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Allowance For Loan Losses | 6 Months Ended
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Jun. 30, 2020
Financing Receivable, Allowance for Credit Loss, Writeoff, after Recovery [Abstract] |
Allowance For Loan Losses | 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 management’s evaluation of various factors including the 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 - Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements included in Park's 2019 Form 10-K. Loss factors are reviewed quarterly and updated at least annually to reflect recent loan loss history and incorporate current risks and trends which may not be recognized in historical data. Management updated the historical loss calculation during the fourth quarter of 2019, incorporating annualized net charge-offs plus changes in specific reserves through December 31, 2019. With the addition of 2019 historical losses, management extended the historical loss period to 120 months from 108 months. The 120-month historical loss period captures all annual periods subsequent to June 2009, the end of the most recent recession, thus encompassing the full economic cycle to date. For all loan types, management considers the following factors in determining loan collectability and the appropriate level of the allowance: •Changes in the nature and volume of the portfolio and in the terms of loans, including: ◦Trends (e.g., growth, reduction) in specific categories of the loan portfolio, as well as adjustments to the types of loans offered by PNB and GFSC. ◦Level of and trend in loan delinquencies, troubled loans, commercial watch list and impaired loans. ◦Level of and trend in new nonaccrual loans. ◦Level of and trend in loan charge-offs and recoveries. •Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices. •Changes in national and local economic and business conditions and developments that affect the collectability of the portfolio. •The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated losses in Park's existing portfolio. The following are factors management reviews specifically for commercial loans on a quarterly or annual basis. •Loss Emergence Period Factor: At least annually, management calculates the loss emergence period for each commercial loan segment. The loss emergence period is calculated based upon the average period of time it takes from the probable occurrence of a loss event to the credit being moved to nonaccrual. 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. The loss emergence period was last updated in the fourth quarter of 2019. •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 substandard. 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 period of time a loan takes to migrate from pass-rated to impaired. The loss migration factor was last updated in the fourth quarter of 2019. •Environmental Loss Factor: Management has identified certain macroeconomic factors that trend in accordance with losses in Park’s commercial loan portfolio. Certain environmental loss factors have been determined to correlate with higher charge-offs while other adjustments are based on a subjective evaluation of other environmental loss factors. Environmental factors applicable to the commercial loan portfolio include: the Ohio unemployment rate, percent change in Ohio GDP, the consumer confidence index, the prevalence of fixed rate loans in the portfolio and other environmental factors. In evaluating the ongoing relevance and amount of the other environmental factors, management considers: changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off and recovery practices, changes in national and local economic and business conditions, and developments that affect the collectability of the portfolio, and the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated losses in Park's existing portfolio. All of these factors are evaluated in relation to the historical look back period. At June 30, 2020 and December 31, 2019, such subjective environmental loss factor inputs accounted for 33% and 42%, respectively, of the allowance for loan losses driven by environmental loss factors. 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. The environmental loss factors were updated in the first and second quarters of 2020 to consider the economic impact of the COVID-19 pandemic. These factors were increased from 0.60% of applicable loans at December 31, 2019 to 0.675% of applicable loans at March 31, 2020 and to 0.75% of applicable loans at June 30, 2020. This was the result of upwards adjustments to the factors for Ohio unemployment, percent change in Ohio GDP and consumer confidence. This increase considered the current economic environment as a result of the COVID-19 pandemic, modification programs Park has put in place, and the overall uncertainty of the economic impact of the pandemic. Management will continue to evaluate this estimate of incurred losses as new information becomes available. In addition to the increases in the environmental loss factor, in the second quarter, Park added additional reserves for three industries at particularly high risk due to the pandemic: hotels and accommodations, restaurants and food service, and strip shopping centers. These industries have had high levels of deferrals and have been particularly impacted by shut downs of non-essential businesses, increased health department regulations, and changes in consumer behavior. Management expects that a high percentage of the pass-rated credits in these portfolios will eventually migrate to special mention, substandard, or impaired status. As a result, additional reserves totaling $5.0 million were added for these portfolios on top of that already calculated. This amount was calculated by applying the loss factor for special mention credits to all pass-rated loans in these portfolios. A breakout of the pass-rated balances and additional reserve related to these portfolios is detailed in the following table.
