XASE:PRK Park National Corp Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
S QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2012
 
OR
 
£ TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from
 
to
 
 
Commission File Number
1-13006
 
Park National Corporation
(Exact name of registrant as specified in its charter)
 
Ohio
 
31-1179518
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
50 North Third Street, Newark, Ohio 43055
(Address of principal executive offices) (Zip Code)
 
(740) 349-8451
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)

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

 Yes   ý   No   ¨

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

Yes   ý   No   ¨

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

 Yes   ¨   No   ý

15,405,893 Common shares, no par value per share, outstanding at August 2, 2012.




PARK NATIONAL CORPORATION
 
CONTENTS
 
 
Page
PART I.   FINANCIAL INFORMATION
 
 
 
Item 1.  Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
68 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


PARK NATIONAL CORPORATION
Consolidated Condensed Balance Sheets (Unaudited)
(in thousands, except share and per share data)
 
June 30,
2012
 
December 31, 2011
Assets:
 

 
 

Cash and due from banks
$
132,561

 
$
137,770

Money market instruments
75,501

 
19,716

Cash and cash equivalents
208,062

 
157,486

Investment securities
 

 
 

Securities available-for-sale, at fair value (amortized cost of $846,719 and $801,147 at June 30, 2012 and December 31, 2011)
867,147

 
820,645

Securities held-to-maturity, at amortized cost (fair value of $768,076 and $834,574 at June 30, 2012 and December 31, 2011)
755,222

 
820,224

Other investment securities
66,285

 
67,604

Total investment securities
1,688,654

 
1,708,473

Loans
4,386,851

 
4,317,099

Allowance for loan losses
(58,696
)
 
(68,444
)
Net loans
4,328,155

 
4,248,655

Bank owned life insurance
158,696

 
154,567

Goodwill and other intangible assets
72,949

 
74,843

Bank premises and equipment, net
52,261

 
53,741

Other real estate owned
38,424

 
42,272

Accrued interest receivable
20,219

 
19,697

Mortgage loan servicing rights
8,809

 
9,301

Other
129,345

 
120,748

Assets held for sale

 
382,462

Total assets
$
6,705,574

 
$
6,972,245

 
 
 
 
Liabilities and Stockholders' Equity:
 

 
 

Deposits:
 

 
 

Noninterest bearing
$
1,034,952

 
$
995,733

Interest bearing
3,788,023

 
3,469,381

Total deposits
4,822,975

 
4,465,114

Short-term borrowings
240,602

 
263,594

Long-term debt
806,287

 
823,182

Subordinated debentures and notes
105,250

 
75,250

Accrued interest payable
4,660

 
4,916

Other
65,177

 
61,639

Liabilities held for sale

 
536,186

Total liabilities
6,044,951

 
6,229,881

 
 
 
 
COMMITMENTS AND CONTINGENCIES


 


Stockholders' equity:
 

 
 

Preferred stock (200,000 shares authorized; 0 shares at June 30, 2012 and 100,000 shares at December 31, 2011 issued with $1,000 per share liquidation preference)

 
98,146

Common stock (No par value; 20,000,000 shares authorized; 16,151,007 shares issued at June 30, 2012 and 16,151,021 shares issued at December 31, 2011)
302,655

 
301,202

Common stock warrants

 
4,297

Retained earnings
442,531

 
424,557

Treasury stock (745,109 shares at June 30, 2012 and at December 31,2011)
(77,007
)
 
(77,007
)
Accumulated other comprehensive (loss), net of taxes
(7,556
)
 
(8,831
)
Total stockholders' equity
660,623

 
742,364

Total liabilities and stockholders’ equity
$
6,705,574

 
$
6,972,245

 
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

3


PARK NATIONAL CORPORATION
Consolidated Condensed Statements of Income (Unaudited)
(in thousands, except share and per share data)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2012
 
2011
 
2012
 
2011
Interest and dividend income:
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
Interest and fees on loans
$
57,593

 
$
65,862

 
$
118,698

 
$
131,316

 
 
 
 
 
 
 
 
Interest and dividends on:
 

 
 

 
 
 
 
