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Allowance For Credit Losses | 9 Months Ended
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Sep. 30, 2021
Financing Receivable, Allowance for Credit Loss, Writeoff, after Recovery [Abstract] |
Allowance For Loan Losses | Allowance for Credit Losses The ACL is an estimate of the expected credit losses on financial assets measured at amortized cost, which is measured using relevant information about past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets. A provision for credit losses is charged to operations based on management’s periodic evaluation of these and other pertinent factors as discussed within Note 2 – Adoption of New Accounting Pronouncements and Issued But Not Yet Effective Accounting Standards of the Notes to the Consolidated Condensed Financial Statements included in this Form 10-Q. During the first quarter of 2021, Park adopted ASU 2016-13, including the CECL methodology for estimating the ACL. This standard was adopted prospectively on January 1, 2021, resulting in a $6.1 million increase to the ACL and a $3.9 million increase to the allowance for unfunded credit losses. A cumulative effect adjustment resulting in an $8.0 million decrease to retained earnings and a $2.1 million increase to deferred tax assets was also recorded as of the adoption of ASU 2016-13. Quantitative Considerations The ACL is primarily calculated utilizing a DCF model. Key inputs and assumptions used in this model are discussed below: •Forecast model - For each portfolio segment, a LDA was performed in order to identify appropriate loss drivers and create a regression model for use in forecasting cash flows. The LDA analysis utilized Park's own FFIEC Call Report data for the commercial, financial and agricultural and residential real estate portfolio segments. Peer data was incorporated into the analysis for the commercial real estate, construction real estate, and consumer portfolio segments. Park plans to update the LDA annually; however, due to the impact of COVID-19, the LDA analysis was last updated in the fourth quarter of 2019. •Probability of default – PD is the probability that an asset will be in default within a given time frame. Park has defined default to be when a charge-off has occurred, a loan is nonaccrual, or a loan is greater than 90 days past due. Whenever possible, Park utilizes its own loan-level PDs for the reasonable and supportable forecast period. When loan level-data is not available reflecting the forecasted economic conditions, a forecast model is utilized to estimate PDs. •Loss given default – LGD is the percentage of the asset not expected to be collected due to default. Whenever possible, Park utilizes its own loan-level LGDs for the reasonable and supportable forecast period. When it is not possible to use Park's own LGDs, the LGD is derived using a method referred to as Frye Jacobs. •Prepayments and curtailments – Prepayments and curtailments are calculated based on Park’s own data utilizing a three-year average. This analysis is updated annually in the fourth quarter and was last updated in the fourth quarter of 2020. •Forecast and reversion – Park has established a one-year reasonable and supportable forecast period with a one-year straight line reversion to the long-term historical average. •Economic forecast - Park utilizes a third party to provide economic forecasts under various scenarios, which are weighted in order to reflect model risk in the current economic environment. The scenario weighting is evaluated by management on a quarterly basis. ◦As of January 1, 2021, the date of CECL adoption, Park weighted a "most likely" scenario 80%, a "slower near-term growth" scenario 10%, and a "moderate recession" scenario 10%. As of January 1, 2021, the "most likely" scenario forecasted Ohio unemployment to range between 5.31% and 5.79% during the next four quarters. ◦As of March 31, 2021, the "most likely" scenario forecasted Ohio unemployment to decrease significantly, to a range between 3.70% and 4.93% during the next four quarters. In determining the appropriate weighting of scenarios at March 31, 2021, management considered this improved economic forecast while balancing the risks associated with the COVID-19 pandemic, including the risk of pandemic-related losses lagging behind the projected improvement in unemployment. Management determined it was appropriate to weight the "most likely" scenario 50% and the "moderate recession" scenario 50%. ◦As of June 30, 2021, the "most likely" scenario forecasted Ohio unemployment to decrease significantly, to a range between 2.85% and 3.92% during the next four quarters. In determining the appropriate weighting of scenarios at June 30, 2021, management considered this improved economic forecast and other positive economic indicators while balancing the risks associated with the COVID-19 pandemic, including the continued risk of pandemic-related losses lagging behind the projected improvement in unemployment. Management determined it was appropriate to weight the "most likely" scenario 55% and the "moderate recession" scenario 45% at June 30, 2021. Management believed that the resulting quantitative reserve appropriately balanced economic improvement with