $
(226)
(4,686)
(134)
(2,968)
(307) $
58
(3,289)
(94)
898
(968) $ (1,275)
(54)
(112)
(7,921)
(4,632)
(145)
(51)
1,169
271
Total interest
expense
(2,632)
(5,866)
(8,498)
(2,734)
(5,492)
(8,226)
Net variance
$ 1,473 $(16,084) $(14,611) $(21,710) $(16,524) $(38,234)
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Other Income: Total other income was $73.3 million in 2013, compared
to $92.4 million in 2012 and $94.9 million in 2011. Other income in 2012
included $22.2 million related to the gain on the sale of the Vision business.
Other income in 2011 included $28.8 million related to net gains on the sale
of investment securities. Excluding these gains, other income was $70.2 million
and $66.1 million in 2012 and 2011, respectively. The increase in other income
to $73.3 million in 2013, compared to $70.2 million excluding the gain on the
sale of the Vision business in 2012 was primarily due to a $1.2 million increase
in income from fiduciary activities and a $3.7 million decline in OREO devalua-
tions, offset by a $1.3 million decline in gain on the sale of OREO, net. The
increase in other income to $70.2 million excluding the gain on the sale of the
Vision business in 2012, compared to $66.1 million excluding the net gain on
the sale of securities in 2011 was primarily due to a $1.0 million increase in
income from fiduciary activities, a $3.0 million increase in other service
income and a $1.3 million decline in OREO devaluations, offset by a $1.6
million decline in service charges on deposits and a $2.1 million decline
in miscellaneous other income.
The following table displays total other income for Park in 2013, 2012 and
2011.
Table 15 – Other Income
Year Ended December 31,
(In thousands)
Income from fiduciary activities
Service charges on deposits
Gain on sale of Vision business
Net gains on sales of securities
Other service income
Checkcard fee income
Bank owned life insurance income
ATM fees
Gain on the sale of OREO, net
OREO devaluations
Miscellaneous
Total other income
2013
$17,133
16,316
—
—
12,913
12,955
5,041
2,632
3,110
(3,180)
6,357
2012
$15,947
16,704
22,167
—
13,631
12,541
4,754
2,359
4,414
(6,872)
6,758
2011
$14,965
18,307
—
28,829
10,606
12,496
5,089
2,703
1,312
(8,219)
8,822
$73,277
$92,403
$94,910
The following table breaks out the change in total other income for the year
ended December 31, 2013 compared to the year ended December 31, 2012
and for the year ended December 31, 2012 compared to the year ended
December 31, 2011 between Park’s Ohio-based operations and SEPH/Vision.
Table 16 – Other Income Breakout
(In thousands)
Income from fiduciary
activities
Service charges
on deposits
Gain on sale of
Vision business
Net gains on sales
of securities
Other service income
Checkcard fee income
Bank owned life
insurance income
ATM fees
Gain on the sale
of OREO, net
OREO devaluations
Miscellaneous
Change from 2012 to 2013
Ohio-based SEPH/
Operations
VB
Total
Change from 2011 to 2012
SEPH/
VB
Ohio-based
Operations
Total
$ 1,189 $
(3) $ 1,186
$ 1,106
$ (124) $
982
(234)
(154)
(388)
(615)
(988)
(1,603)
— (22,167)
(22,167)
— 22,167
22,167
—
(620)
532
305
282
—
(98)
(118)
(18)
(9)
—
(718)
414
287
273
(655)
(1,282)
832
(649)
4,974
(1,233)
(1,304)
3,692
(401)
(23,634)
4,499
802
(5,195)
(1,474)
(757)
(28,829)
3,025
45
(240)
(282)
176
(289)
(1,883)
(95)
(62)
2,926
1,636
(181)
(335)
(344)
3,102
1,347
(2,064)
Total other income
$ 349 $(19,475) $(19,126)
$(20,360) $17,853 $ (2,507)
34
Income from fiduciary activities increased by $1.2 million, or 7.4%, to $17.1
million in 2013, and increased by $1.0 million or 6.6% to $15.9 million in
2012. The increases in fiduciary fee income in 2013 and 2012 were primarily
due to improvements in the equity markets and also due to an increase in the
total accounts served by PNB’s Trust Department. PNB charges fiduciary fees
largely based on the market value of the assets being managed. The average
market value of the trust assets that PNB manages was $3.86 billion at
December 31, 2013, compared to $3.52 billion at December 31, 2012
and $3.38 billion at December 31, 2011.
Service charges on deposit accounts decreased by $388,000, or 2.3%, to $16.3
million in 2013, and decreased by $1.6 million or 8.8% to $16.7 million in
2012. The decrease in 2012 was primarily due to the sale of the Vision business
on February 16, 2012, which resulted in a $1.0 million decrease in services
charges on deposits in 2012 compared to 2011. The balance of the decline
in 2012 of approximately $615,000 and the decline in 2013 of $388,000 was
related to declines in service charges on deposits within Park’s Ohio-based
operations, largely as a result of a decrease in fee income from overdraft
charges and other non-sufficient funds (NSF) charges. Park’s customers did
not use our courtesy overdraft program as frequently in 2012 and 2013.
As previously discussed, on February 16, 2012, Park completed the sale of the
Vision business for a purchase price of $27.9 million. As a result of the trans -
action, Park recorded a pre-tax gain of $22.2 million (after actual expenses
directly related to the transaction). This gain on sale was recognized at Vision
prior to the merger of Vision (as constituted after the sale) with and into SEPH.
There were no sales of investments securities in 2012 and the sale of $75.0
million of investments in 2013 was made at par value for no gain or loss. Park
recognized net gains from the sale of investment securities of $28.8 million in
2011. The majority of the investment securities sold in 2011, with an amortized
cost of $579.2 million, were U.S. Government sponsored entities’ mortgage-
backed securities. The remaining investment securities sold in 2011 were
municipal securities.
Fee income earned from origination and sale into the secondary market
of long-term, fixed-rate mortgage loans is included within other non-yield
related fees in the subcategory “Other service income”. Other service income
decreased $718,000, or 5.3%, to $12.9 million in 2013, and increased by $3.0
million, or 28.5%, to $13.6 million in 2012. The decrease or increase in other
service income in 2013, or 2012, respectively, was primarily due to a corre-
sponding decrease or increase in the amount of mortgage loans originated and
sold. Other service income for Park’s Ohio-based operations increased $4.5
million in 2012. This increase was offset by a $1.5 million decline in other
service income for the combined SEPH/VB as a result of the sale of the Vision
business. The amount of fixed-rate mortgage loans originated and sold in 2013
was $288 million, compared to $409 million in 2012 and $190 million in
2011. As previously discussed, Park began to originate and retain 15-year,
fixed-rate residential mortgages in August 2010, which resulted in fewer loans
being sold in the secondary market. The balance of 15-year, fixed-rate resi -
dential mortgage loans retained was $612 million at December 31, 2013, an
increase of $141 million compared to $471 million at December 31, 2012.
Checkcard fee income, which is generated from debit card transactions,
increased $414,000, or 3.3%, to $13.0 million in 2013, compared to $12.5
million in both 2012 and 2011. The increase in 2013 was attributable to con -
tinued increases in the volume of debit card transactions. In 2012, increases
in checkcard fee income of $802,000 for Park’s Ohio-based operations were
offset by a decline of $757,000 for SEPH/VB following the sale of the Vision
business.
PNC_AR2013_FINAL_1 2/18/14 6:09 PM Page 16
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
Gain on the sale of OREO, net, totaled $3.1 million in 2013, a decrease of $1.3
million, compared to $4.4 million in 2012. The table below provides details on
the OREO sales at PNB and SEPH in 2013 and 2012.
Table 17 – Sales of OREO
(In thousands)
OREO
Properties
Sold
Book
Balance of
OREO Sold
Net
Proceeds of
OREO Sold
2013:
PNB
SEPH
Total
2012:
PNB
SEPH
Total
111
104
215
115
88
203
$ 9,527
10,369
$19,896
$ 8,814
14,519
$23,333
$10,161
12,882
$23,043
$ 9,307
17,681
$26,988
Gain on
Sale (1)
$ 634
2,513
$3,147
$ 493
3,162 (2)
$3,655
(1) The gain on sale amounts above do not include any deferred gains on sale.
(2) The gain on sale above does not include gains on the transfer of OREO from Vision to
SEPH which are included in the Consolidated Statement of Income for the year ended
December 31, 2012. The properties were sold to SEPH at fair value in accordance with
regulatory requirements.
OREO devaluations, which result from declines in the fair value (less antici-
pated selling costs) of property acquired through foreclosure, totaled $3.2
million in 2013, a decrease of $3.7 million or 53.7% compared to $6.9 million
in 2012. The OREO devaluations in 2013 related primarily to OREO at PNB. Of
the $3.2 million in OREO devaluations in 2013, $2.6 million were related to
devaluations at PNB. The OREO devaluations in 2012 related primarily to other
real estate owned at SEPH. Of the $6.9 million in OREO devaluations in 2012,
$5.6 million were related to devaluations recognized at SEPH.
Other Expense: Total other expense was $188.5 million in 2013, compared
to $188.0 million in 2012, and $188.3 million in 2011. Total other expense
increased by $561,000, or 0.3%, in 2013, and decreased by $349,000, or
0.2%, in 2012. The following table displays total other expense for Park in
2013, 2012 and 2011.
Table 18 – Other Expense
Year Ended December 31,
(In thousands)
Salaries and employee benefits
Data processing fees
Professional fees and services
Net occupancy expense of bank premises
Furniture and equipment expense
Insurance
Marketing
Postage and telephone
Intangible amortization expense
State taxes
Loan put provision
OREO expense
Miscellaneous
Total other expense
Full time equivalent employees
2013
$100,298
4,174
27,865
9,804
11,249
5,205
3,790
5,790
337
3,702
—
2,731
13,584
$188,529
1,836
2012
$ 95,977
3,916
24,267
9,444
10,788
5,780
3,474
5,983
2,172
3,786
3,299
4,011
15,071
$187,968
1,826
2011
$102,068
4,965
21,119
11,295
10,773
6,821
2,967
6,060
3,534
1,544
—
3,266
13,905
$188,317
1,920
The following table breaks out the change in total other expense for the year
ended December 31, 2013 compared to the year ended December 31, 2012
and for the year ended December 31, 2012 compared to the year ended
December 31, 2011 in each of Park’s Ohio-based operations and SEPH/Vision.
Table 19 – Other Expense Breakout
(In thousands)
Salaries and
employee benefits
Data processing fees
Professional fees
and services
Net occupancy
expense of bank
premises
Furniture and
equipment expense
Insurance
Marketing
Postage and telephone
Intangible amortization
expense
State taxes
Loan put provision
OREO expense
Miscellaneous
Total other
expense
Change from 2012 to 2013
Ohio-based
Operations
SEPH/
VB
Total
Change from 2011 to 2012
SEPH/
VB
Ohio-based
Operations
Total
$ 6,710
500
$(2,389)
(242)
$ 4,321
258
$ 2,911 $ (9,002)
(1,466)
417
$(6,091)
(1,049)
5,027
(1,429)
3,598
1,589
1,559
3,148
676
(316)
360
(85)
(1,766)
(1,851)
529
(433)
338
(57)
(68)
(142)
(22)
(136)
(1,615)
(220)
(36)
(48)
— (3,299)
(871)
755
(409)
(2,242)
461
(575)
316
(193)
(1,835)
(84)
(3,299)
(1,280)
(1,487)
850
(197)
720
203
(835)
(844)
(213)
(280)
— (1,362)
—
3,299
(5)
488
2,242
—
750
678
15
(1,041)
507
(77)
(1,362)
2,242
3,299
745
1,166
$10,383
$(9,822)
$ 561
$10,078 $(10,427)
$ (349)
Salaries and employee benefits expense increased by $4.3 million, or 4.5%,
to $100.3 million in 2013, and decreased by $6.1 million or 6.0% to $96.0
million in 2012. The increase in 2013 was due to an increase of $2.6 million
in salary expense, an increase of $1.5 million in group medical insurance, and
an $831,000 increase in retirement benefit expense. The decrease in 2012 was
primarily related to a decrease of $9.0 million at SEPH/VB due to the sale of
the Vision business on February 16, 2012, offset by a $2.9 million increase
in salaries and employee benefits for Park’s Ohio-based operations. Park had
1,836 full-time equivalent employees at year-end 2013, compared to 1,826
at year-end 2012 and 1,920 at year-end 2011.
Professional fees and services increased by $3.6 million, or 14.8%, to $27.9
million in 2013, and increased by $3.1 million or 14.9% to $24.3 million in
2012. This subcategory of total other expense includes legal fees, management
consulting fees, director fees, audit fees, regulatory examination fees and
memberships in industry associations. The increase in fees and services
expense in each of 2012 and 2013 was primarily due to increases in legal and
consulting fees at both PNB and SEPH, although SEPH realized a modest decline
in 2013 from the level in 2012.
Net occupancy expense increased by $360,000, or 3.8%, to $9.8 million
in 2013 and decreased by $1.9 million, or 16.4%, to $9.4 million in 2012.
The increase in 2013 was primarily due to higher maintenance costs on
buildings, while the reduction in 2012 was due largely to the sale of the
Vision business.
Insurance expense declined by $575,000, or 9.9%, to $5.2 million in 2013,
and declined by $1.0 million or 15.3% to $5.8 million in 2012. The decline
in 2013 was primarily due to a decline in FDIC insurance premiums. The
decline in 2012 was primarily the result of lower insurance expense at
SEPH/VB following the sale of the Vision business, which eliminated the FDIC
insurance expense for the Vision subsidiary. The remaining decline in 2012
was the result of the full year impact of the new FDIC assessment methodology
utilizing total assets less tangible equity, which went into effect in the third
quarter of 2011.
35
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
The table below provides additional information on the provision for loan
losses and the ALLL for Park’s Ohio-based subsidiaries for 2013, 2012 and
2011.
Table 20 – ALLL Information – Park’s Ohio-based Subsidiaries
(In thousands)
ALLL, beginning
Charge-offs:
Ohio-based loans
PNB participations in Vision loans
Total charge-offs
Recoveries:
Ohio-based loans
PNB participations in Vision loans
Total recoveries
Net charge-offs
Provision for (recovery of) loan losses:
Ohio-based loans
PNB participations in Vision loans
Total provision for loan losses
ALLL, ending
Average loans, Ohio-based operations
Total net charge-offs as a percentage of
average loans
Total Ohio-based net charge-offs as
a percentage of average loans
2013
2012
2011
$
55,537
$
57,706
$
74,639
16,809
131
16,940
(4,942)
(715)
(5,657)
11,283
16,095
(881)
15,214
21,786
3,549
25,335
(5,618)
(10)
(5,628)
19,707
14,170
3,368
17,538
37,434
18,085
55,519
(6,366)
—
(6,366)
49,153
21,168
11,052
32,220
$
59,468
$
55,537
$
57,706
$4,467,156
$4,277,355
$4,131,289
0.25%
0.25%
0.46%
0.38%
1.19%
0.75%
The provision for (recovery of) loan losses for SEPH was $(11.8) million for
2013. The provision for loan losses, including those provisions recorded at
Vision prior to the February 16, 2012 merger of Vision with and into SEPH,
was $17.9 million in 2012. The provision for loan losses for Vision was $31.1
million in 2011. The provision for (recovery of) loan losses at SEPH in 2013
was entirely based on the net recoveries at SEPH of $11.8 million. The net
recoveries in 2013 consisted of charge-offs of $2.2 million and recoveries
of $14.0 million.
On February 16, 2012, when Vision merged with and into SEPH, the loans
which had been retained by Vision were transferred by operation of law at their
fair market value and no allowance for loan loss has been or will be carried at
SEPH. The table below provides additional information regarding charge-offs
as a percentage of unpaid principal balance, as of December 31, 2013.
Table 21 – SEPH – Retained Vision Loan Portfolio
Charge-offs as a percentage of unpaid principal balance
December 31, 2013
(In thousands)
Unpaid
Principal Balance
Charge-
offs
Net Book
Balance
Charge-off
Percentage
Nonperforming loans –
retained by SEPH
Performing loans –
retained by SEPH
$76,014
$39,906
$36,108
52.50%
Total SEPH loan exposure
$78,077
$40,063
$38,014
2,063
157
1,906
7.61%
51.31%
Generally, management obtains updated appraisal information for non -
performing loans annually. As new appraisal information is received,
management performs an evaluation of the appraisal and applies a discount
for anticipated disposition costs to determine the net realizable value of the
collateral, which is compared to the outstanding principal balance to determine
if additional write-downs are necessary.
As part of the transaction between Vision and Centennial, Park agreed to allow
Centennial to “put back” up to $7.5 million aggregate principal amount of
loans, which were originally included within the loans sold in the transaction.
The loan put option expired on August 16, 2012, 180 days after the closing of
the transaction. In total, Centennial put back forty-four loans, totaling approxi-
mately $7.5 million. Upon repurchase, Park was required to charge each of the
repurchased loans down to its then current fair value. Park recognized $3.3
million of loan put provision expense in 2012 to establish a liability account
that was utilized to cover write downs on the forty-four loans repurchased
from Centennial.
The subcategory “Miscellaneous” other expense includes expenses for
supplies, travel, charitable contributions, amortization of low income housing
tax investments and other miscellaneous expense. The subcategory miscella-
neous other expense decreased by $1.5 million, or 9.9%, to $13.6 million in
2013, and increased by $1.2 million or 8.4% in 2012. The $1.5 million decline
in 2013 was largely due to the reversal of a $1.5 million liability for potential
credit loss exposure related to certain off-balance sheet arrangements in the
Ohio-based operations, which had previously been established in 2012.
Income Taxes: Federal income tax expense was $25.1 million in 2013,
compared to $25.7 million in 2012, and $28.3 million in 2011. Federal
income tax expense as a percentage of income before taxes, adjusted for the
state income tax expense or benefit, was 24.6% in 2013, 24.6% in 2012, and
25.6% in 2011. The difference between the statutory federal income tax rate
of 35% and Park’s effective tax rate is the permanent tax differences, primarily
consisting of tax-exempt interest income from municipal investments and
loans, low income housing tax credits, bank owned life insurance income,
and dividends paid on shares held within Park’s salary deferral plan. Park’s
permanent tax differences for 2013 were approximately $11.2 million.
State income tax expense was zero in 2013 and 2012 and $6.1 million in
2011. All of the state income tax expense pertains to Vision, as Park and its
Ohio-based subsidiaries do not pay state income tax to the state of Ohio, but pay
franchise tax based on year-end equity. The franchise tax expense is included in
“state taxes” as part of total other expense on Park’s Consolidated Statements of
Income. Park recognized $6.1 million in state tax expense during 2011, which
was the charge necessary to write off the previously reported state operating
loss carry-forward asset and other state deferred tax assets at Vision.
CREDIT EXPERIENCE
Provision for Loan Losses: The provision for loan losses is the amount
added to the allowance for loan losses to ensure the allowance is sufficient to
absorb probable, incurred credit losses. The amount of the loan loss provision
is determined by management after reviewing the risk characteristics of the
loan portfolio, historic and current loan loss experience and current economic
conditions.
The provision for loan losses for Park was $3.4 million in 2013, $35.4 million
in 2012 and $63.3 million in 2011. Net loan charge-offs (recoveries) were
($516,000) in 2013, $48.3 million in 2012, and $125.1 million in 2011. Net
loan charge-offs for the year ended December 31, 2012 included the charge-off
of $12.1 million related to the retained Vision loans to bring the retained Vision
loan portfolio to fair value prior to the merger of Vision with and into SEPH on
February 16, 2012. The ratio of net loan charge-offs (recoveries) to average
loans was (0.01)% in 2013, 1.10% in 2012, and 2.65% in 2011.
36
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M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
At year-end 2013, the allowance for loan losses was $59.5 million or 1.29%
of total loans outstanding, compared to $55.5 million or 1.25% of total loans
outstanding at year-end 2012, and $68.4 million or 1.59% of total loans out-
standing at year-end 2011. The table below provides additional information
related to specific reserves on impaired commercial loans and general reserves
for all other loans in Park’s portfolio at December 31, 2013, 2012 and 2011.
Table 22 – General Reserve Trends – Park
Year Ended December 31,
(In thousands)
2013
2012
Allowance for loan losses, end of period
$ 59,468
$ 55,537
Specific reserves
General reserves
Total loans
Impaired commercial loans
Non-impaired loans
Allowance for loan losses as a percentage
of period end loans
General reserves as a percentage
of non-impaired loans
2011
68,444
15,935
52,509
$
$
10,451
8,276
$ 49,017
$ 47,261
$4,620,505
$4,450,322
$4,317,099
112,304
137,238
187,074
$4,508,201
$4,313,084
$4,130,025
1.29%
1.25%
1.59%
1.09%
1.10%
1.27%
General reserves as a percentage of non-impaired loans were 1.09% at
December 31, 2013, down one basis point from the 1.10% at December 31,
2012. The decline in general reserves as a percentage of non-impaired loans
from 1.27% at December 31, 2011 to 1.10% at December 31, 2012 was pri -
marily due to (1) the elimination of general reserves held against the retained
Vision performing loans that are held at SEPH and (2) improving credit trends
in the commercial loan portfolio for Park’s Ohio-based operations (PNB and
GFSC). Table 23 below provides additional information regarding the decline
in general reserves as a percentage of non-impaired loans.
The following table shows the improving credit trends in Park’s Ohio-based
operations’ commercial loan portfolio:
Table 23 – Park Ohio – Commercial Credit Trends
Year Ended December 31,
(In thousands)
2013
2012
2011
Commercial loans*
Pass rated
Special mention
Substandard
Impaired
Total
$2,311,914
26,361
2,687
77,038
$2,225,702
49,275
16,843
89,365
$2,131,007
66,254
29,604
95,109
$2,418,000
$2,381,185
$2,321,974
*Commercial loans include: (1) Commercial, financial and agricultural loans, (2) Commercial
real estate loans, (3) Commercial related loans in the construction real estate portfolio and
(4) Commercial related loans in the residential real estate portfolio.
The commercial loan table above demonstrates the improvement experienced
over the last 24 months in Park’s Ohio-based operations’ commercial loan
portfolio. Pass rated commercial loans have grown $180.9 million, or 8.5%
since December 31, 2011. Over this same period, special mention loans have
declined by $39.9 million, or 60.2% and substandard loans have declined by
$26.9 million, or 90.9%. These improved credit metrics in the special mention
and substandard categories of the commercial loan portfolio have a significant
impact on the general reserves that are established to cover probable incurred
losses on performing commercial loans. As these metrics have improved over
the past 24 months, general reserves related to special mention and substan-
dard commercial loans declined from $7.8 million at December 31, 2011, to
$4.2 million at December 31, 2012, and to $1.6 million at December 31, 2013.
Delinquent and accruing loan trends for Park’s Ohio-based operations have
also improved over the past 24 months. Delinquent and accruing loans were
$32.0 million or 0.70% of total loans at December 31, 2013, compared to
$39.6 million (0.90%) at December 31, 2012 and $40.1 million (0.96%)
at December 31, 2011.
Impaired commercial loans for Park’s Ohio-based operations were $77.0
million as of December 31, 2013, a reduction from the balance of impaired
commercial loans of $89.4 million and $95.1 million at December 31, 2012
and 2011, respectively. The $77.0 million of impaired commercial loans at
December 31, 2013 included $3.5 million of loans modified in a troubled
debt restructuring which are currently on accrual status and performing in
accordance with the restructured terms. Impaired commercial loans are
individually evaluated for impairment and specific reserves are established to
cover any probable incurred losses for those loans that have not been charged
down to the net realizable value of the underlying collateral or to the net
present value of expected cash flows.
Management believes that the allowance for loan losses at year-end 2013 is
adequate to absorb probable incurred credit losses in the loan portfolio. See
Note 1 of the Notes to Consolidated Financial Statements and the discussion
under the heading “Critical Accounting Policies” earlier in this Management’s
Discussion and Analysis for additional information on management’s evaluation
of the adequacy of the allowance for loan losses.
The table below provides a summary of the loan loss experience over the
past five years:
Table 24 – Summary of Loan Loss Experience
(In thousands)
2013
2012
2011
2010
2009
Average loans
(net of unearned
interest)
Allowance for
loan losses:
Beginning balance
Charge-offs:
Commercial, financial
and agricultural
Real estate –
construction
Real estate –
residential
Real estate –
commercial
Consumer
Leases
$4,514,781 $4,410,661 $4,713,511 $4,642,478 $4,594,436
55,537
68,444
143,575
116,717
100,088
6,160
26,847
18,350
8,484
10,047
1,791
9,985
64,166
23,308
21,956
3,207
8,607
20,691
18,401
11,765
1,832
6,163
—
10,454
5,375
—
23,063
7,612
—
7,748
8,373
—
5,662
9,583
9
Total charge-offs
$19,153 $
61,268 $ 133,882 $ 66,314 $
59,022
Recoveries:
Commercial, financial
and agricultural
Real estate –
construction
Real estate –
residential
Real estate –
commercial
Consumer
Leases
$1,314 $
1,066 $ 1,402 $
1,237 $
1,010
9,378
2,979
1,463
813
1,322
6,000
5,559
1,719
1,429
1,723
726
2,249
2
783
2,555
—
1,825
2,385
4
850
1,763
—
771
2,001
3
6,830
Total recoveries
$19,669 $ 12,942 $ 8,798 $
6,092 $
Net charge-offs
(recoveries)
Provision charged
to earnings
Transfer of loans
at fair value
Allowance for loan
losses acquired
(transferred) related
to Vision
$ (516) $ 48,326 $ 125,084 $ 60,222 $
52,192
3,415
35,419
63,272
87,080
68,821
—
—
—
(219)
—
(13,100)
—
—
—
—
Ending balance
$59,468 $ 55,537 $ 68,444 $ 143,575 $ 116,717
Ratio of net charge-offs
(recoveries) to average
loans (0.01)%
Ratio of allowance for
loan losses to end
of year loans
1.10%
2.65%
1.30%
1.14%
1.29%
1.25%
1.59%
3.03%
2.52%
37
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M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
The following table summarizes the allocation of the allowance for loan losses
for the past five years:
Table 25 – Allocation of Allowance for Loan Losses
December 31,
2013
2012
2011
2010
2009
Percent of
Loans Per
(In thousands) Allowance Category Allowance Category Allowance Category Allowance Category
Percent of
Loans Per
Percent of
Loans Per
Percent of
Loans Per
Percent of
Loans Per
Allowance Category
Commercial,
financial
and
agricultural
Real estate –
construction
Real estate –
residential
Real estate –
commercial
Consumer
Leases
$14,218
17.87% $15,635
18.51% $16,950
17.23% $ 11,555
15.59% $ 14,725
16.19%
6,855
3.38%
6,841
3.72%
14,433
5.04%
70,462
8.59%
47,521
10.68%
14,251
38.95%
14,759
38.51%
15,692
37.72%
30,259
35.75%
19,753
33.51%
15,899
8,245
24.07%
15.66%
— 0.07%
11,736
6,566
24.54%
14.65%
— 0.07%
15,539
5,830
25.68%
14.28%
— 0.05%
24,369
6,925
5
25.92%
14.09%
0.06%
23,970
10,713
35
24.37%
15.18%
0.07%
Total
$59,468 100.00% $55,537 100.00% $68,444 100.00% $143,575 100.00% $116,717 100.00%
As of December 31, 2013, Park had no significant concentrations of loans to
borrowers engaged in the same or similar industries nor did Park have any
loans to foreign governments.
Nonperforming Assets: Nonperforming loans include: 1) loans whose
interest is accounted for on a nonaccrual basis; 2) troubled debt restructurings
(TDRs) on accrual status; and 3) loans which are contractually past due 90
days or more as to principal or interest payments , where interest continues
to accrue. Prior to Park’s adoption of Accounting Standards Update (ASU)
2011-02, Park classified all TDRs as nonaccrual loans. With the adoption of
ASU 2011-02, management determined it was appropriate to return certain
TDRs to accrual status. Specifically, if the restructured note has been current
for a period of at least six months, and management expects the borrower will
remain current throughout the renegotiated contract, the loan may be returned
to accrual status. OREO results from taking possession of property that served
as collateral for a defaulted loan.