Obligations of U.S. Government, its agencies and other securities
13,794

 
18,960

 
27,378

 
38,013

Obligations of states and political subdivisions
42

 
92

 
88

 
241

 
 
 
 
 
 
 
 
Other interest income
57

 
8

 
160

 
14

Total interest and dividend income
71,486

 
84,922

 
146,324

 
169,584

 
 
 
 
 
 
 
 
Interest expense:
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
Interest on deposits:
 

 
 

 
 
 
 
Demand and savings deposits
602

 
951

 
1,356

 
1,942

Time deposits
4,121

 
6,200

 
8,760

 
12,934

 
 
 
 
 
 
 
 
Interest on borrowings:
 

 
 

 
 
 
 
Short-term borrowings
163

 
193

 
338

 
460

Long-term debt
7,920

 
7,556

 
15,462

 
14,913

 
 
 
 
 
 
 
 
Total interest expense
12,806

 
14,900

 
25,916

 
30,249

 
 
 
 
 
 
 
 
Net interest income
58,680

 
70,022

 
120,408

 
139,335

 
 
 
 
 
 
 
 
Provision for loan losses
5,238

 
12,516

 
13,576

 
26,616

Net interest income after provision for loan losses
53,442

 
57,506

 
106,832

 
112,719

 
 
 
 
 
 
 
 
Other income:
 

 
 

 
 
 
 
Income from fiduciary activities
4,044

 
3,929

 
7,872

 
7,651

Service charges on deposit accounts
4,154

 
4,525

 
8,225

 
8,770

Other service income
3,417

 
2,734

 
6,151

 
5,035

Checkcard fee income
3,180

 
3,251

 
6,352

 
6,227

Bank owned life insurance income
1,184

 
1,228

 
2,386

 
2,457

ATM fees
536

 
682

 
1,144

 
1,336

OREO devaluations
(2,648
)
 
(3,355
)
 
(4,007
)
 
(5,890
)
Gain/(loss) on the sale of OREO, net
2,203

 
330

 
3,248

 
482

Gain on sale of the Vision business

 

 
22,167

 

Other
1,438

 
1,814

 
3,590

 
4,100

Total other income
17,508

 
15,138

 
57,128

 
30,168

 
 
 
 
 
 
 
 
Gain on sale of securities

 
15,362

 

 
21,997

 

4




PARK NATIONAL CORPORATION
Consolidated Condensed Statements of Income (Unaudited) (Continued)
(in thousands, except share and per share data)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2012
 
2011
 
2012
 
2011
Other expense:
 

 
 

 
 
 
 
Salaries and employee benefits
$
22,813

 
$
25,253

 
$
47,636

 
$
50,317

Occupancy expense
2,249

 
2,764

 
4,919

 
5,764

Furniture and equipment expense
2,727

 
2,785

 
5,348

 
5,442

Data processing fees
899

 
1,135

 
2,099

 
2,388

Professional fees and services
5,800

 
5,320

 
11,381

 
10,194

Amortization of intangibles
140

 
669

 
1,894

 
1,338

Marketing
705

 
728

 
1,548

 
1,351

Insurance
1,400

 
2,345

 
2,890

 
4,614

Communication
1,494

 
1,485

 
3,031

 
3,041

Loan put provision
2,701

 

 
3,363

 

Other expense
4,876

 
4,523

 
10,165

 
8,904

Total other expense
45,804

 
47,007

 
94,274

 
93,353

 
 
 
 
 
 
 
 
Income before income taxes
25,146

 
40,999

 
69,686

 
71,531

 
 
 
 
 
 
 
 
Income taxes
6,260

 
12,046

 
19,325

 
20,382

 
 
 
 
 
 
 
 
Net income
$
18,886

 
$
28,953

 
$
50,361

 
$
51,149

 
 
 
 
 
 
 
 
Preferred stock dividends and accretion
1,948

 
1,464

 
3,425

 
2,928

 
 
 
 
 
 
 
 
Net income available to common shareholders
$
16,938

 
$
27,489

 
$
46,936

 
$
48,221

Per Common Share:
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
Net income available to common shareholders
 

