Allowance for Loan Losses

12 Months Ended

Dec. 31, 2024

Financing Receivable, Allowance for Credit Loss, Writeoff, after Recovery [Abstract]

Allowance for Credit Losses [Text Block]

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 1-Summary of Significant Accounting Policies.

During the first quarter of 2023, Park adopted ASU 2022-02. This standard was adopted using a modified retrospective transition method on January 1, 2023, resulting in a $383,000 increase to the ACL. A cumulative effect adjustment resulting in a $303,000 decrease to retained earnings and an $80,000 increase to deferred tax assets was also recorded as a result of the adoption of ASU 2022-02.

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 updated the LDA in the fourth quarter of 2024. During the COVID pandemic, macroeconomic indicators showed significant deterioration, however, Park, along with most financial institutions, observed little to no meaningful increase in default activity. This can be attributed to external intervention in the form of deferral programs and government stimulus which is unlikely to reoccur in future downturns. For these reasons, management has excluded data from 2020-2022 in the LDA by using indicator variables during this time period.

•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 placed on 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, the LDA is utilized to estimate PDs. In all cases, the LDA is then utilized to determine the long-term historical average, which is reached over the reversion period.

•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. In all cases, the Frye Jacobs method is utilized to calculate LGDs during the reversion period and long-term historical average.

•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 2024.

•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, 2023, the "most likely" scenario forecasted Ohio unemployment between 4.05% and 4.66% during the next four quarters. In determining the appropriate weighting of scenarios at December 31, 2023, management considered the range of forecasted unemployment as well as a number of economic indicators. The continued elevated levels of inflation, volatile levels of consumer confidence, continued elevated interest rates, financial system stress and geopolitical conflict (including the conflicts between Russia and Ukraine and between Israel and Hamas) and stress in the commercial real estate sector, continued to cause uncertainty as to the overall economic environment. Considering these factors, management determined it was appropriate to maintain the existing weighting, and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at December 31, 2023.

◦As of December 31, 2024, the "most likely" scenario forecasted Ohio unemployment between 4.48% and 4.60% during the next four quarters. In determining the appropriate weighting of scenarios at December 31, 2024, management considered the range of forecasted unemployment as well as a number of economic indicators. While some economic indications are showing improvement and stabilization, volatile levels of consumer confidence, higher unemployment rates, the impact of elevated inflation for several years with no immediate indications of sustained decline, the interest rate environment, financial system stress, and geopolitical conflict (including the conflicts between Russia and Ukraine and between Israel and Hamas) and stress in the commercial real estate sector, continued to cause uncertainty as to the overall economic environment. Considering these factors, management determined it was appropriate to maintain the existing weighting, and weigh the "most likely" scenario 50% and the "moderate recession" scenario 50% at December 31, 2024. Changes in forecasts, updates to the LDA model and prepayment and curtailment assumptions, as well as changes in the loan mix, resulted in a five basis point increase in the weighted quantitative allowance from December 31, 2023.

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, charge-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; geopolitical conflict; 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 collectability of financial assets.

•Where the U.S. economy is within a given credit cycle.

•The extent that there is government assistance (stimulus).

Qualitative adjustments amounted to $1.2 million and $417,000 at December 31, 2024 and December 31, 2023, respectively. Qualitative adjustments at December 31, 2024 included a $757,000 reserve related to Hurricane Helene which impacted borrowers in Park's Carolina region. This reserve considers the overall population of loans to borrowers in this area. Management will continue to evaluate potential losses as a result of Hurricane Helene as additional information becomes available.

ACL Activity

The activity in the allowance for credit losses for the years ended December 31, 2024, 2023, and 2022 is summarized in the following tables.


	Year ended December 31, 2024
(In thousands)	Commercial, financial and agricultural		Commercial real estate		Construction real estate		Residential real estate		Consumer		Leases		Total
Allowance for credit losses:
Beginning balance	$	15,496	$	16,374	$	5,227	$	18,818	$	27,713	$	117	$	83,745
Charge-offs	5,443		99		—		31		12,753		8		18,334
Recoveries	(438)		(825)		(1,067)		(366)		(5,315)		(1)		(8,012)
Net charge-offs (recoveries)	5,005		(726)		(1,067)		(335)		7,438		7		10,322
Provision for credit losses	2,192		2,471		831		3,202		5,806		41		14,543
Ending balance	$	12,683	$	19,571	$	7,125	$	22,355	$	26,081	$	151	$	87,966


	Year ended December 31, 2023
(In thousands)	Commercial, financial and agricultural		Commercial real estate		Construction real estate		Residential real estate		Consumer		Leases		Total
Allowance for credit losses:
Beginning balance	$	16,987	$	17,829	$	5,550	$	16,831	$	28,021	$	161	$	85,379
Impact of adopting ASU 2022-02	222		181		—		(20)		—		—		383
Charge-offs	1,226		754		546		44		8,293		—		10,863
Recoveries	(292)		(240)		(548)		(482)		(4,379)		(1)		(5,942)
Net charge-offs (recoveries)	934		514		(2)		(438)		3,914		(1)		4,921
(Recovery of) provision for credit losses	(779)		(1,122)		(325)		1,569		3,606		(45)		2,904
Ending balance	15,496		16,374		5,227		18,818		27,713		117		83,745