| June 30, 2020 |  |  |  |  |  |
(in thousands) | Pass-Rated Balance |  | Pass-Rated Balance - Originated |  | Pass-Rated Balance - Purchased |  | Additional Reserve
Hotels and accommodations | $ | 149,163 |  |  | $ | 138,322 |  |  | $ | 10,841 |  |  | $ | 1,988 |
Restaurants and food service | 49,571 |  |  | 42,856 |  |  | 6,715 |  |  | 973 |
Strip shopping centers | 218,133 |  |  | 181,003 |  |  | 37,130 |  |  | 2,066 |
Total | $ | 416,867 |  |  | $ | 362,181 |  |  | $ | 54,686 |  |  | $ | 5,027 |
For the consumer portfolio, a specific COVID-19 factor was added to each segment equal to 50% of the 120-month historical loss factor. This increase considers the payment deferrals being provided to consumer loan customers as well as the likely delays in delinquencies and charge-offs as a result. Much is still unknown about the economic impact of COVID-19, including the duration of the pandemic, future government programs that may be established as a result of the pandemic, and the resiliency of the U.S. economy. Management will continue to evaluate this estimate of incurred losses as new information becomes available. Given uncertainty about the magnitude and length of the COVID-19 pandemic and related economic shutdown, additional loan loss provisions may be required that would adversely impact earnings in future periods. During the three months ended June 30, 2020, Park originated $543.1 million of PPP loans which are included in the commercial, financial and agricultural portfolio segment. These loans are guaranteed by the SBA and thus have not been reserved for using the same methodology as the rest of Park’s loan portfolio. A 10 basis point reserve was calculated for these loans to reflect minimal credit risk. The activity in the allowance for loan losses for the three-month and six-month periods ended June 30, 2020 and June 30, 2019 is summarized in the following tables.
| Three Months Ended June 30, 2020 |  |  |  |  |  |  |  |  |  |  |  |
(In thousands) | Commercial, financial and agricultural |  | Commercial real estate |  | Construction real estate |  | Residential real estate |  | Consumer |  | Leases |  | Total
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 21,544 |  |  | $ | 11,591 |  |  | $ | 5,493 |  |  | $ | 9,017 |  |  | $ | 13,728 |  |  | $ | 130 |  |  | $ | 61,503 |
Charge-offs | 277 |  |  | — |  |  | — |  |  | 71 |  |  | 1,767 |  |  | 15 |  |  | 2,130 |
Recoveries | 180 |  |  | 343 |  |  | 363 |  |  | 172 |  |  | 821 |  |  | — |  |  | 1,879 |
Net charge-offs/(recoveries) | 97 |  |  | (343) |  |  | (363) |  |  | (101) |  |  | 946 |  |  | 15 |  |  | 251 |
Provision | 2,029 |  |  | 4,535 |  |  | 972 |  |  | 1,389 |  |  | 2,842 |  |  | 457 |  |  | 12,224 |
Ending balance | $ | 23,476 |  |  | $ | 16,469 |  |  | $ | 6,828 |  |  | $ | 10,507 |  |  | $ | 15,624 |  |  | $ | 572 |  |  | $ | 73,476 |
| Three Months Ended June 30, 2019 |  |  |  |  |  |  |  |  |  |  |  |
(In thousands) | Commercial, financial and agricultural |  | Commercial real estate |  | Construction real estate |  | Residential real estate |  | Consumer |  | Leases |  | Total