 
 

 
 
 
 
Basic
1.10

 
1.79

 
3.05

 
3.13

Diluted
1.10

 
1.79

 
3.05

 
3.13

 
 
 
 
 
 
 
 
Weighted average common shares outstanding
 

 
 

 
 
 
 
Basic
15,405,902

 
15,398,919

 
15,405,906

 
15,398,925

Diluted
15,405,902

 
15,399,593

 
15,409,690

 
15,401,506

 
 
 
 
 
 
 
 
Cash dividends declared
0.94

 
0.94

 
1.88

 
1.88

 
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 



5



PARK NATIONAL CORPORATION
Consolidated Condensed Statements of Comprehensive Income (Unaudited)
(in thousands, except share and per share data)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2012
 
2011
 
2012
 
2011
Net income
$
18,886

 
$
28,953

 
$
50,361

 
$
51,149

 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Change in funded status of pension plan, net of income taxes of $222

 

 
412

 

Unrealized net holding gain on cash flow hedge, net of income taxes of $79 and $33 for the three months ended June 30, 2012 and 2011, and $139 and $104 for the six months ended June 30, 2012 and 2011.
146

 
60

 
259

 
193

Unrealized net holding gain (loss) on securities available-for-sale, net of income taxes (benefit) of $1,511 and $(1,146) for the three months ended June 30, 2012 and 2011, and of $326 and $(4,578) for the six months ended June 30, 2012 and 2011.
2,806

 
(2,129
)
 
604

 
(8,500
)
Other comprehensive income (loss)
$
2,952

 
$
(2,069
)
 
$
1,275

 
$
(8,307
)
 
 
 
 
 
 
 
 
Comprehensive income
$
21,838

 
$
26,884

 
$
51,636

 
$
42,842

 
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


6



PARK NATIONAL CORPORATION
Consolidated Condensed Statements of Changes in Stockholders' Equity (Unaudited)
(in thousands, except per share data)
 
 
Six Months ended June 30, 2012 and 2011
 
Preferred
Stock
 
Common
Stock
 
Retained
Earnings
 
Treasury
Stock at
Cost
 
Accumulated
Other
Comprehensive
Income (loss)
Balance at December 31, 2010
 
$
97,290

 
$
305,677

 
$
406,342

 
$
(77,733
)
 
$
(1,868
)
Net Income
 
 

 
 

 
51,149

 
 

 
 

Other comprehensive income (loss), net of tax:
 
 

 
 

 
 

 
 

 
 

Unrealized net holding gain on cash flow hedge, net of income taxes of $104
 
 

 
 

 
 

 
 

 
193

Unrealized net holding (loss) on securities available-for-sale, net of income taxes of $(4,578)
 
 

 
 

 
 

 
 

 
(8,500
)
Cash dividends on common stock at $1.88 per share
 
 

 
 

 
(28,951
)
 
 

 
 

Cash payment for fractional shares in dividend reinvestment plan
 
 

 
(1
)
 
 

 
 

 
 

Common stock warrants canceled
 


 
(67
)
 
67

 


 


Accretion of discount on preferred stock
 
428

 
 

 
(428
)
 
 

 
 

Preferred stock dividends
 
 

 
 

 
(2,500
)
 
 

 
 

Balance at June 30, 2011
 
$
97,718

 
$
305,609

 
$
425,679

 
$
(77,733
)
 
$
(10,175
)
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2011
 
$
98,146

 
$
305,499

 
$
424,557

 
$
(77,007
)
 
$
(8,831
)
Net Income
 
 

 
 

 
50,361

 
 

 
 

Other comprehensive income (loss), net of tax:
 
 

 
 

 
 

 
 

 
 

Change in funded status of pension plan, net of income taxes of $222
 
 

 
 

 
 

 
 

 
412

Unrealized net holding gain on cash flow hedge, net of income taxes of $139
 
 

 
 

 
 

 
 

 
259

Unrealized net holding gain on securities available-for-sale, net of income tax benefit of $326
 
 

 
 

 
 

 
 

 
604

Cash dividends on common stock at $1.88 per share
 
 

 
 

 
(28,962
)
 