the ongoing risks. ◦As of September 30, 2021, the "most likely" scenario forecasted Ohio unemployment to decrease, to a range between 3.03% and 4.02%, during the next four quarters. In determining the appropriate weighting of scenarios at September 30, 2021, management considered a number of less optimistic economic indicators, including: a slight uptick in Ohio unemployment, which was contrary to the forecast; increased COVID cases; decreased consumer confidence; and decreased occupancy, among others. Considering these factors, management determined it was appropriate to return to the March 31, 2021 weighting and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at September 30, 2021. Qualitative Considerations Park reviews various internal and external factors to consider the need for any qualitative adjustments to the quantitative model. Factors considered include the following: •The nature and volume of Park’s financial assets; the existence, growth, and effect of any concentrations of credit and the volume and severity of past due financial assets, the volume of nonaccrual assets, and the volume and severity of adversely classified or graded assets. Specifically, management considers: ◦Trends (e.g., growth, reduction) in specific categories of the loan portfolio, as well as adjustments to the types of loans offered by Park. ◦Level of and trend in loan delinquencies, troubled loans, commercial watch list loans and nonperforming loans. ◦Level of and trend in new nonaccrual loans. ◦Level of and trend in loan charge-offs and recoveries. •Park's lending policies and procedures, including changes in lending strategies, underwriting standards and practices for collections, write-offs, and recoveries. •The quality of Park’s credit review function. •The experience, ability, and depth of Park’s lending, investment, collection, and other relevant management and staff. •The effect of other external factors such as the regulatory, legal and technological environments; competition; and events such as natural disasters or pandemics. •Actual and expected changes in international, national, regional, and local economic and business conditions and developments in which Park operates that affect the collectibility of financial assets. •Where the U.S. economy is within a given credit cycle. •The extent that there is government assistance (stimulus). During 2020, Park added an additional reserve for three industries at particularly high risk due to the COVID-19 pandemic: hotels and accommodations; restaurants and food service; and strip shopping centers. These industries have experienced 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 relatively higher percentage of the 4-rated credits in these portfolios will eventually migrate to special mention, substandard, or impaired status. In adopting CECL, management determined it was appropriate to retain this qualitative adjustment as this adjustment takes into account the additional risk in these portfolios, which is not captured in the quantitative calculation. As of September 30, 2021, additional reserves totaling $4.6 million were added for these portfolios on top of the quantitative reserve already calculated. This is an increase from $3.4 million as of June 30, 2021 and $4.5 million as of March 31, 2021 and reflects the previously discussed uncertainty regarding sustained economic improvement due to COVID-19. The $4.6 million in additional COVID-19-related reserves as of September 30, 2021 is also an increase compared to $3.8 million as of December 31, 2020, which had been calculated under the previous incurred loss methodology. A breakout of the 4-rated balances within these portfolios and the additional reserve related to these portfolios is detailed in the following table.
| September 30, 2021
(in thousands) | 4-Rated Balance |  | Additional Reserve
Hotels and accommodations | $ | 123,249 |  |  | $ | 1,854 |
Restaurants and food service | 33,373 |  |  | 754 |
Strip shopping centers | 177,635 |  |  | 1,961 |
Total | $ | 334,257 |  |  | $ | 4,569 |
Additionally, management applied a 1.00% reserve to all hotels and accommodations loans in the collectively evaluated population to account for increased valuation risk. This is an increase from 0.50% at June 30, 2021 and considers some decline in various economic conditions due to the Delta variant and a decline in hotel occupancy rates. At September 30, 2021, Park's originated hotels and accommodation loans had a balance of $193.8 million with an additional reserve related to valuation risks of $1.9 million. There is still a significant amount of uncertainty related to the economic impact of COVID-19, including the duration of the pandemic, the risk related to new variants, future government programs that may be established in response to the pandemic, and the resiliency of the U.S. economy. Management will continue to evaluate its estimate of expected credit losses as new information becomes available. As of September 30, 2021, Park had $131.5 million of PPP loans which were 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. ACL Activity The activity in the ACL for the three-month and nine-month periods ended September 30, 2021 and September 30, 2020 is summarized in the following tables.