	Year ended December 31, 2022
(In thousands)	Commercial, financial and agricultural		Commercial real estate		Construction real estate		Residential real estate		Consumer		Leases		Total
Allowance for credit losses:
Beginning balance	$	14,025	$	25,466	$	5,758	$	11,424	$	26,286	$	238	$	83,197
Charge-offs	2,056		1,578		33		81		5,343		42		9,133
Recoveries	(826)		(627)		(1,343)		(164)		(3,767)		(31)		(6,758)
Net charge-offs (recoveries)	1,230		951		(1,310)		(83)		1,576		11		2,375
Provision for (recovery of) credit losses	4,192		(6,686)		(1,518)		5,324		3,311		(66)		4,557
Ending balance	$	16,987	$	17,829	$	5,550	$	16,831	$	28,021	$	161	$	85,379

ACL Summary

Loans collectively evaluated for impairment in the following tables include all performing loans at December 31, 2024 and December 31, 2023, 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 internally classified commercial nonaccrual loans which are individually evaluated for impairment in accordance with U.S. GAAP. Additionally, accruing collateral dependent commercial loans to borrowers experiencing financial difficulty are individually evaluated. (See Note 1-Significant Accounting Policies).

The composition of the ACL at December 31, 2024 and December 31, 2023 was as follows:


	December 31, 2024
(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 - nonaccrual	$	1,259		$	—		$	—		$	40		$	—		$	—		$	1,299
Individually evaluated for impairment - accrual	—			—			—			—			—			—			—
Collectively evaluated for impairment	11,424			19,571			7,125			22,315			26,081			151			86,667
Accruing acquired with deteriorated credit quality	—			—			—			—			—			—			—
Total ending allowance balance	$	12,683		$	19,571		$	7,125		$	22,355		$	26,081		$	151		$	87,966

Loan balance:
Individually evaluated for impairment - nonaccrual	$	24,194		$	23,230		$	8		$	5,700		$	—		$	17		$	53,149
Individually evaluated for impairment - accrual	15,290			—			—			—			—			—			15,290
Loans collectively evaluated for impairment	1,230,101			1,969,785			411,988			2,194,457			1,910,372			29,812			7,746,515
Accruing loans acquired with deteriorated credit quality	—			1,317			581			276			—			—			2,174
Total ending loan balance	$	1,269,585		$	1,994,332		$	412,577		$	2,200,433		$	1,910,372		$	29,829		$	7,817,128

ACL as a percentage of loan balance:
Individually evaluated for impairment - nonaccrual	5.20		%	—		%	—		%	0.70		%	—		%	—		%	2.44		%
Individually evaluated for impairment - accrual	—		%	—		%	—		%	—		%	—		%	—		%	—		%
Loans collectively evaluated for impairment	0.93		%	0.99		%	1.73		%	1.02		%	1.37		%	0.51		%	1.12		%
Accruing loans acquired with deteriorated credit quality	—		%	—		%	—		%	—		%	—		%	—		%	—		%
Total	1.00		%	0.98		%	1.73		%	1.02		%	1.37		%	0.51		%	1.13		%


	December 31, 2023
(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 - nonaccrual	$	4,980		$	3		$	—		$	—		$	—		$	—		$	4,983
Individually evaluated for impairment - accrual	—			—			—			—			—			—			—
Collectively evaluated for impairment	10,516			16,371			5,227			18,818			27,713			117			78,762
Accruing acquired with deteriorated credit quality	—			—			—			—			—			—			—
Total ending allowance balance	$	15,496		$	16,374		$	5,227		$	18,818		$	27,713		$	117		$	83,745

Loan balance:
Individually evaluated for impairment - nonaccrual	$	21,228		$	20,740		$	504		$	2,670		$	—		$	73		$	45,215
Individually evaluated for impairment - accrual	—			—			—			—			—			—			—
Loans collectively evaluated for impairment	1,274,390			1,853,383			303,969			2,026,537			1,945,936			23,956			7,428,171
Accruing loans acquired with deteriorated credit quality	22			1,870			626			317			—			—			2,835
Total ending loan balance	$	1,295,640		$	1,875,993		$	305,099		$	2,029,524		$	1,945,936		$	24,029		$	7,476,221

ACL as a percentage of loan balance:
Individually evaluated for impairment - nonaccrual	23.46		%	0.01		%	—		%	—		%	—		%	—		%	11.02		%
Individually evaluated for impairment - accrual	—		%	—		%	—		%	—		%	—		%	—		%	—		%
Loans collectively evaluated for impairment	0.83		%	0.88		%	1.72		%	0.93		%	1.42		%	0.49		%	1.06		%
Accruing loans acquired with deteriorated credit quality	—		%	—		%	—		%	—		%	—		%	—		%	—		%
Total	1.20		%	0.87		%	1.71		%	0.93		%	1.42		%	0.49		%	1.12		%