Business Combination

12 Months Ended

Dec. 31, 2019

Business Combinations

NewDominion Bank

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

Purchase consideration consisted of 435,457 Park common shares, valued at $48.5 million, and $30.7 million in cash to acquire 91.45% of the outstanding shares of NewDominion common stock. The remaining 8.55% of the outstanding shares of NewDominion common stock were previously held by Park. Park recognized a gain of $3.5 million as a result of the remeasuring to fair value of its 8.55% equity interest in NewDominion held before the business combination. This non-taxable gain is included in "Gain on equity securities, net" in the Consolidated Statements of Income. The acquisition is expected to provide additional revenue growth and geographic diversification.

NewDominion's results of operations were included in Park’s results beginning July 1, 2018. For the years ended December 31, 2019 and 2018, Park recorded merger-related expenses of $87,000 and $4.6 million, respectively, associated with the NewDominion acquisition.

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

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


(in thousands)
Consideration
Cash	$	30,684
Park common shares	48,519
Previous 8.55% investment in NewDominion	7,000
Fair value of total consideration transferred	$	86,203

Recognized amounts of identifiable assets acquired and liabilities assumed
Cash and cash equivalents	$	42,954
Securities	1,954
Loans	272,753
Premises and equipment	940
Core deposit intangibles	6,249
Trade name intangible⁽¹⁾	1,300
Other assets	6,133
Total assets acquired	$	332,283

Deposits	$	284,231
Other liabilities	2,254
Total liabilities assumed	286,485

Net identifiable assets	45,798

Goodwill	$	40,405

^{(1) During 2019, Park announced its 2020 rebranding initiative to operate all 12 banking divisions of PNB under one name. The NewDominion trade name intangible was initially recorded assuming an indefinite useful life. Considering Park's rebranding initiative, Park concluded that the trade name intangible now represents a definite life asset, and impairment was recorded during 2019.}

Park accounted for the NewDominion acquisition using the acquisition method of accounting and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date, in accordance with FASB ASC Topic 805, Business Combinations.

The fair value of net assets acquired includes fair value adjustments to loans that were not considered impaired as of the acquisition date. The fair value adjustments were determined using discounted contractual cash flows. However, Park believes that all contractual cash flows related to these loans will be collected. As such, these loans were not considered impaired at the acquisition date and were not subject to the guidance relating to purchased credit impaired loans, which have shown evidence of credit deterioration since origination. Loans acquired that were not subject to these requirements included non-impaired loans with a fair value and gross contractual amounts receivable of $267.9 million and $273.7 million, respectively, on the date of acquisition.

The table below presents information with respect to the fair value of the NewDominion acquired loans as well as their book balance at the acquisition date.


(in thousands)	Book Balance		Fair Value
Commercial, financial and agricultural	$	19,246	$	19,138
Commercial real estate	119,434		117,638
Construction real estate:
Commercial	22,494		22,235
Mortgage	8,391		8,111
Residential real estate:
Commercial	14,798		14,797
Mortgage	50,295		48,714
HELOC	37,651		36,688
Consumer	541		539
Purchased credit impaired	5,069		4,893
Total loans	$	277,919	$	272,753

CAB Financial Corporation

On April 1, 2019, CAB Financial Corporation, a South Carolina corporation, merged with and into Park, with Park continuing as the surviving entity pursuant to the Agreement and Plan of Merger and Reorganization (the "CABF Merger Agreement"), dated as of September 12, 2018, by and between Park and CABF. Immediately following the CABF merger into Park, Carolina Alliance Bank, a South Carolina state-chartered bank and a wholly-owned subsidiary of CABF, was merged with and into PNB, with PNB as the surviving bank. In accordance with the CABF Merger Agreement, CABF shareholders were to receive for each share of their CABF common stock (i) $3.80 in cash (the cash consideration) and (ii) 0.1378 of a Park common share (the stock consideration). CABF stock options and restricted stock awards were fully vested (with any performance-based vesting condition deemed satisfied) and canceled and converted automatically into the right to receive merger consideration.

Purchase consideration consisted of 1,037,205 Park common shares, valued at $98.3 million, and $28.6 million in cash to acquire 100% of CABF's outstanding shares of common stock. The acquisition is expected to provide additional revenue growth and geographic diversification.

Carolina Alliance's results of operations were included in Park's results beginning April 1, 2019. For the years ended December 31, 2019 and 2018, Park recorded merger-related expenses of $8.8 million and $0.6 million, respectively, associated with the Carolina Alliance acquisition.

Goodwill of $46.9 million arising from the acquisition consisted largely of synergies and the cost savings resulting from the combining of the operations of PNB and Carolina Alliance. The goodwill is not deductible for income tax purposes as the transaction was accounted for as a tax-free exchange.

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


(in thousands)
Consideration
Cash	$	28,630
Park common shares	98,275
Fair value of total consideration transferred	$	126,905

Recognized amounts of identifiable assets acquired and liabilities assumed
Cash and cash equivalents	$	23,799
Securities	97,606
Loans	578,577
Premises and equipment	8,337
Core deposit intangibles	8,207
Other assets	32,123
Total assets acquired	$	748,649

Deposits	$	632,649
Other liabilities	35,951
Total liabilities assumed	668,600

Net identifiable assets	80,049

Goodwill	$	46,856

Park accounted for the Carolina Alliance acquisition using the acquisition method of accounting and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date, in accordance with FASB ASC Topic 805, Business Combinations. The fair value measurements of assets acquired and liabilities assumed are subject to refinement for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available. During the three months ended September 30, 2019, Park made a $58,000 adjustment to decrease the initial fair value of deposits, which resulted in a $58,000 reduction in goodwill. During the three months ended December 31, 2019, Park made a $2.0 million adjustment to decrease the initial fair value of core deposit intangibles and a $0.5 million adjustment to increase other assets for the related deferred tax impact, which resulted in a $1.6 million increase in goodwill.

The fair value of net assets acquired includes fair value adjustments to loans that were not considered impaired as of the acquisition date. The fair value adjustments were determined using discounted contractual cash flows. However, Park believes that all contractual cash flows related to these loans will be collected. As such, these loans were not considered impaired at the acquisition date and were not subject to the guidance relating to purchased credit impaired loans which have shown evidence of credit deterioration since origination. Loans acquired that were not subject to these requirements included non-impaired loans with a fair value and gross contractual amounts receivable of $560.2 million and $572.6 million, respectively, on the date of acquisition.

The table below presents information with respect to the fair value of acquired loans as well as their book balance at the acquisition date.


(in thousands)	Book Balance		Fair Value
Commercial, financial and agricultural	$	80,895	$	80,580
Commercial real estate	281,425		273,855
Construction real estate:
Commercial	43,106		42,176
Mortgage	11,130		10,633
Residential real estate:
Commercial	48,546		48,684
Mortgage	30,519		30,969
HELOC	40,825		39,853
Consumer	4,813		4,647
Leases	28,589		28,781
Purchased credit impaired	19,850		18,399
Total loans	$	589,698	$	578,577

The following table presents supplemental pro forma information as if the NewDominion and Carolina Alliance acquisitions had occurred as of January 1, 2018. The unaudited pro forma information includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the respective transactions, depreciation expense on property acquired, interest expense on deposits acquired, and the related tax effects. The pro forma information is not necessarily indicative of the results of operations that would have occurred had the transactions been effected on the assumed date.


	Twelve months ended December 31,
(dollars in thousands, except per share data)	2019		2018
Net interest income	$	304,480	$	302,282
Net income	112,492		123,472
Basic earnings per share	6.82		7.37
Diluted earnings per share	6.78		7.31