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Allowance For Credit Losses | 3 Months Ended
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Mar. 31, 2022
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. 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 2021. •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 December 31, 2021, the "most likely" scenario forecasted Ohio unemployment between 3.32% and 3.97%, during the next four quarters. In determining the appropriate weighting of scenarios at December 31, 2021, management considered the range of forecasted unemployment as well as a number of economic indicators. While some economic indications continued to be optimistic, the Omicron variant, rising inflation, volatility in consumer confidence, employment, supply chain and workforce challenges continued to cause uncertainty to the overall economic environment. Considering these factors, management determined it was appropriate to maintain the current weighting, and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at December 31, 2021. ◦As of March 31, 2022, the "most likely" scenario forecasted Ohio unemployment between 3.36% and 3.75%, during the next four quarters. In determining the appropriate weighting of scenarios at March 31, 2022, management considered the range of forecasted unemployment as well as a number of economic indicators. While some economic indications were optimistic, the surging inflation, volatility in consumer confidence, workforce challenges, and geopolitical conflict (including the conflict in Ukraine) continued to cause uncertainty to the overall economic environment. Considering these factors, management determined it was appropriate to maintain the previous quarter weighting, and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at March 31, 2022. 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 the markets 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 Even though COVID-19 case numbers have declined since December 31, 2021, these industries are still recovering from the pandemic effects. As of March 31, 2022, additional reserves totaling $3.8 million were added for these portfolios on top of the quantitative reserve already calculated. This is a decrease from $5.2 million as of December 31, 2021 and reflects improvement in COVID-19 cases and eased COVID-19 health department precautions. Management believes there is still residual risk in these portfolios related to pandemic effects and uncertainty in future COVID-19 strains and related impacts. A breakout of the 4-rated balances within these portfolios and the additional reserve related to these portfolios is detailed in the following table.
| March 31, 2022 |  | December 31, 2021
(in thousands) | 4-Rated Balance |  | Additional Reserve |  | 4-Rated Balance |  | Additional Reserve
Hotels and accommodations | $ | 148,108 |  |  | $ | 1,670 |  |  | $ | 148,018 |  |  | $ | 2,226 |
Restaurants and food service | 44,606 |  |  | 754 |  |  | 40,648 |  |  | 917 |
Strip shopping centers | 167,099 |  |  | 1,384 |  |  | 184,171 |  |  | 2,033 |
Total | $ | 359,813 |  |  | $ | 3,808 |  |  | $ | 372,837 |  |  | $ | 5,176 |
Additionally, at March 31, 2022, management applied a 1.00% reserve to all hotels and accommodations loans in the collectively evaluated population to account for increased valuation risk. This 1.00% reserve was maintained from December 31, 2021. At March 31, 2022, Park's originated hotels and accommodation loans had a balance of $206.2 million with an additional reserve related to valuation risks of $2.1 million. At December 31, 2021, Park's originated hotels and accommodation loans had a balance of $203.9 million with an additional reserve related to valuation risks of $2.0 million. There is still a significant amount of uncertainty related to the long-term 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 March 31, 2022, Park had $37.4 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 periods ended March 31, 2022 and March 31, 2021 is summarized in the following tables.
| Three Months Ended March 31, 2022
(In thousands) | Commercial, financial and agricultural |  | Commercial real estate |  | Construction real estate |  | Residential real estate |  | Consumer |  | Leases |  | Total
ACL: |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 14,025 |  |  | $ | 25,466 |  |  | $ | 5,758 |  |  | $ | 11,424 |  |  | $ | 26,286 |  |  | $ | 238 |  |  | $ | 83,197 |
Charge-offs | 190 |  |  | — |  |  | — |  |  | 35 |  |  | 1,116 |  |  | 6 |  |  | 1,347 |
Recoveries | 118 |  |  | 48 |  |  | 501 |  |  | 32 |  |  | 917 |  |  | — |  |  | 1,616 |
Net charge-offs/(recoveries) | $ | 72 |  |  | $ | (48) |  |  | $ | (501) |  |  | $ | 3 |  |  | $ | 199 |  |  | $ | 6 |  |  | $ | (269) |
(Recovery of) provision for credit loss | (665) |  |  | (1,783) |  |  | (2,029) |  |  | 163 |  |  | (290) |  |  | (1) |  |  | (4,605) |