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 17,337 |  |  | $ | 10,193 |  |  | $ | 4,564 |  |  | $ | 9,170 |  |  | $ | 12,104 |  |  | $ | — |  |  | $ | 53,368 |
Charge-offs | 715 |  |  | 339 |  |  | — |  |  | 62 |  |  | 1,812 |  |  | — |  |  | 2,928 |
Recoveries | 164 |  |  | 55 |  |  | 23 |  |  | 160 |  |  | 1,241 |  |  | 1 |  |  | 1,644 |
Net charge-offs/(recoveries) | 551 |  |  | 284 |  |  | (23) |  |  | (98) |  |  | 571 |  |  | (1) |  |  | 1,284 |
Provision/(recovery) | 584 |  |  | 468 |  |  | 478 |  |  | (399) |  |  | 732 |  |  | 56 |  |  | 1,919 |
Ending balance | $ | 17,370 |  |  | $ | 10,377 |  |  | $ | 5,065 |  |  | $ | 8,869 |  |  | $ | 12,265 |  |  | $ | 57 |  |  | $ | 54,003 |
| Six Months Ended June 30, 2020 |  |  |  |  |  |  |  |  |  |  |  |
(In thousands) | Commercial, financial and agricultural |  | Commercial real estate |  | Construction real estate |  | Residential real estate |  | Consumer |  | Leases |  | Total
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 20,203 |  |  | $ | 10,229 |  |  | $ | 5,311 |  |  | $ | 8,610 |  |  | $ | 12,211 |  |  | $ | 115 |  |  | $ | 56,679 |
Charge-offs | 800 |  |  | — |  |  | 6 |  |  | 142 |  |  | 3,852 |  |  | 15 |  |  | 4,815 |
Recoveries | 880 |  |  | 643 |  |  | 593 |  |  | 268 |  |  | 1,851 |  |  | — |  |  | 4,235 |
Net (recoveries)/charge-offs | (80) |  |  | (643) |  |  | (587) |  |  | (126) |  |  | 2,001 |  |  | 15 |  |  | 580 |
Provision | 3,193 |  |  | 5,597 |  |  | 930 |  |  | 1,771 |  |  | 5,414 |  |  | 472 |  |  | 17,377 |
Ending balance | $ | 23,476 |  |  | $ | 16,469 |  |  | $ | 6,828 |  |  | $ | 10,507 |  |  | $ | 15,624 |  |  | $ | 572 |  |  | $ | 73,476 |
| Six Months Ended June 30, 2019 |  |  |  |  |  |  |  |  |  |  |  |
(In thousands) | Commercial, financial and agricultural |  | Commercial real estate |  | Construction real estate |  | Residential real estate |  | Consumer |  | Leases |  | Total
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 16,777 |  |  | $ | 9,768 |  |  | $ | 4,463 |  |  | $ | 8,731 |  |  | $ | 11,773 |  |  | $ | — |  |  | $ | 51,512 |
Charge-offs | 913 |  |  | 393 |  |  | — |  |  | 91 |  |  | 4,518 |  |  | — |  |  | 5,915 |
Recoveries | 580 |  |  | 114 |  |  | 111 |  |  | 542 |  |  | 2,641 |  |  | 1 |  |  | 3,989 |
Net charge-offs/(recoveries) | 333 |  |  | 279 |  |  | (111) |  |  | (451) |  |  | 1,877 |  |  | (1) |  |  | 1,926 |
Provision/(recovery) | 926 |  |  | 888 |  |  | 491 |  |  | (313) |  |  | 2,369 |  |  | 56 |  |  | 4,417 |
Ending balance | $ | 17,370 |  |  | $ | 10,377 |  |  | $ | 5,065 |  |  | $ | 8,869 |  |  | $ | 12,265 |  |  | $ | 57 |  |  | $ | 54,003 |
Loans collectively evaluated for impairment in the following tables include all performing loans at June 30, 2020 and December 31, 2019, 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 June 30, 2020 and December 31, 2019, which are evaluated for impairment in accordance with U.S. GAAP (see Note 1 - Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Park’s 2019 Form 10-K). The composition of the allowance for loan losses at June 30, 2020 and December 31, 2019 was as follows:
| June 30, 2020 |  |  |  |  |  |  |  |  |  |  |  |
(In thousands) | Commercial, financial and agricultural |  | Commercial real estate |  | Construction real estate |  | Residential real estate |  | Consumer |  | Leases |  | Total
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |
Ending allowance balance attributed to loans: |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment | $ | 5,239 |  |  | $ | 80 |  |  | $ | — |  |  | $ | 22 |  |  | $ | — |  |  | $ | 467 |  |  | $ | 5,808 |
Collectively evaluated for impairment | 18,196 |  |  | 16,384 |  |  | 6,828 |  |  | 10,425 |  |  | 15,624 |  |  | 105 |  |  | 67,562 |
Acquired with deteriorated credit quality | 41 |  |  | 5 |  |  | — |  |  | 60 |  |  | — |  |  | — |  |  | 106 |
Total ending allowance balance | $ | 23,476 |  |  | $ | 16,469 |  |  | $ | 6,828 |  |  | $ | 10,507 |  |  | $ | 15,624 |  |  | $ | 572 |  |  | $ | 73,476 |
Loan balance: |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment | $ | 30,164 |  |  | $ | 54,031 |  |  | $ | 631 |  |  | $ | 5,257 |  |  | $ | — |  |  | $ | 1,641 |  |  | $ | 91,724 |
Loans collectively evaluated for impairment | 1,706,082 |  |  | 1,570,141 |  |  | 350,239 |  |  | 1,940,206 |  |  | 1,506,433 |  |  | 27,051 |  |  | 7,100,152 |
Loans acquired with deteriorated credit quality | 450 |  |  | 8,453 |  |  | 1,114 |  |  | 2,411 |  |  | 1 |  |  | 140 |  |  | 12,569 |
Total ending loan balance | $ | 1,736,696 |  |  | $ | 1,632,625 |  |  | $ | 351,984 |  |  | $ | 1,947,874 |  |  | $ | 1,506,434 |  |  | $ | 28,832 |  |  | $ | 7,204,445 |
Allowance for loan losses as a percentage of loan balance: |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment | 17.37 | % |  | 0.15 | % |  | — | % |  | 0.42 | % |  | — | % |  | 28.46 | % |  | 6.33 | %
Loans collectively evaluated for impairment | 1.07 | % |  | 1.04 | % |  | 1.95 | % |  | 0.54 | % |  | 1.04 | % |  | 0.39 | % |  | 0.95 | %
Loans acquired with deteriorated credit quality | 9.11 | % |  | 0.06 | % |  | — | % |  | 2.49 | % |  | — | % |  | — | % |  | 0.84 | %
Total | 1.35 | % |  | 1.01 | % |  | 1.94 | % |  | 0.54 | % |  | 1.04 | % |  | 1.98 | % |  | 1.02 | %
Recorded investment: |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment | $ | 30,183 |  |  | $ | 54,071 |  |  | $ | 631 |  |  | $ | 5,257 |  |  | $ | — |  |  | $ | 1,641 |  |  | $ | 91,783 |
Loans collectively evaluated for impairment | 1,711,373 |  |  | 1,576,837 |  |  | 351,293 |  |  | 1,944,228 |  |  | 1,511,053 |  |  | 27,064 |  |  | 7,121,848 |
Loans acquired with deteriorated credit quality | 453 |  |  | 8,547 |  |  | 1,117 |  |  | 2,423 |  |  | 1 |  |  | 140 |  |  | 12,681 |
Total ending recorded investment | $ | 1,742,009 |  |  | $ | 1,639,455 |  |  | $ | 353,041 |  |  | $ | 1,951,908 |  |  | $ | 1,511,054 |  |  | $ | 28,845 |  |  | $ | 7,226,312 |
|  | December 31, 2019 |  |  |  |  |  |  |  |  |  |  |  |
