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Allowance for Loan Losses | 12 Months Ended
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Dec. 31, 2020
Allowance For Loan Losses [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. 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. 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. Commercial Loans The following are factors management reviews specifically for commercial loans on a quarterly or annual basis. •Historical Loss Factor: In calculating the allowance for loan losses, management believes it is appropriate to consider historical loss rates that are comparable to the current period being analyzed, giving consideration to losses experienced over a full cycle. As such, a year is added to the look back period each time historical losses are updated, until the economic cycle is complete, as defined by a period of rising charge-offs, considering both internal and industry trends. In updating the historical loss rates to incorporate 2020 losses, management considered if the economic deterioration as a result of the COVID-19 pandemic represented the end of a cycle for the purposes of the allowance for loan loss calculation, but, due to the historically low level of charge-offs, determined 2020 should be included in the cycle beginning in 2010. For the historical loss factor at December 31, 2020, the Company utilized an annual loss rate, calculated based on an average of the net charge-offs and the annual change in specific reserves for impaired commercial loans, experienced during 2010 through 2020 within the individual segments of the commercial and consumer loan categories. •Loss Emergence Period Factor: Typically, management calculates the loss emergence period for each commercial loan segment on an annual basis. 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 loan 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. Management did not update the loss emergence period calculation in 2020. Due to the COVID-19 pandemic, management performed a timely analysis into its commercial loan portfolio to identify loans negatively impacted by the pandemic. This resulted in the downgrade of numerous loans to nonaccrual status within months of the loss event (the COVID-19 pandemic). Including these loans artificially lowers the loss emergence period for 2020. Management does not believe this is reflective of what is expected as the loss emergence period for the remaining portfolio. During the third quarter of 2020, Park made the decision to extend the loss emergence period on all commercial loan types by six months. Management believes that the start of the COVID-19 pandemic in March 2020 represents the loss event. Management continues to refine its estimate of incurred losses as a result of this March 2020 loss event. Approximately nine months following the start of the pandemic, Park has experienced very little, if any, increase in delinquencies and charge-offs. Management believes that this is due to the unprecedented level of economic stimulus, CARES Act accommodations, and Consolidated Appropriations Act, 2021 accommodations provided by the U.S. government which has delayed loan defaults and losses. •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 2020. •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 both December 31, 2020 and December 31, 2019, such subjective environmental loss factor inputs accounted for 42% 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 in relation to the historical loss period. The environmental loss factors were updated in each quarter 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, to 0.75% of applicable loans at June 30, 2020, to 0.825% at September 30, 2020, and to 0.855% at December 31, 2020. The increases in the first and second quarters of 2020 were the result of upward adjustments to the factors for Ohio unemployment, percent change in Ohio GDP and consumer confidence. The increase in the third quarter of 2020 was due to the increased uncertainty in the overall economic environment, the unknown length and severity of the pandemic and the limitations in the incurred loss model to capture all probable incurred losses during such uncertain times. The increase in the fourth quarter was a result of consideration of the other environmental factors in relation to the extended 132-month historical loss period. 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 4-rated credits in these portfolios will eventually migrate to special mention, substandard, or impaired status. As a result, additional reserves totaling $3.8 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 4-rated loans in these portfolios. A breakout of the 4-rated balances and additional reserve related to these portfolios is detailed in the following table.