The following is a summary of Park’s nonaccrual loans, accruing TDRs, loans
past due 90 days or more and still accruing and other real estate owned for
the last five years:
Table 26 – Park – Nonperforming Assets
December 31,
(In thousands)
Nonaccrual loans
Accruing TDRs
Loans past due 90 days
or more and accruing
Total nonperforming
loans
Other real estate owned –
PNB
Other real estate owned –
Vision
Other real estate owned –
SEPH
Total nonperforming
assets
Percentage of
nonperforming loans
to total loans
Percentage of
nonperforming assets
to total loans
Percentage of
nonperforming assets
to total assets
2013
2012
2011
2010
2009
$135,216
18,747
$155,536
29,800
$195,106
28,607
$289,268
—
$233,544
142
1,677
2,970
3,489
3,590
14,773
$155,640
$188,306
$227,202
$292,858
$248,459
11,412
14,715
13,240
8,385
6,037
—
—
—
33,324
35,203
23,224
21,003
29,032
—
—
$190,276
$224,024
$269,474
$334,567
$289,699
3.37%
4.23%
5.26%
6.19%
5.35%
4.12%
5.03%
6.24%
7.07%
6.24%
2.87%
3.37%
3.86%
4.59%
4.11%
38
Tax equivalent interest income from loans for 2013 was $226.8 million. Park
has forgone interest income of approximately $8.7 million from nonaccrual
loans as of December 31, 2013 that would have been earned during the year
if all loans had performed in accordance with their original terms.
SEPH and Vision nonperforming assets for the last five years were as follows:
Table 27 – SEPH/Vision – Nonperforming Assets
December 31,
(In thousands)
Nonaccrual loans
Accruing TDRs
Loans past due 90 days
or more and accruing
2013
2012
2011
2010
2009
$36,108
—
$55,292
—
$ 98,993
2,265
$171,453
—
$148,347
—
—
—
122
364
11,277
Total nonperforming loans
$36,108
$55,292
101,380
171,817
159,624
Other real estate owned – SEPH
Other real estate owned – Vision
23,224
—
21,003
—
29,032
—
—
33,324
—
35,203
Total nonperforming assets
$59,332
$76,295
$130,412
$205,141
$194,827
Percentage of
nonperforming loans
to total loans
Percentage of
nonperforming assets
to total loans
Percentage of
nonperforming assets
to total assets
N.M. – Not meaningful
N.M.
N.M.
N.M.
26.82%
23.58%
N.M.
N.M.
N.M.
32.02%
28.78%
N.M.
N.M.
N.M.
25.90%
21.70%
Nonperforming assets for Park, excluding SEPH/Vision, for the last five years
were as follows:
Table 28 – Park Excluding SEPH/Vision – Nonperforming Assets
December 31,
(In thousands)
Nonaccrual loans
Accruing TDRs
Loans past due 90 days
or more and accruing
Total nonperforming
loans
Other real estate owned –
PNB
Total nonperforming
assets
Percentage of
nonperforming loans
to total loans
Percentage of
nonperforming assets
to total loans
Percentage of
nonperforming assets
to total assets
2013
2012
2011
2010
2009
$ 99,108
18,747
$100,244
29,800
$ 96,113
26,342
$117,815
—
$85,197
142
1,677
2,970
3,367
3,226
3,496
$119,532
$133,014
$125,822
$121,041
$88,835
11,412
14,715
13,240
8,385
6,037
$130,944
$147,729
$139,062
$129,426
$94,872
2.61%
3.03%
3.00%
2.96%
2.24%
2.86%
3.36%
3.32%
3.16%
2.39%
2.00%
2.26%
2.21%
1.99%
1.54%
Park had $29.0 million of commercial loans included on the watch list at
December 31, 2013 compared to $68.3 million at year-end 2012 and $134.5
million at year-end 2011. Commercial loans include: (1) commercial, financial
and agricultural loans, (2) commercial real estate loans, (3) certain real estate
construction loans, and (4) certain residential real estate loans. Park’s watch
list includes all criticized and classified commercial loans, defined by Park as
loans rated special mention or worse, less those commercial loans currently
considered to be impaired. As a percentage of year-end total loans, Park’s
watch list of potential problem loans was 0.6% in 2013, 1.5% in 2012 and
3.1% in 2011. The existing conditions of these loans do not warrant class -
ification as non accrual. However, these loans have shown some weakness
and management performs additional analyses regarding a borrower’s ability
to comply with payment terms for watch list loans.
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M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
Park’s allowance for loan losses includes an allocation for loans specifically
identified as impaired under GAAP. At December 31, 2013, loans considered
to be impaired consisted substantially of commercial loans graded as “sub -
standard” or “doubtful” and placed on non-accrual status. Specific reserves
on impaired commercial loans are typically based on management’s best esti-
mate of the fair value of collateral securing these loans. The amount ultimately
charged off for these loans may be different from the specific reserve as the
ultimate liquidation of the collateral may be for amounts different from
management’s estimates.
When determining the quarterly and annual loan loss provision, Park reviews
the grades of commercial loans. These loans are graded from 1 to 8. A grade
of 1 indicates little or no credit risk and a grade of 8 is considered a loss.
Commercial loans with grades of 1 to 4.5 (pass-rated) 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. Commercial loans graded 6 (substandard), also
considered watch list credits, are considered to represent higher credit risk
and, as a result, a higher loan loss reserve percentage is allocated to these
loans. Generally, commercial loans that are graded a 6 are considered for
partial charge-off or have been charged down to the net realizable value of
the underlying collateral. Commercial loans that are graded a 7 (doubtful)
are shown as nonperforming and Park charges these loans down to their
fair value by taking a partial charge-off or recording a specific reserve. Any
commercial loan graded an 8 (loss) is completely charged off.
As of December 31, 2013, management had taken partial charge-offs of
approximately $63.3 million related to the $112.3 million of commercial
loans considered to be impaired, compared to charge-offs of approximately
$105.1 million related to the $137.2 million of impaired commercial loans at
December 31, 2012. The table below provides additional information related
to Park’s impaired commercial loans at December 31, 2013, including those
impaired commercial loans at PNB, impaired PNB participations in Vision loans
and those impaired Vision commercial loans (commercial land and develop-
ment (“CL&D”) and other commercial) retained at SEPH.
Table 29 – Park Impaired Commercial Loans
December 31, 2013
(In thousands)
PNB
PNB participations
in VB loans
SEPH – CL&D loans
SEPH – other loans
Unpaid
Principal
Balance
(UPB)
Prior
Charge-
offs
Total
Impaired
Loans
Specific
Reserve
Carrying
Balance
Carrying
Balance
as a
% of UPB
$ 74,716
$ 9,982
$ 64,734 $10,451
$ 54,283
72.65%
26,358
23,721
50,781
14,054
18,944
20,292
12,304
4,777
30,489
—
—
—
12,304
4,777
30,489
46.68%
20.14%
60.04%
Total Park
$175,576
$63,272
$112,304 $10,451
$101,853
58.01%
A significant portion of Park’s allowance for loan losses is allocated to com mer-
cial loans. “Special mention” loans are loans that have potential weaknesses
that may result in loss exposure to Park. “Substandard” loans are those that
exhibit a well-defined weakness, jeopardizing repayment of the loan, resulting
in a higher probability that Park will suffer a loss on the loan unless the weak-
ness is corrected. Park’s annualized 60-month loss experience, defined as
charge-offs plus changes in specific reserves, within the commercial loan
portfolio has been 0.66% of the principal balance of these loans. This annual-
ized 60-month loss experience includes only the performance of the PNB loan
portfolio. The allowance for loan losses related to performing commercial
loans was $31.5 million or 1.35% of the outstanding principal balance of
other accruing commercial loans at December 31, 2013.
The overall reserve of 1.35% for other accruing commercial loans breaks down
as follows: pass-rated commercial loans are reserved at 1.29%; special mention
commercial loans are reserved at 5.10%; and substandard commercial loans
are reserved at 9.01%. The reserve levels for pass-rated, special mention and
substandard commercial loans in excess of the annualized 60-month loss
experience of 0.66% are due to the following factors which management
reviews on a quarterly or annual basis:
■ Loss Emergence Period Factor: Annually during the fourth quarter,
management calculates the loss emergence period for each commercial
loan segment. This loss emergence period is calculated based upon the
average period of time it takes a credit to move from pass-rated to non -
accrual. If the loss emergence period for any commercial loan segment is
greater than one year, management applies additional general reserves to
all performing loans within that segment of the commercial loan portfolio.
■ Loss Migration Factor: Park’s commercial loans are individually risk
graded. If loan downgrades occur, the probability of default increases,
and accordingly, management allocates a higher percentage reserve to
those accruing commercial loans graded special mention and substan-
dard. Annually, management calculates a loss migration factor for each
commercial loan segment for special mention and substandard credits
based on a review of losses over the past five-year period, considering
how each individual credit was rated at the beginning of the five-year
period.
■ Environmental Loss Factor: Management has identified certain
macroeconomic factors that trend in accordance with losses in Park’s
commercial loan portfolio. These macroeconomic factors are reviewed
quarterly and the adjustments made to the environmental loss factor
impacting each segment in the performing commercial loan portfolio
correlate to changes in the macroeconomic environment.
Generally, consumer loans are not individually graded. Consumer loans include:
(1) mortgage and installment loans included in the construction real estate
segment of the loan portfolio; (2) mortgage, home equity lines of credit
(HELOC), and installment loans included in the residential real estate segment
of the loan portfolio; and (3) all loans included in the consumer segment of the
loan portfolio. The amount of loan loss reserve assigned to these loans is based
on historical loss experience over the past 60 months. Management generally
considers a one-year coverage period (the “Historical Loss Factor”) appro -
priate because the probable loss on any given loan in the consumer loan pool
should ordinarily become apparent in that time frame. However, management
may incorporate adjustments to the Historical Loss Factor as circumstances
warrant additional reserves (e.g., increased loan delinquencies, improving
or deteriorating economic conditions, changes in lending management and
underwriting standards, etc.). At December 31, 2013, the coverage level
within the consumer portfolio was approximately 1.68 years.
The judgmental increases discussed above incorporate management’s
evaluation of the impact of environmental qualitative factors which pose
additional risks and assign a component of the allowance for loan losses in
consideration of these factors. Such environmental factors include: national
and local economic trends and conditions; experience, ability and depth of
lending management and staff; effects of any changes in lending policies and
procedures; levels of, and trends in, consumer bankruptcies, delinquencies,
impaired loans and charge-offs and recoveries. The determination of this
component of the allowance for loan losses requires considerable management
judgment. Management is working to address weaknesses in those loans that
may result in future loss. Actual loss experience may be more or less than the
amount allocated.
CAPITAL RESOURCES
Liquidity and Interest Rate Sensitivity Management: Park’s objective in
managing its liquidity is to maintain the ability to continuously meet the cash
flow needs of customers, such as borrowings or deposit withdrawals, while at
the same time seeking higher yields from longer-term lending and investing
activities.
Cash and cash equivalents decreased by $54.3 million during 2013 to $147.0
million at year-end. Cash provided by operating activities was $114.6 in 2013,
$105.2 million in 2012, and $123.5 million in 2011. Net income was the
primary source of cash for operating activities during each year.
39
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Cash used in investing activities was $106.7 million in 2013 and $194.7
million in 2012. Cash provided by investing activities was $274.4 million in
2011. Investment security transactions are the major use or source of cash in
investing activities. Proceeds from the sale, repayment or maturity of securities
provide cash and purchases of securities use cash. Net security transactions
provided cash of $96.9 million in 2013, $120.6 million in 2012, and $354.8
million in 2011. Another major use or source of cash in investing activities is
the net increase or decrease in the loan portfolio. Cash used by the net increase
in the loan portfolio was $190.2 million in 2013, $163.1 million in 2012, and
$71.9 million in 2011.
Cash used in financing activities was $62.1 million in 2013, cash provided by
financing activities was $133.4 million in 2012, and cash used in financing
activities was $374.2 million in 2011. A major source of cash for financing
activities is the net change in deposits. Deposits increased and provided $74.0
million of cash in 2013 and $250.9 million of cash in 2012. Deposits decreased
and used $97.7 million of cash in 2011. Another major source of cash for
financing activities is short-term borrowings and long-term debt. In 2013, net
short-term borrowings decreased and used $102.1 million in cash, and net
long-term borrowings increased and provided $24.0 million in cash. In 2012,
net short-term borrowings increased and provided $80.6 million in cash, and
net long-term borrowings decreased and used $40.1 million in cash. In 2011,
net short-term borrowings declined, using $400.1 million in cash and net long-
term borrowings increased, providing $186.4 million in cash. Additionally, in
2012, cash declined by $100.0 million from the repurchase of the Series A
Preferred Shares and $2.8 million from the repurchase of the common share
warrant, both from the U.S. Treasury. Finally, cash declined by $57.9 million
in 2013, $60.2 million in 2012, and $62.9 million in 2011, from the payment
of cash dividends.
Funds are available from a number of sources, including the capital markets,
the investment securities portfolio, the core deposit base, Federal Home Loan
Bank borrowings and the capability to securitize or package loans for sale. In
the opinion of Park’s management the present funding sources provide more
than adequate liquidity for Park to meet its cash flow needs.
The following table shows interest rate sensitivity data for five different time
intervals as of December 31, 2013:
Table 30 – Interest Rate Sensitivity
0-3
Months
3-12
Months
1-3
Years
3-5
Years
Over 5
Years
Total
$
88,618 $
84,322 $ 178,865
$127,588 $ 944,841 $1,424,234
17,952
1,155,568
—
1,168,913
—
1,240,497
—
551,855
—
503,672
17,952
4,620,505
1,262,138
1,253,235
1,419,362
679,443
1,448,513
6,062,691
$ 608,254 $
— $ 537,270
$
— $ — $1,145,524
(In thousands)
Interest earning
assets:
Investment
securities (1)
Money market
instruments
Loans (1)
Total interest
earning
assets
Interest bearing
liabilities:
Interest bearing
transaction
accounts (2)
Savings
accounts (2)
Time deposits
Other
260,854
322,420
—
Total deposits 1,191,528
— 864,140
318,250
—
1,719,660
562,741
1,263
564,004
—
120,302
—
120,302
— 1,124,994
1,324,660
947
1,263
—
3,596,441
947
40
Table 30 – Interest Rate Sensitivity (continued)
0-3
Months
3-12
Months
1-3
Years
3-5
Years
Over 5
Years
Total
$ 242,029
50,000
$
— $ — $
50,500
77,000
— $ — $ 242,029
810,541
176,744
456,297
15,000
35,250
—
30,000
—
80,250
1,498,557
649,754
1,796,660
606,599
177,691
4,729,261
(In thousands)
Short-term
borrowings
Long-term debt
Subordinated
debentures/
notes
Total interest
bearing
liabilities
Interest rate
sensitivity gap
(236,419)
603,481
(377,298)
72,844
1,270,822
1,333,430
Cumulative rate
sensitivity gap
Cumulative gap as
a percentage of
total interest
earning assets
(236,419)
367,062
(10,236)
62,608
1,333,430
(3.90)%
6.05%
(0.17)%
1.03%
21.99%
(1)
Investment securities and loans that are subject to prepayment are shown in the table by the
earlier of their re-pricing date or their expected repayment date and not by their contractual
maturity date. Nonaccrual loans of $135.2 million are included within the three to twelve
month maturity category.
(2) Management considers interest bearing transaction accounts and savings accounts to be
core deposits and, therefore, not as rate sensitive as other deposit accounts and borrowed
money. Accordingly, only 53% of interest bearing transaction accounts and 23% of savings
accounts are considered to re-price within one year. If all of the interest bearing transaction
accounts and savings accounts were considered to re-price within one year, the one year
cumulative gap would change from a positive 6.05% to a negative 17.06%.
The interest rate sensitivity gap analysis provides an overall picture of Park’s
static interest rate risk position. At December 31, 2013, the cumulative interest
earning assets maturing or repricing within twelve months were $2,515 million
compared to the cumulative interest bearing liabilities maturing or repricing
within twelve months of $2,148 million. For the twelve-month cumulative gap
position, rate sensitive assets exceeded rate sensitive liabilities by $367 million
or 6.05% of interest earning assets.
A positive twelve-month cumulative rate sensitivity gap (assets exceed liabilities)
would suggest that Park’s net interest margin would increase if interest rates
were to increase. Conversely, a negative twelve-month cumulative rate sensitivity
gap would suggest that Park’s net interest margin would decrease if interest
rates were to decrease. However, the usefulness of the interest rate sensitivity
gap analysis as a forecasting tool in projecting net interest income is limited.
The gap analysis does not consider the magnitude, timing or frequency by
which assets or liabilities will reprice during a period and also contains
assumptions as to the repricing of transaction and savings accounts that
may not prove to be correct.
The cumulative twelve-month interest rate sensitivity gap position at year-end
2012 was a positive $1,144 million or 18.8% of total interest earning assets.
The percentage of interest earning assets maturing or repricing within one
year was 41.5% at year-end 2013, compared to 54.6% at year-end 2012.
The percentage of interest bearing liabilities maturing or repricing within
one year was 45.4% at year-end 2013, compared to 45.4% at year-end 2012.
Management supplements the interest rate sensitivity gap analysis with
periodic simulations of balance sheet sensitivity under various interest rate and
what-if scenarios to better forecast and manage the net interest margin. Park’s
management uses an earnings simulation model to analyze net interest income
sensitivity to movements in interest rates. This model is based on actual cash
flows and repricing characteristics for balance sheet instruments and incorpo-
rates market-based assumptions regarding the impact of changing interest rates
on the prepayment rate of certain assets and liabilities. This model also includes
management’s projections for activity levels of various balance sheet instru-
ments and non-interest fee income and operating expense. Assumptions based
on the historical behavior of deposit rates and balances in relation to changes
in interest rates are also incorporated into this earnings simulation model.
These assumptions are inherently uncertain and, as a result, the model cannot
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precisely measure net interest income and net income. Actual results will differ
from simulated results due to timing, magnitude, and frequency of interest rate
changes as well as changes in market conditions and management strategies.
Management uses a 50 basis point change in market interest rates per quarter
for a total of 200 basis points per year in evaluating the impact of changing
interest rates on net interest income and net income over a twelve-month
horizon. At December 31, 2013, the earnings simulation model projected that
net income would decrease by 1.4% using a rising interest rate scenario and
decrease by 10.3% using a declining interest rate scenario over the next year.
At December 31, 2012, the earnings simulation model projected that net
income would increase by 1.1% using a rising interest rate scenario and
decrease by 6.6% using a declining interest rate scenario over the next year.
At December 31, 2011, the earnings simulation model projected that net
income would increase by 2.1% using a rising interest rate scenario and
decrease by 3.5% using a declining interest rate scenario over the next year.
Consistently, over the past several years, Park’s earnings simulation model has
projected that changes in interest rates would have only a small impact on net
income and the net interest margin. Park’s net interest margin was 3.61% in
2013, 3.83% in 2012 and 4.14% in 2011. A major goal of Park’s asset/liability
committee is to maintain a relatively stable net interest margin regardless of the
level of interest rates.
CONTRACTUAL OBLIGATIONS
In the ordinary course of operations, Park enters into certain contractual
obligations. Such obligations include the funding of operations through debt
issuances as well as leases for premises. The following table summarizes Park’s
significant and determinable obligations by payment date at December 31,
2013.
Further discussion of the nature of each specified obligation is included in
the referenced Note to the Consolidated Financial Statements.
Table 31 – Contractual Obligations
December 31, 2013
Payments Due In
(In thousands)
Note
0–1
Years
1–3
Years
3–5
Years
Over 5
Years
Total
Deposits without
stated maturity
Certificates of deposit
Short-term borrowings
Long-term debt
Subordinated notes
Operating leases
Defined benefit pension
plan
Purchase obligations
Total contractual
obligations
8
8
9
10
11
7
13
$3,465,335 $
— $
— $
— $3,465,335
883,231
320,140
120,341
242,029
—
—
947
—
100,500
77,000
476,062
176,745
—
—
— 80,250
1,351
1,573
1,219
605
5,732
1,820
11,990
13,442
42,387
—
—
—
1,324,659
242,029
830,307
80,250
4,748
73,551
1,820
$4,699,998 $410,703
$611,064 $300,934
$6,022,699
The Corporation’s operating lease obligations represent short-term and
long-term lease and rental payments for facilities and equipment. Purchase
obligations represent obligations under agreements to purchase goods or
services that are enforceable and legally binding on the Corporation.
Commitments, Contingent Liabilities, and Off-Balance Sheet
Arrangements: In order to meet the financing needs of its customers,
the Corporation issues loan commitments and standby letters of credit. At
December 31, 2013, the Corporation had $821.8 million of loan commitments
for commercial, commercial real estate, and residential real estate loans and
had $20.6 million of standby letters of credit. At December 31, 2012, the
Corporation had $815.6 million of loan commitments for commercial,
commercial real estate, and residential real estate loans and had $23.0
million of standby letters of credit.
Commitments to extend credit under loan commitments and standby letters
of credit do not necessarily represent future cash requirements. These com -
mitments often expire without being drawn upon. However, all of the loan
commitments and standby letters of credit were permitted to be drawn upon
in 2013. See Note 18 of the Notes to Consolidated Financial Statements for
additional information on loan commitments and standby letters of credit.
The Corporation did not have any unrecorded significant contingent liabilities
at December 31, 2013.
Capital: Park’s primary means of maintaining capital adequacy is through
retained earnings. At December 31, 2013, the Corporation’s shareholders’
equity was $651.7 million, compared to $650.4 million at December 31,
2012. Shareholders’ equity at December 31, 2013 was 9.82% of total assets,
compared to 9.79% of total assets at December 31, 2012.
Tangible shareholders’ equity [share holders’ equity ($651.7 million) less
goodwill and other intangible assets ($72.3 million)] was $579.4 million
at December 31, 2013 and was $577.7 million at December 31, 2012. At
December 31, 2013, tangible shareholders’ equity was 8.82% of total tangible
assets [total assets ($6,638 million) less goodwill and other intangible assets
($72.3 million)], compared to 8.79% at December 31, 2012.
Net income was $77.2 million in 2013, $78.6 million in 2012 and $82.1 million
in 2011.
Preferred share dividends paid as a result of Park’s participation in the CPP
were $1.6 million in 2012 and $5.0 million in 2011. Accretion of the discount
on the Series A Preferred Shares was $1,854,000 in 2012, and $856,000 in
2011. As mentioned previously, Park repurchased the Series A Preferred Shares
on April 25, 2012. Income available to common shareholders is net income
less the preferred share dividends and accretion. Income available to common
shareholders was $77.2 million in 2013, $75.2 million in 2012, and $76.3
million in 2011.
Cash dividends declared for common shares were $57.9 million in each
of 2013, 2012 and 2011. On a per share basis, the cash dividends declared
were $3.76 per share in each of 2013, 2012 and 2011.
Park repurchased 10,550 treasury shares in 2013, and did not purchase any
treasury shares during 2012 or 2011. Treasury shares had a balance of $76.1
million at December 31, 2013, $76.4 million at December 31, 2012, and $77.0
million at December 31, 2011. During 2013, the value of treasury shares was
reduced by $1.1 million as a result of the issuance of an aggregate of 10,550
common shares to directors of Park and to the directors of Park’s bank sub-
sidiary PNB (and its divisions), and increased by $0.8 million due to the
repurchase of 10,550 treasury shares. During 2012, the value of treasury shares
was reduced by $632,000 as a result of the issuance of an aggregate of 6,120
common shares to directors of Park and to the directors of Park’s bank sub-
sidiary PNB (and its divisions). During 2011, the value of treasury shares was
reduced by $726,000 as a result of the issuance of an aggregate of 7,020
common shares to directors of Park and to directors of Park’s bank
subsidiaries PNB and Vision (and their respective divisions).
Park did not issue any new common shares (that were not already held
as treasury shares in any of 2013, 2012 or 2011). Common shares had
a balance of $302.7 million for the years ended December 31, 2013 and
2012, and $301.2 million at the year ended December 31, 2011.
Accumulated other comprehensive loss was $35.4 million at December 31,
2013, compared to $17.5 million at December 31, 2012 and $8.8 million at
December 31, 2011. During the 2011 year, the change in net unrealized gains
on securities available for sale, net of tax, was a gain of $16.3 million and Park
realized after-tax gains of $18.7 million, resulting in a decline of $2.4 million in
the unrealized gain on securities available for sale which was $12.7 million at
December 31, 2011. During the 2012 year, the change in net unrealized gains
on securities available for sale, net of tax, was a loss of $3.1 million and Park
did not realize any after-tax gains, resulting in an unrealized gain on securities
available for sale of $9.6 million at December 31, 2012. During the 2013 year,
41
PNC_AR2013_FINAL_1 2/18/14 6:09 PM Page 23
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
Table 32 – Consolidated Five-Year Selected Financial Data (continued)
December 31,
(Dollars in thousands,
except per share data)
Average balances:
Loans
Investment securities
Money market
2013
2012
2011
2010
2009
$4,514,781 $4,410,661 $4,713,511 $4,642,478 $4,594,436
1,877,303
1,848,880
1,377,887
1,613,131
1,746,356
instruments and other
272,851
166,319
78,593
93,009
52,658
Total earning assets 6,165,519
6,190,111
6,640,984
6,481,843
6,524,397
Non-interest bearing
deposits
Interest bearing
deposits
1,117,379
1,048,796
999,085
907,514
818,243
3,742,361
3,786,601
4,193,404
4,274,501
4,232,391
Total deposits
4,859,740
4,835,397
5,192,489
5,182,015
5,050,634
Short-term borrowings $ 253,123 $ 258,661 $ 297,537 $ 300,939 $ 419,733
780,435
907,704
Long-term debt
675,314
689,732
Shareholders’ equity
Common shareholders’
725,356
746,510
881,921
743,873
870,538
645,533
equity
Total assets
Ratios:
Return on average
assets (x)
Return on average
common equity (x)
Net interest margin (2)
Net interest expense
to net revenue (2)
Dividend payout ratio (3)
Average shareholders’
equity to average
total assets
Leverage capital
Tier 1 capital
Risk-based capital
645,533
6,702,973
658,855
6,766,806
646,169
7,206,171
649,637
7,042,705
579,224
7,035,531
1.15%
1.11%
1.06%
0.74%
0.97%
11.96%
3.61%
63.78%
75.04%
9.63%
9.48%
13.27%
15.91%
11.41%
3.83%
57.07%
73.68%
10.19%
9.17%
13.12%
15.77%
11.81%
4.14%
55.18%
70.50%
10.32%
9.81%
14.15%
16.65%
8.05%
4.26%
55.18%
98.24%
10.60%
9.54%
13.24%
15.71%
11.81%
4.22%
54.01%
78.27%
9.60%
9.04%
12.45%
14.89%
(1) The Vision business was sold on February 16, 2012 for a gain on sale of $22.2 million.
(2) Computed on a fully taxable equivalent basis.
(3) Cash dividends paid divided by net income.
(x) Reported measure uses net income available to common shareholders.
The following table is a summary of selected quarterly results of operations for
the years ended December 31, 2013 and 2012.
Table 33 – Quarterly Financial Data
(Dollars in thousands,
except per share data)
March 31
Three Months Ended
Sept. 30
June 30
Dec. 31
2013:
Interest income
Interest expense
Net interest income
Provision for (recovery of)
loan losses
Income before
income taxes
Net income
Net income available
to common shareholders
Per common share data:
Net income per common
share – basic (x)
Net income per common
share – diluted (x)
Weighted-average common
shares outstanding – basic
Weighted-average common
shares equivalent – diluted
$66,192
$65,279
$65,410
$66,066
10,739
55,453
10,567
54,712
10,450
54,960
10,166
55,900
329
673
2,498
(85)
27,831
20,710
26,767
20,034
25,143
19,029
22,617
17,454
20,710
20,034
19,029
17,454
1.34
1.34
1.30
1.30
1.23
1.23
1.13
1.13
15,411,990
15,411,981
15,411,972
15,413,517
15,411,990
15,411,981
15,411,972
15,413,517
the change in net unrealized gains on securities available for sale, net of
tax, was a loss of $39.4 million and Park did not realize any after-tax gains,
resulting in an unrealized loss on securities available for sale of $29.8 million
at December 31, 2013. In addition, Park recognized other comprehensive
gain of $0.6 million in 2012 due to the mark-to-market of a cash flow hedge at
December 31, 2012 compared to $0.5 million gain in comprehensive income
for the year ended December 31, 2011. Finally, Park recognized other compre-
hensive gain of $21.5 million, net of tax, related to the change in pension plan
assets and benefit obligations in 2013 compared to a loss of $6.2 million, net
of tax, in 2012 and a loss of $5.0 million, net of tax, in 2011.