| Three Months Ended September 30, 2021
(In thousands) | Commercial, financial and agricultural |  | Commercial real estate |  | Construction real estate |  | Residential real estate |  | Consumer |  | Leases |  | Total
ACL: |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 15,222 |  |  | $ | 22,749 |  |  | $ | 5,670 |  |  | $ | 13,113 |  |  | $ | 26,261 |  |  | $ | 562 |  |  | $ | 83,577 |
Charge-offs | 221 |  |  | — |  |  | — |  |  | — |  |  | 781 |  |  | — |  |  | 1,002 |
Recoveries | 132 |  |  | 428 |  |  | 1,597 |  |  | 729 |  |  | 696 |  |  | — |  |  | 3,582 |
Net charge-offs/(recoveries) | $ | 89 |  |  | $ | (428) |  |  | $ | (1,597) |  |  | $ | (729) |  |  | $ | 85 |  |  | $ | — |  |  | $ | (2,580) |
Provision for (recovery of) credit loss | 843 |  |  | 2,991 |  |  | (1,003) |  |  | (2,080) |  |  | 1,483 |  |  | (262) |  |  | 1,972 |
Ending balance | $ | 15,976 |  |  | $ | 26,168 |  |  | $ | 6,264 |  |  | $ | 11,762 |  |  | $ | 27,659 |  |  | $ | 300 |  |  | $ | 88,129 |
| Three Months Ended September 30, 2020
(In thousands) | Commercial, financial and agricultural |  | Commercial real estate |  | Construction real estate |  | Residential real estate |  | Consumer |  | Leases |  | Total
ACL: |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 23,476 |  |  | $ | 16,469 |  |  | $ | 6,828 |  |  | $ | 10,507 |  |  | $ | 15,624 |  |  | $ | 572 |  |  | $ | 73,476 |
Charge-offs | 241 |  |  | 45 |  |  | — |  |  | 34 |  |  | 1,208 |  |  | 1 |  |  | 1,529 |
Recoveries | 181 |  |  | 47 |  |  | 35 |  |  | 189 |  |  | 803 |  |  | — |  |  | 1,255 |
Net charge-offs/(recoveries) | $ | 60 |  |  | $ | (2) |  |  | $ | (35) |  |  | $ | (155) |  |  | $ | 405 |  |  | $ | 1 |  |  | $ | 274 |
Provision for credit loss | 3,571 |  |  | 6,417 |  |  | 1,544 |  |  | 546 |  |  | 1,750 |  |  | 8 |  |  | 13,836 |
Ending balance | $ | 26,987 |  |  | $ | 22,888 |  |  | $ | 8,407 |  |  | $ | 11,208 |  |  | $ | 16,969 |  |  | $ | 579 |  |  | $ | 87,038 |
| Nine Months Ended September 30, 2021
(In thousands) | Commercial, financial and agricultural |  | Commercial real estate |  | Construction real estate |  | Residential real estate |  | Consumer |  | Leases |  | Total
ACL: |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance, prior to adoption of ASC 326 | $ | 25,608 |  |  | $ | 23,480 |  |  | $ | 7,288 |  |  | $ | 11,363 |  |  | $ | 17,418 |  |  | $ | 518 |  |  | $ | 85,675 |
Impact of adopting ASC 326 | (8,257) |  |  | 2,119 |  |  | (1,898) |  |  | 3,121 |  |  | 10,925 |  |  | 80 |  |  | 6,090 |
Charge-offs | 675 |  |  | — |  |  | — |  |  | 37 |  |  | 3,061 |  |  | — |  |  | 3,773 |
Recoveries | 487 |  |  | 724 |  |  | 2,078 |  |  | 859 |  |  | 2,912 |  |  | — |  |  | 7,060 |
Net charge-offs/(recoveries) | $ | 188 |  |  | $ | (724) |  |  | $ | (2,078) |  |  | $ | (822) |  |  | $ | 149 |  |  | $ | — |  |  | $ | (3,287) |
Recovery of credit loss | (1,187) |  |  | (155) |  |  | (1,204) |  |  | (3,544) |  |  | (535) |  |  | (298) |  |  | (6,923) |
Ending balance | $ | 15,976 |  |  | $ | 26,168 |  |  | $ | 6,264 |  |  | $ | 11,762 |  |  | $ | 27,659 |  |  | $ | 300 |  |  | $ | 88,129 |
| Nine Months Ended September 30, 2020
(In thousands) | Commercial, financial and agricultural |  | Commercial real estate |  | Construction real estate |  | Residential real estate |  | Consumer |  | Leases |  | Total
ACL: |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 20,203 |  |  | $ | 10,229 |  |  | $ | 5,311 |  |  | $ | 8,610 |  |  | $ | 12,211 |  |  | $ | 115 |  |  | $ | 56,679 |