 

 
 

Cash payment for fractional shares in dividend reinvestment plan
 
 

 
(1
)
 


 
 

 
 

Common stock warrant repurchased
 


 
(2,843
)
 


 


 


Preferred stock repurchased
 
(100,000
)
 


 


 


 


Accretion of discount on preferred stock
 
1,854

 
 

 
(1,854
)
 
 

 
 

Preferred stock dividends
 
 

 
 

 
(1,571
)
 
 

 
 

Balance at June 30, 2012
 
$

 
$
302,655

 
$
442,531

 
$
(77,007
)
 
$
(7,556
)
 
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


7



PARK NATIONAL CORPORATION
Consolidated Condensed Statements of Cash Flows (Unaudited)
(in thousands)
 
 
Six Months Ended
June 30,
 
2012
 
2011
Operating activities:
 

 
 

Net income
$
50,361

 
$
51,149

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

 
 

Depreciation, accretion and amortization
3,827

 
5,600

Provision for loan losses
13,576

 
26,616

Loan put provision
3,363

 

Other-than-temporary impairment on investment securities
54

 

Amortization of core deposit intangibles
1,894

 
1,338

Realized net investment security gains

 
(21,997
)
OREO devaluations
4,007

 
5,890

Bank owned life insurance income
(2,386
)
 
(2,457
)
 
 
 
 
Changes in assets and liabilities:
 

 
 

(Increase) in other assets
(11,040
)
 
(35,745
)
(Decrease) in other liabilities
(566
)
 
(1,666
)
 
 
 
 
Net cash provided by operating activities
$
63,090

 
$
28,728

 
 
 
 
Investing activities:
 

 
 

 
 
 
 
Proceeds from sales of available-for-sale securities
$

 
$
319,504

Proceeds from sales of Federal Home Loan Bank stock
1,319

 
541

Proceeds from maturity of:
 

 
 

Available-for-sale securities
464,653

 
199,940

Held-to-maturity securities
303,595

 
87,434

Purchases of:
 

 
 

Available-for-sale securities
(509,998
)
 
(330,839
)
Held-to-maturity securities
(238,593
)
 
(75,951
)
Net (increase) in loans
(90,628
)
 
(24,523
)
Sale of assets/liabilities related to Vision Bank
(153,724
)
 

Purchases of bank owned life insurance
(2,500
)
 
(3,000
)
Purchases of premises and equipment, net
(1,979
)
 
(4,055
)
 
 
 
 
Net cash (used in) provided by investing activities
$
(227,855
)
 
$
169,051

 
 
 
 
Financing activities:
 

 
 

 
 
 
 
Net increase in deposits
$
357,861

 
$
162,097

Net (decrease) in short-term borrowings
(22,992
)
 
(429,557
)
Proceeds from issuance of long-term debt
30,000

 
200,000

Repayment of long-term debt
(15,500
)
 
(15,531
)

8


Cash payment for fractional shares in dividend reinvestment plan
(1
)
 
(1
)
Cash payment for repurchase of common stock warrant from U.S. Treasury
(2,843
)
 

Repurchase of preferred stock from U.S. Treasury
(100,000
)
 

Cash dividends paid on common stock and preferred stock
(31,184
)
 
(31,451
)
 
 
 
 
Net cash provided by (used in) financing activities
$
215,341

 
$
(114,443
)
 
 
 
 
Increase in cash and cash equivalents
50,576

 
83,336

 
 
 
 
Cash and cash equivalents at beginning of year
157,486

 
133,780

 
 
 
 
Cash and cash equivalents at end of period
$
208,062

 
$
217,116

 
 
 
 
Supplemental disclosures of cash flow information:
 

 
 

 
 
 
 
Cash paid for:
 

 
 

Interest
$
26,172

 
$
30,640

 
 
 
 
Income taxes
$
1,000

 
$
13,700

 
 
 
 
Non cash activities:
 

 
 

Securities acquired through payable
$

 
$
113,223

 
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


9



PARK NATIONAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation
 
The accompanying unaudited consolidated condensed financial statements included in this report have been prepared for Park National Corporation (sometimes also referred to as the “Registrant”) and its subsidiaries. Unless the context otherwise requires, references to "Park", the "Corporation" or the "Company" and similar terms mean Park National Corporation and its subsidiaries. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of results of operations for the interim periods included herein have been made. The results of operations for the three and six month periods ended June 30, 2012 are not necessarily indicative of the operating results to be anticipated for the fiscal year ending December 31, 2012.
 
