Allowance For Loan Losses

3 Months Ended

Mar. 31, 2019

Allowance for Loan and Lease Losses Write-offs, Net [Abstract]

Allowance for Loan Losses

The allowance for loan losses ("ALLL") 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 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 of the Notes to Consolidated Financial Statements included in Park’s 2018 Annual Report.

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. The following are factors management reviews on a quarterly or annual basis.

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Historical Loss Factor: Management updated the historical loss calculation during the fourth quarter of 2018, incorporating net charge-offs plus changes in specific reserves through December 31, 2018. With the addition of 2018 historical losses, management extended the historical loss period to 108 months from 96 months. The 108-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.

•

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 2018.


•	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 2018.

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Environmental Loss Factor: Management has identified certain macroeconomic factors that trend in accordance with losses in Park’s commercial loan portfolio. 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. No change was made to the environmental loss factor during the three months ended March 31, 2019.

The activity in the allowance for loan losses for the three-month periods ended March 31, 2019 and March 31, 2018 is summarized in the following tables.



	Three Months Ended March 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	198			54			—			29			2,706		—		2,987
Recoveries	416			59			88			382			1,400		—		2,345
Net (recoveries)/charge-offs	(218		)	(5		)	(88		)	(353		)	1,306		—		642
Provision	342			420			13			86			1,637		—		2,498
Ending balance	$	17,337		$	10,193		$	4,564		$	9,170		$	12,104	$	—	$	53,368



	Three Months Ended March 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	649			47			—			116			2,638		—		3,450
Recoveries	652			87			59			360			1,013		—		2,171
Net (recoveries)/charge-offs	(3		)	(40		)	(59		)	(244		)	1,625		—		1,279
(Recovery)/provision	(948		)	(153		)	(26		)	(150		)	1,537		—		260
Ending balance	$	14,077		$	9,488		$	4,463		$	9,415		$	11,526	$	—	$	48,969

Loans collectively evaluated for impairment in the following tables include all performing loans at March 31, 2019 and December 31, 2018, 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 March 31, 2019 and December 31, 2018, which are evaluated for impairment in accordance with U.S. GAAP (see Note 1 of the Notes to Consolidated Financial Statements included in Park’s 2018 Annual Report).

The composition of the allowance for loan losses at March 31, 2019 and December 31, 2018 was as follows:



	March 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	$	2,403		$	58		$	—		$	7		$	—		$	—		$	2,468
Collectively evaluated for impairment	14,934			10,135			4,564			9,163			12,104			—			50,900
Acquired with deteriorated credit quality	—			—			—			—			—			—			—
Total ending allowance balance	$	17,337		$	10,193		$	4,564		$	9,170		$	12,104		$	—		$	53,368

Loan balance:
Loans individually evaluated for impairment	$	14,843		$	31,113		$	2,880		$	2,045		$	—		$	—		$	50,881
Loans collectively evaluated for impairment	1,071,519			1,292,777			240,180			1,777,495			1,302,429			2,117			5,686,517
Loans acquired with deteriorated credit quality ⁽¹⁾	328			3,004			—			30			—			—			3,362
Total ending loan balance	$	1,086,690		$	1,326,894		$	243,060		$	1,779,570		$	1,302,429		$	2,117		$	5,740,760

Allowance for loan losses as a percentage of loan balance:
Loans individually evaluated for impairment	16.19		%	0.19		%	—		%	0.34		%	—		%	—		%	4.85		%
Loans collectively evaluated for impairment	1.39		%	0.78		%	1.90		%	0.52		%	0.93		%	—		%	0.90		%
Loans acquired with deteriorated credit quality	—		%	—		%	—		%	—		%	—		%	—		%	—		%
Total	1.60		%	0.77		%	1.88		%	0.52		%	0.93		%	—		%	0.93		%

Recorded investment:
Loans individually evaluated for impairment	$	14,844		$	31,138		$	2,879		$	2,046		$	—		$	—		$	50,907
Loans collectively evaluated for impairment	1,077,090			1,297,573			241,139			1,781,828			1,306,283			2,141			5,706,054
Loans acquired with deteriorated credit quality ⁽¹⁾	330			3,012			—			30			—			—			3,372
Total ending recorded investment	$	1,092,264		$	1,331,723		$	244,018		$	1,783,904		$	1,306,283		$	2,141		$	5,760,333

⁽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 $924,000, a recorded investment of $925,000, and zero allowance as of March 31, 2019.



	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:
Ending allowance balance attributed to loans:
Individually evaluated for impairment	$	2,169		$	86		$	—		$	18		$	—		$	—		$	2,273
Collectively evaluated for impairment	14,608			9,682			4,463			8,713			11,773			—			49,239
Acquired with deteriorated credit quality	—			—			—			—			—			—			—
Total ending allowance balance	$	16,777		$	9,768		$	4,463		$	8,731		$	11,773		$	—		$	51,512

Loan balance:
Loans individually evaluated for impairment	$	15,119		$	28,418		$	1,866		$	2,732		$	—		$	—		$	48,135
Loans collectively evaluated for impairment	1,057,520			1,251,579			245,909			1,790,637			1,292,136			2,273			5,640,054
Loans acquired with deteriorated credit quality⁽¹⁾	147			3,048			499			249			—			—			3,943
Total ending loan balance	$	1,072,786		$	1,283,045		$	248,274		$	1,793,618		$	1,292,136		$	2,273		$	5,692,132

Allowance for loan losses as a percentage of loan balance:
Loans individually evaluated for impairment	14.35		%	0.30		%	—		%	0.66		%	—		%	—		%	4.72		%
Loans collectively evaluated for impairment	1.38		%	0.77		%	1.81		%	0.49		%	0.91		%	—		%	0.87		%
Loans acquired with deteriorated credit quality	—		%	—		%	—		%	—		%	—		%	—		%	—		%
Total	1.56		%	0.76		%	1.80		%	0.49		%	0.91		%	—		%	0.90		%

Recorded investment:
Loans individually evaluated for impairment	$	15,120		$	28,426		$	1,866		$	2,732		$	—		$	—		$	48,144
Loans collectively evaluated for impairment	1,062,121			1,256,310			246,864			1,794,207			1,295,892			2,299			5,657,693
Loans acquired with deteriorated credit quality ⁽¹⁾	148			3,059			503			251			—			—			3,961
Total ending recorded investment	$	1,077,389		$	1,287,795		$	249,233		$	1,797,190		$	1,295,892		$	2,299		$	5,709,798

⁽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 $475,000, a recorded investment of $475,000, and zero allowance as of December 31, 2018.