Financial institution regulators have established guidelines for minimum capital
ratios for banks, thrifts, and bank holding companies. Park’s accumulated other
comprehensive income (loss) is not included in computing regulatory capital.
The minimum leverage capital ratio (defined as shareholders’ equity less intan-
gible assets divided by tangible assets) is 4%. Park’s leverage ratio was 9.48%
at December 31, 2013 and exceeded the minimum capital required by $364
million. The minimum Tier 1 risk-based capital ratio (defined as leverage
capital divided by risk-adjusted assets) is 4%. Park’s Tier 1 risk-based capital
ratio was 13.27% at December 31, 2013 and exceeded the minimum capital
required by $440 million. The minimum total risk-based capital ratio (defined
as leverage capital plus supplemental capital divided by risk-adjusted assets) is
8%. Park’s total risk-based capital ratio was 15.91% at December 31, 2013 and
exceeded the minimum capital required by $375 million.
PNB, the only financial institution subsidiary of Park, met the well capitalized
ratio guidelines at December 31, 2013. See Note 22 of the Notes to Consoli -
dated Financial Statements for the capital ratios for Park and PNB.
Effects of Inflation: Balance sheets of financial institutions typically contain
assets and liabilities that are monetary in nature and, therefore, differ greatly
from most commercial and industrial companies which have significant
investments in premises, equipment and inventory. During periods of inflation,
financial institutions that are in a net positive monetary position will experience
a decline in purchasing power, which does have an impact on growth. Another
significant effect on internal equity growth is other expenses, which tend to rise
during periods of inflation.
Management believes the most significant impact on financial results is the
Corporation’s ability to align its asset/liability management program to react
to changes in interest rates.
SELECTED FINANCIAL DATA
Table 32 – Consolidated Five-Year Selected Financial Data
December 31,
(Dollars in thousands,
except per share data)
Results of operations:
Interest income
Interest expense
Net interest income
Provision for loan
losses
Net interest income
after provision for
loan losses
Gain on sale of
Vision business (1)
Net gains on sale
of securities
Non-interest income
Non-interest expense
Net income
Net income available
to common
shareholders
Per common share:
Net income per common
share – basic
Net income per common
share – diluted
Cash dividends declared
42
2013
2012
2011
2010
2009
$ 262,947 $ 285,735 $ 331,880 $ 345,517 $ 367,690
94,199
273,491
71,473
274,044
58,646
273,234
50,420
235,315
41,922
221,025
3,415
35,419
63,272
87,080
68,821
217,610
199,896
209,962
186,964
204,670
—
22,167
—
—
—
—
73,277
188,529
77,227
—
70,236
187,968
78,630
28,829
66,081
188,317
82,140
11,864
63,016
187,107
58,101
7,340
73,850
188,725
74,192
77,227
75,205
76,284
52,294
68,430
5.01
5.01
3.76
4.88
4.88
3.76
4.95
4.95
3.76
3.45
3.45
3.76
4.82
4.82
3.76
PNC_AR2013_FINAL_1 2/18/14 6:09 PM Page 24
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
Table 33 – Quarterly Financial Data (continued)
(Dollars in thousands,
except per share data)
March 31
Three Months Ended
Sept. 30
June 30
Dec. 31
2012:
Interest income
Interest expense
Net interest income
Provision for loan losses
Gain on sale of
Vision business (1)
Income before
income taxes
Net income
Net income available
to common shareholders
Per common share data:
Net income per common
share – basic (x)
Net income per common
share – diluted (x)
Weighted-average common
shares outstanding – basic
Weighted-average common
shares equivalent – diluted
$74,838
$71,486
$70,618
$68,793
13,110
61,728
8,338
22,167
44,540
31,475
12,806
58,680
5,238
12,602
58,016
16,655
11,902
56,891
5,188
—
—
—
25,146
18,886
13,757
11,982
20,888
16,287
29,998
16,938
11,982
16,287
1.95
1.95
1.10
1.10
0.78
0.78
1.06
1.06
15,405,910
15,405,902
15,405,894
15,410,606
15,417,745
15,405,902
15,405,894
15,410,606
(1) The Vision business was sold on February 16, 2012 for a gain on sale of $22.2 million.
(x) Reported measure uses net income available to common shareholders.
The Corporation’s common shares (symbol: PRK) are traded on NYSE MKT LLC.
At December 31, 2013, the Corporation had 4,087 shareholders of record. The
following table sets forth the high, low and closing sale prices of, and dividends
declared on the common shares for each quarterly period for the years ended
December 31, 2013 and 2012, as reported by NYSE MKT LLC.
Table 34 – Market and Dividend Information
2013:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2012:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
Last
Price
$ 70.31
$ 64.79
$ 69.79
72.00
81.49
86.00
66.00
68.89
76.53
68.79
79.08
85.07
$ 72.75
$ 65.06
$ 69.17
69.93
72.18
71.25
61.94
65.30
61.44
69.75
70.02
64.63
Cash
Dividend
Declared
Per Share
$0.94
0.94
0.94
0.94
$0.94
0.94
0.94
0.94
PERFORMANCE GRAPH
Table 36 compares the total return performance for Park common shares with
the NYSE MKT Composite Index, the NASDAQ Bank Stocks Index and the SNL
Financial Bank and Thrift Index for the five-year period from December 31,
2008 to December 31, 2013. The NYSE MKT Composite Index is a market
capitalization-weighted index of the stocks listed on NYSE MKT. The NASDAQ
Bank Stocks Index is comprised of all depository institutions, holding com -
panies and other investment companies that are traded on The NASDAQ
Global Select and Global Markets. Park considers a number of bank holding
companies traded on The NASDAQ Global Select to be within its peer group.
The SNL Financial Bank and Thrift Index is comprised of all publicly-traded
bank and thrift stocks researched by SNL Financial.
The NYSE MKT Financial Stocks Index includes the stocks of banks, thrifts,
finance companies and securities broker-dealers. Park believes that the
NASDAQ Bank Stocks Index and the SNL Financial Bank and Thrift Index
are more appropriate industry indices for Park to use for the five-year total
return performance comparison.
250
225
200
175
150
125
100
75
50
l
e
u
a
V
x
e
d
n
I
12/31/08
12/31/09
12/31/10
12/31/11
12/31/12
12/31/13
Table 35 – Total Return Performance
PERIOD ENDING
Index
12/31/08
12/31/09
12/31/10
12/31/11
12/31/12
12/31/13
Park National Corporation
NYSE MKT Composite Index
NASDAQ Bank Stocks Index
SNL Bank and Thrift Index
100.00
100.00
100.00
100.00
87.39
135.58
83.70
98.66
114.53
170.28
95.55
110.14
109.23
180.99
85.52
85.64
114.75
192.95
101.50
115.00
158.86
205.80
143.84
157.46
The total return for Park’s common shares has outperformed the total return
of the NASDAQ Bank Stocks Index and the SNL Bank and Thrift Index for the
five-year period indicated in Table 36. The annual compound total return on
Park’s common shares for the past five years was a positive 9.7%. By compari-
son, the annual compound total returns for the past five years on the NYSE MKT
Composite Index, the NASDAQ Bank Stocks Index and the SNL Bank and Thrift
Index were a positive 15.5%, a positive 7.5% and a positive 9.5%, respectively.
43
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M A N A G E M E N T ’ S R E P O R T O N
I N T E R N A L C O N T R O L
O V E R F I N A N C I A L R E P O R T I N G
To the Board of Directors and Shareholders
Park National Corporation
The management of Park National Corporation (the “Corporation”) is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a – 15(f) and 15d – 15(f) under the Securities
Exchange Act of 1934. The Corporation’s internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with U.S. generally accepted accounting principles. The Corporation’s internal control over financial
reporting includes those policies and procedures that:
a.) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the Corporation and its consolidated subsidiaries;
b.) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures
of the Corporation and its consolidated subsidiaries are being made only in accordance with authorizations of
management and directors of the Corporation; and
c.) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the assets of the Corporation and its consolidated subsidiaries that could have a material effect
on the financial statements.
The Corporation’s internal control over financial reporting as it relates to the consolidated financial statements is
evaluated for effectiveness by management and tested for reliability through a program of internal audits. Actions
are taken to correct potential deficiencies as they are identified.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate. Accordingly, even an effective system of internal control over financial reporting will provide only reasonable
assurance with respect to financial statement preparation.
With the participation of our Chairman of the Board, our Chief Executive Officer and President and our Chief Financial
Officer, management evaluated the effectiveness of the Corporation’s internal control over financial reporting as of
December 31, 2013, the end of the Corporation’s fiscal year. In making this assessment, management used the criteria
set forth for effective internal control over financial reporting by the Committee of Sponsoring Organizations of the
Treadway Commission’s (COSO) 1992 Internal Control – Integrated Framework.
Based on our assessment under the criteria described in the preceding paragraph, management concluded that the
Corporation maintained effective internal control over financial reporting as of December 31, 2013.
The Corporation’s independent registered public accounting firm, Crowe Horwath LLP, has audited the Corporation’s
2013 and 2012 consolidated financial statements included in this Annual Report and the Corporation’s internal control
over financial reporting as of December 31, 2013, and has issued their Report of Independent Registered Public
Accounting Firm, which appears in this Annual Report.
David L. Trautman
Chief Executive Officer and President
Brady T. Burt
Chief Financial Officer, Secretary and Treasurer
C. Daniel DeLawder
Chairman of the Board
February 25, 2014
44
PNC_AR2013_FINAL_1 2/18/14 6:09 PM Page 26
R E P O R T O F
I N D E P E N D E N T
R E G I S T E R E D P U B L I C A C C O U N T I N G F I R M
To the Board of Directors and Shareholders
Park National Corporation
Newark, Ohio
We have audited the accompanying consolidated balance sheets of Park National Corporation as of December 31, 2013 and
2012 and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash
flows for each of the three years in the period ended December 31, 2013. We also have audited Park National Corporation’s
internal control over financial reporting as of December 31, 2013, based on criteria established in the 1992 Internal Control –
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Park
National Corporation’s management is responsible for these financial statements, for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion
on these financial statements and an opinion on the company’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective internal control over financial reporting was maintained
in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits
also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Park National Corporation as of December 31, 2013 and 2012, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2013, in conformity with accounting principles generally accepted
in the United States of America. Also in our opinion, Park National Corporation maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2013, based on criteria established in the 1992 Internal Control –
Integrated Framework issued by the COSO.
Crowe Horwath LLP
Columbus, Ohio
February 25, 2014
45
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C O N S O L I D A T E D B A L A N C E S H E E T S
PARK NATIONAL CORPORATION AND SUBSIDIARIES
at December 31, 2013 and 2012 (In thousands, except share and per share data)
ASSETS
Cash and due from banks
Money market instruments
Cash and cash equivalents
Investment securities:
Securities available-for-sale, at fair value (amortized cost of $1,222,143
and $1,099,658 at December 31, 2013 and 2012, respectively)
Securities held-to-maturity, at amortized cost (fair value of $187,402
and $410,705 at December 31, 2013 and 2012, respectively)
Other investment securities
Total investment securities
Total loans
Allowance for loan losses
Net loans
Other assets:
Bank owned life insurance
Goodwill
Other intangibles
Premises and equipment, net
Accrued interest receivable
Other real estate owned
Mortgage loan servicing rights
Other
Total other assets
Total assets
The accompanying notes are an integral part of the consolidated financial statements.
2013
$ 129,078
17,952
147,030
1,176,266
182,061
65,907
1,424,234
4,620,505
(59,468)
4,561,037
169,284
72,334
—
55,278
18,335
34,636
9,013
147,166
506,046
2012
$ 164,120
37,185
201,305
1,114,454
401,390
65,907
1,581,751
4,450,322
(55,537)
4,394,785
161,069
72,334
337
53,751
19,710
35,718
7,763
114,280
464,962
$6,638,347
$6,642,803
46
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C O N S O L I D A T E D B A L A N C E S H E E T S
(CONTINUED)
PARK NATIONAL CORPORATION AND SUBSIDIARIES
at December 31, 2013 and 2012 (In thousands, except share and per share data)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Non-interest bearing
Interest bearing
Total deposits
Short-term borrowings
Long-term debt
Subordinated debentures/notes
Total borrowings
Other liabilities:
Accrued interest payable
Other
Total other liabilities
Total liabilities
COMMITMENTS AND CONTINGENCIES
Shareholders’ equity:
Preferred shares (200,000 shares authorized; no shares outstanding
at December 31, 2013 and 2012)
Common shares, no par value (20,000,000 shares authorized;
16,150,941 and 16,150,987 shares issued at
December 31, 2013 and 2012, respectively)
Accumulated other comprehensive (loss), net
Retained earnings
Less: Treasury shares (738,989 shares at
December 31, 2013 and 2012, respectively)
Total shareholders’ equity
2013
$1,193,553
3,596,441
4,789,994
242,029
810,541
80,250
1,132,820
2,901
60,885
63,786
5,986,600
—
302,651
(35,419)
460,643
(76,128)
651,747
2012
$1,137,290
3,578,742
4,716,032
344,168
781,658
80,250
1,206,076
3,459
66,870
70,329
5,992,437
—
302,654
(17,518)
441,605
(76,375)
650,366
Total liabilities and shareholders’ equity
$6,638,347
$6,642,803
The accompanying notes are an integral part of the consolidated financial statements.
47
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C O N S O L I D A T E D S T A T E M E N T S O F
I N C O M E
PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 2013, 2012 and 2011 (In thousands, except per share data)
Interest and dividend income:
Interest and fees on loans
Interest and dividends on:
Obligations of U.S. Government, its agencies
and other securities
Obligations of states and political subdivisions
Other interest income
Total interest and dividend income
Interest expense:
Interest on deposits:
Demand and savings deposits
Time deposits
Interest on short-term borrowings
Interest on long-term debt
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Other income:
Income from fiduciary activities
Service charges on deposit accounts
Net gain on sales of securities
Other service income
Checkcard fee income
Bank owned life insurance income
ATM fees
Net gain on sale of OREO
OREO devaluations
Gain on sale of Vision business
Other
Total other income
2013
2012
2011
$225,538
$234,638
$262,458
36,686
45
678
262,947
1,773
11,235
544
28,370
41,922
221,025
3,415
217,610
17,133
16,316
—
12,913
12,955
5,041
2,632
3,110
(3,180)
—
6,357
50,549
140
408
285,735
2,483
15,921
678
31,338
50,420
235,315
35,419
199,896
15,947
16,704
—
13,631
12,541
4,754
2,359
4,414
(6,872)
22,167
6,758
68,873
371
178
331,880
3,812
23,842
823
30,169
58,646
273,234
63,272
209,962
14,965
18,307
28,829
10,606
12,496
5,089
2,703
1,312
(8,219)
—
8,822
$ 73,277
$ 92,403
$ 94,910
The accompanying notes are an integral part of the consolidated financial statements.
48
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C O N S O L I D A T E D S T A T E M E N T S O F
I N C O M E
(CONTINUED)
PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 2013, 2012 and 2011 (In thousands, except per share data)
Other expense:
Salaries and employee benefits
Data processing fees
Professional fees and services
Net occupancy expense of bank premises
Amortization of intangibles
Furniture and equipment expense
Insurance
Marketing
Postage and telephone
State taxes
Loan put provision
OREO expense
Other
Total other expense
Income before income taxes
State income taxes (benefit)
Federal income taxes
Net income
Preferred share dividends and accretion
Income available to common shareholders
Earnings per common share:
Basic
Diluted
2013
2012
2011
$100,298
$ 95,977
$102,068
4,174
27,865
9,804
337
11,249
5,205
3,790
5,790
3,702
—
2,731
13,584
188,529
102,358
—
25,131
$ 77,227
—
$ 77,227
$5.01
$5.01
3,916
24,267
9,444
2,172
10,788
5,780
3,474
5,983
3,786
3,299
4,011
15,071
187,968
104,331
—
25,701
$ 78,630
3,425
$ 75,205
$4.88
$4.88
4,965
21,119
11,295
3,534
10,773
6,821
2,967
6,060
1,544
—
3,266
13,905
188,317
116,555
6,088
28,327
$ 82,140
5,856
$ 76,284
$4.95
$4.95
The accompanying notes are an integral part of the consolidated financial statements.
49
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C O N S O L I D A T E D S T A T E M E N T S O F
C O M P R E H E N S I V E
I N C O M E
PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 2013, 2012 and 2011 (In thousands)
Net income
Other comprehensive income (loss), net of tax:
Change in funded status of pension plan, net of income taxes
of $11,596, $(3,328) and $(2,707) for years ended
December 31, 2013, 2012, and 2011, respectively
Unrealized net holding gain on cash flow hedge,
net of income taxes of $296 and $276 for years
ended December 31, 2012 and 2011, respectively
Unrealized net holding (loss) on securities available-for-sale,
net of income taxes of $(21,236), $(1,645) and $(1,318) for years
ended December 31, 2013, 2012 and 2011, respectively
Other comprehensive (loss)
Comprehensive income
2013
$ 77,227
2012
$78,630
2011
$82,140
21,536
(6,180)
(5,027)
—
550
512
(39,437)
$(17,901)
$ 59,326
(3,057)
$ (8,687)
$69,943
(2,448)
$ (6,963)
$75,177
The accompanying notes are an integral part of the consolidated financial statements.
50
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C O N S O L I D A T E D S T A T E M E N T S O F
C H A N G E S
I N S H A R E H O L D E R S ’
E Q U I T Y
PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 2013, 2012 and 2011 (In thousands, except share and per share data)
Balance, January 1, 2011
Net income
Other comprehensive income (loss), net of tax:
Change in funded status of pension plan, net of
income taxes of $(2,707)
Unrealized net holding gain on
cash flow hedge, net of
income taxes of $276
Unrealized net holding loss on
securities available-for-sale,
net of income taxes of $(1,318)
Cash dividends, $3.76 per share
Cash payment for fractional shares
in dividend reinvestment plan
Accretion of discount on preferred shares
Common share warrants expired
Preferred share dividends
Treasury shares reissued for
director grants
Preferred Shares
Common Shares
Shares
Outstanding
100,000
Amount
$ 97,290
Shares
Outstanding
15,398,934
—
Amount
$305,677
—
Retained
Earnings
$406,342
82,140
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Shares
Total
$ (77,733)
$ (1,868)
$729,708
—
—
82,140
856
—
(42)
7,020
—
(2)
(176)
(57,907)
—
(856)
176
(5,000)
(338)
—
—
726
(5,027)
(5,027)
512
512
(2,448)
—
—
(2,448)
(57,907)
(2)
—
—
(5,000)
388
Balance, December 31, 2011
100,000
$ 98,146
15,405,912
$305,499
$424,557
$ (77,007)
$ (8,831)
$742,364
Net income
Other comprehensive income (loss), net of tax:
Change in funded status of pension plan, net of
income taxes of $(3,328)
Unrealized net holding gain on
cash flow hedge, net of
income taxes of $296
Unrealized net holding loss on
securities available-for-sale,
net of income taxes of $(1,645)
Cash dividends, $3.76 per share
Cash payment for fractional shares
in dividend reinvestment plan
Common share warrants redeemed
Preferred shares redeemed
Accretion of discount on preferred shares
Preferred share dividends
Treasury shares reissued for
director grants
—
—
78,630
—
—
78,630
(100,000)
(100,000)
1,854
—
(34)
6,120
—
(57,932)
(2)
(2,843)
—
(1,854)
(1,571)
(225)
—
—
632
(6,180)
(6,180)
550
550
(3,057)
—
—
(3,057)
(57,932)
(2)
(2,843)
(100,000)
—
(1,571)
407
Balance, December 31, 2012
—
$
—
15,411,998
$302,654
$441,605
$ (76,375)
$ (17,518)
$650,366
Net income
Other comprehensive income (loss), net of tax:
Change in funded status of pension plan, net of
income taxes of $11,596
Unrealized net holding loss on
securities available-for-sale,
net of income taxes of $(21,236)
Cash dividends, $3.76 per share
Cash payment for fractional shares
in dividend reinvestment plan
Treasury shares repurchased
Treasury shares reissued for
director grants
—
—
77,227
—
—
77,227
21,536
21,536
—
(46)
(10,550)
10,550
—
(3)
(57,949)
—
(39,437)
—
—
—
—
(843)
(240)
1,090
(39,437)
(57,949)
(3)
(843)
850
Balance, December 31, 2013
—
$
—
15,411,952
$302,651
$460,643
$ (76,128)
$ (35,419)
$651,747
The accompanying notes are an integral part of the consolidated financial statements.
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C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S
PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 2013, 2012 and 2011 (In thousands)
Operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses
Loan put provision
Amortization of loan fees and costs, net
Provision for depreciation
Other than temporary impairment on investment securities
Amortization of intangible assets
(Accretion)/amortization of investment securities
Amortization of prepayment penalty on long-term debt
Deferred income tax
Realized net investment security gains
Compensation expense for issuance of treasury shares to directors
Loan originations to be sold in secondary market
Proceeds from sale of loans in secondary market
Gain on sale of loans in secondary market
OREO devaluations
Bank owned life insurance income
Changes in assets and liabilities:
Increase in other assets
Decrease in other liabilities
Cash included in assets held for sale
Net cash provided by operating activities
Investing activities:
Proceeds from sales of securities:
Held-to-maturity
Available-for-sale
Proceeds from calls and maturities of securities:
Held-to-maturity
Available-for-sale
Purchase of securities:
Held-to-maturity
Available-for-sale
Net decrease in other investments
Net loan originations, portfolio loans
Sales of assets/liabilities related to Vision Bank
Purchases of bank owned life insurance, net
Purchases of premises and equipment, net
Net cash (used in) provided by investing activities
Financing activities:
Net increase (decrease) in deposits
Net (decrease) increase in short-term borrowings
Proceeds from issuance of subordinated notes
Proceeds from long-term debt
Repayment of sub-debt
Repayment of long-term debt
Cash payment for repurchase of common share warrant
from U.S. Treasury
Repurchase of preferred shares from U.S. Treasury
Cash dividends paid
Net cash (used in) provided by financing activities
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
2013
2012
2011
$ 77,227
$ 78,630
$ 82,140
3,415
—
3,611
7,315
17
337
(33)
4,835
(2,456)
—
850
(317,534)
341,611
4,093
3,180
(5,041)
514
(7,389)
—
114,552
—
75,000
219,329
385,259
—
(582,728)
—
(190,167)
—
(4,600)
(8,842)
(106,749)
73,962
(102,139)
—
75,000
—
(50,952)
—
—
(57,949)
(62,078)
(54,275)
201,305
$ 147,030
35,419
3,299
2,119
6,954
54
2,172
(239)
—
12,717
—
407
(442,890)
422,875
5,807
6,872
(4,754)
(15,231)
(9,010)
—
105,201
—
—
681,513
666,431
(262,679)
(964,704)
1,697
(163,106)
(144,436)
(2,500)
(6,964)
(194,748)
250,918
80,574
30,000
300,000
(25,000)
(340,129)
(2,843)
(100,000)
(60,154)
133,366
43,819
157,486
$ 201,305
63,272
—
2,871
7,583
—
3,534
490
—
28,466
(28,829)
388
(269,922)
263,170
3,557
8,219
(5,089)
(18,722)
(10,826)
(6,766)
123,536
25,410
584,573
454,937
557,552
(625,925)
(641,751)
1,095
(71,862)
—
(3,000)
(6,618)
274,411
(97,708)
(400,075)
—
203,000
—
(16,551)
—
—
(62,907)
(374,241)
23,706
133,780
$ 157,486
The accompanying notes are an integral part of the consolidated financial statements.
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N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in
the preparation of the consolidated financial statements:
Principles of Consolidation
The consolidated financial statements include the accounts of Park
National Corporation and its subsidiaries (“Park”, the “Company” or
the “Corporation”). Material intercompany accounts and transactions
have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles (“GAAP”) requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates. Management has identified the allowance for loan losses,
accounting for Other Real Estate Owned (“OREO”), fair value accounting,
accounting for goodwill and accounting for pension plan and other post
retirement benefits as significant estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current
year presentation. Reclassifications had no effect on prior year net income or
shareholders’ equity.
Restrictions on Cash and Due from Banks
The Corporation’s national bank subsidiary is required to maintain average
reserve balances with the Federal Reserve Bank. The average required reserve
balance was approximately $48.0 million at December 31, 2013 and $41.0
million at December 31, 2012. No other compensating balance arrangements
were in existence at December 31, 2013.
Investment Securities
Investment securities are classified upon acquisition into one of three
categories: held-to-maturity (HTM), available-for-sale (AFS), or trading
(see Note 4 of these Notes to Consolidated Financial Statements).
Held-to-maturity securities are those securities that the Corporation has the
positive intent and ability to hold to maturity and are recorded at amortized
cost. Available-for-sale securities are those securities that would be available to
be sold in the future in response to the Corporation’s liquidity needs, changes
in market interest rates, and asset-liability management strategies, among other
reasons. Available-for-sale securities are reported at fair value, with unrealized
holding gains and losses excluded from earnings but included in other compre-
hensive income, net of applicable taxes. The Corporation did not hold any
trading securities during any period presented.
Available-for-sale and held-to-maturity securities are evaluated quarterly for
potential other-than-temporary impairment. Management considers the facts
related to each security including the nature of the security, the amount and
duration of the loss, the credit quality of the issuer, the expectations for that
security’s performance and whether Park intends to sell, or it is more likely
than not to be required to sell, a security in an unrealized loss position before
recovery of its amortized cost basis. Declines in the value of equity securities
that are considered to be other-than-temporary are recorded as a charge to
earnings in the Consolidated Statements of Income. Declines in the value of
debt securities that are considered to be other-than-temporary are separated
into (1) the amount of the total impairment related to credit loss and (2) the
amount of the total impairment related to all other factors. The amount of the
total other-than- temporary impairment related to the credit loss is recognized
in earnings. The amount of the total other-than-temporary impairment related
to all other factors is recognized in other comprehensive income.
Interest income includes amortization of purchase premium or discount.
Premiums and discounts on securities are amortized on the level-yield method
without anticipating prepayments, except for mortgage-backed securities where
prepayments are anticipated.
Gains and losses realized on the sale of investment securities are recorded on
the trade date and determined using the specific identification basis.
Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) Stock
Park’s national bank subsidiary, The Park National Bank (PNB) is a member
of the FHLB. Additionally, PNB is a member of the FRB. Members are required
to own a certain amount of stock based on their level of borrowings and other
factors and may invest in additional amounts. FHLB stock and FRB stock are
classified as restricted securities and are carried at their redemption value
within other investment securities on the Consolidated Balance Sheets. Both
cash and stock dividends are reported as income.
Bank Owned Life Insurance
Park has purchased life insurance policies on the lives of directors and certain
key officers. Bank owned life insurance is recorded at its cash surrender value
(or the amount that can be realized).
Mortgage Loans Held for Sale
Mortgage loans held for sale are carried at their fair value. Mortgage loans
held for sale were $1.7 million and $25.7 million at December 31, 2013 and
2012, respectively. These amounts are included in loans on the Consolidated
Balance Sheets and in the residential real estate loan segments in Note 5
and Note 6. The contractual balance was $1.6 million and $25.2 million at
December 31, 2013 and 2012, respectively. The gain expected upon sale was
$28,000 and $568,000 at December 31, 2013 and 2012, respectively. None
of these loans were 90 days or more past due or on nonaccrual status as of
December 31, 2013 or 2012.
Mortgage Banking Derivatives
Commitments to fund mortgage loans (interest rate locks) to be sold into the
secondary market and forward commitments for the future delivery of these
mortgage loans are accounted for as free standing derivatives. The fair values of
these mortgage derivatives are estimated based on changes in mortgage interest
rates from the date the interest on the loan is locked. The Company enters into
forward commitments for the future delivery of mortgage loans when interest
rate locks are entered into, in order to hedge the change in interest rates result-
ing from its commitments to fund the loans. Changes in the fair values of these
derivatives are included in net gains on sale of loans.
Loans
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or payoff, are reported at their outstanding principal
balances adjusted for any charge-offs, any deferred fees or costs on originated
loans, and any unamortized premiums or discounts on purchased loans.
Interest income is reported on the interest method and includes amortization
of net deferred loan origination fees and costs over the loan term. Commercial
loans include: (1) commercial, financial and agricultural loans; (2) commer-
cial real estate loans; (3) those commercial loans in the real estate construction
loan segment; and (4) those commercial loans in the residential real estate
loan segment. Consumer loans include: (1) mortgage and installment loans
included in the real estate construction segment; (2) mortgage, home equity
lines of credit (HELOC), and installment loans included in the residential real
estate segment; and (3) all loans included in the consumer segment.