Charge-offs | 1,041 |  |  | 45 |  |  | 6 |  |  | 176 |  |  | 5,060 |  |  | 16 |  |  | 6,344 |
Recoveries | 1,061 |  |  | 690 |  |  | 628 |  |  | 457 |  |  | 2,654 |  |  | — |  |  | 5,490 |
Net (recoveries)/charge-offs | $ | (20) |  |  | $ | (645) |  |  | $ | (622) |  |  | $ | (281) |  |  | $ | 2,406 |  |  | $ | 16 |  |  | $ | 854 |
Provision for credit loss | 6,764 |  |  | 12,014 |  |  | 2,474 |  |  | 2,317 |  |  | 7,164 |  |  | 480 |  |  | 31,213 |
Ending balance | $ | 26,987 |  |  | $ | 22,888 |  |  | $ | 8,407 |  |  | $ | 11,208 |  |  | $ | 16,969 |  |  | $ | 579 |  |  | $ | 87,038 |
ACL Summary Loans collectively evaluated for impairment in the following tables include all performing loans at September 30, 2021 and December 31, 2020, 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 ACL. Loans individually evaluated for impairment include all impaired loans internally classified as commercial loans at September 30, 2021 and December 31, 2020, 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 2020 Form 10-K). The composition of the ACL at September 30, 2021 and December 31, 2020 was as follows:
| September 30, 2021
(In thousands) | Commercial, financial and agricultural |  | Commercial real estate |  | Construction real estate |  | Residential real estate |  | Consumer |  | Leases |  | Total
ACL: |  |  |  |  |  |  |  |  |  |  |  |  |
Ending allowance balance attributed to loans: |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment | $ | 3,183 |  |  | $ | 180 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 103 |  |  | $ | 3,466 |
Collectively evaluated for impairment | 12,793 |  |  | 25,988 |  |  | 6,264 |  |  | 11,762 |  |  | 27,659 |  |  | 197 |  |  | 84,663 |
Acquired with deteriorated credit quality | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total ending allowance balance | $ | 15,976 |  |  | $ | 26,168 |  |  | $ | 6,264 |  |  | $ | 11,762 |  |  | $ | 27,659 |  |  | $ | 300 |  |  | $ | 88,129 |
Loan balance: |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment | $ | 22,018 |  |  | $ | 50,541 |  |  | $ | 442 |  |  | $ | 4,857 |  |  | $ | — |  |  | $ | 1,406 |  |  | $ | 79,264 |
Loans collectively evaluated for impairment | 1,292,601 |  |  | 1,704,527 |  |  | 341,480 |  |  | 1,746,339 |  |  | 1,715,324 |  |  | 20,177 |  |  | 6,820,448 |
Loans acquired with deteriorated credit quality | 251 |  |  | 6,528 |  |  | 965 |  |  | 912 |  |  | — |  |  | 49 |  |  | 8,705 |
Total ending loan balance | $ | 1,314,870 |  |  | $ | 1,761,596 |  |  | $ | 342,887 |  |  | $ | 1,752,108 |  |  | $ | 1,715,324 |  |  | $ | 21,632 |  |  | $ | 6,908,417 |
ACL as a percentage of loan balance: |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment | 14.46 | % |  | 0.36 | % |  | — | % |  | — | % |  | — | % |  | 7.33 | % |  | 4.37 | %
Loans collectively evaluated for impairment | 0.99 | % |  | 1.52 | % |  | 1.83 | % |  | 0.67 | % |  | 1.61 | % |  | 0.98 | % |  | 1.24 | %
Loans acquired with deteriorated credit quality | — | % |  | — | % |  | — | % |  | — | % |  | — | % |  | — | % |  | — | %
Total | 1.22 | % |  | 1.49 | % |  | 1.83 | % |  | 0.67 | % |  | 1.61 | % |  | 1.39 | % |  | 1.28 | %
|  | December 31, 2020
(In thousands) |  | Commercial, financial and agricultural |  | Commercial real estate |  | Construction real estate |  | Residential real estate |  | Consumer |  | Leases |  | Total
ACL: |  |  |  |  |  |  |  |  |  |  |  |  |  |
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 |
ACL 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 |

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