Ending balance | $ | 13,288 |  |  | $ | 23,731 |  |  | $ | 4,230 |  |  | $ | 11,584 |  |  | $ | 25,797 |  |  | $ | 231 |  |  | $ | 78,861 |
| Three Months Ended March 31, 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 | 146 |  |  | — |  |  | — |  |  | 11 |  |  | 1,544 |  |  | — |  |  | 1,701 |
Recoveries | 123 |  |  | 86 |  |  | 252 |  |  | 62 |  |  | 1,154 |  |  | — |  |  | 1,677 |
Net charge-offs/(recoveries) | $ | 23 |  |  | $ | (86) |  |  | $ | (252) |  |  | $ | (51) |  |  | $ | 390 |  |  | $ | — |  |  | $ | 24 |
(Recovery of) provision for credit loss | (1,049) |  |  | (1,198) |  |  | 171 |  |  | (498) |  |  | (2,224) |  |  | (57) |  |  | (4,855) |
Ending balance | $ | 16,279 |  |  | $ | 24,487 |  |  | $ | 5,813 |  |  | $ | 14,037 |  |  | $ | 25,729 |  |  | $ | 541 |  |  | $ | 86,886 |
ACL Summary Loans collectively evaluated for impairment in the following tables include all performing loans at March 31, 2022 and December 31, 2021, 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 March 31, 2022 and December 31, 2021, 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 2021 Form 10-K). The composition of the ACL at March 31, 2022 and December 31, 2021 was as follows:
| March 31, 2022
(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 | $ | 1,346 |  |  | $ | 143 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 24 |  |  | $ | 1,513 |
Collectively evaluated for impairment | 11,942 |  |  | 23,588 |  |  | 4,230 |  |  | 11,584 |  |  | 25,797 |  |  | 207 |  |  | 77,348 |
Acquired with deteriorated credit quality | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total ending allowance balance | $ | 13,288 |  |  | $ | 23,731 |  |  | $ | 4,230 |  |  | $ | 11,584 |  |  | $ | 25,797 |  |  | $ | 231 |  |  | $ | 78,861 |
Loan balance: |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment | $ | 22,129 |  |  | $ | 37,507 |  |  | $ | 208 |  |  | $ | 2,314 |  |  | $ | — |  |  | $ | 1,051 |  |  | $ | 63,209 |
Loans collectively evaluated for impairment | 1,278,033 |  |  | 1,738,036 |  |  | 303,206 |  |  | 1,725,411 |  |  | 1,688,406 |  |  | 18,318 |  |  | 6,751,410 |
Loans acquired with deteriorated credit quality | 157 |  |  | 5,062 |  |  | 944 |  |  | 816 |  |  | — |  |  | 8 |  |  | 6,987 |
Total ending loan balance | $ | 1,300,319 |  |  | $ | 1,780,605 |  |  | $ | 304,358 |  |  | $ | 1,728,541 |  |  | $ | 1,688,406 |  |  | $ | 19,377 |  |  | $ | 6,821,606 |
ACL as a percentage of loan balance: |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment | 6.08 | % |  | 0.38 | % |  | — | % |  | — | % |  | — | % |  | 2.28 | % |  | 2.39 | %
Loans collectively evaluated for impairment | 0.93 | % |  | 1.36 | % |  | 1.40 | % |  | 0.67 | % |  | 1.53 | % |  | 1.13 | % |  | 1.15 | %
Loans acquired with deteriorated credit quality | — | % |  | — | % |  | — | % |  | — | % |  | — | % |  | — | % |  | — | %
Total | 1.02 | % |  | 1.33 | % |  | 1.39 | % |  | 0.67 | % |  | 1.53 | % |  | 1.19 | % |  | 1.16 | %
|  | December 31, 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 |  | $ | 1,385 |  |  | $ | 188 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 43 |  |  | $ | 1,616 |
Collectively evaluated for impairment |  | 12,640 |  |  | 25,278 |  |  | 5,758 |  |  | 11,424 |  |  | 26,286 |  |  | 195 |  |  | 81,581 |
Acquired with deteriorated credit quality |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total ending allowance balance |  | $ | 14,025 |  |  | $ | 25,466 |  |  | $ | 5,758 |  |  | $ | 11,424 |  |  | $ | 26,286 |  |  | $ | 238 |  |  | $ | 83,197 |
Loan balance: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment |  | $ | 22,666 |  |  | $ | 47,820 |  |  | $ | 222 |  |  | $ | 2,606 |  |  | $ | — |  |  | $ | 1,188 |  |  | $ | 74,502 |
Loans collectively evaluated for impairment |  | 1,275,783 |  |  | 1,748,854 |  |  | 320,608 |  |  | 1,735,226 |  |  | 1,689,679 |  |  | 19,321 |  |  | 6,789,471 |
Loans acquired with deteriorated credit quality |  | 177 |  |  | 5,118 |  |  | 956 |  |  | 875 |  |  | — |  |  | 23 |  |  | 7,149 |
Total ending loan balance |  | $ | 1,298,626 |  |  | $ | 1,801,792 |  |  | $ | 321,786 |  |  | $ | 1,738,707 |  |  | $ | 1,689,679 |  |  | $ | 20,532 |  |  | $ | 6,871,122 |
ACL as a percentage of loan balance: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment |  | 6.11 | % |  | 0.39 | % |  | — | % |  | — | % |  | — | % |  | 3.62 | % |  | 2.17 | %
Loans collectively evaluated for impairment |  | 0.99 | % |  | 1.45 | % |  | 1.80 | % |  | 0.66 | % |  | 1.56 | % |  | 1.01 | % |  | 1.20 | %
Loans acquired with deteriorated credit quality |  | — | % |  | — | % |  | — | % |  | — | % |  | — | % |  | — | % |  | — | %
Total |  | 1.08 | % |  | 1.41 | % |  | 1.79 | % |  | 0.66 | % |  | 1.56 | % |  | 1.16 | % |  | 1.21 | %

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