Generally, commercial loans are placed on nonaccrual status at 90 days past
due and consumer and residential mortgage loans are placed on nonaccrual
status at 120 days past due. Accrued interest on these loans is considered
a loss, unless the loan is well-secured and in the process of collection.
Commercial loans placed on nonaccrual status are considered impaired (See
Note 5 of these Notes to Consolidated Financial Statements). For loans which
are on nonaccrual status, it is Park’s policy to reverse interest previously
accrued on the loans against interest income. Interest on such loans may be
recorded on a cash basis and be included in earnings only when cash is actually
received. Park’s charge-off policy for commercial loans requires management
to establish a specific reserve or record a charge-off as soon as it is apparent
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that the borrower is troubled and there is, or likely will be, a collateral shortfall
related to the estimated value of the collateral securing the loan. The Company’s
charge-off policy for consumer loans is dependent on the class of the loan.
Residential mortgage loans, HELOCs, and consumer loans secured by residen-
tial real estate are typically charged down to the value of the collateral, less
estimated selling costs, at 180 days past due. The charge-off policy for other
consumer loans, primarily installment loans, requires a monthly review of
delinquent loans and a complete charge-off for any account that reaches
120 days past due.
The delinquency status of a loan is based on contractual terms and not on how
recently payments have been received. Loans are removed from nonaccrual
status when loan payments have been received to cure the delinquency status,
the borrower has demonstrated the ability to maintain current payment status in
accordance with the loan agreement and the loan is deemed to be well-secured
by management.
A description of each segment of the loan portfolio, along with the risk
characteristics of each segment, is included below:
Commercial, financial and agricultural: Commercial, financial and
agricultural loans are made for a wide variety of general corporate purposes,
including financing for commercial and industrial businesses, financing for
equipment, inventories and accounts receivable, acquisition financing and
commercial leasing. The term of each commercial loan varies by its purpose.
Repayment terms are structured such that commercial loans will be repaid
within the economic useful life of the underlying asset. The commercial loan
portfolio includes loans to a wide variety of corporations and businesses across
many industrial classifications in the 28 Ohio counties and one Kentucky county
where PNB operates. The primary industries represented by these customers
include manufacturing, retail trade, health care and other services.
Commercial real estate: Commercial real estate (“CRE”) loans include
mortgage loans to developers and owners of commercial real estate. The
lending policy for CRE loans is designed to address the unique risk attributes
of CRE lending. The collateral for these CRE loans is the underlying commercial
real estate.
Construction real estate: The Company defines construction loans as both
commercial construction loans and residential construction loans where the
loan proceeds are used exclusively for the improvement of real estate as to
which the Company holds a mortgage. Construction loans may be in the form
of a permanent loan or short-term construction loan, depending on the needs
of the individual borrower. Construction financing is generally considered to
involve a higher degree of risk of loss than long-term financing on improved,
occupied real estate. Risk of loss on a construction loan depends largely upon
the accuracy of the initial estimate of the property’s value at completion of
construction and the estimated cost (including interest) of construction.
If the estimate of construction cost proves to be inaccurate, the PNB division
making the loan may be required to advance funds beyond the amount
originally committed to permit completion of the project. If the estimate of
value proves inaccurate, the PNB division may be confronted, at or prior to
the maturity of the loan, with a project having a value insufficient to assure
full repayment, should the borrower default. In the event a default on a con-
struction loan occurs and foreclosure follows, the PNB division must take
control of the project and attempt either to arrange for completion of con -
struction or to dispose of the unfinished project. Additional risk exists with
respect to loans made to developers who do not have a buyer for the property,
as the developer may lack funds to pay the loan if the property is not sold upon
completion. PNB and its divisions attempt to reduce such risks on loans to
developers by requiring personal guarantees and reviewing current personal
financial statements and tax returns as well as other projects undertaken by
the developer.
Residential real estate: The Company defines residential real estate loans
as first mortgages on individuals’ primary residence or second mortgages of
individuals’ primary residence in the form of HELOCs or installment loans.
Credit approval for residential real estate loans requires demonstration of
sufficient income to repay the principal and interest and the real estate taxes
and insurance, stability of employment, an established credit record and an
appropriately appraised value of the real estate securing the loan.
Consumer: The Company originates direct and indirect consumer loans,
primarily automobile loans and home equity based credit cards to customers in
its primary market areas. Credit approval for consumer loans requires income
sufficient to repay principal and interest due, stability of employment, an estab-
lished credit record and sufficient collateral for secured loans. Consumer loans
typically have shorter terms and lower balances with higher yields as compared
to real estate mortgage loans, but generally carry higher risks of default.
Consumer loan collections are dependent on the borrower’s financial stability,
and thus are more likely to be affected by adverse personal circumstances.
Allowance for Loan Losses
The allowance for loan losses is that amount believed adequate to absorb
probable incurred credit losses in the loan portfolio based on management’s
evaluation of various factors. The determination of the allowance requires
significant estimates, including the timing and amounts of expected cash
flows on impaired loans, consideration of current economic conditions,
and historical loss experience pertaining to pools of homogeneous loans,
all of which may be susceptible to change. The allowance is increased through
a provision for loan losses that is charged to earnings based on management’s
quarterly evaluation of the factors previously mentioned and is reduced by
charge-offs, net of recoveries.
The allowance for loan losses includes both (1) an estimate of loss based
on historical loss experience within both commercial and consumer loan
categories with similar characteristics (“statistical allocation”) and (2) an
estimate of loss based on an impairment analysis of each commercial loan
that is considered to be impaired (“specific allocation”).
In calculating the allowance for loan losses, management believes it is appro-
priate to utilize historical loss rates that are comparable to the current period
being analyzed, giving consideration to losses experienced over a full cycle. For
the historical loss factor at December 31, 2013, the Company utilized an annual
loss rate (“historical loss experience”), calculated based on an average of the
net charge-offs and the annual change in specific reserves for impaired com-
mercial loans, experienced during 2009 through 2013 within the individual
segments of the commercial and consumer loan categories. Management
believes the 60-month historical loss experience methodology is appropriate
in the current economic environment, as it captures loss rates consistent with
current expectations, based on current economic conditions. The loss factor
applied to Park’s consumer portfolio as of December 31, 2013 is based on
the historical loss experience over the past 60 months, plus an additional
judgmental reserve, increasing the total allowance for loan loss coverage in
the consumer portfolio to approximately 1.68 years of historical loss. The
consumer loan portfolio loss coverage ratio was 1.52 years at December
31, 2012. The loss factor applied to Park’s commercial portfolio as of
December 31, 2013 was based on the historical loss experience over the
past 60 months, plus additional reserves for consideration of (1) a loss
emergence period factor, (2) a loss migration factor and (3) a judgmental
or environmental loss factor. These additional reserves increased the total
allowance for loan loss coverage in the commercial portfolio to approximately
2.42 years of historical loss. The commercial loan portfolio loss coverage ratio
was 2.59 years at December 31, 2012. Park’s commercial loans are individually
risk graded. If loan downgrades occur, the probability of default increases
and accordingly management allocates a higher percentage reserve to those
accruing commercial loans graded special mention and substandard.
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The judgmental increases discussed above incorporate management’s
evaluation of the impact of environmental qualitative factors which pose
additional risks and assign a component of the allowance for loan losses in
consideration of these factors. Such environmental factors include: national
and local economic trends and conditions; experience, ability and depth of
lending management and staff; effects of any changes in lending policies
and procedures; and levels of, and trends in, consumer bankruptcies,
delinquencies, impaired loans and charge-offs and recoveries.
GAAP requires a specific allocation to be established as a component of
the allowance for loan losses for certain loans when it is probable that all
amounts due pursuant to the contractual terms of the loans will not be col-
lected, and the recorded investment in the loans exceeds their measure of
impairment. Management considers the following related to commercial
loans when determining if a loan should be considered impaired: (1) current
debt service coverage levels of the borrowing entity; (2) payment history
over the most recent 12-month period; (3) other signs of deterioration in
the borrower’s financial situation, such as changes in beacon scores; and
(4) consideration of global cash flows of financially sound guarantors that
have previously supported loan payments. The recorded investment is the
carrying balance of the loan, plus accrued interest receivable, both as of the
end of the year. Impairment is measured using either the present value of
expected future cash flows based upon the initial effective interest rate on the
loan, the observable market price of the loan or the fair value of the collateral.
If a loan is considered to be collateral dependent, the fair value of collateral,
less estimated selling costs, is used to measure impairment.
Troubled Debt Restructuring (TDRs)
Management classifies loans as TDRs when a borrower is experiencing
financial difficulties and Park has granted a concession. In order to determine
whether a borrower is experiencing financial difficulty, an evaluation is per-
formed of the probability that the borrower will be in payment default on any
of the borrower’s debt in the foreseeable future without the modification. This
evaluation is performed under the Company’s internal underwriting policy.
Management’s policy is to modify loans by extending the term or by granting
a temporary or permanent contractual interest rate below the market rate, not
by forgiving debt. TDRs are separately identified for impairment disclosures
and are measured at the present value of estimated future cash flows using
the loan’s effective rate at inception. If a TDR is considered to be a collateral
dependent loan, the loan is reported, net, at the fair value of the collateral.
Income Recognition
Income earned by the Corporation and its subsidiaries is recognized on
the accrual basis of accounting, except for nonaccrual loans as previously
discussed, and late charges on loans which are recognized as income when
they are collected.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is generally provided on the straight-line method
over the estimated useful lives of the related assets. Leasehold improvements
are amortized over the shorter of the remaining lease period or the estimated
useful lives of the improvements. Upon the sale or other disposal of an asset,
the cost and related accumulated depreciation are removed from the accounts
and the resulting gain or loss is recognized. Maintenance and repairs are
charged to expense as incurred while renewals and improvements that extend
the useful life of an asset are capitalized. Premises and equipment are evaluated
for impairment whenever events or changes in circumstances indicate that the
carrying amount of a particular asset may not be recoverable.
The range of depreciable lives over which premises and equipment are being
depreciated are:
Buildings
Equipment, furniture and fixtures
Leasehold improvements
5 to 50 Years
3 to 20 Years
1 to 10 Years
Buildings that are currently placed in service are depreciated over 30 years.
Equipment, furniture and fixtures that are currently placed in service are
depreciated over 3 to 12 years. Leasehold improvements are depreciated
over the lives of the related leases which range from 1 to 10 years.
Other Real Estate Owned (OREO)
OREO is initially recorded at fair value less anticipated selling costs (net
realizable value), establishing a new cost basis, and consists of property
acquired through foreclosure and real estate held for sale. If the net realizable
value is below the carrying value of the loan at the date of transfer, the differ-
ence is charged to the allowance for loan losses. Subsequent declines in the
value of real estate are classified as OREO devaluations, are reported as
adjustments to the carrying amount of OREO and are expensed within “Other
income”. In certain circumstances where management believes the devaluation
may not be permanent in nature, Park utilizes a valuation allowance to record
OREO devaluations, which is also expensed through “Other income”. Costs
relating to development and improvement of such properties are capitalized
(not in excess of fair value less estimated costs to sell) and costs relating to
holding the properties are charged to “Other expense”.
Mortgage Loan Servicing Rights
When Park sells mortgage loans with servicing rights retained, servicing rights
are recorded at an amount not to exceed fair value with the income statement
effect recorded in gains on sale of loans. Capitalized servicing rights are amor-
tized in proportion to and over the period of estimated future servicing income
of the underlying loan and is included within “Other service income”.
Mortgage servicing rights are assessed for impairment periodically, based on
fair value, with any impairment recognized through a valuation allowance. The
fair value of mortgage servicing rights is determined by discounting estimated
future cash flows from the servicing assets, using market discount rates and
expected future prepayment rates. In order to calculate fair value, the sold loan
portfolio is stratified into homogeneous pools of like categories. (See Note 20
of these Notes to Consolidated Financial Statements.)
Fees received for servicing mortgage loans owned by investors are based on a
percentage of the outstanding monthly principal balance of such loans and are
included in income as loan payments are received. The cost of servicing loans
is charged to expense as incurred.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price over net identifiable
tangible and intangible assets acquired in a purchase business combination.
Other intangible assets represent purchased assets that have no physical prop-
erty but represent some future economic benefit to their owner and are capable
of being sold or exchanged on their own or in combination with a related asset
or liability.
Goodwill and indefinite-lived intangible assets are not amortized to expense,
but are subject to impairment tests annually, or more frequently if events or
changes in circumstances indicate that the asset might be impaired. Intangible
assets with definitive useful lives (such as core deposit intangibles) are amor-
tized to expense over their estimated useful lives.
55
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N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Loss Contingencies and Guarantees
Loss contingencies, including claims and legal actions arising in the ordinary
course of business, are recorded as liabilities when the likelihood of loss is
probable and an amount or range of loss can be reasonably estimated.
Income Taxes
The Corporation accounts for income taxes using the asset and liability
approach. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse. To the extent that Park does
not consider it more likely than not that a deferred tax asset will be recovered,
a valuation allowance is recorded. All positive and negative evidence is reviewed
when determining how much of a valuation allowance is recognized on a quar-
terly basis. A valuation allowance, if needed, reduces deferred tax assets to the
amount expected to be realized.
An uncertain tax position is recognized as a benefit only if it is “more-likely-
than-not” that the tax position would be sustained in a tax examination being
presumed to occur. The benefit recognized for a tax position that meets the
“more-likely-than-not” criteria is measured based on the largest benefit that
is more than 50 percent likely to be realized, taking into consideration the
amounts and probabilities of the outcome upon settlement. For tax positions
not meeting the “more-likely-than-not” test, no tax benefit is recorded. Park
recognizes any interest and penalties related to income tax matters in income
tax expense.
Treasury Shares
The purchase of Park’s common shares is recorded at cost. At the date of
retirement or subsequent reissuance, the treasury shares account is reduced
by the weighted average cost of the common shares retired or reissued.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive
income (loss). Other comprehensive income (loss) includes unrealized gains
and losses on securities available for sale, changes in the funded status of the
Company’s Defined Benefit Pension Plan, and the unrealized net holding gains
and losses on the cash flow hedge that matured on December 28, 2012, which
are also recognized as separate components of equity.
Stock-Based Compensation
Compensation cost is recognized for stock options and stock awards issued
to employees and directors, based on the fair value of these awards at the date
of grant. A Black-Scholes model is utilized to estimate the fair value of stock
options, while the market price of Park’s common shares at the date of grant
is used for stock awards. Compensation cost is recognized over the required
service period, generally defined as the vesting period. Park did not grant any
stock options or stock awards to employees during 2013, 2012 or 2011. No
stock options vested in 2013, 2012 or 2011. Park granted 10,550 common
shares to its directors in 2013, 6,120 common shares in 2012 and 7,020
common shares in 2011.
Loan Commitments and Related Financial Instruments
Financial instruments include off balance sheet credit instruments, such as
commitments to make loans and commercial letters of credit, issued to meet
customer financing needs. The face amount for these items represents the
exposure to loss, before considering customer collateral or ability to repay.
Such financial instruments are recorded when they are funded.
Management considers several factors when performing the annual impairment
tests on goodwill. The factors considered include the operating results for the
particular Park segment for the past year and the operating results budgeted for
the current year (including multi-year projections), the deposit and loan totals
of the Park segment and the economic conditions in the markets served by
the Park segment. At December 31, 2013, the goodwill remaining on Park’s
balance sheet consisted entirely of goodwill at PNB. (See Note 23 of these
Notes to Consolidated Financial Statements for operating segment results.)
The following table reflects the activity in goodwill and other intangible assets
for the years 2013, 2012 and 2011.
(In thousands)
January 1, 2011
Amortization
December 31, 2011
Amortization
December 31, 2012
Amortization
December 31, 2013
Goodwill
$ 72,334
Core Deposit
Intangibles
Total
$ 6,043
$ 78,377
—
(3,534)
(3,534)
$ 72,334
$ 2,509
$ 74,843
—
(2,172)
(2,172)
$ 72,334
$ 337
$ 72,671
—
(337)
(337)
$ 72,334
$ —
$ 72,334
GAAP requires a company to perform an impairment test on goodwill annually,
or more frequently if events or changes in circumstances indicate that the asset
might be impaired, by assessing qualitative factors to determine whether the
existence of events or circumstances leads to a determination that it is more
likely than not that the fair value of a reporting unit is less than its carrying
amount. If after assessing these events or circumstances, it is concluded that
it is not more likely than not that the fair value of a reporting unit is less than its
carrying amount, then performing the two-step impairment test is unnecessary.
If the carrying amount of the goodwill exceeds the fair value, an impairment
charge must be recorded in an amount equal to the excess.
Park evaluates goodwill for impairment on April 1 of each year, with financial
data as of March 31. Based on the analysis performed as of April 1, 2013, the
Company determined that goodwill for Park’s national bank subsidiary (PNB)
was not impaired.
The core deposit intangibles were being amortized to expense principally on
the straight-line method, over a period of six years. The amortization period
for the core deposit intangibles related to Vision Bank was accelerated in the
fourth quarter of 2011 and first quarter of 2012 due to the pending sale of the
Vision Bank business to Centennial Bank. Core deposit intangible amortization
expense was $337,000 in 2013, $2.2 million in 2012 and $3.5 million in 2011.
The accumulated amortization of core deposit intangibles was $22.1 million
as of December 31, 2013 and $21.8 million at December 31, 2012. As of
December 31, 2013 all core deposit intangibles had been fully amortized.
Consolidated Statement of Cash Flows
Cash and cash equivalents include cash and cash items, amounts due from
banks and money market instruments. Generally, money market instruments
are purchased and sold for one-day periods.
Net cash provided by operating activities reflects cash payments as follows:
December 31,
(In thousands)
Interest paid on deposits and other borrowings
Income taxes paid
2013
$42,481
20,000
2012
$51,877
7,000
2011
$59,552
17,700
Non-cash Items
Non-cash items included in cash provided by operating activities:
December 31,
(In thousands)
Transfers to OREO
2013
2012
2011
$22,144
$23,634
$36,209
56
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N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Derivative Instruments
At the inception of a derivative contract, the Company designates the derivative
as one of three types based on the Company’s intentions and belief as to the
derivative’s likely effectiveness as a hedge. These three types are: (1) a hedge
of the fair value of a recognized asset or liability or of an unrecognized firm
commitment (“fair value hedge”); (2) a hedge of a forecasted transaction or
the variability of cash flows to be received or paid related to a recognized asset
or liability (“cash flow hedge”); or (3) an instrument with no hedging designa-
tion (“stand-alone derivative”). For a fair value hedge, the gain or loss on the
derivative, as well as the offsetting loss or gain on the hedged item, are recog-
nized in current earnings as fair values change. For a cash flow hedge, the gain
or loss on the derivative is reported in other comprehensive income and is
reclassified into earnings in the same periods during which the hedged trans -
action affects earnings. For both types of hedges, changes in the fair value of
derivatives that are not highly effective in hedging the changes in fair value or
expected cash flows of the hedged item are recognized immediately in current
earnings. Changes in the fair value of derivatives that do not qualify for hedge
accounting are reported currently in earnings, as non-interest income.
The Company formally documents the relationship between derivatives and
hedged items, as well as the risk-management objective and the strategy for
undertaking hedge transactions at the inception of the hedging relationship.
This documentation includes linking fair value or cash flow hedges to specific
assets and liabilities on the Consolidated Balance Sheets or to specific firm
commitments or forecasted transactions. The Company also formally assesses,
both at the hedge’s inception and on an ongoing basis, whether the derivative
instruments that are used are highly effective in offsetting changes in fair values
or cash flows of the hedged items. The Company discontinues hedge accounting
when it determines that the derivative is no longer effective in offsetting changes
in the fair value or cash flows of the hedged item, the derivative is settled or
terminates, a hedged forecasted transaction is no longer probable, a hedged
firm commitment is no longer firm, or treatment of the derivative as a hedge
is no longer appropriate or intended.
When hedge accounting is discontinued, subsequent changes in fair value of
the derivative are recorded as non-interest income. When a fair value hedge is
discontinued, the hedged asset or liability is no longer adjusted for changes in
fair value and the existing basis adjustment is amortized or accreted over the
remaining life of the asset or liability. When a cash flow hedge is discontinued
but the hedged cash flows or forecasted transactions are still expected to
occur, gains or losses that were accumulated in other comprehensive
income are amortized into earnings over the same periods in which the
hedged transactions will affect earnings.
Fair Value Measurement
Fair values of financial instruments are estimated using relevant market
information and other assumptions, as more fully disclosed in Note 21 of these
Notes to Consolidated Financial Statements. Fair value estimates involve uncer-
tainties and matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets
for particular items. Changes in assumptions or in market conditions could
significantly affect the estimates.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over
the assets has been relinquished. Control over transferred assets is deemed
to be surrendered when the assets have been isolated from the Company, the
transferee obtains the right (free of conditions that constrain it from taking
advantage of that right) to pledge or exchange the transferred assets, and the
Company does not maintain effective control over the transferred assets through
an agreement to repurchase them before their maturity.
Retirement Plans
Pension expense is the net of service and interest cost, return on plan assets
and amortization of gains and losses not immediately recognized. Employee
401(k) plan expense is the amount of matching contributions. Deferred
compensation and supplemental retirement plan expense allocates the
benefits over years of service.
Earnings Per Common Share
Basic earnings per common share is net income available to common share-
holders divided by the weighted average number of common shares outstanding
during the period. Diluted earnings per common share includes the dilutive
effect of additional potential common shares issuable under stock awards,
stock options, warrants and convertible securities. Earnings and dividends
per common share are restated for any stock splits and stock dividends
through the date of issuance of the consolidated financial statements.
Operating Segments
Prior to February 16, 2012, the operating segments for the Corporation were
its two chartered bank subsidiaries, PNB (headquartered in Newark, Ohio) and
Vision Bank (“Vision” or “VB”) (headquartered in Panama City, Florida). On
February 16, 2012, Vision sold certain assets and liabilities to Centennial Bank
(See Note 3 of these Notes to Consolidated Financial Statements). Promptly
following the closing of the transaction, Vision surrendered its Florida banking
charter to the Florida Office of Financial Regulation and became a non-bank
Florida corporation (the “Florida Corporation”). The Florida Corporation
merged with and into a wholly-owned non-bank subsidiary of Park, SE
Property Holdings, LLC (“SEPH”), with SEPH being the surviving entity. The
closing of this transaction prompted Park to add SEPH as a reportable segment.
Additionally, due to the increased significance of the entity, Guardian Financial
Services Company (“GFSC”) was added as a reportable segment in the first
quarter of 2012.
Adoption of New Accounting Pronouncements:
ASU 2012-02 Testing Indefinite-Lived Intangible Assets for
Impairment: In July 2012, FASB issued Accounting Standards Update 2012-02,
Testing Indefinite-Lived Intangible Assets for Impairment (ASU 2012-02).
The ASU allows an entity to first assess qualitative factors to determine whether
the existence of events or circumstances indicate that it is more likely than
not that the indefinite-lived intangible asset is impaired. The new guidance is
effective for annual and interim impairment tests performed for fiscal years
beginning after September 15, 2012. The adoption of this guidance did not
have an impact on Park’s consolidated financial statements.
ASU 2013-02 Reporting of Amounts Reclassified Out of Accumulated
Other Comprehensive Income: In February 2013, FASB issued Accounting
Standards Update 2013-02, Reporting of Amounts Reclassified Out of
Accumulated Other Comprehensive Income (ASU 2013-02). The ASU
requires an entity to provide information about the amounts reclassified out of
accumulated other comprehensive income by component. In addition, an entity
is required to present, either on the face of the statement where net income is
presented or in the notes, significant amounts reclassified out of accumulated
other comprehensive income by the respective line items of net income but
only if the amount reclassified is required under GAAP to be reclassified to net
income in its entirety in the same reporting period. For other amounts that are
not required under GAAP to be reclassified in their entirety to net income, an
entity is required to cross-reference to other disclosures required under GAAP
that provide additional detail about these amounts. The new guidance is effec-
tive prospectively for reporting periods beginning after December 15, 2012.
The adoption of the new guidance on January 1, 2013 impacted the other
comprehensive income (loss) disclosures in Note 15.
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N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
2. ORGANIZATION
Park National Corporation is a financial holding company headquartered
in Newark, Ohio. Through its national bank subsidiary, PNB, Park is engaged
in a general commercial banking and trust business, primarily in Ohio. PNB
operates through eleven banking divisions with the Park National Bank Division
headquartered in Newark, Ohio, the Fairfield National Bank Division head -
quartered in Lancaster, Ohio, The Park National Bank of Southwest Ohio &
Northern Kentucky Division headquartered in Cincinnati, Ohio, the First-Knox
National Bank Division headquartered in Mount Vernon, Ohio, the Farmers
Bank Division headquartered in Loudonville, Ohio, the Security National Bank
Division headquartered in Springfield, Ohio, the Unity National Bank Division
headquartered in Piqua, Ohio, the Richland Bank Division headquartered
in Mansfield, Ohio, the Century National Bank Division headquartered in
Zanesville, Ohio, the United Bank, N.A. Division headquartered in Bucyrus,
Ohio and the Second National Bank Division headquartered in Greenville,
Ohio. A wholly-owned subsidiary of Park, Guardian Financial Services
Company (“GFSC”) is a consumer finance company located in Central Ohio.
Through February 16, 2012, Park operated a second banking subsidiary,
Vision, which was engaged in a general commercial banking business, primarily
in Baldwin County, Alabama and the panhandle of Florida. Vision operated
through two banking divisions with the Vision Bank Florida Division head -
quartered in Panama City, Florida and the Vision Bank Alabama Division
headquartered in Gulf Shores, Alabama. Promptly following the sale of the
Vision business to Centennial, Vision surrendered its Florida banking charter
to the Florida Office of Financial Regulation and became a non-bank Florida
corporation. The Florida Corporation merged with and into a wholly-owned,
non-bank subsidiary of Park, SEPH, with SEPH being the surviving entity. SEPH
holds the remaining assets and liabilities retained by Vision subsequent to the
sale. SEPH also holds other real estate owned (“OREO”) that had previously
been transferred to SEPH from Vision. SEPH’s assets consist primarily of
performing and nonperforming loans and OREO. This segment represents
a run off portfolio of the legacy Vision assets.
All of the Ohio-based banking divisions provide the following principal services:
the acceptance of deposits for demand, savings and time accounts; commercial,
industrial, consumer and real estate lending, including installment loans, credit
cards, home equity lines of credit, commercial leasing; trust services; cash
management; safe deposit operations; electronic funds transfers and a variety
of additional banking-related services. Vision, with its two banking divisions,
through February 16, 2012, provided the services mentioned above, with the
exception of commercial leasing. See Note 23 of these Notes to Consolidated
Financial Statements for financial information on the Corporation’s operating
segments.
3. SALE OF VISION BANK BUSINESS
On February 16, 2012, Park and its wholly-owned subsidiary, Vision,
completed their sale of substantially all of the performing loans, operating
assets and liabilities associated with Vision to Centennial Bank (“Centennial”),
an Arkansas state-chartered bank which is a wholly-owned subsidiary of Home
BancShares, Inc. (“Home”), an Arkansas corporation, as contemplated by the
previously announced Purchase and Assumption Agreement by and between
Park, Vision, Home and Centennial, dated as of November 16, 2011, as
amended by the First Amendment to Purchase and Assumption Agreement,
dated as of January 25, 2012, and the Second Amendment to Purchase and
Assumption Agreement, dated as of April 30, 2012 (collectively, the “Vision
Purchase Agreement”) for a purchase price of $27.9 million.
ASU 2013-11 – Income Taxes (Topic 740): Presentation of an
Unrecognized Tax Benefit When a Net Operating Loss Carryforward,
a Similar Tax Loss, or a Tax Credit Carryforward Exists: The ASU
requires that an unrecognized tax benefit, or a portion of an unrecognized tax
benefit, be presented in the financial statements as a reduction to a deferred
tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit
carryforward. However, if a net operating loss carryforward, a similar tax loss,
or a tax credit carryforward is not available at the reporting date under the tax
law of the applicable jurisdiction to settle any additional income taxes that
would result from the disallowance of a tax position or the tax law of the appli-
cable jurisdiction does not require the entity to use, and the entity does not
intend to use, the deferred tax asset for such purpose, the unrecognized tax
benefit should be presented in the financial statements as a liability and should
not be combined with deferred tax assets. The amendments are effective for
fiscal years, and interim periods within those years, beginning after December
15, 2013. The amendments will not have a material impact on Park’s consoli-
dated financial statements.