The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and footnotes necessary for a fair presentation of the condensed balance sheets, condensed statements of income, condensed statements of comprehensive income, condensed statements of changes in stockholders’ equity and condensed statements of cash flows in conformity with U.S. generally accepted accounting principles (“GAAP”). These financial statements should be read in conjunction with the consolidated financial statements incorporated by reference in the Annual Report on Form 10-K of Park for the fiscal year ended December 31, 2011 from Park’s 2011 Annual Report to Shareholders (“2011 Annual Report”).
 
Park’s significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in Park’s 2011 Annual Report. For interim reporting purposes, Park follows the same basic accounting policies, as updated by the information contained in this report, and considers each interim period an integral part of an annual period. Management has evaluated events occurring subsequent to the balance sheet date, determining no events require additional disclosure in these consolidated condensed financial statements.
 
Note 2 – Recent Accounting Pronouncements
 
Adoption of New Accounting Pronouncements:
 
No. 2011-04 – Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirement in U.S. GAAP and IFRSs: In May 2011, FASB issued Accounting Standards Update 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirement in U.S. GAAP and IFRSs (ASU 2011-04). The new guidance in this ASU results in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. Certain amendments clarify FASB’s intent about the application of existing fair value measurement requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. These amendments also enhance disclosure requirements surrounding fair value measurement. Most significantly, an entity is required to disclose additional information regarding Level 3 fair value measurements including quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements. The new guidance is effective for interim and annual periods beginning on or after December 15, 2011. The adoption of the new guidance on January 1, 2012 impacted the fair value disclosures in Note 16.
 
No. 2011-05 – Presentation of Comprehensive Income: In June 2011, FASB issued Accounting Standards Update 2011-05, Presentation of Comprehensive Income (ASU 2011-05). The ASU eliminates the option to report other comprehensive income and its components in the statement of changes in equity. An entity can elect to present the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The ASU does not change the items that must be reported in other comprehensive income, when an item of other comprehensive income must be reclassified to net income, or how earnings per share is calculated or presented. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and must be applied retrospectively. The adoption of the new guidance impacted the presentation of the consolidated financial statements.
 
No. 2011-08 – Intangibles – Goodwill and Other: In September 2011, FASB issued Accounting Standards Update 2011-08, Intangibles – Goodwill and Other (ASU 2011-08). The ASU allows an entity to first assess 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. The new guidance is effective for annual and interim goodwill impairment tests

10


performed for fiscal years beginning after December 15, 2011. The adoption of this guidance did not have an impact on the consolidated financial statements.
 
No. 2011-12 Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05: In December 2011, FASB issued Accounting Standards Update 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (ASU 2011-12). This ASU defers only those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments. Entities are to continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU 2011-05. The other requirements in ASU 2011-05 are not affected by this ASU.
 
Note 3 – Sale of Vision Bank Business
 
On February 16, 2012, Park and its wholly-owned subsidiary, Vision Bank (“Vision”), a Florida state-chartered bank, 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 (the “Agreement”) for a purchase price of $27.9 million.
 

The assets purchased and liabilities assumed by Centennial as of February 16, 2012, included the following:
 
(in thousands)
 
February 16,
2012
Assets sold
 
 

Cash and due from banks
 
$
20,711

Loans
 
355,750

Allowance for loan losses
 
(13,100
)
Net loans
 
342,650

Fixed assets
 
12,496

Other assets
 
4,612

Total assets sold
 
$
380,469

Liabilities sold
 
 

Deposits
 
$
522,856

Other liabilities
 
2,049

Total liabilities sold
 
$
524,905

 

Subsequent to the transactions contemplated by the 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 approximately $22.2 million, resulting from the transactions contemplated by the Agreement. The pre-tax gain, net of expense is summarized in the table below:
 
(in thousands)
 
Premium paid
$
27,913

One-time gains
298

Loss on sale of fixed assets
(2,434
)
Employment and severance agreements
(1,610
)
Other one-time charges, including estimates
(2,000
)
Pre-tax gain
$
22,167

 
Promptly following the closing of the transactions contemplated by the Agreement, Vision surrendered its Florida banking

11


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.