| December 31, 2020
(in thousands) | 4-Rated Balance |  | 4-Rated Balance - Originated |  | 4-Rated Balance - Purchased |  | Additional Reserve
Hotels and accommodations | $ | 96,909 |  |  | $ | 93,090 |  |  | $ | 3,819 |  |  | $ | 1,391 |
Restaurants and food service | 33,409 |  |  | 27,880 |  |  | 5,529 |  |  | 637 |
Strip shopping centers | 177,706 |  |  | 156,605 |  |  | 21,101 |  |  | 1,731 |
Total | $ | 308,024 |  |  | $ | 277,575 |  |  | $ | 30,449 |  |  | $ | 3,759 |
Additionally, management applied a 1% reserve to all hotels and accommodations loans in the general reserve population to account for increased valuation risk. At December 31, 2020, Park's originated hotels and accommodation loans had a balance of $181.4 million with an additional reserve related to valuation risks of $1.8 million. As of December 31, 2020, Park had $337.1 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. Consumer Loans For the consumer portfolio, a specific COVID-19 factor was added to each segment equal to 75% of the 132-month historical loss factor (representing 9 months of charge-off delay). This increase considers the payment deferrals being provided to consumer loan customers and unprecedented level of government stimulus 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. Purchased Loans Loans acquired as part of the acquisitions of NewDominion and Carolina Alliance were recorded at fair value on the respective dates of acquisition. An allowance is only established on these loans as a result of credit deterioration post acquisition. At December 31, 2020, there was a $678,000 allowance related to performing acquired loans. At December 31, 2020, a reserve of $167,000 had been established related to PCI loans. At December 31, 2019, there was no allowance related to performing acquired loans, and a reserve of $268,000 related to PCI loans. The activity in the allowance for loan losses for the years ended December 31, 2020, 2019, and 2018 is summarized in the following tables.
|  | Year ended December 31, 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 |  | 1,468 |  |  | 1,824 |  |  | 6 |  |  | 356 |  |  | 6,634 |  |  | 16 |  |  | 10,304 |
Recoveries |  | (20,765) |  |  | (738) |  |  | (1,122) |  |  | (991) |  |  | (3,629) |  |  | (1) |  |  | (27,246) |
Net (recoveries) charge-offs |  | (19,297) |  |  | 1,086 |  |  | (1,116) |  |  | (635) |  |  | 3,005 |  |  | 15 |  |  | (16,942) |
(Recovery) Provision |  | (13,892) |  |  | 14,337 |  |  | 861 |  |  | 2,118 |  |  | 8,212 |  |  | 418 |  |  | 12,054 |
Ending balance |  | $ | 25,608 |  |  | $ | 23,480 |  |  | $ | 7,288 |  |  | $ | 11,363 |  |  | $ | 17,418 |  |  | 518 |  |  | $ | 85,675 |
|  | Year ended 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: |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 16,777 |  |  | $ | 9,768 |  |  | $ | 4,463 |  |  | $ | 8,731 |  |  | $ | 11,773 |  |  | $ | — |  |  | $ | 51,512 |
Charge-offs |  | 2,231 |  |  | 400 |  |  | — |  |  | 239 |  |  | 8,307 |  |  | — |  |  | 11,177 |
Recoveries |  | (1,241) |  |  | (720) |  |  | (2,682) |  |  | (787) |  |  | (4,742) |  |  | (1) |  |  | (10,173) |
Net charge-offs (recoveries) |  | 990 |  |  | (320) |  |  | (2,682) |  |  | (548) |  |  | 3,565 |  |  | (1) |  |  | 1,004 |
Provision (Recovery) |  | 4,416 |  |  | 141 |  |  | (1,834) |  |  | (669) |  |  | 4,003 |  |  | 114 |  |  | 6,171 |
Ending balance |  | $ | 20,203 |  |  | $ | 10,229 |  |  | $ | 5,311 |  |  | $ | 8,610 |  |  | $ | 12,211 |  |  | $ | 115 |  |  | $ | 56,679 |
|  | Year ended December 31, 2018
(In thousands) |  | Commercial, financial and agricultural |  | Commercial real estate |  | Construction real estate |  | Residential real estate |  | Consumer |  | Leases |  | Total
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 15,022 |  |  | $ | 9,601 |  |  | $ | 4,430 |  |  | $ | 9,321 |  |  | $ | 11,614 |  |  | $ | — |  |  | $ | 49,988 |