ASU 2014-01 – Investments—Equity Method and Joint Ventures
(Topic 323): Accounting for Investments in Qualified Affordable
Housing Projects (a consensus of the FASB Emerging Issues Task
Force): In January 2014, FASB issued Accounting Standards Update 2014-01,
Equity Method and Joint Ventures (Topic 323): Accounting for Investments
in Qualified Affordable Housing Projects (a consensus of the FASB Emerging
Issues Task Force). The ASU permits reporting entities to make an accounting
policy election to account for their investments in qualified affordable housing
projects using the proportional amortization method if certain conditions are
met. Under the proportional amortization method, an entity amortizes the initial
cost of the investment in proportion to the tax credits and other tax benefits
received and recognizes the net investment performance in the income state-
ment as a component of income tax expense. Additionally, a reporting entity
should disclose information that enables users of its financial statement to
understand the nature of its investments in qualified affordable housing proj-
ects, and the effect of the measurement of its investments in qualified affordable
housing projects and the related tax credits on its financial position and results
of operations. The new guidance is effective for annual periods, and interim
reporting periods within those annual periods, beginning after December 15,
2014. The adoption of this guidance will not have a material impact on Park’s
consolidated financial statements, but may impact the presentation of Park’s
investments in qualified affordable housing projects. Additionally, the adoption
of this guidance will require additional disclosures.
ASU 2014-04 – Receivables—Troubled Debt Restructurings by
Creditors (Subtopic 310-40): Reclassification of Residential Real
Estate Collateralized Consumer Mortgage Loans upon Foreclosure
(a consensus of the FASB Emerging Issues Task Force): In January 2014,
FASB issued Accounting Standards Update 2014-04, Receivables—Troubled
Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of
Residential Real Estate Collateralized Consumer Mortgage Loans upon
Foreclosure (a consensus of the FASB Emerging Issues Task Force). The
ASU clarifies when an insubstance repossession or foreclosure occurs and
a creditor is considered to have received physical possession of real estate
property collateralizing a consumer mortgage loan. Specifically, the new ASU
requires a creditor to reclassify a collateralized consumer mortgage loan to
real estate property upon obtaining legal title to the real estate collateral, or
the borrower voluntarily conveying all interest in the real estate property to the
lender to satisfy the loan through a deed in lieu of foreclosure or similar legal
agreement. Additional disclosures are required detailing the amount of fore-
closed residential real estate property held by the creditor and the recorded
investment in consumer mortgages collateralized by real estate property that
are in the process of foreclosure. The new guidance is effective for annual
periods, and interim reporting periods within those annual periods, beginning
after December 15, 2014. The adoption of this guidance will not have a material
impact on Park’s consolidated financial statements, but will result in additional
disclosures.
58
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Subsequent to the transactions contemplated by the Vision Purchase Agreement,
Vision was left with approximately $22 million of performing loans (including
mortgage loans held for sale) and non-performing loans with a fair value of
$88 million. Park recorded a pre-tax gain, net of expenses directly related to
the sale, of approx imately $22.2 million, resulting from the transactions con-
templated by the Vision Purchase Agreement. The pre-tax gain, net of expense
is summarized in the table below:
(In thousands)
Premium paid
One-time gains
Loss on sale of fixed assets
Employment and severance agreements
Other one-time charges, including estimates
Pre-tax gain
$27,913
298
(2,434)
(1,610)
(2,000)
$22,167
Promptly following the closing of the transactions contemplated by the Vision
Purchase Agreement, Vision surrendered its Florida banking charter to the
Florida Office of Financial Regulation and became the non-bank Florida
Corporation. The Florida Corporation merged with and into SEPH, a wholly-
owned, non-bank subsidiary of Park, with SEPH being the surviving entity.
As part of the transaction between Vision and Centennial, Park agreed to allow
Centennial to “put back” up to $7.5 million aggregate principal amount of
loans, which were originally included within the loans sold in the transaction.
The loan put option expired on August 16, 2012, 180 days after the closing
of the transaction, which was February 16, 2012. Prior to August 16, 2012,
Centennial notified Park of Centennial’s intent to put back approximately $7.5
million aggregate principal amount of loans. During 2012, Centennial had put
back forty-four loans, totaling approximately $7.5 million. These forty-four
loans were recorded on the books at a fair value of $4.2 million. The difference
of $3.3 million was written off against the loan put liability that had previously
been established in the first half of 2012.
4. INVESTMENT SECURITIES
The amortized cost and fair value of investment securities are shown in the
following table. Management performs a quarterly evaluation of investment
securities for any other-than-temporary impairment.
During 2013 and 2012, there were $17,000 and $54,000, respectively, in
investment securities deemed to be other-than-temporarily impaired, which
were related to an equity investment in a financial institution.
Investment securities at December 31, 2013 were as follows:
Gross
Unrealized/
Unrecognized
Holding
Gains
Gross
Unrealized/
Unrecognized
Holding
Losses
Amortized
Cost
Estimated
Fair Value
$ 570,632
$ —
$45,496
$ 525,136
650,391
1,120
8,070
1,539
9,990
—
648,471
2,659
$1,222,143
$ 9,609
$55,486
$1,176,266
$
240
$
1
$ —
$
241
(In thousands)
2013:
Securities Available-for-Sale
Obligations of U.S.
Treasury and other
U.S. Government
sponsored entities
U.S. Government
sponsored entities’
asset-backed securities
Other equity securities
Total
2013:
Securities Held-to-Maturity
Obligations of states and
political subdivisions
U.S. Government
sponsored entities’
asset-backed securities
Total
$ 182,061
$ 5,383
$
181,821
5,382
42
42
187,161
$ 187,402
and held-to-maturity mortgage-backed securities was $340.4 million and
$0.1 million, respectively. At December 31, 2013, the amortized cost of Park’s
available-for-sale and held-to-maturity CMOs was $310.0 million and $181.7
million, respectively.
Other investment securities (as shown on the Consolidated Balance Sheets)
consist of stock investments in the FHLB and the FRB. These restricted stock
investments are carried at their redemption value. Park owned $59.0 million
of FHLB stock and $6.9 million of FRB stock at both December 31, 2013 and
December 31, 2012.
Management does not believe any individual unrealized loss as of December
31, 2013 or December 31, 2012, represented an other-than-temporary
impairment. The unrealized losses on debt securities are primarily the result
of interest rate changes. These conditions will not prohibit Park from receiving
its contractual principal and interest payments on these debt securities. The fair
value of these debt securities is expected to recover as payments are received
on these secu rities and they approach maturity. Should the impairment of any of
these securities become other-than-temporary, the cost basis of the investment
will be reduced and the resulting loss recognized in net income in the period
the other-than-temporary impairment is identified.
The following table provides detail on investment securities with unrealized
losses aggregated by investment category and length of time the individual
securities had been in a continuous loss position at December 31, 2013:
(In thousands)
2013:
Securities
Available-for-Sale
Obligations of U.S.
Treasury and other
U.S. Government
sponsored entities
U.S. Government
sponsored entities’
asset-backed
securities
Less than 12 Months
12 Months or Longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
$377,626 $29,256
$147,510 $16,240
$525,136 $45,496
404,035
8,917
21,572
1,073
425,607
9,990
Total
$781,661 $38,173
$169,082 $17,313
$950,743 $55,486
2013:
Securities
Held-to-Maturity
U.S. Government
sponsored entities’
asset-backed
securities
$ 5,781 $
42
$
— $ — $
5,781 $
42
Investment securities at December 31, 2012 were as follows:
Gross
Unrealized/
Unrecognized
Holding
Gains
Gross
Unrealized/
Unrecognized
Holding
Losses
Amortized
Cost
Estimated
Fair Value
$ 695,655
$ 1,352
$1,280
$ 695,727
984
19
401,882
1,137
14,067
1,085
—
447
—
1,003
415,502
2,222
$1,099,658
$16,523
$1,727
$1,114,454
$
570
$
2
$ — $
572
(In thousands)
2012:
Securities Available-for-Sale
Obligations of U.S.
Treasury and other
U.S. Government
sponsored entities
Obligations of states and
political subdivisions
U.S. Government
sponsored entities’
asset-backed securities
Other equity securities
Total
2012:
Securities Held-to-Maturity
Obligations of states and
political subdivisions
U.S. Government
sponsored entities’
asset-backed securities
Park’s U.S. Government sponsored entities’ asset-backed securities consisted
of 15-year mortgage-backed securities and collateralized mortgage obligations
(CMOs). At December 31, 2013, the amortized cost of Park’s available-for-sale
Total
$ 401,390
$ 9,353
$
400,820
9,351
38
38
410,133
$ 410,705
59
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The following table provides detail on investment securities with unrealized
losses aggregated by investment category and length of time the individual
securities had been in a continuous loss position at December 31, 2012:
At December 31, 2013, there were no holdings of securities of any one issuer,
other than the U.S. Government and its agencies, in an amount greater than
10% of shareholders’ equity.
(In thousands)
2012:
Securities
Available-for-Sale
Obligations of U.S.
Treasury and other
U.S. Government
sponsored entities
U.S. Government
sponsored entities’
asset-backed
securities
Less than 12 Months
12 Months or Longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
$177,470
$1,280
$ — $ — $177,470
$1,280
123,631
447
—
— 123,631
447
Total
$301,101
$1,727
$ — $ — $301,101
$1,727
2012:
Securities
Held-to-Maturity
U.S. Government
sponsored entities’
asset-backed
securities
$ 10,120
$
38
$ — $ — $ 10,120
$
38
2013:
(In thousands)
The amortized cost and estimated fair value of investments in debt securities at
December 31, 2013, are shown in the following table by contractual maturity or
the expected call date, except for asset-backed securities, which are shown as a
single total, due to the unpredictability of the timing in principal repayments.
(In thousands)
Securities Available-for-Sale
U.S. Treasury and other U.S. Government
sponsored entities’ notes:
Due one through five years
Due five through ten years
Due in over ten years
Total
U.S. Government sponsored entities’
asset-backed securities:
Amortized
Cost
Estimated
Fair Value
$ 50,000
396,882
123,750
$570,632
$ 46,800
367,580
110,756
$525,136
Weighted
Average
Yield
2.00%
2.43%
1.74%
2.24%
Total
$650,391
$648,471
2.47%
Securities Held-to-Maturity
Obligations of states and
political subdivisions:
Due within one year
Total
U.S. Government sponsored entities’
asset-backed securities:
$
$
240
240
$
$
241
241
4.46%
4.46%
Total
$181,821
$187,161
3.69%
Approximately $525.1 million of Park’s securities shown in the above table as
U.S. Treasury and other U.S. Government sponsored entities’ notes are callable
notes. These callable securities have a final maturity of 9 to 14 years. Of the
$525.1 million reported at December 31, 2013, $46.8 million were expected
to be called and are shown in the table at their expected call date.
Investment securities having a book value of $1,321 million and $1,364 million
at December 31, 2013 and 2012, respectively, were pledged to collateralize
government and trust department deposits in accordance with federal and
state requirements, to secure repurchase agreements sold and as collateral
for FHLB advance borrowings.
At December 31, 2013, $639 million was pledged for government and trust
department deposits, $648 million was pledged to secure repurchase agree-
ments and $34 million was pledged as collateral for FHLB advance borrowings.
At December 31, 2012, $655 million was pledged for government and trust
department deposits, $667 million was pledged to secure repurchase agree-
ments and $41 million was pledged as collateral for FHLB advance borrowings.
60
During 2013, Park sold $75 million of AFS investment securities, which were
sold at book value for no gain. During 2012, Park had no sales of investment
securities. Among the investment securities sold in 2011 were all investment
securities (AFS and HTM) held by Vision, which were sold in preparation of
the sale of the business to Centennial. There were no HTM securities sold
by PNB in 2011. During 2011, Park sold $610 million of U.S. Government
sponsored entities’ mortgage-backed securities, realizing a pre-tax gain
of $28.8 million ($18.7 million after-tax). No gross losses were realized
in 2013, 2012 or 2011.
5. LOANS
The composition of the loan portfolio, by class of loan, as of December 31,
2013 and December 31, 2012 was as follows:
Commercial, financial and agricultural*
Commercial real estate*
Construction real estate:
SEPH commercial land
and development*
Remaining commercial
Mortgage
Installment
Residential real estate:
Commercial
Mortgage
HELOC
Installment
Consumer
Leases
Total loans
2012:
Commercial, financial and agricultural*
Commercial real estate*
Construction real estate:
SEPH commercial land
and development*
Remaining commercial
Mortgage
Installment
Residential real estate:
Commercial
Mortgage
HELOC
Installment
Consumer
Leases
Total loans
Loan
Balance
Accrued
Interest
Receivable
$ 825,432
1,112,273
$ 3,079
3,765
5,846
110,842
31,882
7,546
407,387
1,144,754
213,565
33,841
723,733
3,404
2
263
96
26
904
1,559
870
132
2,775
23
Recorded
Investment
$ 828,511
1,116,038
5,848
111,105
31,978
7,572
408,291
1,146,313
214,435
33,973
726,508
3,427
$4,620,505
$13,494
$4,633,999
$ 823,927
1,092,164
$ 2,976
3,839
$ 826,903
1,096,003
15,105
115,473
26,373
8,577
392,203
1,064,787
212,905
43,750
651,930
3,128
37
331
81
33
959
1,399
892
176
2,835
29
15,142
115,804
26,454
8,610
393,162
1,066,186
213,797
43,926
654,765
3,157
$4,450,322
$13,587
$4,463,909
*Included within commercial, financial and agricultural loans, commercial real estate loans, and
SEPH commercial land and development loans were an immaterial amount of consumer loans
that were not broken out by class.
Loans are shown net of deferred origination fees, costs and unearned income
of $7.3 million at December 31, 2013 and $6.7 million at December 31, 2012,
which represented a net deferred income position in both years.
Overdrawn deposit accounts of $3.3 million and $3.0 million have been
reclassified to loans at December 31, 2013 and 2012, respectively.
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Credit Quality
The following table presents the recorded investment in nonaccrual loans,
accruing troubled debt restructurings, and loans past due 90 days or more
and still accruing by class of loan as of December 31, 2013 and December
31, 2012:
(In thousands)
2013:
Commercial, financial
and agricultural
Commercial real estate
Construction real estate:
SEPH commercial land
and development
Remaining commercial
Mortgage
Installment
Residential real estate:
Commercial
Mortgage
HELOC
Installment
Consumer
Total loans
2012:
Commercial, financial
and agricultural
Commercial real estate
Construction real estate:
SEPH commercial land
and development
Remaining commercial
Mortgage
Installment
Residential real estate:
Commercial
Mortgage
HELOC
Installment
Consumer
Total loans
Loans Past Due
90 Days
or More
Accruing
Troubled Debt
Restructurings and Accruing
Total
Nonperforming
Loans
Nonaccrual
Loans
$ 20,633
39,588
$ 107
2,234
$
4,777
10,476
87
39
32,495
20,564
2,129
965
3,463
—
306
97
192
913
11,708
751
885
1,616
80
2
—
—
—
—
—
549
—
80
1,016
$ 20,820
41,824
4,777
10,782
184
231
33,408
32,821
2,880
1,930
6,095
$135,216
$18,809
$1,727
$155,752
$ 17,324
40,983
$ 5,277
3,295
$
37
1,007
$ 22,638
45,285
13,939
14,977
158
149
33,961
28,260
1,689
1,670
2,426
—
6,597
100
175
1,661
9,425
736
780
1,900
—
—
—
—
94
950
—
54
888
13,939
21,574
258
324
35,716
38,635
2,425
2,504
5,214
$155,536
$29,946
$3,030
$188,512
The following table provides additional information regarding those nonaccrual
and accruing troubled debt restructured loans that are individually evaluated
for impairment and those collectively evaluated for impairment as of
December 31, 2013 and December 31, 2012.
(In thousands)
2013:
Commercial, financial and agricultural
Commercial real estate
Construction real estate:
SEPH commercial
land and development
Remaining commercial
Mortgage
Installment
Residential real estate:
Commercial
Mortgage
HELOC
Installment
Consumer
Total loans
Nonaccrual
and Accruing
Troubled Debt
Restructurings
Loans
Individually
Evaluated for
Impairment
Loans
Collectively
Evaluated for
Impairment
$ 20,740
41,822
$ 20,727
41,822
$
13
—
4,777
10,782
184
231
33,408
32,272
2,880
1,850
5,079
4,777
10,782
—
—
33,408
—
—
—
799
—
—
184
231
—
32,272
2,880
1,850
4,280
$154,025
$112,315
$41,710
(In thousands)
2012:
Commercial, financial and agricultural
Commercial real estate
Construction real estate:
SEPH commercial
land and development
Remaining commercial
Mortgage
Installment
Residential real estate:
Commercial
Mortgage
HELOC
Installment
Consumer
Total loans
Nonaccrual
and Accruing
Troubled Debt
Restructurings
Loans
Individually
Evaluated for
Impairment
Loans
Collectively
Evaluated for
Impairment
$ 22,601
44,278
$ 22,587
44,278
$
14
—
13,939
21,574
258
324
35,622
37,685
2,425
2,450
4,326
13,260
21,574
—
—
35,622
—
—
—
18
679
—
258
324
—
37,685
2,425
2,450
4,308
$185,482
$137,339
$48,143
All of the loans individually evaluated for impairment were evaluated using the
fair value of the collateral or the present value of expected future cash flows
as the measurement method.
The following table presents loans individually evaluated for impairment by
class of loan as of December 31, 2013 and December 31, 2012.
(In thousands)
2013:
With no related allowance recorded
Commercial, financial
and agricultural
Commercial real estate
Construction real estate:
SEPH commercial
land and development
Remaining commercial
Residential real estate:
Commercial
Consumer
With an allowance recorded
Commercial, financial
and agricultural
Commercial real estate
Construction real estate:
Remaining commercial
Residential real estate:
Unpaid
Principal
Balance
Recorded
Investment
Allowance for
Loan Losses
Allocated
$ 22,429
56,870
$ 12,885
34,149
$ —
—
23,722
8,429
36,709
799
12,616
7,966
3,909
4,777
6,872
31,461
799
7,842
7,673
3,910
—
—
—
—
3,268
5,496
1,132
555
—
$10,451
Commercial
Consumer
Total
2012:
With no related allowance recorded
2,129
—
$175,578
1,947
—
$112,315
Commercial, financial
and agricultural
Commercial real estate
Construction real estate:
SEPH commercial
land and development
Remaining commercial
Residential real estate:
Commercial
Consumer
With an allowance recorded
Commercial, financial
and agricultural
Commercial real estate
Construction real estate:
Remaining commercial
Residential real estate:
Commercial
Consumer
Total
$ 23,782
56,258
$ 14,683
35,097
$ —
—
57,346
29,328
39,918
18
12,268
11,412
8,071
13,260
14,093
31,957
18
7,904
9,181
7,481
3,944
—
$242,345
3,665
—
$137,339
—
—
—
—
3,180
1,540
2,277
1,279
—
$ 8,276
61
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Management’s general practice is to proactively charge down loans individually
evaluated for impairment rather than carry significant specific reserves within
the allowance for loan losses. At December 31, 2013 and December 31, 2012,
there were $58.1 million and $97.6 million, respectively, in partial charge-
offs on loans individually evaluated for impairment with no related allowance
recorded and $5.2 million and $7.5 million, respectively, of partial charge-offs
on loans individually evaluated for impairment that also had a specific reserve
allocated.
The allowance for loan losses included specific reserves related to loans
individually evaluated for impairment at December 31, 2013 and 2012,
of $10.5 million and $8.3 million, respectively. These loans had a recorded
investment as of December 31, 2013 and 2012 of $21.4 million and $28.2
million, respectively.
The average balance of loans individually evaluated for impairment was
$124.1 million, $164.2 million, and $214.0 million for 2013, 2012, and 2011,
respectively.
Interest income on loans individually evaluated for impairment is recognized on
a cash basis. The following tables present the average recorded investment and
interest income recognized on loans individually evaluated for impairment for
the years ended December 31, 2013, 2012, and 2011.
(In thousands)
Recorded
Investment
as of
December 31, 2013
$112,315
$124,089
$2,640
(In thousands)
Recorded
Investment
as of
December 31, 2012
Year ended December 31, 2013
Average
Recorded
Investment
$ 20,523
41,426
Interest
Income
Recognized
$ 412
1,151
8,723
17,829
34,972
616
—
616
461
—
Year ended December 31, 2012
Average
Recorded
Investment
$ 35,305
44,541
Interest
Income
Recognized
$ 529
968
17,277
27,774
39,248
19
—
818
497
1
Year ended December 31, 2011
Average
Recorded
Investment
$ 23,518
49,927
Interest
Income
Recognized
$ 209
829
58,792
29,152
52,640
16
—
339
214
1
$187,135
$214,045
$1,592
$ 20,727
41,822
4,777
10,782
33,408
799
$ 22,587
44,278
13,260
21,574
35,622
18
$ 40,621
51,978
24,328
25,912
44,276
20
Commercial, financial and agricultural
Commercial real estate
Construction real estate:
SEPH commercial land
and development
Remaining commercial
Residential real estate:
Commercial
Consumer
Total
Commercial, financial and agricultural
Commercial real estate
Construction real estate:
SEPH commercial land
and development
Remaining commercial
Residential real estate:
Commercial
Consumer
Total
Commercial, financial and agricultural
Commercial real estate
Construction real estate:
Vision commercial land
and development
Remaining commercial
Residential real estate:
Commercial
Consumer
Total
62
(In thousands)
Recorded
Investment
as of
December 31, 2011
The following tables present the aging of the recorded investment in past due
loans as of December 31, 2013 and December 31, 2012 by class of loan.
Past Due
Nonaccrual
Loans and Loans
Past Due 90
Days or More
and Accruing*
Accruing
Loans
Past Due
30–89 Days
Total
Past Due
Total
Current
Total
Recorded
Investment
$ 1,233
2,168
$13,275
18,274
$ 14,508 $ 814,003 $ 828,511
1,116,038
1,095,596
20,442
—
—
264
207
900
13,633
571
696
12,143
—
4,242
3,463
75
14
5,659
11,829
402
436
3,941
—
4,242
3,463
339
221
6,559
25,462
973
1,132
16,084
—
1,606
107,642
31,639
7,351
401,732
1,120,851
213,462
32,841
710,424
3,427
5,848
111,105
31,978
7,572
408,291
1,146,313
214,435
33,973
726,508
3,427
(In thousands)
December 31, 2013:
Commercial, financial
and agricultural
Commercial real estate
Construction real estate:
SEPH commercial land
and development
Remaining commercial
Mortgage
Installment
Residential real estate:
Commercial
Mortgage
HELOC
Installment
Consumer
Leases
Total loans
$31,815
$61,610
$ 93,425 $4,540,574 $4,633,999
*Includes $1.7 million of loans past due 90 days or more and accruing. The remaining are past due,
nonaccrual loans.
Past Due
Nonaccrual
Loans and Loans
Past Due 90
Days or More
and Accruing*
Accruing
Loans
Past Due
30–89 Days
Total
Past Due
Total
Current
Total
Recorded
Investment
$ 6,251
2,212
$11,811
26,355
$ 18,062 $ 808,841 $ 826,903
1,096,003
1,067,436
28,567
686
3,652
171
135
1,163
11,948
620
563
12,924
—
11,314
5,838
85
40
5,917
17,370
309
787
2,688
—
12,000
9,490
256
175
7,080
29,318
929
1,350
15,612
—
3,142
106,314
26,198
8,435
386,082
1,036,868
212,868
42,576
639,153
3,157
15,142
115,804
26,454
8,610
393,162
1,066,186
213,797
43,926
654,765
3,157
(In thousands)
December 31, 2012:
Commercial, financial
and agricultural
Commercial real estate
Construction real estate:
SEPH commercial land
and development
Remaining commercial
Mortgage
Installment
Residential real estate:
Commercial
Mortgage
HELOC
Installment
Consumer
Leases
Total loans
$40,325
$82,514
$122,839 $4,341,070 $4,463,909
Credit Quality Indicators
Management utilizes past due information as a credit quality indicator
across the loan portfolio. Past due information as of December 31, 2013 and
December 31, 2012 is included in the tables above. The past due information
is the primary credit quality indicator within the following classes of loans:
(1) mortgage loans and installment loans in the construction real estate
segment; (2) mortgage loans, HELOC and installment loans in the residential
real estate segment; and (3) consumer loans. The primary credit indicator
for commercial loans is based on an internal grading system that grades all
commercial loans from 1 to 8. Credit grades are continuously monitored
by the respective 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 with grades of 1 to 4.5 (pass-rated) 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 percent-
age is allocated to these loans. Loans classified as special mention have
$137,339
$164,164
$2,813
*Includes $3.0 million of loans past due 90 days or more and accruing. The remaining are past due,
nonaccrual loans.
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potential weaknesses that deserve management’s close attention. If left
uncorrected, these potential weaknesses may result in deterioration of the
repayment prospects for the loan or of the institution’s credit position at some
future date. Commercial loans graded 6 (substandard), also considered watch
list credits, are considered to represent higher credit risk and, as a result, a
higher loan loss reserve percentage is allocated to these loans. Loans classified
as substandard loans are inadequately protected by the current sound worth
and paying capacity of the obligor or 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
the institution 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 question-
able and improbable. Certain 6-rated loans and all 7-rated loans are 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 com-
pletely charged-off.
The tables below present the recorded investment by loan grade at
December 31, 2013 and December 31, 2012 for all commercial loans:
(In thousands)
5 Rated
6 Rated
Impaired
Pass
Rated
Recorded
Investment
December 31, 2013:
Commercial, financial
and agricultural*
Commercial real estate*
Construction real estate:
SEPH commercial land
and development*
Remaining commercial
Residential real estate:
Commercial
Leases
Total commercial
loans
December 31, 2012:
Commercial, financial
and agricultural*
Commercial real estate*
Construction real estate:
SEPH commercial land
and development*
Remaining commercial
Residential real estate:
Commercial
Leases
Total commercial
loans
$ 6,055
11,591
$ 532
1,525
$ 20,740
41,822
$ 801,184
1,061,100
$ 828,511
1,116,038
354
6,858
5,033
—
—
244
397
—
4,777
10,782
33,408
—
717
93,221
369,453
3,427
5,848
111,105
408,291
3,427
$29,891
$ 2,698
$111,529
$2,329,102
$2,473,220
$ 9,537
25,616
$10,874
3,960
$ 22,601
44,278
$ 783,891
1,022,149
$ 826,903
1,096,003
411
6,734
8,994
—
—
—
2,053
—
13,939
21,574
35,622
—
792
87,496
346,493
3,157
15,142
115,804
393,162
3,157
$51,292
$16,887
$138,014
$2,243,978
$2,450,171
*Included within commercial, financial and agricultural loans, commercial real estate loans, and
SEPH commercial land and development loans was an immaterial amount of consumer loans that
were not broken out by class.
Troubled Debt Restructuring (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 under the Company’s internal underwriting policy.
Management’s policy is to modify loans by extending the term or by granting
a temporary or permanent contractual interest rate below the market rate,
not by forgiving debt. Certain loans which were modified during the periods
ended December 31, 2013 and December 31, 2012 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.
Management reviews renewals/modifications of loans previously identified
as TDRs to consider if it is appropriate to remove the TDR classification. If
the borrower is no longer experiencing financial difficulty and the renewal/
modification does not contain a concessionary interest rate or other con -
cessionary terms, management considers the potential removal of the TDR
classification. If deemed appropriate, the TDR classification is removed as
the borrower had complied with the terms of the loan at the date of the
renewal/modification and there was a reasonable expectation that the
borrower would continue to comply with the terms of the loan subsequent
to the date of the renewal/modification. The majority of these TDRs were
originally considered restructurings in a prior year as a result of a renewal/
modification with an interest rate that was not commensurate with the risk
of the underlying loan at the time of the renewal/modification. During the
year ended December 31, 2013, Park removed the TDR classification on
$7.7 million of loans that met the requirements discussed above.
At December 31, 2013 and December 31, 2012, there were $76.3 million
and $84.7 million, respectively, of TDRs included in nonaccrual loan totals.