(In thousands) |  | Commercial, financial and agricultural |  | Commercial real estate |  | Construction real estate |  | Residential real estate |  | Consumer |  | Leases |  | Total
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending allowance balance attributed to loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 5,104 |  |  | $ | 35 |  |  | $ | — |  |  | $ | 42 |  |  | $ | — |  |  | $ | 49 |  |  | $ | 5,230 |
Collectively evaluated for impairment |  | 14,948 |  |  | 10,187 |  |  | 5,311 |  |  | 8,458 |  |  | 12,211 |  |  | 66 |  |  | 51,181 |
Acquired with deteriorated credit quality |  | 151 |  |  | 7 |  |  | — |  |  | 110 |  |  | — |  |  | — |  |  | 268 |
Total ending allowance balance |  | $ | 20,203 |  |  | $ | 10,229 |  |  | $ | 5,311 |  |  | $ | 8,610 |  |  | $ | 12,211 |  |  | $ | 115 |  |  | $ | 56,679 |
Loan balance: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment |  | $ | 33,077 |  |  | $ | 41,770 |  |  | $ | 453 |  |  | $ | 2,025 |  |  | $ | — |  |  | $ | 134 |  |  | $ | 77,459 |
Loans collectively evaluated for impairment |  | 1,151,073 |  |  | 1,558,550 |  |  | 330,106 |  |  | 1,888,088 |  |  | 1,452,373 |  |  | 29,424 |  |  | 6,409,614 |
Loans acquired with deteriorated credit quality (1) |  | 960 |  |  | 9,093 |  |  | 1,140 |  |  | 2,613 |  |  | 2 |  |  | 523 |  |  | 14,331 |
Total ending loan balance |  | $ | 1,185,110 |  |  | $ | 1,609,413 |  |  | $ | 331,699 |  |  | $ | 1,892,726 |  |  | $ | 1,452,375 |  |  | $ | 30,081 |  |  | $ | 6,501,404 |
Allowance for loan losses as a percentage of loan balance: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment |  | 15.43 | % |  | 0.08 | % |  | — | % |  | 2.07 | % |  | — | % |  | 36.57 | % |  | 6.75 | %
Loans collectively evaluated for impairment |  | 1.30 | % |  | 0.65 | % |  | 1.61 | % |  | 0.45 | % |  | 0.84 | % |  | 0.22 | % |  | 0.80 | %
Loans acquired with deteriorated credit quality |  | 15.73 | % |  | 0.08 | % |  | — | % |  | 4.21 | % |  | — | % |  | — | % |  | 1.87 | %
Total |  | 1.70 | % |  | 0.64 | % |  | 1.60 | % |  | 0.45 | % |  | 0.84 | % |  | 0.38 | % |  | 0.87 | %
Recorded investment: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment |  | $ | 33,088 |  |  | $ | 41,791 |  |  | $ | 453 |  |  | $ | 2,025 |  |  | $ | — |  |  | $ | 134 |  |  | $ | 77,491 |
Loans collectively evaluated for impairment |  | 1,155,449 |  |  | 1,564,011 |  |  | 331,161 |  |  | 1,891,941 |  |  | 1,456,687 |  |  | 29,444 |  |  | 6,428,693 |
Loans acquired with deteriorated credit quality (1) |  | 966 |  |  | 9,182 |  |  | 1,143 |  |  | 2,625 |  |  | 2 |  |  | 523 |  |  | 14,441 |
Total ending recorded investment |  | $ | 1,189,503 |  |  | $ | 1,614,984 |  |  | $ | 332,757 |  |  | $ | 1,896,591 |  |  | $ | 1,456,689 |  |  | $ | 30,101 |  |  | $ | 6,520,625 |
(1) Excludes loans acquired with deteriorated credit quality which were individually evaluated for impairment due to additional credit deterioration or modification post acquisition. These loans had a balance of $5,000, a recorded investment of $6,000, and no allowance as of December 31, 2019.

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