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 expires on August 16, 2012, 180 days after the closing of the transaction, which was February 16, 2012. Through June 30, 2012, Centennial had put back two loans, totaling approximately $169,000. Upon repurchase, Park is required to charge each of the repurchased loans down to its current fair value. Park has recognized other expense of $3.4 million through June 30, 2012 to establish a liability account that will be utilized to cover anticipated write downs on the loans repurchased from Centennial.
 
The balance sheet of SEPH as of March 31, 2012 and June 30, 2012 was as follows:
 
(in thousands)
 
March 31,
2012
 
June 30,
2012
Assets
 
 
 
 

Cash
 
$
16,049

 
$
15,493

Performing loans
 
16,123

 
8,509

Nonperforming loans
 
82,326

 
74,100

OREO
 
28,578

 
24,985

Other assets
 
18,417

 
16,964

Total assets
 
$
161,493

 
$
140,051

 
 
 
 
 

Liabilities and equity
 
 
 
 

Intercompany borrowings
 
$
140,000

 
$
120,000

Other liabilities
 
4,623

 
8,822

Equity
 
16,870

 
11,229

Total liabilities and equity
 
$
161,493

 
$
140,051

 
Note 4 – Goodwill and Intangible Assets
 
The following table shows the activity in goodwill and core deposit intangibles for the first six months of 2012.
 
(in thousands)
 
Goodwill
 
Core Deposit
Intangibles
 
Total
December 31, 2011
 
$
72,334

 
$
2,509

 
$
74,843

Amortization
 

 
1,894

 
1,894

June 30, 2012
 
$
72,334

 
$
615

 
$
72,949

 
The core deposit intangibles are 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 was accelerated due to the February 16, 2012 acquisition of Vision branches by Centennial Bank. Management expects that the core deposit intangibles amortization expense will be approximately $139,000 for each of the remaining quarters of 2012.
 
Core deposit intangibles amortization expense is projected to be as follows for the remainder of 2012 and for each of the following years:
 
(in thousands)
 
Annual
Amortization
Remainder of 2012
 
$
278

2013
 
337

2014
 

Total
 
$
615


12


 
Note 5 – Loans
 
The composition of the loan portfolio, by class of loan, as of June 30, 2012 and December 31, 2011 was as follows:
 
 
June 30, 2012
 
 
December 31, 2011
 
Loan
balance
 
Accrued
interest
receivable
 
Recorded
investment
 
 
Loan
balance
 
Accrued
interest
receivable
 
Recorded
investment
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Commercial, financial and agricultural *
$
771,702

 
$
3,478

 
$
775,180

 
 
$
743,797

 
$
3,121

 
$
746,918

 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate *
1,093,748

 
3,840

 
1,097,588

 
 
1,108,574

 
4,235

 
1,112,809

Construction real estate:
 

 
 

 
 

 
 
 

 
 

 
 

Vision/SEPH commercial land and development *
21,004

 
1

 
21,005

 
 
31,603

 
31

 
31,634

Remaining commercial
143,782

 
398

 
144,180

 
 
156,053

 
394

 
156,447

Mortgage
22,954

 
73

 
23,027

 
 
20,039

 
64

 
20,103

Installment
8,977

 
46

 
9,023

 
 
9,851

 
61

 
9,912

Residential real estate:
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
392,547

 
758

 
393,305

 
 
395,824

 
1,105

 
396,929

Mortgage
1,039,189

 
1,660

 
1,040,849

 
 
953,758

 
1,522

 
955,280

HELOC
219,084

 
887

 
219,971

 
 
227,682

 
942

 
228,624

Installment
47,036

 
218

 
47,254

 
 