At December 31, 2013 and December 31, 2012, $50.6 million and $52.6
million of these nonaccrual TDRs were performing in accordance with the
terms of the restructured note. As of December 31, 2013 and December 31,
2012, there were $18.8 million and $29.9 million, respectively, of TDRs
included in accruing loan totals. Management will continue to review the
restructured loans and may determine it appropriate to move certain non -
accrual TDRs to accrual status in the future. At December 31, 2013 and
December 31, 2012, Park had commitments to lend $4.0 million and $5.0
million, respectively, of additional funds to borrowers whose loan terms
had been modified in a TDR.
The specific reserve related to TDRs at December 31, 2013 and December
31, 2012 was $7.5 million and $5.6 million, respectively. Modifications made
in 2012 and 2013 were largely the result of renewals, extending the maturity
date of the loan, at terms consistent with the original note. These modifications
were deemed to be TDRs primarily due to Park’s conclusion that the borrower
would likely not have qualified for similar terms through another lender. Many
of the modifications deemed to be TDRs were previously identified as impaired
loans, and thus were also previously evaluated for impairment under ASC 310.
Additional specific reserves of $1.1 million were recorded during the year
ended December 31, 2013, as a result of TDRs identified in the 2013 year.
Additional specific reserves of $2.3 million were recorded during the year
ended December 31, 2012 as a result of TDRs identified in the 2012 year.
The terms of certain other loans were modified during the years ended
December 31, 2013 and December 31, 2012 that did not meet the
definition of a TDR. Modified/renewed substandard commercial loans
which did not meet the definition of a TDR had a total recorded investment
as of December 31, 2013 and December 31, 2012 of $878,000 and $800,000,
respectively. The renewal/modification of these loans: (1) involved a renewal/
modification of the terms of a loan to a borrower who was no longer experi -
encing financial difficulties, (2) resulted in a delay in a payment that was
con sidered to be insignificant, or (3) resulted in Park obtaining additional
collateral or guarantees that improved the likelihood of the ultimate collection
of the loan such that the modification was deemed to be at market terms.
Modified consumer loans which did not meet the definition of a TDR had
a total recorded investment as of December 31, 2013 and December 31,
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2012 of $24.2 million and $26.5 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.
The following tables detail the number of contracts modified as TDRs during
the years ended December 31, 2013 and December 31, 2012 as well as
the recorded investment of these contracts at December 31, 2013 and
December 31, 2012. The recorded investment pre- and post-modification
is generally the same.
(In thousands)
Year ended December 31, 2013:
Number of
Contracts
Accruing
Nonaccrual
Recorded
Investment
Commercial, financial
and agricultural
Commercial real estate
Construction real estate:
SEPH commercial land
and development
Remaining commercial
Mortgage
Installment
Residential real estate:
Commercial
Mortgage
HELOC
Installment
Consumer
Total loans
Year ended December 31, 2012:
Commercial, financial
and agricultural
Commercial real estate
Construction real estate:
SEPH commercial land
and development
Remaining commercial
Mortgage
Installment
Residential real estate:
Commercial
Mortgage
HELOC
Installment
Consumer
Total loans
34
22
—
3
—
4
15
62
16
13
327
496
44
25
12
15
2
6
18
129
46
57
600
954
$
7
—
—
—
—
26
—
1,967
175
113
805
$ 1,334
8,563
$ 1,341
8,563
—
98
—
25
2,552
2,278
—
179
345
—
98
—
51
2,552
4,245
175
292
1,150
$3,093
$15,374
$18,467
$ 2,843
2,648
$ 1,499
3,611
$ 4,342
6,259
—
531
99
175
1,139
4,279
736
761
1,899
1,301
6,579
85
78
1,842
5,776
58
508
670
1,301
7,110
184
253
2,981
10,055
794
1,269
2,569
$15,110
$22,007
$37,117
Of those loans listed in the tables above which were modified during the year
ended December 31, 2013, $5.5 million were on nonaccrual status as of
December 31, 2012 but were not classified as TDRs. Of those loans which
were modified during the year ended December 31, 2012, $6.5 million were
on nonaccrual status as of December 31, 2011 but were not classified as TDRs.
The following table presents the recorded investment in financing receivables
which were modified as TDRs within the previous 12 months and for which
there was a payment default during the year ended December 31, 2013
and December 31, 2012. For this table, a loan is considered to be in default
when it becomes 30 days contractually past due under modified terms. The
additional allowance for loan loss resulting from the defaults on TDR loans
was immaterial.
(In thousands)
Commercial, financial
and agricultural
Commercial real estate
Construction real estate:
SEPH commercial land
and development
Remaining commercial
Mortgage
Installment
Residential real estate:
Commercial
Mortgage
HELOC
Installment
Consumer
Leases
Total loans
Year ended
December 31, 2013
Year ended
December 31, 2012
Number of
Contracts
Recorded
Investment
Number of
Contracts
Recorded
Investment
11
11
—
—
—
1
4
26
—
5
74
—
$ 771
2,839
—
—
—
10
1,683
1,533
—
72
471
—
132
$7,379
8
10
7
4
1
1
1
39
5
9
123
—
208
$ 244
2,113
970
1,476
85
27
16
2,863
70
272
743
—
$8,879
Of the $7.4 million in modified TDRs which defaulted during the year ended
December 31, 2013, $397,000 were accruing loans and $7.0 million were
nonaccrual loans. Of the $8.9 million in modified TDRs which defaulted during
the year ended December 31, 2012, $606,000 were accruing loans and $8.3
million were nonaccrual loans.
Management transfers a loan to OREO at the time that Park takes deed/title of
the asset. At December 31, 2013 and 2012, Park had $34.6 million and $35.7
million, respectively, of OREO.
Certain of the Corporation’s executive officers, directors and related entities
of directors are loan customers of PNB. As of December 31, 2013 and 2012,
credit exposure aggregating approximately $49.7 million and $39.4 million,
respectively, was outstanding to such parties. Of this total exposure, approxi-
mately $37.7 million and $35.3 million were outstanding at December 31,
2013 and 2012, respectively, with the remaining balance representing available
credit. During 2013, new loans and advances on existing loans were made to
these executive officers, directors and related entities totaling $547,000 and
$11.9 million, respectively. These extensions of credit were offset by payments
of $10.0 million. During 2012, new loans and advances on existing loans were
$1.7 million and $13.0 million, respectively. These extensions of credit were
offset by payments of $17.2 million and the removal of $4.4 million in loans
to Vision Bank’s executive officers, directors and related entities.
6. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is that amount management believes is adequate
to absorb probable incurred credit losses in the loan portfolio based on man-
agement’s evaluation of various factors including overall growth in the loan
portfolio, an analysis of individual loans, prior and current loss experience,
and current economic conditions. A provision for loan losses is charged to
operations based on management’s periodic evaluation of these and other
pertinent factors as discussed within Note 1 of these Notes to Consolidated
Financial Statements.
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Management extended the historical loss calculation period from 48 months to
54 months during the third quarter of 2013, incorporating net charge-offs plus
changes in specific reserves through June 30, 2013 and to 60 months during
the fourth quarter of 2013, incorporating net charge-offs plus changes in spe-
cific reserves through December 31, 2013. As part of the update in the third
quarter of 2013, management determined that it was appropriate to more
heavily weight those years with higher losses in the historical loss calculation.
Given the continued uncertainty in the current economic environment, manage-
ment did not feel that it was appropriate to continue to apply equal percentages
to each of the years in the historical loss calculation. Management considers
the uncertainty in the current economic environment to be more similar to the
economic conditions in the 2009 through 2011 period than the 2012 through
2013 period. Specifically, rather than applying equal percentages to each year
in the historical loss calculation, management applied more weight to the 2009
through 2011 periods compared to the 2012 through 2013 period. The impact
of the change in the third quarter resulted in general reserves as a percentage
of performing loans of 1.09% at September 30, 2013, which was consistent with
the 1.09% at June 30, 2013.
The activity in the allowance for loan losses for the years ended December 31, 2013, December 31, 2012, and December 31, 2011 is summarized in the following
tables.
(In thousands)
December 31, 2013
Allowance for credit losses:
Beginning balance
Charge-offs
Recoveries
Net charge-offs (recoveries)
Provision (Recovery)
Ending balance
December 31, 2012
Allowance for credit losses:
Beginning balance
Charge-offs
Recoveries
Net charge-offs
Provision (Recovery)
Ending balance
December 31, 2011
Allowance for credit losses:
Beginning balance
Transfer of loans at fair value
Transfer of allowance to held for sale (1)
Charge-offs
Recoveries
Net charge-offs (recoveries)
Provision (Recovery)
Ending balance
Commercial,
Financial and
Agricultural
Commercial
Real Estate
Construction
Real Estate
Residential
Real Estate
Consumer
Leases
Total
$15,635
6,160
(1,314)
$ 4,846
3,429
$14,218
$16,950
26,847
(1,066)
$25,781
24,466
$15,635
$11,555
2
1,184
18,350
(1,402)
$16,948
23,529
$16,950
$11,736
1,832
(726)
$ 1,106
5,269
$15,899
$15,539
10,454
(783)
$ 9,671
5,868
$11,736
$24,369
150
4,327
23,063
(1,825)
$21,238
16,885
$15,539
$ 6,841
1,791
(9,378)
$ (7,587)
(7,573)
$ 6,855
$14,433
9,985
(2,979)
$ 7,006
(586)
$ 6,841
$70,462
63
1,998
64,166
(1,463)
$62,703
8,735
$14,433
$14,759
3,207
(6,000)
$ (2,793)
(3,301)
$14,251
$15,692
8,607
(5,559)
$ 3,048
2,115
$14,759
$30,259
4
5,450
20,691
(1,719)
$18,972
9,859
$15,692
$ 6,566
6,163
(2,249)
$ 3,914
5,593
$ 8,245
$ 5,830
5,375
(2,555)
$ 2,820
3,556
$ 6,566
$ 6,925
—
141
7,612
(2,385)
$ 5,227
4,273
$ 5,830
$ —
—
(2)
$ (2)
(2)
$ —
$ —
—
—
$ —
—
$ —
$ 5
—
—
—
(4)
$ (4)
(9)
$ —
$ 55,537
19,153
(19,669)
$
(516)
3,415
$ 59,468
$ 68,444
61,268
(12,942)
$ 48,326
35,419
$ 55,537
$143,575
219
13,100
133,882
(8,798)
$125,084
63,272
$ 68,444
(1) Transfer of allowance to held for sale was allocated on a pro-rata basis based on the outstanding balance of the loans held for sale.
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Loans collectively evaluated for impairment in the following tables include all
performing loans at December 31, 2013 and 2012, as well as nonperforming
loans internally classified as consumer loans. Nonperforming consumer loans
are not typically individually evaluated for impairment, but receive a portion
of the statistical allocation of the allowance for loan losses. Loans individually
evaluated for impairment include all impaired loans internally classified
as commercial loans at December 31, 2013 and 2012, which are evaluated
for impairment in accordance with U.S. GAAP (see Note 1 of these Notes
to Consolidated Financial Statements).
The composition of the allowance for loan losses at December 31, 2013 and 2012 was as follows:
(In thousands)
December 31, 2013
Allowance for loan losses:
Ending allowance balance attributed to loans
Individually evaluated for impairment
Collectively evaluated for impairment
Total ending allowance balance
Loan balance:
Loans individually evaluated for impairment
Loans collectively evaluated for impairment
Total ending loan balance
Allowance for loan losses as a percentage of
loan balance:
Loans individually evaluated for impairment
Loans collectively evaluated for impairment
Total ending loan balance
Recorded investment:
Loans individually evaluated for impairment
Loans collectively evaluated for impairment
Total ending loan balance
December 31, 2012
Allowance for loan losses:
Ending allowance balance attributed to loans
Individually evaluated for impairment
Collectively evaluated for impairment
Total ending allowance balance
Loan balance:
Loans individually evaluated for impairment
Loans collectively evaluated for impairment
Total ending loan balance
Allowance for loan losses as a percentage of
loan balance:
Loans individually evaluated for impairment
Loans collectively evaluated for impairment
Total ending loan balance
Recorded investment:
Loans individually evaluated for impairment
Loans collectively evaluated for impairment
Total ending loan balance
Commercial,
Financial and
Agricultural
Commercial
Real Estate
Construction
Real Estate
Residential
Real Estate
Consumer
Leases
Total
$ 3,268
10,950
$ 14,218
$ 20,724
804,708
$825,432
15.77%
1.36%
1.72%
$ 20,727
807,784
$828,511
$ 3,180
12,455
$ 15,635
$ 22,523
801,404
$823,927
14.12%
1.55%
1.90%
$ 22,587
804,316
$826,903
$
$
5,496
10,403
15,899
$
41,816
1,070,457
$1,112,273
13.14%
0.97%
1.43%
$
41,822
1,074,216
$1,116,038
$
$
1,540
10,196
11,736
$
44,267
1,047,897
$1,092,164
3.48%
0.97%
1.07%
$
44,278
1,051,725
$1,096,003
$ 1,132
5,723
$ 6,855
$ 15,559
140,557
$156,116
7.28%
4.07%
4.39%
$ 15,559
140,944
$156,503
$ 2,277
4,564
$ 6,841
$ 34,814
130,714
$165,528
6.54%
3.49%
4.13%
$ 34,834
131,176
$166,010
$
$
555
13,696
14,251
$
33,406
1,766,141
$1,799,547
1.66%
0.78%
0.79%
$ 33,408
1,769,604
$1,803,012
$
$
1,279
13,480
14,759
$
35,616
1,678,029
$1,713,645
3.59%
0.80%
0.86%
$
35,622
1,681,449
$1,717,071
$
—
8,245
$ 8,245
$
799
722,934
$723,733
—
1.14%
1.14%
$
799
725,709
$726,508
$
—
6,566
$ 6,566
$
18
651,912
$651,930
—
1.01%
1.01%
$
18
654,747
$654,765
$ —
—
$ —
$ —
3,404
$3,404
—
—
—
$ —
3,427
$3,427
$ —
—
$ —
$ —
3,128
$3,128
—
—
—
$ —
3,157
$3,157
$
$
10,451
49,017
59,468
$ 112,304
4,508,201
$4,620,505
9.31%
1.09%
1.29%
$ 112,315
4,521,684
$4,633,999
$
$
8,276
47,261
55,537
$ 137,238
4,313,084
$4,450,322
6.03%
1.10%
1.25%
$ 137,339
4,326,570
$4,463,909
7. PREMISES AND EQUIPMENT
The major categories of premises and equipment and accumulated
depreciation are summarized as follows:
December 31 (In thousands)
Land
Buildings
Equipment, furniture and fixtures
Leasehold improvements
Total
Less accumulated depreciation
Premises and equipment, net
2013
$ 17,657
70,183
36,937
3,903
$128,680
(73,402)
$ 55,278
2012
$ 17,354
69,091
61,679
4,009
$152,133
(98,382)
$53,751
The Corporation leases certain premises and equipment accounted for as oper-
ating leases. The following is a schedule of the future minimum rental payments
required for the next five years under such leases with initial terms in excess of
one year:
(In thousands)
2014
2015
2016
2017
2018
Thereafter
Total
1,351
945
628
475
744
605
$4,748
Depreciation expense amounted to $7.3 million, $7.0 million and $7.6 million
for the years ended December 31, 2013, 2012 and 2011, respectively.
Rent expense for Park was $1.8 million, $1.9 million and $2.4 million, for the
years ended December 31, 2013, 2012 and 2011, respectively.
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N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
8. DEPOSITS
At December 31, 2013 and 2012, non-interest bearing and interest bearing
deposits were as follows:
December 31 (In thousands)
Non-interest bearing
Interest bearing
Total
2013
$1,193,553
3,596,441
$4,789,994
2012
$1,137,290
3,578,742
$4,716,032
At December 31, 2013, the maturities of time deposits were as follows:
(In thousands)
2014
2015
2016
2017
2018
After 5 years
Total
$ 883,231
215,866
104,274
80,856
39,485
947
$1,324,659
At December 31, 2013, Park had approximately $18.4 million of deposits
received from executive officers, directors, and their related entities.
Maturities of time deposits over $100,000 as of December 31, 2013 were:
December 31 (In thousands)
3 months or less
Over 3 months through 6 months
Over 6 months through 12 months
Over 12 months
Total
9. SHORT-TERM BORROWINGS
Short-term borrowings were as follows:
$186,194
114,979
146,315
153,966
$601,454
December 31 (In thousands)
2013
2012
Securities sold under agreements to repurchase
and federal funds purchased
Federal Home Loan Bank advances
Total short-term borrowings
$242,029
—
$242,029
$244,168
100,000
$344,168
The outstanding balances for all short-term borrowings as of December 31,
2013 and 2012 and the weighted-average interest rates as of and paid during
each of the years then ended were as follows:
(In thousands)
2013:
Ending balance
Highest month-end balance
Average daily balance
Weighted-average interest rate:
As of year-end
Paid during the year
2012:
Ending balance
Highest month-end balance
Average daily balance
Weighted-average interest rate:
As of year-end
Paid during the year
Repurchase
Agreements
and Federal
Funds
Purchased
$242,029
280,863
251,868
0.19%
0.21%
$244,168
302,946
257,341
0.23%
0.26%
FHLB
Advances
$
—
—
1,255
—
0.41%
$100,000
100,000
1,320
0.38%
0.28%
At December 31, 2012, outstanding FHLB advances were collateralized
by investment securities owned by the Corporation’s bank subsidiary
and by various loans pledged under a blanket agreement by the
Corporation’s bank subsidiary.
See Note 4 of these Notes to Consolidated Financial Statements for the amount
of investment securities that are pledged. At December 31, 2013 and 2012,
$2,072 million and $2,053 million, respectively, of commercial real estate
and residential mortgage loans were pledged under a blanket agreement
to the FHLB by Park’s bank subsidiary.
Note 4 states that $648 million and $667 million of securities were pledged
to secure repurchase agreements as of December 31, 2013 and 2012,
respectively. Park’s repurchase agreements in short-term borrowings consist
of customer accounts and securities which are pledged on an individual
security basis. Park’s repurchase agreements with a third-party financial
institution are classified as long-term debt. See Note 10 of these Notes
to Consolidated Financial Statements.
10. LONG-TERM DEBT
Long-term debt is listed below:
December 31
(In thousands)
2013
2012
Outstanding
Balance
Average
Rate
Outstanding
Balance
Average
Rate
Total Federal Home Loan Bank advances
by year of maturity:
2013
2014
2015
2016
2017
2018
Thereafter
Total
$
—
100,500
51,000
26,000
51,000
125,062
176,745
$530,307
—
1.51%
2.00%
0.92%
3.37%
2.11%
3.13%
2.39%
Total broker repurchase agreements
by year of maturity:
2017
Total
$300,000
$300,000
1.75%
1.75%
Total combined long-term debt
by year of maturity:
2013
2014
2015
2016
2017
2018
Thereafter
Total
$
—
100,500
51,000
26,000
351,000
125,062
176,745
$830,307
Prepayment penalty
(19,766)
—
1.51%
2.00%
0.92%
1.99%
2.11%
3.13%
2.16%
—
$ 50,500
100,500
51,000
1,000
51,000
100,088
152,171
$506,259
$300,000
$300,000
$ 50,500
100,500
51,000
1,000
351,000
100,088
152,171
$806,259
(24,601)
1.07%
1.51%
2.00%
2.05%
3.37%
2.34%
3.34%
2.42%
1.75%
1.75%
1.07%
1.51%
2.00%
2.05%
1.99%
2.34%
3.34%
2.17%
—
Total long-term debt
$810,541
2.82%
$781,658
2.87%
On November 30, 2012, Park restructured $300 million in repurchase agree-
ments at a rate of 1.75%. As part of this restructuring, Park paid a prepayment
penalty of $25 million. The penalty is being amortized as an adjustment to inter-
est expense over the remaining term of the repurchase agreements using the
effective interest method, resulting in an effective interest rate of 3.40%. Of the
$25 million prepayment penalty $19.8 million remained to be amortized as of
December 31, 2013. The remaining amortization will be $4.9 million in 2014,
$5.0 million in 2015, $5.1 million in 2016 and $4.8 million in 2017.
Park had approximately $176.7 million of long-term debt at December 31,
2013 with a contractual maturity longer than five years. However, approximately
$150 million of this debt is callable by the issuer in 2014.
At December 31, 2013 and 2012, FHLB advances were collateralized
by investment securities owned by PNB’s banking divisions and by various
loans pledged under a blanket agreement by PNB’s banking divisions.
See Note 4 of these Notes to Consolidated Financial Statements for the
amount of investment securities that were pledged. See Note 9 of these Notes
to Consolidated Financial Statements for the amount of commercial real estate
and residential mortgage loans that were pledged to the FHLB at December 31,
2013 and December 31, 2012.
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11. SUBORDINATED DEBENTURES/NOTES
As part of the acquisition of Vision’s parent bank holding company (“Vision
Parent”) on March 9, 2007, Park became the successor to Vision Parent
under (i) the Amended and Restated Trust Agreement of Vision Bancshares
Trust I (the “Trust”), dated as of December 5, 2005, (ii) the Junior
Subordinated Indenture, dated as of December 5, 2005, and (iii) the
Guarantee Agreement, also dated as of December 5, 2005.
On December 1, 2005, Vision Parent formed a wholly-owned Delaware
statutory business trust, Vision Bancshares Trust I (“Trust I”), which issued
$15.0 million of Trust I’s floating rate preferred securities (the “Trust Preferred
Securities”) to institutional investors. These Trust Preferred Securities qualify
as Tier I capital under Federal Reserve Board guidelines. All of the common
securities of Trust I are owned by Park. The proceeds from the issuance of the
common securities and the Trust Preferred Securities were used by Trust I to
purchase $15.5 million of junior subordinated notes, which carry a floating rate
based on a three-month LIBOR plus 148 basis points. The debentures represent
the sole asset of Trust I. The Trust Preferred Securities accrue and pay distribu-
tions at a floating rate of three-month LIBOR plus 148 basis points per annum.
The Trust Preferred Securities are mandatorily redeemable upon maturity of the
notes in December 2035, or upon earlier redemption as provided in the notes.
Park has the right to redeem the notes purchased by Trust I in whole or in part,
on or after December 30, 2010. As specified in the indenture, if the notes are
redeemed prior to maturity, the redemption price will be the principal amount,
plus any unpaid accrued interest.
In accordance with GAAP, the Trust I is not consolidated with Park’s financial
statements, but rather the subordinated notes are reflected as a liability.
On December 23, 2009, Park entered into a Note Purchase Agreement, dated
December 23, 2009, with 38 purchasers (the “2009 Purchasers”). Under the
terms of the Note Purchase Agreement, the 2009 Purchasers purchased from
Park an aggregate principal amount of $35.25 million of 10% Subordinated
Notes due December 23, 2019 (the “2009 Notes”). The 2009 Notes are
intended to qualify as Tier 2 capital under applicable rules and regulations
of the Federal Reserve Board. The 2009 Notes may not be prepaid in any
amount prior to December 23, 2014; however, subsequent to that date, Park
may prepay, without penalty, all or a portion of the principal amount outstand-
ing. Of the $35.25 million in 2009 Notes, $14.05 million were purchased by
related parties.
On April 20, 2012, Park entered into a Note Purchase Agreement, dated
April 20, 2012 (the “2012 Purchase Agreement”), with 56 purchasers (the
“2012 Purchasers”). Under the terms of the 2012 Purchase Agreement, the
2012 Purchasers purchased from Park an aggregate principal amount of $30
million of 7% Subordinated Notes Due April 20, 2022 (the “2012 Notes”). The
2012 Notes are intended to qualify as Tier 2 capital under applicable rules and
regulations of the Federal Reserve Board. Each 2012 Note was purchased at a
purchase price of 100% of the principal amount thereof. The 2012 Notes may
not be prepaid by Park prior to April 20, 2017. From and after April 20, 2017,
Park may prepay all, or from time to time, any part of the 2012 Notes at 100%
of the principal amount (plus accrued interest) without penalty, subject to any
requirement under Federal Reserve Board regulations to obtain prior approval
from the Federal Reserve Board before making any prepayment.
12. SHARE-BASED COMPENSATION
The Park National Corporation 2005 Incentive Stock Option Plan (the
“2005 Plan”) was adopted by the Board of Directors of Park on January
18, 2005, and was approved by Park’s shareholders at the Annual Meeting
of Shareholders on April 18, 2005. Under the 2005 Plan, 1,500,000 common
shares were authorized for delivery upon the exercise of incentive stock
options. All of the common shares delivered upon the exercise of incentive
stock options granted under the 2005 Plan were to be treasury shares. The
2005 Plan was terminated on April 22, 2013 and no common shares were
delivered thereunder.
68
The Park National Corporation 2013 Long-Term Incentive Plan (the “2013
Incentive Plan”) was adopted by the Board of Directors of Park on January
28, 2013 and was approved by Park’s shareholders at the Annual Meeting
of Shareholders on April 22, 2013. The 2013 Incentive Plan replaces the
2005 Plan and Park’s Stock Plan for Non-Employee Directors of Park National
Corporation and Subsidiaries (the “Directors’ Stock Plan”) which were
ter minated immediately following the approval of the 2013 Incentive Plan.
The 2013 Incentive Plan makes equity-based awards and cash-based awards
available for grant to participants in the form of incentive stock options, non-
qualified stock options, stock appreciations rights, restricted common shares,
restricted stock awards that may be settled in common shares, cash or a com -
bination of the two, unrestricted common shares and cash-based awards. Under
the 2013 Incentive Plan, 600,000 common shares are authorized to be granted.
The common shares to be issued and delivered under the 2013 Incentive Plan
may consist of either common shares currently held or common shares sub -
sequently acquired by Park as treasury shares, including common shares
purchased in the open market or in private transactions. No awards may
be made under the 2013 Incentive Plan after April 22, 2023.
At December 31, 2013, 589,450 common shares were available for future
grants under the 2013 Incentive Plan. During 2013, Park granted 10,550
common shares to directors under the 2013 Incentive Plan. The common
shares granted to directors were not subjected to a vesting period and resulted
in expense of $850,000 which is included in Professional fees and services
on the Consolidated Income Statement. As of December 31, 2013, there
had been no awards made to employees under the 2013 Incentive Plan.
There were no options outstanding under the 2005 Plan as of December 31,
2013 or December 31, 2012. There were no options granted or exercised in
2013, 2012 or 2011. Additionally, no share-based compensation expense was
recognized for 2013, 2012 or 2011 related to awards to employees.
13. BENEFIT PLANS
The Corporation has a noncontributory Defined Benefit Pension Plan (the
“Pension Plan”) covering substantially all of the employees of the Corporation
and its subsidiaries. The Pension Plan provides benefits based on an employee’s
years of service and compensation.
The Corporation generally contributes annually an amount that can be deducted
for federal income tax purposes using a different actuarial cost method and
different assumptions from those used for financial reporting purposes.
In January 2012, management contributed $15.9 million, of which $14.3
million was deductible on the 2011 tax return and $1.6 million was deductible
on the 2012 tax return. In January 2013, management contributed $12.6
million, of which $11.0 million was deductible on the 2012 tax return and
$1.6 million will be deductible on the 2013 tax return. See Note 14 of these
Notes to Consolidated Financial Statements. There is no pension contribution
expected in 2014.
Using an accrual measurement date of December 31, 2013 and 2012, plan
assets and benefit obligation activity for the Pension Plan are listed below:
(In thousands)
2013
2012
Change in fair value of plan assets
Fair value at beginning of measurement period
Actual return on plan assets
Company contributions
Benefits paid
Fair value at end of measurement period
Change in benefit obligation
Projected benefit obligation at beginning of
measurement period
Service cost
Interest cost
Actuarial (gains)/loss
Benefits paid
Projected benefit obligation at the
end of measurement period
Funded status at end of year
$117,768
31,518
12,638
(9,185)
$152,739
$ 97,653
4,817
4,223
(8,329)
(9,185)
$ 96,581
11,256
15,900
(5,969)
$117,768
$ 81,507
4,271
4,048
13,796
(5,969)
$ 89,179
$ 97,653
(fair value of plan assets less benefit obligation)
$ 63,560
$ 20,115
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The asset allocation for the Pension Plan as of each measurement date, by asset
category, was as follows:
Asset Category
Target Allocation
Equity securities
Fixed income and cash equivalents
50% – 100%
remaining balance
Total
—
2013
83%
17%
100%
2012
83%
17%
100%
Percentage of Plan Assets
The investment policy, as established by the Retirement Plan Committee, is
to invest assets according to the target allocation stated above. Assets will be
reallocated periodically based on the investment strategy of the Retirement
Plan Committee. The investment policy is reviewed periodically.
The expected long-term rate of return on plan assets used to measure the
benefit obligation as of December 31, 2013 and 2012 was 7.25% and 7.5%,
respectively. This return was based on the expected return of each of the asset
categories, weighted based on the median of the target allocation for each class.
The accumulated benefit obligation for the Pension Plan was $75.9 million and
$85.1 million at December 31, 2013 and 2012, respectively.
On November 17, 2009, the Park Pension Plan completed the purchase of
115,800 common shares of Park for $7.0 million or $60.45 per share. At
December 31, 2013 and 2012, the fair value of the 115,800 common shares
held by the Pension Plan was $9.9 million, or $85.07 per share and $7.5
million, or $64.63 per share, respectively.
The weighted average assumptions used to determine benefit obligations at
December 31, 2013, 2012 and 2011 were as follows:
Discount rate
Rate of compensation increase
Under age 30
Ages 30–39
Ages 40 and over
2013
5.30%
—
10.00%
6.00%
3.00%
2012
4.47%
3.00%
—
—
—
2011
5.18%
3.00%
—
—
—
The estimated future pension benefit payments reflecting expected future
service for the next ten years are shown below (in thousands):
2014
2015
2016
2017
2018
2019 – 2023
Total
$ 5,732
5,943
6,047
6,597
6,845
42,387
$73,551
The following table shows ending balances of accumulated other
comprehensive loss at December 31, 2013 and 2012.
(In thousands)
Prior service cost
Net actuarial loss
Total
Deferred taxes
2013
(34)
$
(8,579)
(8,613)
3,015
2012
(54)
$
(41,691)
(41,745)
14,611
Accumulated other comprehensive loss
$(5,598)
$(27,134)
Using an actuarial measurement date of December 31 for 2013, 2012 and
2011, components of net periodic benefit cost and other amounts recognized
in other comprehensive loss were as follows:
(In thousands)
2013
2012
2011
Components of net periodic benefit cost
and other amounts recognized in
other comprehensive (loss)
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Recognized net actuarial loss
Net periodic benefit cost
Change to net actuarial gain/(loss)
for the period
Amortization of prior service cost
Amortization of net loss
Total recognized in other
comprehensive income/(loss)
Total recognized in net benefit cost
$ (4,817)
(4,223)
9,536
(20)
(2,703)
$ (2,227)
$30,409
20
2,703
$ (4,271)
(4,048)
8,742
(20)
(1,708)
$ (1,305)
$(11,236)
20
1,708
$ (4,557)
(3,967)
7,543
(19)
(1,411)
$ (2,411)
$ (9,164)
19
1,411
33,132
(9,508)
(7,734)
and other comprehensive income/(loss) $30,905
$(10,813)
$(10,145)
The estimated prior service costs for the Pension Plan that will be amortized
from accumulated other comprehensive loss into net periodic benefit cost over
the next fiscal year is $20,000. There is no net actuarial (loss) expected to be
recognized in the next fiscal year.
The weighted average assumptions used to determine net periodic benefit cost
for the years ended December 31, 2013, 2012 and 2011 are listed below:
Discount rate
Rate of compensation increase
Expected long-term return on plan assets
2013
4.47%
3.00%
7.50%
2012
5.18%
3.00%
7.75%
2011
5.50%
3.00%
7.75%
The Pension Plan maintains cash in a PNB savings account. The Pension Plan
cash balance was $2.3 million at December 31, 2013.
GAAP defines fair value as the price that would be received by Park for an asset
or paid by Park to transfer a liability (an exit price) in an orderly transaction
between market participants on the measurement date, using the most advan -
tageous market for the asset or liability. The fair values of equity securities,
consisting of mutual fund investments and common stock (U.S. large cap) held
by the Pension Plan and the fixed income and cash equivalents, are determined
by obtaining quoted prices on nationally recognized securities exchanges (Level
1 inputs). The market value of Pension Plan assets at December 31, 2013 was
$152.7 million. At December 31, 2013, $128.7 million of equity investments
and cash in the Pension Plan were categorized as Level 1 inputs; $24.0 million
of plan investments in corporate (U.S. large cap) and U.S. Government spon-
sored entity bonds were categorized as Level 2 inputs, as fair value was based
on quoted market prices of comparable instruments; and no investments were
categorized as Level 3 inputs. The market value of Pension Plan assets was
$117.8 million at December 31, 2012. At December 31, 2012, $98.8 million
of investments in the Pension Plan were categorized as Level 1 inputs; $18.9
million were categorized as Level 2; and no investments were categorized as
Level 3.
The Corporation has a voluntary salary deferral plan covering substantially all
of the employees of the Corporation and its subsidiaries. Eligible employees
may contribute a portion of their compensation subject to a maximum statutory
limitation. The Corporation provides a matching contribution established
annually by the Corporation. Contribution expense for the Corporation was
$1.1 million, $1.0 million, and $1.1 million for 2013, 2012 and 2011,
respectively.
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The Corporation has a Supplemental Executive Retirement Plan (SERP)
covering certain key officers of the Corporation and its subsidiaries with
defined pension benefits in excess of limits imposed by federal tax law. The
accrued benefit cost for the SERP totaled $6.8 million and $7.4 million for
2013 and 2012, respectively. The expense for the Corporation was $0.2
million for 2013, $0.3 million for 2012 and $0.6 million for 2011.
14. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant com -
ponents of the Corporation’s deferred tax assets and liabilities are as follows:
December 31 (in thousands)
2013
2012
Deferred tax assets:
Allowance for loan losses
Accumulated other comprehensive loss –
Pension Plan
Accumulated other comprehensive loss –
Unrealized losses on securities
Intangible assets
Deferred compensation
OREO devaluations
Partnership adjustments
Other
$20,814
$19,438
3,015
14,611
16,057
673
3,611
5,287
3,793
3,705
—
697
3,750
4,855
3,329
2,973
Total deferred tax assets
$56,955
$49,653
Deferred tax liabilities:
Accumulated other comprehensive
income – unrealized gains on securities
Deferred investment income
Pension Plan
Mortgage servicing rights
Other
Total deferred tax liabilities
Net deferred tax assets
$ —
10,199
25,261
3,154
850
$39,464
$17,491
$ 5,178
10,199
25,517
2,717
646
$44,257
$ 5,396
Park performs an analysis to determine if a valuation allowance against
deferred tax assets is required in accordance with GAAP. Prior to the sale
of substantially all of its assets in February 2012, Vision was subject to income
tax in Alabama and Florida. During 2011, Park recognized $6.1 million in state
tax expense which was the charge necessary to write off the previously reported
state operating loss carry-forward asset and other state deferred tax assets at
Vision. Prior to the execution of the Vision Purchase Agreement with Centennial,
management of Park had believed that a merger of Vision into PNB (the
national bank subsidiary of Park) would enable Park to fully utilize the state
net operating loss carry-forward asset recorded at Vision. The structure of the
transactions contemplated by the Vision Purchase Agreement with Centennial
did not allow either the buyer or the seller to benefit from the previously
recorded net operating loss carry-forward asset at Vision to offset future
taxable income; therefore, this asset was written off by Vision at December
31, 2011.
Management has determined that it is not required to establish a valuation
allowance against remaining deferred tax assets in accordance with GAAP
since it is more likely than not that the deferred tax assets will be fully utilized
in future periods.
70
The components of the provision for federal and state income taxes are shown
below:
December 31 (in thousands)
2013
2012
2011
Currently payable
Federal
State
Deferred
Federal
State
Valuation allowance
Federal
State
Total
$27,587
—
(2,456)
—
—
—
$12,984
—
12,717
—
—
—
$ 5,949
—
22,378
8,382
—
(2,294)
$25,131
$25,701
$34,415
The following is a reconciliation of income tax expense to the amount
computed at the statutory rate of 35% for the years ended December 31,
2013, 2012 and 2011.
December 31
Statutory federal corporate tax rate
Changes in rates resulting from:
Tax-exempt interest income, net of
disallowed interest
Bank owned life insurance
Tax credits (low income housing)
State income tax expense, net of
federal benefit
Valuation allowance, net of
federal benefit
Other
Effective tax rate
2013
35.0%
(0.8)%
(1.7)%
(6.6)%
—
—
(1.3)%
24.6%
2012
35.0%
(0.9)%
(1.6)%
(6.1)%
2011
35.0%
(1.0)%
(1.5)%
(5.2)%
—
4.7%
—
(1.8)%
24.6%
(1.3)%
(1.2)%
29.5%
Park and its Ohio-based subsidiaries do not pay state income tax to the state of
Ohio, but pay a franchise tax based on their year-end equity. The franchise tax
expense is included in the state tax expense and is shown in “state taxes” on
Park’s Consolidated Statements of Income. Vision did not record state income
tax expense (benefit) in 2012.
Unrecognized Tax Benefits
The following is a reconciliation of the beginning and ending amount of
unrecognized tax benefits.
(In thousands)
January 1 Balance
Additions based on tax
positions related to the
current year
Additions for tax positions
of prior years
Reductions for tax positions
of prior years
Reductions due to
statute of limitations
December 31 Balance
2013
$517
74
4
—
(77)
$518
2012
$485
74
25
—
(67)
$517
2011
$477
70
1
(3)
(60)
$485
The amount of unrecognized tax benefits that, if recognized, would favorably
affect the effective income tax rate in the future periods at December 31, 2013,
2012 and 2011 was $403,000, $404,000 and $378,000, respectively. Park does
not expect the total amount of unrecognized tax benefits to significantly increase
or decrease during the next year.
The (income)/expense related to interest and penalties recorded in the
Consolidated Statements of Income for the years ended December 31, 2013,
2012 and 2011 was $(500), $4,500 and $2,500, respectively. The amount
accrued for interest and penalties at December 31, 2013, 2012 and 2011
was $67,000, $67,500 and $63,000, respectively.
Park and its subsidiaries are subject to U.S. federal income tax. Some of Park’s
subsidiaries are subject to state income tax in the following states: Alabama,
Florida, California and Kentucky. Park is no longer subject to examination by
federal or state taxing authorities for the tax year 2009 and the years prior.
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$(27,134)
$ 9,616
$ —
$(17,518)
and warrants
—
1,063
1,291
The 2007 and 2008 federal income tax returns of Park were recently under
examination by the Internal Revenue Service. Additionally, the 2009 state of
Ohio franchise tax return was recently under examination. The IRS examination
closed in the first quarter of 2012 with no adjustments. The Ohio examination
closed in 2011 with no material adjustments.
15. OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) components, net of tax, are shown in
the following table for the years ended December 31, 2013, 2012 and 2011.
Changes in
Pension Plan
Assets and
Benefit
Obligations
Unrealized
Gains and
Losses on
Available-for-
Sale Securities
Unrealized Net
Holding Loss
on Cash
Flow Hedge
Total
Year ended
December 31
(In thousands)
Beginning balance at
December 31, 2012
Other comprehensive
gain (loss) before
reclassifications
Amounts reclassified
from accumulated
other comprehensive
income
Net current period
other comprehensive
income (loss)
Ending balance at
December 31, 2013
Beginning balance at
December 31, 2011
Net current period
other comprehensive
income (loss)
Ending balance at
December 31, 2012
Beginning balance at
January 1, 2011
Net current period
other comprehensive
income (loss)
Ending balance at
December 31, 2011
19,766
(39,448)
—
(19,682)
1,770
11
—
1,781
21,536
(39,437)
—
(17,901)
$ (5,598)
$(29,821)
$ —
$(35,419)
$(20,954)
$ 12,673
$ (550)
$ (8,831)
(6,180)
(3,057)
550
(8,687)
$(27,134)
$ 9,616
$ —
$(17,518)
$(15,927)
$ 15,121
$(1,062)
$ (1,868)
(5,027)
(2,448)
512
(6,963)
$(20,954)
$ 12,673
$ (550)
$ (8,831)
During the year ended December 31, 2013, there was $17,000 ($11,000 net
of tax) reclassified out of accumulated other comprehensive income due to
an other-than-temporary impairment charge on an available-for-sale security.
This charge was recorded within miscellaneous expense on the Consolidated
Statement of Income. During the year ended December 31, 2011, $28.8 million
($18.7 million after-tax) was reclassified out of accumulated other compre -
hensive income (loss) due to gains recognized in net income as the result
of the sale of securities. These gains were recorded within net gain on sales
of securities on the Consolidated Statement of Income.
The following table provides information concerning significant amounts
reclassified out of accumulated other comprehensive income (loss) related
to Pension Plan assets and benefit obligations for the year ended December
31, 2013:
Year Ended
December 31, 2013
(In thousands)
Amortization of defined
benefit pension items
Amortization of prior
service cost
Amortization of net loss
Total income before
income taxes
Federal income taxes
Net of tax
Amount Reclassified from
Accumulated Other
Comprehensive Income
Affected Line Item
in the Consolidated
Statement of Income
Salaries and employee benefits
Salaries and employee benefits
$
20
2,703
$2,723
953
$1,770
16. EARNINGS PER COMMON SHARE
GAAP requires the reporting of basic and diluted earnings per common share.
Basic earnings per common share excludes any dilutive effects of options, war-
rants and convertible securities.
The following table sets forth the computation of basic and diluted earnings per
common share:
Year ended December 31
(in thousands, except share data)
2013
2012
2011
Numerator:
Net income available to
common shareholders
Denominator:
Basic earnings per common share:
Weighted-average shares
Effect of dilutive securities – stock options
$77,227
$75,205
$76,284
15,412,365
15,407,078
15,400,155
Diluted earnings per common share:
Adjusted weighted-average shares
and assumed conversions
Earnings per common share:
Basic earnings per common share
Diluted earnings per common share
15,412,365
15,408,141
15,401,446
$5.01
$5.01
$4.88
$4.88
$4.95
$4.95
As of December 31, 2011, options to purchase 74,020 common shares were
outstanding under Park’s 2005 Plan. All options had expired by December
31, 2012. A warrant to purchase 227,376 common shares was outstanding
at December 31, 2011 as a result of Park’s participation in the U.S. Treasury
Capital Purchase Program (“CPP”). Park repurchased the CPP warrant on May
2, 2012. In addition, warrants to purchase an aggregate of 71,984 common
shares were outstanding at December 31, 2010 as a result of the issuance of
common shares and warrants to purchase common shares on December 10,
2010 (the “December 2010 Warrants”). The December 2010 Warrants expired
in 2011, with no warrants being exercised, but have been considered in the
2011 diluted earnings per share calculation.
The common shares represented by the options and the December 2010
Warrants for the twelve months ended December 31, 2012 and 2011, totaling
a weighted average of 63,308 and 126,292, respectively, were not included in
the computation of diluted earnings per common share because the respective
exercise prices exceeded the market value of the underlying common shares
such that their inclusion would have had an anti-dilutive effect. The warrant
to purchase 227,376 common shares issued under the CPP was included in
the computation of diluted earnings per common share for the years ended
December 31, 2012 and 2011, as the dilutive effect of this warrant was 1,063
and 1,291 common shares for the twelve month periods ended December 31,
2012 and December 31, 2011, respectively. The exercise price of the CPP
warrant to purchase 227,376 common shares was $65.97.
There were no options or warrants outstanding to include in the calculation
of diluted earnings per share for the year ended December 31, 2013.
17. DIVIDEND RESTRICTIONS
Bank regulators limit the amount of dividends a subsidiary bank can declare
in any calendar year without obtaining prior approval. At December 31, 2013,
approximately $65.6 million of the total shareholders’ equity of PNB was
available for the payment of dividends to the Corporation, without approval
by the applicable regulatory authorities.
18. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF
CREDIT RISK
The Corporation is party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include loan commitments and standby letters
of credit. The instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the consolidated
financial statements.
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N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
The Corporation’s exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for loan commitments and standby
letters of credit is represented by the contractual amount of those instruments.
The Corporation uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments. Since
many of the loan commitments may expire without being drawn upon, the
total commitment amount does not necessarily represent future cash require-
ments. The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan commitments to customers.
The total amounts of off-balance sheet financial instruments with credit risk
were as follows:
December 31 (In thousands)
Loan commitments
Standby letters of credit
2013
$821,795
20,590
2012
$815,585
22,961
The loan commitments are generally for variable rates of interest.
The Corporation grants retail, commercial and commercial real estate loans
to customers primarily located in Ohio. The Corporation evaluates each cus-
tomer’s creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Corporation upon extension of credit, is
based on management’s credit evaluation of the customer. Collateral held varies
but may include accounts receivable, inventory, property, plant and equipment,
and income-producing commercial properties.
Although the Corporation has a diversified loan portfolio, a substantial portion
of the borrowers’ ability to honor their contracts is dependent upon the eco-
nomic conditions in each borrower’s geographic location and industry.
19. DERIVATIVE INSTRUMENTS
FASB ASC 815, Derivatives and Hedging, establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. As required by GAAP,
the Company records all derivatives on the Consolidated Balance Sheets at fair
value. The accounting for changes in the fair value of derivatives depends on the
intended use of the derivatives and the resulting designation. Derivatives used
to hedge the exposure to changes in the fair value of an asset, liability, or firm
commitment attributable to a particular risk, such as interest rate risk, are con-
sidered fair value hedges. Derivatives used to hedge the exposure to variability
in expected future cash flows, or other types of forecasted transactions, are
considered cash flow hedges.
For derivatives designated as cash flow hedges, the effective portion of changes
in the fair value of the derivatives is initially reported in other comprehensive
income (outside of earnings) and subsequently reclassified into earnings when
the hedged transaction affects earnings, with any ineffective portion of changes
in the fair value of the derivative recognized directly in earnings. The Company
assesses the effectiveness of each hedging relationship by comparing the
changes in cash flows of the derivative hedging instrument with the changes
in cash flows of the designated hedged item or transaction.
During the first quarter of 2008, the Company executed an interest rate swap
to hedge a $25 million floating-rate subordinated note that was entered into by
PNB during the fourth quarter of 2007. The Company’s objective in using this
derivative was to add stability to interest expense and to manage its exposure
to interest rate risk. Our interest rate swap involved the receipt of variable-rate
amounts in exchange for fixed-rate payments over the life of the agreement
without exchange of the underlying principal amount, and was designated as
a cash flow hedge. This interest rate swap matured on December 28, 2012.
No hedge ineffectiveness on the cash flow hedge was recognized during the
year ended December 31, 2012 or 2011.
For the year ended December 31, 2012, the change in the fair value of the
interest rate swap reported in other comprehensive income was a gain of
$550,000 (net of taxes of $296,000). There was zero balance related to
the interest rate swap in accumulated other comprehensive income as
of December 31, 2012.
As of December 31, 2013 and 2012, no derivatives were designated as
cash flow hedges, fair value hedges or hedges of net investments in foreign
operations. Additionally, the Company does not use derivatives for trading
or speculative purposes.
As of December 31, 2013 and December 31, 2012, Park had mortgage loan
interest rate lock commitments (IRLCs) outstanding of approximately $5.2
million and $28.9 million, respectively. Park has specific contracts to sell each
of these loans to a third-party investor. These loan commitments represent
derivative instruments, which are required to be carried at fair value. The
derivative instruments used are not designed as hedges under GAAP. The fair
value of the derivative instruments was approximately $61,000 at December
31, 2013 and $372,000 at December 31, 2012. The fair value of the derivative
instruments is included within loans held for sale and the corresponding
income is included within non-yield loan fee income. Gains and losses
resulting from expected sales of mortgage loans are recognized when the
respective loan contract is entered into between the borrower, Park, and
the third-party investor. The fair value of Park’s mortgage IRLCs is based
on current secondary market pricing.
In connection with the sale of Park’s Class B Visa shares during the 2009 year,
Park entered into a swap agreement with the purchaser of the shares. The
swap agreement adjusts for dilution in the conversion ratio of Class B Visa
shares resulting from certain Visa litigation. The fair value of the swap liability
of $135,000 at both December 31, 2013 and 2012, is an estimate of the
exposure based upon probability-weighted potential Visa litigation losses
and consideration of the Visa settlement agreement announced on July 13,
2012 to resolve the Federal Multi-District Interchange Litigation.
20. LOAN SERVICING
Park serviced sold mortgage loans of $1,326 million at December 31, 2013,
compared to $1,311 million at December 31, 2012 and $1,347 million at
December 31, 2011. At December 31, 2013, $10.7 million of the sold mortgage
loans were sold with recourse compared to $16.3 million at December 31,
2012. Management closely monitors the delinquency rates on the mortgage
loans sold with recourse. As of December 31, 2013 and December 31, 2012,
management had established a reserve of $1.0 million and $550,000, respec-
tively, to account for future loan repurchases.
The amortization of mortgage loan servicing rights is included within “Other
service income”. Generally, mortgage servicing rights are capitalized and amor-
tized on an individual sold loan basis. When a sold mortgage loan is paid off,
the related mortgage servicing rights are fully amortized.
Activity for mortgage servicing rights and the related valuation allowance
follows:
December 31 (In thousands)
2013
2012
2011
Mortgage servicing rights:
Carrying amount, net, beginning of year
Additions
Amortization
Change in valuation allowance
Carrying amount, net, end of year
Valuation allowance:
Beginning of year
Change in valuation allowance
End of year
$ 7,763
2,436
(2,479)
1,293
$ 9,013
$ 2,324
(1,293)
$ 1,031
$ 9,301
3,399
(3,634)
(1,303)
$ 7,763
$ 1,021
1,303
$ 2,324
$10,488
1,659
(2,573)
(273)
$ 9,301
$
748
273
$ 1,021
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Fair Value Measurements at December 31, 2012 Using:
(In thousands)
Level 1
Level 2
Level 3
Balance at
12/31/12
ASSETS
Investment Securities
Obligations of U.S.
Treasury and
other U.S.
Government
sponsored
entities
Obligations of states
and political
subdivisions
U.S. Government
sponsored entities’
asset-backed
securities
Equity securities
Mortgage loans
held for sale
Mortgage IRLCs
LIABILITIES
$ —
$695,727
$ —
$695,727
—
1,003
—
1,003
—
1,442
—
—
415,502
—
25,743
372
—
780
—
—
415,502
2,222
25,743
372
Fair value swap
$ —
$
—
$135
$
135
There were no transfers between Level 1 and Level 2 during 2013 or 2012.
Management’s policy is to transfer assets or liabilities from one level to another
when the methodology to obtain the fair value changes such that there are more
or fewer unobservable inputs as of the end of the reporting period.
The following methods and assumptions were used by the Company in deter-
mining fair value of the financial assets and liabilities discussed above:
Investment securities: Fair values for investment securities are based
on quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments. The Fair Value Measurements tables exclude Park’s FHLB stock
and FRB stock. These assets are carried at their respective redemption values,
as it is not practicable to calculate their fair values. For securities where quoted
prices or market prices of similar securities are not available, which include
municipal securities, fair values are calculated using discounted cash flows.
Fair value swap: The fair value of the swap agreement entered into with the
purchaser of the Visa Class B shares represents an internally developed estimate
of the exposure based upon probability-weighted potential Visa litigation losses.
Mortgage Interest Rate Lock Commitments (IRLCs): IRLCs are based on
current secondary market pricing and are classified as Level 2.
Mortgage loans held for sale: Mortgage loans held for sale are carried
at their fair value. Mortgage loans held for sale are estimated using security
prices for similar product types and, therefore, are classified in Level 2.
The fair value of mortgage servicing rights at December 31, 2013 was estab-
lished using a discount rate of 10% and constant prepayment speeds ranging
from 6.6% to 22.5%.
Servicing fees included in other service income were $3.6 million, $3.6 million
and $3.9 million for the years ended December 31, 2013, 2012 and 2011,
respectively.
21. FAIR VALUE
The fair value hierarchy requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value.
The three levels of inputs that Park uses to measure fair value are as follows:
■ Level 1: Quoted prices (unadjusted) for identical assets or liabilities in
active markets that Park has the ability to access as of the measurement
date.
■ Level 2: Level 1 inputs for assets or liabilities that are not actively traded.
Also consists of an observable market price for a similar asset or liability.
This includes the use of “matrix pricing” to value debt securities absent
the exclusive use of quoted prices.
■ Level 3: Consists of unobservable inputs that are used to measure fair
value when observable market inputs are not available. This could include
the use of internally developed models, financial forecasting and similar
inputs.
Fair value is defined as the price that would be received to sell an asset or
paid to transfer a liability between market participants at the balance sheet date.
When possible, the Company looks to active and observable markets to price
identical assets or liabilities. When identical assets and liabilities are not traded
in active markets, the Company looks to observable market data for similar
assets and liabilities. However, certain assets and liabilities are not traded in
observable markets and Park must use other valuation methods to develop a
fair value. The fair value of impaired loans is typically based on the fair value
of the underlying collateral, which is estimated through third-party appraisals
or internal estimates of collateral values in accordance with Park’s valuation
requirements per its commercial and real estate loan policies.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents assets and liabilities measured at fair value
on a recurring basis:
Fair Value Measurements at December 31, 2013 Using:
(In thousands)
Level 1
Level 2
Level 3
Balance at
12/31/13
ASSETS
Investment Securities
Obligations of U.S.
Treasury and
other U.S.
Government
sponsored
entities
Obligations of states
and political
subdivisions
U.S. Government
sponsored entities’
asset-backed
securities
Equity securities
Mortgage loans
held for sale
Mortgage IRLCs
LIABILITIES
$ —
$525,136
$ —
$525,136
—
—
—
—
—
1,900
—
—
648,471
—
1,666
61
—
759
—
—
648,471
2,659
1,666
61
Fair value swap
$ —
$
—
$135
$
135
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The table below is a reconciliation of the beginning and ending balances of the
Level 3 inputs for the years ended December 31, 2013 and 2012, for financial
instruments measured on a recurring basis and classified as Level 3:
Level 3 Fair Value Measurements
(in thousands)
Balance at January 1, 2013
Total gains/(losses)
Included in earnings – realized
Included in earnings – unrealized
Included in other comprehensive income
Purchases, sales, issuances and settlements,
other, net
Re-evaluation of fair value swap
Balance at December 31, 2013
Balance at January 1, 2012
Total gains/(losses)
Included in earnings – realized
Included in earnings – unrealized
Included in other comprehensive income
Purchases, sales, issuances and settlements,
other, net
Re-evaluation of fair value swap
Balance at December 31, 2012
Equity
Securities
$780
Fair Value
Swap
$(135)
(17)
—
(4)
—
—
$759
$763
(54)
—
71
—
—
—
—
—
—
—
$(135)
$(700)
—
—
—
—
565
$780
$(135)
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The following methods and assumptions were used by the Company in
determining the fair value of assets and liabilities measured at fair value
on a nonrecurring basis described below:
Impaired Loans: At the time a loan is considered impaired, it is valued at
the lower of cost or fair value. Impaired loans carried at fair value have been
partially charged-off or receive specific allocations of the allowance for loan
losses. For collateral dependent loans, fair value is generally based on real
estate appraisals. These appraisals may utilize a single valuation approach
or a combination of approaches including comparable sales and the income
approach. Adjustments are routinely made in the appraisal process by the inde-
pendent appraisers to adjust for differences between the comparable sales and
income data available. Such adjustments result in a Level 3 classification of the
inputs for determining fair value. Collateral is then adjusted or discounted
based on management’s historical knowledge, changes in market conditions
from the time of the valuation, and management’s expertise and knowledge of
the client and client’s business, resulting in a Level 3 fair value classification.
Impaired loans are evaluated on a quarterly basis for additional impairment
and adjusted accordingly. Additionally, updated valuations are obtained annually
for all impaired loans in accordance with Company policy.
Other Real Estate Owned (OREO): Assets acquired through or in lieu
of loan foreclosure are initially recorded at fair value less costs to sell when
acquired. The carrying value of OREO is not re-measured to fair value on a
recurring basis, but is subject to fair value adjustments when the carrying value
exceeds the fair value, less estimated selling costs. Fair value is based on recent
real estate appraisals and is updated at least annually. These appraisals may
utilize a single valuation approach or a combination of approaches including
the comparable sales approach and the income approach. Adjustments are
routinely made in the appraisal process by the independent appraisers to adjust
for differences between the comparable sales and income data available. Such
adjustments result in a Level 3 classification of the inputs for determining fair
value.
Appraisals for both collateral dependent impaired loans and OREO are
performed by licensed appraisers. Appraisals are generally obtained to support
the fair value of collateral. In general, there are two types of appraisals, real
estate appraisals and lot development loan appraisals, received by the Company.
