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Allowance For Loan Losses
 9 Months Ended
Sep. 30, 2019
Financing Receivable, Allowance for Credit Loss, Writeoff, after Recovery [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 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.

•
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.

•
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 nine months ended September 30, 2019.

The activity in the allowance for loan losses for the three-month and nine-month periods ended September 30, 2019 and September 30, 2018 is summarized in the following tables.
 
 
Three Months Ended
September 30, 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
$
17,370

 
$
10,377

 
$
5,065

 
$
8,869

 
$
12,265

 
$
57

 
$
54,003

Charge-offs
585

 
8

 
—

 
85

 
1,801

 
—

 
2,479

Recoveries
403

 
246

 
432

 
98

 
1,183

 
—

 
2,362

Net charge-offs/(recoveries)
182

 
(238
)
 
(432
)
 
(13
)
 
618

 
—

 
117

Provision/(recovery)
1,238

 
(177
)
 
(65
)
 
49

 
908

 
14

 
1,967

Ending balance
$
18,426

 
$
10,438

 
$
5,432

 
$
8,931

 
$
12,555

 
$
71

 
$
55,853

 
 
Three Months Ended
September 30, 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
$
14,478

 
$
9,406

 
$
4,652

 
$
9,245

 
$
11,671

 
$
—

 
$
49,452

Charge-offs
993

 
23

 
26

 
61

 
2,371

 
—

 
3,474

Recoveries
136

 
27

 
156

 
130

 
875

 
4

 
1,328

Net charge-offs/(recoveries)
857

 
(4
)
 
(130
)
 
(69
)
 
1,496

 
(4
)
 
2,146

Provision/(recovery)
1,394

 
337

 
(187
)
 
(212
)
 
1,612

 
(4
)
 
2,940

Ending balance
$
15,015

 
$
9,747

 
$
4,595

 
$
9,102

 
$
11,787

 
$
—

 
$
50,246


 
Nine Months Ended
September 30, 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
1,498

 
401

 
—

 
176

 
6,319

 
—

 
8,394

Recoveries
983

 
360

 
543

 
640

 
3,824

 
1

 
6,351

Net charge-offs/(recoveries)
515

 
41

 
(543
)
 
(464
)
 
2,495

 
(1
)
 
2,043

Provision/(recovery)
2,164

 
711

 
426

 
(264
)
 
3,277

 
70

 
6,384

Ending balance
$
18,426

 
$
10,438

 
$
5,432

 
$
8,931

 
$
12,555

 
$
71

 
$
55,853

 
 
Nine Months Ended
September 30, 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
1,929

 
252

 
57

 
279

 
7,123

 
—

 
9,640

Recoveries
994

 
203

 
435

 
734

 
2,942

 
4

 
5,312

Net charge-offs/(recoveries)
935

 
49

 
(378
)
 
(455
)
 
4,181

 
(4
)
 
4,328

Provision/(recovery)
928

 
195

 
(213
)
 
(674
)
 
4,354

 
(4
)
 
4,586

Ending balance
$
15,015

 
$
9,747

 
$
4,595

 
$
9,102

 
$
11,787

 
$
—

 
$
50,246


Loans collectively evaluated for impairment in the following tables include all performing loans at September 30, 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 September 30, 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 September 30, 2019 and December 31, 2018 was as follows:
 
 
September 30, 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
$
2,917

 
$
30

 
$
—

 
$
111

 
$
—

 
$
25

 
$
3,083

Collectively evaluated for impairment
15,509

 
10,408

 
5,432

 
8,820

 
12,555

 
46

 
52,770

Acquired with deteriorated credit quality (1)
—

 
—

 
—

 
—

 
—

 
—

 
—

Total ending allowance balance
$
18,426

 
$
10,438

 
$
5,432

 
$
8,931

 
$
12,555

 
$
71

 
$
55,853

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan balance:
 

 
 

 
 

 
 

 
 

 
 

 
 

Loans individually evaluated for impairment
$
31,472

 
$
38,758

 
$
1,869

 
$
2,237

 
$
—

 
$
88

 
$
74,424

Loans collectively evaluated for impairment
1,103,885

 
1,550,422

 
314,942

 
1,878,615

 
1,430,397

 
30,476

 
6,308,737

Loans acquired with deteriorated credit quality (1)
4,781

 
10,517

 
1,358

 
3,259

 
3

 
568

 
20,486

Total ending loan balance
$
1,140,138

 
$
1,599,697

 
$
318,169

 
$
1,884,111

 
$
1,430,400

 
$
31,132

 
$
6,403,647

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses as a percentage of loan balance:
 

 
 

 
 

 
 

 
 

 
 

 
 

Loans individually evaluated for impairment
9.27
%
 
0.08
%
 
—
%
 
4.96
%
 
—
%
 
28.41
%
 
4.14
%
Loans collectively evaluated for impairment
1.40
%
 
0.67
%
 
1.72
%
 
0.47
%
 
0.88
%
 
0.15
%
 
0.84
%
Loans acquired with deteriorated credit quality
—
%
 
—
%
 
—
%
 
—
%
 
—
%
 
—
%
 
—
%
Total
1.62
%
 
0.65
%
 
1.71
%
 
0.47
%
 
0.88
%
 
0.23
%
 
0.87
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recorded investment:
 

 
 

 
 

 
 

 
 

 
 

 
 

Loans individually evaluated for impairment
$
31,485

 
$
38,799

 
$
1,868

 
$
2,238

 
$
—

 
$
88

 
$
74,478

Loans collectively evaluated for impairment
1,109,254

 
1,556,070

 
315,927

 
1,882,543

 
1,434,343

 
30,506

 
6,328,643

Loans acquired with deteriorated credit quality (1)
4,803

 
10,595

 
1,388

 
3,277

 
3

 
568

 
20,634

Total ending recorded investment
$
1,145,542

 
$
1,605,464

 
$
319,183

 
$
1,888,058

 
$
1,434,346

 
$
31,162

 
$
6,423,755

  (1) Excludes loans acquired with deteriorated credit quality which are individually evaluated for impairment due to additional credit deterioration or modification post-acquisition. These loans had a balance of $11,000, a recorded investment of $11,000, and no allowance as of September 30, 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 or modification post acquisition. These loans had a balance of $475,000, a recorded investment of $475,000, and no allowance as of December 31, 2018.