51,354

 
236

 
51,590

Consumer
623,288

 
2,704

 
625,992

 
 
616,505

 
2,930

 
619,435

Leases
3,540

 
29

 
3,569

 
 
2,059

 
43

 
2,102

Total loans
$
4,386,851

 
$
14,092

 
$
4,400,943

 
 
$
4,317,099

 
$
14,684

 
$
4,331,783

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

13


Credit Quality
 
The following tables present the recorded investment in nonaccrual, accruing restructured, and loans past due 90 days or more and still accruing by class of loan as of June 30, 2012 and December 31, 2011:
 
 
 
June 30, 2012
(In thousands)
 
Nonaccrual
loans
 
Accruing
restructured
loans
 
Loans past due
90 days or more
and accruing
 
Total
nonperforming
loans
Commercial, financial and agricultural
 
$
37,356

 
$
4,235

 
$
2

 
$
41,593

Commercial real estate
 
39,074

 
4,895

 

 
43,969

Construction real estate:
 
 

 
 

 
 

 
 

SEPH commercial land and development
 
18,286

 

 

 
18,286

Remaining commercial
 
16,953

 
12,609

 

 
29,562

Mortgage
 

 
61

 
86

 
147

Installment
 
133

 

 
8

 
141

Residential real estate:
 
 

 
 

 
 

 
 

Commercial
 
37,257

 
20

 

 
37,277

Mortgage
 
26,145

 
5,506

 
1,045

 
32,696

HELOC
 
1,972

 

 

 
1,972

Installment
 
1,273

 
22

 
159

 
1,454

Consumer
 
1,932

 

 
615

 
2,547

Leases
 

 

 

 

Total loans
 
$
180,381

 
$
27,348

 
$
1,915

 
$
209,644

 
 
 
December 31, 2011
(In thousands)
 
Nonaccrual
loans
 
Accruing
restructured
loans
 
Loans past due
90 days or more
and accruing
 
Total
nonperforming
loans
Commercial, financial and agricultural
 
$
37,797

 
$
2,848

 
$

 
$
40,645

Commercial real estate
 
43,704

 
8,274

 

 
51,978

Construction real estate:
 
 

 
 

 
 

 
 
Vision commercial land and development
 
25,761

 

 

 
25,761

Remaining commercial
 
14,021

 
11,891

 

 
25,912

Mortgage
 
66

 

 

 
66

Installment
 
30

 

 

 
30

Residential real estate:
 
 

 
 

 
 

 
 

Commercial
 
43,461

 
815

 

 
44,276

Mortgage
 
25,201

 
4,757

 
2,610

 
32,568

HELOC
 
1,412

 

 

 
1,412

Installment
 
1,777

 
98

 
58

 
1,933

Consumer
 
1,876

 

 
893

 
2,769

Leases
 

 

 

 

Total loans
 
$
195,106

 
$
28,683

 
$
3,561

 
$
227,350

 

14


The following table provides additional information regarding those nonaccrual and accruing restructured loans that were individually evaluated for impairment and those collectively evaluated for impairment as of June 30, 2012 and December 31, 2011.
 
 
June 30, 2012
 
 
December 31, 2011
(In thousands)
 
Nonaccrual
and accruing
restructured
loans
 
Loans
individually
evaluated for
impairment
 
Loans
collectively
evaluated for
impairment
 
 
Nonaccrual
and accruing
restructured
loans
 
Loans
individually
evaluated for
impairment
 
Loans
collectively
evaluated for
impairment
Commercial, financial and agricultural
 
$
41,591

 
$
41,591

 
$

 
 
$
40,645

 
$
40,621

 
$
24

Commercial real estate
 
43,969

 
43,969

 

 
 
51,978

 
51,978

 

Construction real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Vision/SEPH commercial land and development
 
18,286

 
17,272

 
1,014

 
 
25,761

 
24,328

 
1,433

Remaining commercial
 
29,562

 
29,562

 

 
 
25,912

 
25,912

 

Mortgage
 
61

 

 
61

 
 
66

 

 
66

Installment
 
133

 

 
133

 
 
30

 

 
30

Residential real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
37,277

 
37,277

 