Charge-offs |  | 2,796 |  |  | 281 |  |  | 72 |  |  | 441 |  |  | 9,962 |  |  | — |  |  | 13,552 |
Recoveries |  | (1,221) |  |  | (272) |  |  | (712) |  |  | (844) |  |  | (4,078) |  |  | (4) |  |  | (7,131) |
Net charge-offs (recoveries) |  | 1,575 |  |  | 9 |  |  | (640) |  |  | (403) |  |  | 5,884 |  |  | (4) |  |  | 6,421 |
Provision (Recovery) |  | 3,330 |  |  | 176 |  |  | (607) |  |  | (993) |  |  | 6,043 |  |  | (4) |  |  | 7,945 |
Ending balance |  | $ | 16,777 |  |  | $ | 9,768 |  |  | $ | 4,463 |  |  | $ | 8,731 |  |  | $ | 11,773 |  |  | $ | — |  |  | $ | 51,512 |
Loans collectively evaluated for impairment in the following tables include all performing loans at December 31, 2020 and 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 December 31, 2020 and 2019, which are evaluated for impairment in accordance with U.S. GAAP (see Note 1 - Summary of Significant Accounting Policies). The composition of the allowance for loan losses at December 31, 2020 and 2019 was as follows:
| December 31, 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 | $ | 3,758 |  |  | $ | 1,316 |  |  | $ | — |  |  | $ | 16 |  |  | $ | — |  |  | $ | 344 |  |  | $ | 5,434 |
Collectively evaluated for impairment | 21,809 |  |  | 22,093 |  |  | 7,288 |  |  | 11,292 |  |  | 17,418 |  |  | 174 |  |  | 80,074 |
Acquired with deteriorated credit quality | 41 |  |  | 71 |  |  | — |  |  | 55 |  |  | — |  |  | — |  |  | 167 |
Total ending allowance balance | $ | 25,608 |  |  | $ | 23,480 |  |  | $ | 7,288 |  |  | $ | 11,363 |  |  | $ | 17,418 |  |  | $ | 518 |  |  | $ | 85,675 |
Loan balance: |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment | $ | 28,811 |  |  | $ | 70,334 |  |  | $ | 3,110 |  |  | $ | 4,557 |  |  | $ | — |  |  | $ | 1,595 |  |  | $ | 108,407 |
Loans collectively evaluated for impairment | 1,559,842 |  |  | 1,670,510 |  |  | 339,312 |  |  | 1,806,126 |  |  | 1,659,704 |  |  | 22,731 |  |  | 7,058,225 |
Loans acquired with deteriorated credit quality | 336 |  |  | 7,345 |  |  | 999 |  |  | 2,361 |  |  | — |  |  | 112 |  |  | 11,153 |
Total ending loan balance | $ | 1,588,989 |  |  | $ | 1,748,189 |  |  | $ | 343,421 |  |  | $ | 1,813,044 |  |  | $ | 1,659,704 |  |  | $ | 24,438 |  |  | $ | 7,177,785 |
Allowance for loan losses as a percentage of loan balance: |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment | 13.04 | % |  | 1.87 | % |  | — | % |  | 0.35 | % |  | — | % |  | 21.57 | % |  | 5.01 | %
Loans collectively evaluated for impairment | 1.40 | % |  | 1.32 | % |  | 2.15 | % |  | 0.63 | % |  | 1.05 | % |  | 0.77 | % |  | 1.13 | %
Loans acquired with deteriorated credit quality | 12.20 | % |  | 0.97 | % |  | — | % |  | 2.33 | % |  | — | % |  | — | % |  | 1.50 | %
Total | 1.61 | % |  | 1.34 | % |  | 2.12 | % |  | 0.63 | % |  | 1.05 | % |  | 2.12 | % |  | 1.19 | %
Recorded investment: |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment | $ | 28,836 |  |  | $ | 70,357 |  |  | $ | 3,110 |  |  | $ | 4,557 |  |  | $ | — |  |  | $ | 1,595 |  |  | $ | 108,455 |
Loans collectively evaluated for impairment | 1,566,344 |  |  | 1,676,388 |  |  | 340,116 |  |  | 1,808,892 |  |  | 1,664,214 |  |  | 22,745 |  |  | 7,078,699 |
Loans acquired with deteriorated credit quality | 337 |  |  | 7,461 |  |  | 1,002 |  |  | 2,372 |  |  | — |  |  | 112 |  |  | 11,284 |
Total ending recorded investment | $ | 1,595,517 |  |  | $ | 1,754,206 |  |  | $ | 344,228 |  |  | $ | 1,815,821 |  |  | $ | 1,664,214 |  |  | $ | 24,452 |  |  | $ | 7,198,438 |
| 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 are individually evaluated for impairment due to additional credit deterioration 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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