These are discussed below:
■ Real estate appraisals typically incorporate measures such as recent sales
prices for comparable properties. Appraisers may make adjustments to
the sales prices of the comparable properties as deemed appropriate
based on the age, condition or general characteristics of the subject
74
property. Management generally applies a 15% discount to real estate
appraised values which management expects will cover all disposition
costs (including selling costs). This 15% discount is based on historical
discounts to appraised values on sold OREO properties.
■ Lot development loan appraisals are typically performed using a
discounted cash flow analysis. Appraisers determine an anticipated
absorption period and a discount rate that takes into account an investor’s
required rate of return based on recent comparable sales. Management
generally applies a 6% discount to lot development appraised values,
which is an additional discount above the net present value calculation
included in the appraisal, to account for selling costs.
MSRs: MSRs are carried at the lower of cost or fair value. MSRs do not trade in
active, open markets with readily observable prices. For example, sales of MSRs
do occur, but precise terms and conditions typically are not readily available.
As such, management, with the assistance of a third-party specialist, determines
fair value based on the discounted value of the future cash flows estimated to be
received. Significant inputs include the discount rate and assumed prepayment
speeds utilized. The calculated fair value is then compared to market values
where possible to ascertain the reasonableness of the valuation in relation
to current market expectations for similar products. Accordingly, MSRs are
classified as Level 2.
The following tables present assets and liabilities measured at fair value on
a nonrecurring basis. Collateral dependent impaired loans are carried at fair
value if they have been charged down to fair value or if a specific valuation
allowance has been established. A new cost basis is established at the time a
property is initially recorded in OREO. OREO properties are carried at fair value
if a devaluation has been taken to the property’s value subsequent to the initial
measurement.
The following table presents assets and liabilities measured at fair value on
a nonrecurring basis:
Fair Value Measurements at December 31, 2013 Using:
(In thousands)
Level 1
Level 2
Level 3
Balance at
12/31/13
Impaired loans:
$ —
$ —
$21,100
$21,100
Commercial real estate
Construction real estate:
SEPH commercial land
and development
—
Remaining commercial —
—
Residential real estate
—
—
—
4,777
3,788
4,154
4,777
3,788
4,154
Total impaired loans
$ —
$ —
$33,819
$33,819
Mortgage servicing
rights
Other real estate owned:
$ —
$ 2,259
$ —
$ 2,259
Construction real estate —
—
Residential real estate
—
Commercial real estate
Total other
—
—
—
11,041
3,366
4,119
11,041
3,366
4,119
real estate owned
$ —
$ —
$18,526
$18,526
Fair Value Measurements at December 31, 2012 Using:
(In thousands)
Level 1
Level 2
Level 3
Balance at
12/31/12
Impaired loans:
$ —
$ —
$25,997
$25,997
Commercial real estate
Construction real estate:
SEPH commercial land
and development
—
Remaining commercial —
—
Residential real estate
—
—
—
12,832
8,113
6,990
12,832
8,113
6,990
Total impaired loans
$ —
$ —
$53,932
$53,932
Mortgage servicing
rights
Other real estate owned:
$ —
$ 6,642
$ —
$ 6,642
Construction real estate —
—
Residential real estate
—
Commercial real estate
Total other
—
—
—
12,134
4,307
3,485
12,134
4,307
3,485
real estate owned
$ —
$ —
$19,926
$19,926
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Impaired loans had a recorded investment of $112.3 million at December 31,
2013, after partial charge-offs of $63.3 million. Additionally, these impaired
loans had a specific valuation allowance of $10.5 million. Of the $112.3 million
impaired loan portfolio at December 31, 2013, loans with a recorded invest-
ment of $41.0 million were carried at their fair value of $33.8 million, as
a result of charge-offs of $49.0 million and a specific valuation allowance
of $7.2 million. An additional specific valuation allowance of $3.3 million at
December 31, 2013 was related to loans which were not collateral dependent
and were thus not included in the fair value table above. The remaining $71.3
million of impaired loans were carried at cost, as the fair value of the underly-
ing collateral or present value of expected future cash flows on each of these
loans exceeded the recorded investment for each individual credit. At
December 31, 2012, impaired loans had a recorded investment of $137.2
million, after partial charge-offs of $105.1 million. Additionally, these impaired
loans had a specific valuation allowance of $8.3 million. Of the $137.2 million
impaired loan portfolio at December 31, 2012, loans with a recorded invest-
ment of $59.0 million were carried at their fair value of $53.9 million as a
result of partial charge-offs of $91.6 million and a specific valuation allowance
for those loans carried at fair value of $5.1 million. An additional specific
valuation allowance of $3.2 million at December 31, 2012 was related to
loans which were not collateral dependent and were thus not included in
the fair value table above. The remaining $78.2 million of impaired loans
at December 31, 2012 were carried at cost. The financial impact of credit
adjustments related to impaired loans carried at fair value during the years
ended December 31, 2013, 2012 and 2011 was $8.1 million, $16.0 million,
and $37.4 million, respectively.
MSRs, which are carried at the lower of cost or fair value, were recorded at
$9.0 million at December 31, 2013. Of the $9.0 million MSR carrying balance
at December 31, 2013, $2.3 million was recorded at fair value and included a
valuation allowance of $1.0 million. The remaining $6.7 million was recorded
at cost, as the fair value exceeded cost at December 31, 2013. At December 31,
2012, MSRs were recorded at $7.8 million, including a valuation allowance of
$2.3 million. Income/(Expense) related to MSRs carried at fair value for the
years ended December 31, 2013, 2012 and 2011 was $1.3 million, $(1.3)
million and $(273,000), respectively.
Total OREO held by Park at December 31, 2013 and December 31, 2012 was
$34.6 million and $35.7 million, respectively. Approximately 53% and 55%
of OREO held by Park at December 31, 2013 and at December 31, 2012,
respectively, was carried at fair value due to devaluations taken subsequent
to the initial OREO measurement. At December 31, 2013 and December 31,
2012, the estimated fair value of OREO, less estimated selling costs, amounted
to $18.5 million and $19.9 million, respectively. The financial impact of OREO
fair value adjustments for the years ended December 31, 2013, 2012 and 2011
was $3.2 million, $6.9 million and $8.2 million, respectively.
The following tables present qualitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis
at December 31, 2013 and December 31, 2012:
Fair Value
Valuation Technique
Unobservable Input(s)
Range (Weighted Average)
(In thousands)
December 31, 2013
Impaired loans:
Commercial real estate
Construction real estate:
SEPH commercial land and development
Remaining commercial
Residential real estate
Other real estate owned:
Commercial real estate
Construction real estate
Residential real estate
December 31, 2012
Impaired loans:
Commercial real estate
$21,100
4,777
3,788
4,154
4,119
11,041
3,366
$25,997
Construction real estate:
SEPH commercial land and development
12,832
Remaining commercial
Residential real estate
Other real estate owned:
Commercial real estate
Construction real estate
Residential real estate
8,113
6,990
3,485
12,134
4,307
Sales comparison approach
Income approach
Cost approach
Sales comparison approach
Bulk sale approach
Sales comparison approach
Bulk sale approach
Sales comparison approach
Income approach
Sales comparison approach
Income approach
Cost approach
Sales comparison approach
Bulk sale approach
Sales comparison approach
Income approach
Sales comparison approach
Income approach
Cost approach
Sales comparison approach
Bulk sale approach
Sales comparison approach
Bulk sale approach
Sales comparison approach
Sales comparison approach
Income approach
Bulk sale approach
Cost approach
Sales comparison approach
Income approach
Bulk sale approach
Sales comparison approach
Income approach
Cost approach
Adj to comparables
Capitalization rate
Accumulated depreciation
Adj to comparables
Discount rate
Adj to comparables
Discount rate
Adj to comparables
Capitalization rate
Adj to comparables
Capitalization rate
Accumulated depreciation
Adj to comparables
Discount rate
Adj to comparables
Capitalization rate
0.0% – 109.0% (22.8%)
8.0% – 12.5% (9.1%)
11.7% – 65.0% (37.1%)
0.0% – 96.0% (13.9%)
11.0% – 20.0% (14.9%)
0.0% – 40.0% (22.4%)
11.0% – 20.0% (18.0%)
0.0% – 121.8% (14.9%)
7.8% – 10.0% (8.4%)
0.0% – 140.0% (17.7%)
8.0% – 11.5% (9.6%)
60.0% – 95.0% (80.0%)
0.0% – 484.0% (36.2%)
13.0% – 14.0% (13.6%)
0.0% – 273.0% (19.2%)
5.4% – 7.8% (7.4%)
Adj to comparables
Capitalization rate
Accumulated depreciation
0.0% – 116.0% (22.3%)
7.5% – 20.9% (10.1%)
23..0% – 63.0% (50.4%)
Adj to comparables
Discount rate
Adj to comparables
Discount rate
Adj to comparables
Adj to comparables
Capitalization rate
Discount rate
Accumulated depreciation
Adj to comparables
Capitalization rate
Discount rate
Adj to comparables
Capitalization rate
Accumulated depreciation
0.0% – 218.0% (31.9%)
11.0% – 55.0% (23.4%)
0.0% – 75.0% (26.2%)
10.0% – 55.0% (18.3%)
0.0% – 178.0% (17.9%)
0.0% – 67.0% (25.8%)
11.0% (11.0%)
13.0% (13.0%)
40.9% – 90.0% (65.0%)
0.0% – 273.0% (34.0%)
8.5% (8.5%)
10.0% – 12.0% (10.8%)
1.0% – 61.0% (18.0%)
7.9% – 9.3% (8.7%)
6.0% (6.0%)
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The following methods and assumptions were used by the Corporation in esti-
mating its fair value disclosures for assets and liabilities not discussed above:
Cash and cash equivalents: The carrying amounts reported in the Con -
solidated Balance Sheets for cash and short-term instruments approximate
those assets’ fair values.
Loans receivable: For variable-rate loans that reprice frequently and with
no significant change in credit risk, fair values are based on carrying values.
The fair values for certain mortgage loans (e.g., one-to-four family residential)
are based on quoted market prices of similar loans sold in conjunction with
securitization transactions, adjusted for differences in loan characteristics.
The fair values for other loans are estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
Off-balance sheet instruments: Fair values for the Corporation’s loan com-
mitments and standby letters of credit are based on the fees currently charged
to enter into similar agreements, taking into account the remaining terms of the
agreements and the counterparties’ credit standing. The carrying amount and
fair value are not material.
Deposit liabilities: The fair values disclosed for demand deposits (e.g.,
interest and non-interest checking, savings, and money market accounts)
are, by definition, equal to the amount payable on demand at the reporting
date (i.e., their carrying amounts). The carrying amounts for variable-rate,
fixed-term certificates of deposit approximate their fair values at the reporting
date. Fair values for fixed-rate certificates of deposit are estimated using a dis-
counted cash flow calculation that applies interest rates currently being offered
on certificates to a schedule of aggregated expected monthly maturities of time
deposits.
Short-term borrowings: The carrying amounts of federal funds purchased,
borrowings under repurchase agreements and other short-term borrowings
approximate their fair values.
Long-term debt: Fair values for long-term debt are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on long-term debt to a schedule of monthly maturities.
Subordinated debentures and notes: Fair values for subordinated
debentures and notes are estimated using a discounted cash flow calculation
that applies interest rate spreads currently being offered on similar debt
structures to a schedule of monthly maturities.
The fair value of financial instruments at December 31, 2013 and December 31, 2012, was as follows:
Fair Value Measurements at December 31, 2013:
Level 1
Level 2
Level 3
$ 147,030
1,900
—
—
—
—
—
—
$
—
$1,193,553
1,145,525
1,124,994
—
1,263
$3,465,335
$
$
—
—
—
16
4
—
—
$
1,361,009
4,840
—
1,666
—
61
—
$
1,727
$
—
—
—
1,331,129
—
$1,331,129
$ 242,029
860,963
83,140
1,350
1,531
$
—
759
—
13,495
—
33,819
—
4,531,680
$4,565,499
$
$
$
—
—
—
—
—
—
—
—
—
—
—
$
—
$
135
$
135
Total
Fair Value
$ 147,030
1,363,668
4,840
13,495
1,666
33,819
61
4,531,680
$4,567,226
$1,193,553
1,145,525
1,124,994
1,331,129
1,263
$4,796,464
$ 242,029
860,963
83,140
1,366
1,535
(In thousands)
Financial assets:
Cash and money market instruments
Investment securities
Accrued interest receivable – securities
Accrued interest receivable – loans
Mortgage loans held for sale
Impaired loans carried at fair value
Mortgage IRLCs
Other loans
Loans receivable, net
Financial liabilities:
Non-interest bearing checking accounts
Interest bearing transaction accounts
Savings accounts
Time deposits
Other
Total deposits
Short-term borrowings
Long-term debt
Subordinated debentures/notes
Accrued interest payable – deposits
Accrued interest payable – debt/borrowings
Derivative financial instruments:
Fair value swap
Carrying
Value
$ 147,030
1,358,327
4,840
13,495
1,666
33,819
61
4,525,491
$4,561,037
$1,193,553
1,145,525
1,124,994
1,324,659
1,263
$4,789,994
$ 242,029
810,541
80,250
1,366
1,535
$
135
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Fair Value Measurements at December 31, 2012:
(In thousands)
Financial assets:
Cash and money market instruments
Investment securities
Accrued interest receivable – securities
Accrued interest receivable – loans
Mortgage loans held for sale
Impaired loans carried at fair value
Mortgage IRLCs
Other loans
Loans receivable, net
Financial liabilities:
Non-interest bearing checking accounts
Interest bearing transaction accounts
Savings accounts
Time deposits
Other
Total deposits
Short-term borrowings
Long-term debt
Subordinated debentures/notes
Accrued interest payable – deposits
Accrued interest payable – debt/borrowings
Derivative financial instruments:
Fair value swap
Carrying
Value
$ 201,305
1,515,844
6,122
13,588
25,743
53,932
372
4,314,738
$4,394,785
$1,137,290
1,088,617
1,038,356
1,450,424
1,345
$4,716,032
$ 344,168
781,658
80,250
1,960
1,499
$
135
Level 1
Level 2
Level 3
$ 201,305
1,442
—
—
—
—
—
—
$
—
$1,137,290
1,088,617
1,038,356
—
1,345
$3,265,608
$
$
—
—
—
21
8
—
$
—
1,522,937
6,122
2
25,743
—
372
—
$
26,115
$
—
—
—
1,458,793
—
$1,458,793
$ 344,168
861,466
79,503
1,939
1,491
$
—
780
—
13,586
—
53,932
—
4,348,705
$4,402,637
$
$
$
—
—
—
—
—
—
—
—
—
—
—
Total
Fair Value
$ 201,305
1,525,159
6,122
13,588
25,743
53,932
372
4,348,705
$4,428,752
$1,137,290
1,088,617
1,038,356
1,458,793
1,345
$4,724,401
$ 344,168
861,466
79,503
1,960
1,499
$
—
$
135
$
135
77
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22. CAPITAL RATIOS
At December 31, 2013 and 2012, the Corporation and PNB had Tier 1, total
risk-based capital and leverage ratios which were well above both the required
minimum levels of 4.00%, 8.00% and 4.00%, respectively, and the well-capital-
ized levels of 6.00%, 10.00% and 5.00%, respectively.
The following table indicates the capital ratios for Park and PNB at
December 31, 2013 and December 31, 2012.
Failure to meet the minimum requirements above could cause the Federal
Reserve Board to take action. PNB is also subject to the capital requirements
of its primary regulator, the OCC. As of December 31, 2013 and 2012, Park and
PNB were well-capitalized and met all capital requirements to which each was
then subject. There are no conditions or events since PNB’s most recent regula-
tory report filings, that management believes have changed the risk categories
for PNB.
2013
Total
Risk-
Based
Tier 1
Risk-
Based
Tier 1
Risk-
Based
Leverage
2012
Total
Risk-
Based
Park National Bank
10.01% 11.78% 7.10%
9.28% 11.17%
Park
13.27% 15.91% 9.48%
13.12% 15.77%
Leverage
6.43%
9.17%
The following table reflects various measures of capital for Park and PNB:
(In thousands)
Actual Amount
Ratio
To Be Adequately Capitalized
Ratio
Amount
To Be Well Capitalized
Amount
Ratio
At December 31, 2013:
Total risk-based capital
(to risk-weighted assets)
PNB
Park
Tier 1 risk-based capital
(to risk-weighted assets)
PNB
Park
Leverage ratio
(to average total assets)
PNB
Park
At December 31, 2012:
Total risk-based capital
(to risk-weighted assets)
PNB
Park
Tier 1 risk-based capital
(to risk-weighted assets)
PNB
Park
Leverage ratio
(to average total assets)
PNB
Park
$545,144
754,605
$463,015
629,410
$463,015
629,410
$502,680
732,413
$417,690
609,411
$417,690
609,411
11.78%
15.91%
10.01%
13.27%
7.10%
9.48%
11.17%
15.77%
9.28%
13.12%
6.43%
9.17%
$370,198
379,446
$185,099
189,723
$261,025
265,633
$359,971
371,477
$179,986
185,739
$259,769
265,719
8.00%
8.00%
4.00%
4.00%
4.00%
4.00%
8.00%
8.00%
4.00%
4.00%
4.00%
4.00%
$462,747
N/A
$277,648
N/A
$326,281
N/A
$449,964
N/A
$269,978
N/A
$324,711
N/A
10.00%
N/A
6.00%
N/A
5.00%
N/A
10.00%
N/A
6.00%
N/A
5.00%
N/A
78
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23. SEGMENT INFORMATION
The Corporation is a financial holding company headquartered in Newark,
Ohio. Prior to February 16, 2012, the operating segments for the Corporation
were its two chartered bank subsidiaries, PNB (headquartered in Newark,
Ohio) and Vision(headquartered in Panama City, Florida). On February 16,
2012, Vision sold certain assets and liabilities to Centennial (See Note 3 of these
Notes to Consolidated Financial Statements). Promptly following the closing of
the transaction, Vision surrendered its Florida banking charter to the Florida
Office of Financial Regulation and became a non-bank Florida corporation. The
Florida Corporation merged with and into a wholly-owned non-bank subsidiary
of Park, SEPH, with SEPH being the surviving entity. The closing of this trans -
action prompted Park to add SEPH as a reportable segment. Additionally, due
to the increased significance of the entity, GFSC was added as a reportable
segment in the first quarter of 2012.
GAAP requires management to disclose information about the different types
of business activities in which a company engages and also information on the
different economic environments in which a company operates, so that the
users of the financial statements can better understand a company’s perform-
ance, better understand the potential for future cash flows, and make more
informed judgments about the company as a whole. Park’s current operating
segments are in line with GAAP as: (i) discrete financial information is available
for each operating segment and (ii) the segments are aligned with internal
reporting to Park’s Chief Executive Officer, who is the chief operating decision
maker.
Operating results for the year ended December 31, 2013 (In thousands)
Net interest income (loss)
Provision for (recovery of) loan losses
Other income
Other expense
Income (loss) before taxes
Income taxes (benefit)
Net income (loss)
Balances at December 31, 2013:
Assets
Loans
Deposits
PNB
$ 210,781
14,039
70,841
165,665
101,918
26,324
$
75,594
$6,524,098
4,559,406
4,896,405
Operating results for the year ended December 31, 2012 (In thousands)
Net interest income (loss)
Provision for loan losses
Other income
Other expense
Income (loss) before taxes
Income taxes (benefit)
Net income (loss)
Balances at December 31, 2012:
Assets
Loans
Deposits
PNB
$ 221,758
16,678
70,739
156,516
119,303
32,197
87,106
$
$6,502,579
4,369,173
4,814,107
Operating results for the year ended December 31, 2011 (In thousands)
Net interest income (loss)
Provision for loan losses
Other income (loss)
Other expense
Income (loss) before taxes
Income taxes (benefit)
Net income (loss)
Balances at December 31, 2011:
Assets
Assets held for sale (1)
Loans
Deposits
Liabilities held for sale (2)
PNB
$ 236,282
30,220
90,982
146,235
150,809
43,958
$ 106,851
$6,281,747
—
4,172,424
4,611,646
—
$
$
$
$
$
$
VB
VB
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
VB
$ 27,078
31,052
6,617
31,379
(28,736)
(6,210)
$ (22,526)
$650,935
382,462
123,883
32
536,186
GFSC
$ 8,741
1,175
11
3,133
4,444
1,556
$ 2,888
$ 47,115
47,228
7,159
GFSC
$ 9,156
859
—
2,835
5,462
1,912
$ 3,550
$ 49,926
50,082
8,358
GFSC
$ 8,693
2,000
—
2,506
4,187
1,466
$2,721
$ 46,682
—
47,111
8,013
—
SEPH
$ (1,325)
(11,799)
1,956
12,211
219
77
142
$
$ 72,781
38,014
—
$
SEPH
(341)
17,882
21,431
22,032
(18,824)
(6,603)
$ (12,221)
$104,428
59,178
—
$
SEPH
(974)
—
(3,039)
1,082
(5,095)
(1,784)
$ (3,311)
$ 34,989
—
—
—
—
All Other
$ 2,828
—
469
7,520
(4,223)
(2,826)
$ (1,397)
$ (5,647)
(24,143)
(113,570)
All Other
$ 4,742
—
233
6,585
(1,610)
(1,805)
$ 195
$(14,130)
(28,111)
(106,433)
All Other
$ 2,155
—
350
7,115
(4,610)
(3,015)
$ (1,595)
$(42,108)
—
(26,319)
(154,577)
—
(1) The assets held for sale represent the loans and other assets at Vision that were sold in the first quarter of 2012.
(2) The liabilities held for sale represent the deposits and other liabilities at Vision that were sold in the first quarter of 2012.
Total
$ 221,025
3,415
73,277
188,529
102,358
25,131
$
77,227
$6,638,347
4,620,505
4,789,994
Total
$ 235,315
35,419
92,403
187,968
104,331
25,701
78,630
$
$6,642,803
4,450,322
4,716,032
Total
$ 273,234
63,272
94,910
188,317
116,555
34,415
$ 82,140
$6,972,245
382,462
4,317,099
4,465,114
536,186
79
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The following is a reconciliation of financial information for the reportable
segments to the Corporation’s consolidated totals:
Statements of Income
for the years ended December 31, 2013, 2012 and 2011
(In thousands)
Income:
Dividends from subsidiaries
Interest and dividends
Other
Total income
Expense:
Other, net
Total expense
Income before federal taxes and
equity in undistributed income
(losses) of subsidiaries
Federal income tax benefit
Income before equity in
undistributed income
(losses) of subsidiaries
Equity in undistributed income
(losses) of subsidiaries
Net income
2013
2012
2011
$15,000
$ 197,000
$105,000
8,659
531
24,190
13,413
13,413
10,777
2,826
10,027
232
207,259
11,869
11,869
5,643
385
111,028
10,639
10,639
195,390
1,806
100,389
3,016
13,603
197,196
103,405
63,624
(118,566)
(21,265)
$77,227
$ 78,630
$ 82,140
Statements of Cash Flows
for the years ended December 31, 2013, 2012 and 2011
(In thousands)
Operating activities:
Net income
2013
2012
2011
$ 77,227
$ 78,630
$ 82,140
Adjustments to reconcile net income to
net cash provided by operating activities:
Undistributed (income)/losses of subsidiaries
Compensation expense for issuance
of treasury stock to directors
Decrease in other assets
Increase (decrease) in other liabilities
Net cash provided by
operating activities
Investing activities:
(63,624)
118,566
21,265
850
(2,215)
(3,030)
407
5,748
1,724
—
8,268
(7,875)
9,208
205,075
103,798
Purchase of investment securities
—
—
Capital contribution to subsidiary
(45,000)
(45,000)
(250)
(36,000)
Purchase of debentures receivable
from subsidiaries
Repayment of debentures receivable
from subsidiaries
Net cash provided by (used in)
investing activities
Financing activities:
Cash dividends paid
Payment to repurchase
warrants
Payment to repurchase
preferred shares
Proceeds from issuance of
subordinated notes
Cash payment for fractional shares
Net cash used in
financing activities
Increase/(decrease) in cash
Cash at beginning of year
—
(115,000)
(30,000)
101,960
52,000
—
56,960
(108,000)
(66,250)
(57,949)
(60,154)
(62,907)
—
—
—
(3)
(2,843)
(100,000)
30,000
(2)
—
—
—
(2)
(57,952)
(132,999)
8,216
98,726
(35,924)
134,650
(62,909)
(25,361)
160,011
Cash at end of year
$106,942
$ 98,726
$134,650
(In thousands)
2013:
Totals for reportable
segments
Elimination of
Net Interest Depreciation
Income
Expense
Other
Expense
Income
Taxes
Assets
Deposits
$218,197
$7,315 $173,694 $27,957 $6,643,994 $4,903,564
intersegment items
8,659
Parent Co. totals –
not eliminated
(5,831)
—
—
—
—
(30,369)
(113,570)
7,520
(2,826)
24,722
—
Totals
2012:
Totals for reportable
segments
Elimination of
$221,025
$7,315 $181,214 $25,131 $6,638,347 $4,789,994
$230,573
$6,954 $174,429 $27,506 $6,656,933 $4,822,465
intersegment items
8,558
Parent Co. totals –
not eliminated
(3,816)
—
—
—
—
(35,639)
(106,433)
6,585
(1,805)
21,509
—
Totals
2011:
Totals for reportable
segments
Elimination of
$235,315
$6,954 $181,014 $25,701 $6,642,803 $4,716,032
$271,079
$7,583 $173,619 $37,430 $7,014,353 $4,619,691
intersegment items
4,492
Parent Co. totals –
not eliminated
(2,337)
—
—
—
—
(63,243)
(154,577)
7,115
(3,015)
21,135
—
Totals
$273,234
$7,583 $180,734 $34,415 $6,972,245 $4,465,114
24. PARENT COMPANY STATEMENTS
The Parent Company statements should be read in conjunction with the
consolidated financial statements and the information set forth below.
Investments in subsidiaries are accounted for using the equity method of
accounting.
The effective tax rate for the Parent Company is substantially less than the
statutory rate due principally to tax-exempt dividends from subsidiaries.
Cash represents non-interest bearing deposits with PNB.
Net cash provided by operating activities reflects cash payments (received
from subsidiaries) for income taxes of $2.54 million, $4.54 million and
$4.21 million in 2013, 2012 and 2011, respectively.
At December 31, 2013 and 2012, shareholders’ equity reflected in the Parent
Company balance sheet includes $196.0 million and $173.1 million, respec-
tively, of undistributed earnings of the Corporation’s subsidiaries which are
restricted from transfer as dividends to the Corporation.
Balance Sheets
December 31, 2013 and 2012
(In thousands)
Assets:
Cash
Investment in subsidiaries
Debentures receivable from PNB
Other investments
Other assets
Total assets
Liabilities:
Subordinated notes
Other liabilities
Total liabilities
Total shareholders’ equity
2013
$106,942
582,992
25,000
2,297
21,984
$739,215
80,250
7,218
87,468
651,747
Total liabilities and shareholders’ equity
$739,215
2012
$ 98,726
589,523
30,000
2,133
19,639
$740,021
80,250
9,405
89,655
650,366
$740,021
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25. PARTICIPATION IN THE U.S. TREASURY
CAPITAL PURCHASE PROGRAM (CPP)
On December 23, 2008, Park issued $100 million of Fixed-Rate Cumulative
Perpetual Preferred Shares, Series A, with a liquidation preference of $1,000
per share (the “Series A Preferred Shares”), associated with Park’s participa-
tion in the CPP. As part of its participation in the CPP, Park also issued a warrant
to the U.S. Treasury to purchase 227,376 common shares (the “Warrant”).
On April 25, 2012, Park entered into a Letter Agreement with the U.S. Treasury
pursuant to which Park repurchased the 100,000 Series A Preferred Shares for
a purchase price of $100 million plus a pro rata accrued and unpaid dividend.
Total consideration of $101.0 million included accrued and unpaid dividends
of $1.0 million. In addition to the accrued and unpaid dividends of $1.0
million, the charge to retained earnings, resulting from the repurchase
of the Series A Preferred Shares, was $1.6 million on April 25, 2012.
On May 2, 2012, Park entered into a Letter Agreement pursuant to which
Park repurchased from the U.S. Treasury the Warrant to purchase 227,376
Park common shares in full for consideration of $2.8 million, or $12.50
per Park common share.
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