 
 
44,276

 
44,276

 

Mortgage
 
31,651

 

 
31,651

 
 
29,958

 

 
29,958

HELOC
 
1,972

 

 
1,972

 
 
1,412

 

 
1,412

Installment
 
1,295

 

 
1,295

 
 
1,875

 

 
1,875

Consumer
 
1,932

 
19

 
1,913

 
 
1,876

 
20

 
1,856

Leases
 

 

 

 
 

 

 

Total loans
 
$
207,729

 
$
169,690

 
$
38,039

 
 
$
223,789

 
$
187,135

 
$
36,654

 
All of the loans individually evaluated for impairment were evaluated using the fair value of the collateral or 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 June 30, 2012 and December 31, 2011.
 
 
 
June 30, 2012
 
 
December 31, 2011
 
 
Unpaid
principal
balance
 
Recorded
investment
 
Allowance
for loan
losses
allocated
 
 
Unpaid
principal
balance
 
Recorded
investment
 
Allowance
for loan
losses
allocated
(in thousands)
 
 
 
 
 
With no related allowance recorded
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial, financial and agricultural
 
$
36,340

 
$
27,776

 
$

 
 
$
23,164

 
$
18,098

 
$

Commercial real estate
 
57,055

 
36,255

 

 
 
58,242

 
41,506

 

Construction real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Vision/SEPH commercial land and development
 
63,422

 
17,272

 

 
 
54,032

 
17,786

 

Remaining commercial
 
32,923

 
18,926

 

 
 
33,319

 
18,372

 

Residential real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
43,612

 
33,357

 

 
 
49,341

 
38,686

 

Consumer
 
19

 
19

 

 
 
20

 
20

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
With an allowance recorded
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial, financial and agricultural
 
17,685

 
13,815

 
4,793

 
 
23,719

 
22,523

 
5,819

Commercial real estate
 
9,414

 
7,714

 
1,354

 
 
12,183

 
10,472

 
4,431

Construction real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Vision/SEPH commercial land and development
 

 

 

 
 
20,775

 
6,542

 
1,540

Remaining commercial
 
11,212

 
10,636

 
3,926

 
 
9,711

 
7,540

 
1,874

Residential real estate:
 
 

 
 

 
 

 
 
 

 
 

 
 

Commercial
 
5,072

 
3,920

 
873

 
 
6,402

 
5,590

 
2,271

Consumer
 

 

 

 
 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
276,754

 
$
169,690

 
$
10,946

 
 
$
290,908

 
$
187,135

 
$
15,935


15


 
Management’s general practice is to proactively charge down loans individually evaluated for impairment to the fair value of the underlying collateral, less costs to sell. At June 30, 2012 and December 31, 2011, there were $99.9 million and $83.7 million, respectively, of partial charge-offs on loans individually evaluated for impairment with no related allowance recorded and $7.3 million and $20.1 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 June 30, 2012 and December 31, 2011, of $10.9 million and $15.9 million, respectively, related to loans with a recorded investment of $36.1 million and $52.7 million, respectively.
 
The following table presents the average recorded investment and interest income recognized on loans individually evaluated for impairment as of and for the three and six months ended June 30, 2012 and June 30, 2011:

 
Three Months Ended
June 30, 2012
 
 
Three Months Ended
June 30, 2011
(in thousands)
Recorded investment as of June 30, 2012
 
Average
recorded
investment
 
Interest
income
recognized
 
 
Recorded investment as of June 30, 2011
 
Average
recorded
investment
 
Interest
income
recognized
Commercial, financial and agricultural
$
41,591

 
$
42,056

 
$
205

 
 
$
24,008

 
$
20,688

 
$
41

Commercial real estate
43,969

 
42,689

 
287

 
 
47,243

 
51,359

 
54

Construction real estate:
 
 
 
 
 
 
 
 
 
 
 
 
   Vision/SEPH commercial land and development
17,272

 
18,412

 

 
 
46,847

 
71,682

 

   Remaining commercial
29,562

 
31,428

 
199

 
 
33,685

 
27,998

 
136

Residential real estate: