Loans

3 Months Ended

Mar. 31, 2020

Loans and Leases Receivable Disclosure [Abstract]

The composition of the loan portfolio, by class of loan, at March 31, 2020 and December 31, 2019 was as follows:


	March 31, 2020										December 31, 2019
(In thousands)	Loan Balance		Accrued Interest Receivable		Recorded Investment		Loan Balance		Accrued Interest Receivable		Recorded Investment
Commercial, financial and agricultural *	$	1,202,857	$	4,577	$	1,207,434	$	1,185,110	$	4,393	$	1,189,503
Commercial real estate *	1,627,426		5,617		1,633,043		1,609,413		5,571		1,614,984
Construction real estate:
Commercial	232,327		722		233,049		233,637		826		234,463
Mortgage	101,401		243		101,644		96,574		228		96,802
Installment	1,350		5		1,355		1,488		4		1,492
Residential real estate:
Commercial	466,002		1,187		467,189		479,081		1,339		480,420
Mortgage	1,178,621		1,490		1,180,111		1,176,316		1,381		1,177,697
HELOC	220,571		934		221,505		224,766		1,113		225,879
Installment	11,775		31		11,806		12,563		32		12,595
Consumer	1,451,297		4,206		1,455,503		1,452,375		4,314		1,456,689
Leases	28,892		17		28,909		30,081		20		30,101
Total loans	$	6,522,519	$	19,029	$	6,541,548	$	6,501,404	$	19,221	$	6,520,625

* Included within each of commercial, financial and agricultural loans and commercial real estate loans is an immaterial amount of consumer loans that are not broken out by class.

Loans are shown net of deferred origination fees, costs and unearned income of $16.3 million at both March 31, 2020 and December 31, 2019, which represented a net deferred income position at each date. At March 31, 2020 and December 31, 2019, loans included purchase accounting adjustments of $10.4 million and $11.7 million, respectively, which represented a net deferred income position at each date. This fair market value purchase accounting adjustment related to loans which are not PCI, is expected to be recognized into interest income on a level yield basis over the remaining expected life of the loans.

Overdrawn deposit accounts of $1.6 million and $2.2 million had been reclassified to loans at March 31, 2020 and December 31, 2019, respectively, and are included in the commercial, financial and agricultural loan class above.

Credit Quality

The following tables present the recorded investment in nonaccrual loans, accruing TDRs, and loans past due 90 days or more and still accruing by class of loan at March 31, 2020 and December 31, 2019:


	March 31, 2020
(In thousands)	Nonaccrual Loans		Accruing TDRs		Loans Past Due 90 Days or More and Accruing		Total Nonperforming Loans
Commercial, financial and agricultural	$	21,330	$	8,224	$	18	$	29,572
Commercial real estate	43,950		6,197		638		50,785
Construction real estate:
Commercial	452		—		—		452
Mortgage	18		95		—		113
Installment	—		18		—		18
Residential real estate:
Commercial	5,581		—		—		5,581
Mortgage	14,383		8,806		636		23,825
HELOC	1,600		997		6		2,603
Installment	367		2,005		4		2,376
Consumer	2,544		1,076		366		3,986
Leases	129		—		187		316
Total loans	$	90,354	$	27,418	$	1,855	$	119,627


	December 31, 2019
(In thousands)	Nonaccrual Loans		Accruing TDRs		Loans Past Due 90 Days or More and Accruing		Total Nonperforming Loans
Commercial, financial and agricultural	$	26,776	$	6,349	$	28	$	33,153
Commercial real estate	39,711		2,080		625		42,416
Construction real estate:
Commercial	453		—		—		453
Mortgage	25		84		—		109
Installment	72		5		—		77
Residential real estate:
Commercial	2,025		—		—		2,025
Mortgage	15,271		8,826		1,209		25,306
HELOC	2,062		1,010		44		3,116
Installment	462		1,964		—		2,426
Consumer	3,089		980		645		4,714
Leases	134		—		186		320
Total loans	$	90,080	$	21,298	$	2,737	$	114,115

The following table provides additional information regarding those nonaccrual and accruing TDR loans that are individually evaluated for impairment and those collectively evaluated for impairment at March 31, 2020 and December 31, 2019.


	March 31, 2020										December 31, 2019
(In thousands)	Nonaccrual and Accruing TDRs		Loans Individually Evaluated for Impairment		Loans Collectively Evaluated for Impairment		Nonaccrual and Accruing TDRs		Loans Individually Evaluated for Impairment		Loans Collectively Evaluated for Impairment
Commercial, financial and agricultural	$	29,554	$	29,542	$	12	$	33,125	$	33,088	$	37
Commercial real estate	50,147		50,147		—		41,791		41,791		—
Construction real estate:
Commercial	452		452		—		453		453		—
Mortgage	113		—		113		109		—		109
Installment	18		—		18		77		—		77
Residential real estate:
Commercial	5,581		5,581		—		2,025		2,025		—
Mortgage	23,189		—		23,189		24,097		—		24,097
HELOC	2,597		—		2,597		3,072		—		3,072
Installment	2,372		—		2,372		2,426		—		2,426
Consumer	3,620		—		3,620		4,069		—		4,069
Leases	129		129		—		134		134		—
Total loans	$	117,772	$	85,851	$	31,921	$	111,378	$	77,491	$	33,887

All of the loans individually evaluated for impairment were evaluated using the fair value of the collateral or the present value of expected future cash flows as the measurement method.

The following table presents loans individually evaluated for impairment by class of loan at March 31, 2020 and December 31, 2019.


	March 31, 2020										December 31, 2019
(In thousands)	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded
Commercial, financial and agricultural	$	17,334	$	17,137	$	—	$	21,194	$	21,010	$	—
Commercial real estate	49,676		49,593		—		41,696		41,471		—
Construction real estate:
Commercial	452		452		—		453		453		—
Residential real estate:
Commercial	5,545		5,478		—		1,921		1,854		—
Leases	—		—		—		—		—		—
With an allowance recorded
Commercial, financial and agricultural	12,586		12,405		5,365		12,289		12,078		5,104
Commercial real estate	554		554		96		320		320		35
Construction real estate:
Commercial	—		—		—		—		—		—
Residential real estate:
Commercial	103		103		25		171		171		42
Leases	129		129		45		134		134		49
Total	$	86,379	$	85,851	$	5,531	$	78,178	$	77,491	$	5,230

Management’s general practice is to proactively charge down loans individually evaluated for impairment to the fair value of the underlying collateral. At March 31, 2020 and December 31, 2019, there were $0.6 million and $0.5 million, respectively, of partial charge-offs on loans individually evaluated for impairment with no related allowance recorded and $181,000 and $210,000, respectively, of partial charge-offs on loans individually evaluated for impairment that also had a specific reserve allocated.

The allowance for loan losses included specific reserves related to loans individually evaluated for impairment at March 31, 2020 and December 31, 2019, of $5.5 million and $5.2 million, respectively. These loans with specific reserves had a recorded investment of $13.2 million and $12.7 million at March 31, 2020 and December 31, 2019, respectively.

Interest income on nonaccrual loans individually evaluated for impairment is recognized on a cash basis only when Park expects to receive the entire recorded investment in the loans. Interest income on accruing TDRs individually evaluated for impairment continues to be recorded on an accrual basis. The following table presents the average recorded investment and interest income recognized subsequent to impairment on loans individually evaluated for impairment as of and for the three months ended March 31, 2020 and 2019:


	Three Months Ended March 31, 2020										Three Months Ended March 31, 2019
(In thousands)	Recorded Investment at March 31, 2020		Average Recorded Investment		Interest Income Recognized		Recorded Investment at March 31, 2019		Average Recorded Investment		Interest Income Recognized
Commercial, financial and agricultural	$	29,542	$	31,657	$	204	$	14,844	$	14,924	$	47
Commercial real estate	50,147		44,457		481		31,138		28,851		271
Construction real estate:
Commercial	452		424		4		2,879		2,239		12
Residential real estate:
Commercial	5,581		2,925		23		2,046		2,588		20
Leases	129		132		—		—		—		—
Total	$	85,851	$	79,595	$	712	$	50,907	$	48,602	$	350

The following tables present the aging of the recorded investment in past due loans at March 31, 2020 and December 31, 2019 by class of loan.


	March 31, 2020
(In thousands)	Accruing Loans Past Due 30-89 Days		Past Due Nonaccrual Loans and Loans Past Due 90 Days or More and Accruing ⁽¹⁾		Total Past Due		Total Current ⁽²⁾		Total Recorded Investment
Commercial, financial and agricultural	$	5,229	$	12,515	$	17,744	$	1,189,690	$	1,207,434
Commercial real estate	1,844		1,604		3,448		1,629,595		1,633,043
Construction real estate:
Commercial	—		25		25		233,024		233,049
Mortgage	176		—		176		101,468		101,644
Installment	30		—		30		1,325		1,355
Residential real estate:
Commercial	55		1,002		1,057		466,132		467,189
Mortgage	12,786		8,021		20,807		1,159,304		1,180,111
HELOC	490		737		1,227		220,278		221,505
Installment	221		249		470		11,336		11,806
Consumer	5,868		1,096		6,964		1,448,539		1,455,503
Leases	30		187		217		28,692		28,909
Total loans	$	26,729	$	25,436	$	52,165	$	6,489,383	$	6,541,548

(1) Includes an aggregate of $1.9 million of loans past due 90 days or more and accruing. The remaining loans were past due nonaccrual loans.

(2) Includes an aggregate of $66.8 million of nonaccrual loans which were current in regards to contractual principal and interest payments.


	December 31, 2019
(in thousands)	Accruing Loans Past Due 30-89 Days		Past Due Nonaccrual Loans and Loans Past Due 90 Days or More and Accruing ⁽¹⁾		Total Past Due		Total Current ⁽²⁾		Total Recorded Investment
Commercial, financial and agricultural	$	582	$	12,407	$	12,989	$	1,176,514	$	1,189,503
Commercial real estate	160		1,143		1,303		1,613,681		1,614,984
Construction real estate:
Commercial	—		—		—		234,463		234,463
Mortgage	397		—		397		96,405		96,802
Installment	24		—		24		1,468		1,492
Residential real estate:
Commercial	—		908		908		479,512		480,420
Mortgage	12,841		9,153		21,994		1,155,703		1,177,697
HELOC	652		779		1,431		224,448		225,879
Installment	164		338		502		12,093		12,595
Consumer	6,561		1,621		8,182		1,448,507		1,456,689
Leases	368		186		554		29,547		30,101
Total loans	$	21,749	$	26,535	$	48,284	$	6,472,341	$	6,520,625

(1) Includes an aggregate of $2.7 million of loans past due 90 days or more and accruing. The remaining loans were past due nonaccrual loans.

(2) Includes an aggregate of $66.3 million of nonaccrual loans which were current in regards to contractual principal and interest payments.

Credit Quality Indicators

Management utilizes past due information as a credit quality indicator across the loan portfolio. Past due information at March 31, 2020 and December 31, 2019 is included in the tables above.The past due information is the primary credit quality indicator within the following classes of loans: (1) mortgage loans and installment loans in the construction real estate segment; (2) mortgage loans, HELOC and installment loans in the residential real estate segment; and (3) consumer loans. The primary credit indicator for commercial loans is based on an internal grading system that grades all commercial loans on a scale from 1 to 8. Credit grades are continuously monitored by the responsible loan officer and adjustments are made when appropriate. A grade of 1 indicates little or no credit risk and a grade of 8 is considered a loss. Commercial loans that are pass-rated (graded a 1 through a 4) are considered to be of acceptable credit risk. Commercial loans graded a 5 (special mention) are considered to be watch list credits and a higher loan loss reserve percentage is allocated to these loans. Loans classified as special mention have potential weaknesses that require management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of Park’s credit position at some future date. Commercial loans graded a 6 (substandard), also considered watch list credits, are considered to represent higher credit risk and, as a result, a higher loan loss reserve percentage is allocated to these loans. Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or the value of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that Park will sustain some loss if the deficiencies are not corrected. Commercial loans graded a 7 (doubtful) are shown as nonaccrual and Park generally charges these loans down to their fair value by taking a partial charge-off or recording a specific reserve. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Certain 6-rated loans and all 7-rated loans are placed on nonaccrual status and included within the impaired category. A loan is deemed impaired when management determines the borrower's ability to perform in accordance with the contractual loan agreement is in doubt. Any commercial loan graded an 8 (loss) is completely charged off.

The tables below present the recorded investment by loan grade at March 31, 2020 and December 31, 2019 for all commercial loans:


	March 31, 2020
(In thousands)	5 Rated		6 Rated		Nonaccrual and Accruing TDRs		Purchase Credit Impaired ⁽¹⁾		Pass-Rated		Recorded Investment
Commercial, financial and agricultural *	$	11,490	$	—	$	29,554	$	620	$	1,165,770	$	1,207,434
Commercial real estate *	9,793		186		50,147		9,337		1,563,580		1,633,043
Construction real estate:
Commercial	4,857		—		452		1,032		226,708		233,049
Residential real estate:
Commercial	549		26		5,581		1,583		459,450		467,189
Leases	—		—		129		340		28,440		28,909
Total commercial loans	$	26,689	$	212	$	85,863	$	12,912	$	3,443,948	$	3,569,624

* Included within each of commercial, financial and agricultural loans and commercial real estate loans is an immaterial amount of consumer loans that are not broken out by class.

(1) There were no loans acquired with deteriorated credit quality which were nonaccrual or TDRs at March 31, 2020.


	December 31, 2019
(In thousands)	5 Rated		6 Rated		Nonaccrual and Accruing TDRs		Purchase Credit Impaired ⁽¹⁾		Pass-Rated		Recorded Investment
Commercial, financial and agricultural *	$	11,981	$	3	$	33,125	$	966	$	1,143,428	$	1,189,503
Commercial real estate *	6,796		945		41,791		9,182		1,556,270		1,614,984
Construction real estate:
Commercial	4,857		1		453		1,044		228,108		234,463
Residential real estate:
Commercial	3,839		30		2,025		1,754		472,772		480,420
Leases	—		—		134		523		29,444		30,101
Total Commercial Loans	$	27,473	$	979	$	77,528	$	13,469	$	3,430,022	$	3,549,471

* Included within each of commercial, financial and agricultural loans and commercial real estate loans is an immaterial amount of consumer loans that are not broken out by class.

(1) Excludes loans acquired with deteriorated credit quality which are nonaccrual or TDRs due to additional credit deterioration or modification post acquisition. These loans had a recorded investment of $6,000 at December 31, 2019.

Loans and Leases Acquired with Deteriorated Credit Quality

In conjunction with the NewDominion Bank acquisition, Park acquired loans with a book value of $277.9 million as of July 1, 2018. These loans were recorded at the initial fair value of $272.8 million. Loans acquired with deteriorated credit quality with a book value of $5.1 million were recorded at the initial fair value of $4.9 million. The carrying amount of loans acquired with deteriorated credit quality at March 31, 2020 and December 31, 2019 was $2.9 million and $3.0 million, respectively, while the outstanding customer balance was $3.0 million and $3.2 million, respectively. At March 31, 2020 and December 31, 2019, an allowance for loan losses of $6,000 and $101,000, respectively, had been recognized related to the acquired impaired loans.

In conjunction with the Carolina Alliance acquisition, Park acquired loans and leases with a book value of $589.7 million as of April 1, 2019. These loans and leases were recorded at the initial fair value of $578.6 million. Loans and leases acquired with deteriorated credit quality with a book value of $19.9 million were recorded at the initial fair value of $18.4 million. The carrying amount of loans and leases acquired with deteriorated credit quality at March 31, 2020 and December 31, 2019 was $10.9 million and $11.3 million, respectively, while the outstanding customer balance was $13.3 million and $13.8 million, respectively. At March 31, 2020 and December 31, 2019, an allowance for loan losses of $113,000 and $167,000, respectively, had been recognized related to the acquired impaired loans and leases.

Troubled Debt Restructurings

Management typically classifies loans as TDRs when a borrower is experiencing financial difficulties and Park has granted a concession to the borrower as part of a modification or in the loan renewal process. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of the borrower's debt in the foreseeable future without the modification. This evaluation is performed in accordance with the Company’s internal underwriting policy. Management’s policy is to modify loans by extending the term or by granting a temporary or permanent contractual interest rate below the market rate, not by forgiving debt. A court's discharge of a borrower's debt in a Chapter 7 bankruptcy is considered a concession when the borrower does not reaffirm the discharged debt.

Additionally, Park is working with borrowers impacted by the COVID-19 pandemic and providing modifications to include either interest only deferral or principal and interest deferral, in each case, for initial periods up to 90 days. A majority of these modifications are excluded from TDR classification under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators. In accordance with this guidance, modified loans will be considered current and will continue to accrue interest during the deferral period.

Certain other loans which were modified during the three-month periods ended March 31, 2020 and March 31, 2019 did not meet the definition of a TDR as the modification was a delay in a payment that was considered to be insignificant. Management considers a forbearance period of up to three months or a delay in payment of up to 30 days to be insignificant. TDRs may be classified as accruing if the borrower has been current for a period of at least six months with respect to loan payments and management expects that the borrower will be able to continue to make payments in accordance with the terms of the restructured note. Management reviews all accruing TDRs quarterly to ensure payments continue to be made in accordance with the modified terms.

At March 31, 2020 and December 31, 2019, there were $26.6 million and $34.3 million, respectively, of TDRs included in the nonaccrual loan totals. At March 31, 2020 and December 31, 2019, $15.9 million and $23.2 million, respectively, of these nonaccrual TDRs were performing in accordance with the terms of the restructured note. At March 31, 2020 and December 31, 2019, loans with a recorded investment of $27.4 million and $21.3 million, respectively, were included in accruing TDR loan totals. Management will continue to review the restructured loans and may determine it is appropriate to move certain nonaccrual TDRs to accrual status in the future.

At March 31, 2020 and December 31, 2019, Park had commitments to lend $10.7 million and $7.9 million, respectively, of additional funds to borrowers whose outstanding loan terms had been modified in a TDR.

At March 31, 2020 and December 31, 2019, there were $2.1 million and $2.2 million, respectively, of specific reserves related to TDRs. Modifications made in 2020 and 2019 were largely the result of renewals and extending the maturity date of the loans at terms consistent with the original notes. These modifications were deemed to be TDRs primarily due to Park’s conclusion that the borrower would likely not have qualified for similar terms through another lender. Many of the modifications deemed to be TDRs were previously identified as impaired loans, and thus were also previously evaluated for impairment under ASC 310. There were no additional specific reserves recorded during either of the three-month periods ended March 31, 2020 or March 31, 2019 as a result of TDRs identified in the period.

Quarterly, management reviews renewals/modifications of loans previously identified as TDRs to consider if it is appropriate to remove the TDR classification. If the borrower is no longer experiencing financial difficulty and the renewal/modification did not contain a concessionary interest rate or other concessionary terms and the terms of the renewal/modification are considered to be market terms based on the current risk characteristics of the borrower, management considers the potential removal of the TDR classification. If deemed appropriate, the TDR classification is removed if the borrower has complied with the terms of the loan at the date of the renewal/modification and there was a reasonable expectation that the borrower would continue to comply with the terms of the loan subsequent to the date of the renewal/modification. The majority of these TDRs were originally considered restructurings in a prior year as a result of a renewal/modification with an interest rate that was not commensurate with the risk of the underlying loan at the time of the renewal/modification. There were no TDR classifications removed during the three-month period ended March 31, 2020. The TDR classification was removed on $23,000 of loans during the three-month period ended March 31, 2019.

The terms of certain other loans were modified during the three-month periods ended March 31, 2020 and March 31, 2019 that did not meet the definition of a TDR. Excluding COVID-19 related modifications, there were $0.1 million of substandard commercial loans modified during the three-month period ended March 31, 2020 which did not meet the definition of a TDR. There were no substandard commercial loans modified during the three-month period ended March 31, 2019 which did not meet the definition of a TDR. Excluding COVID-19 related modifications, consumer loans modified during the three-month

period ended March 31, 2020 which did not meet the definition of a TDR had a total recorded investment of $12.2 million. Consumer loans with a recorded investment of $7.2 million were modified during the three-month periods ended March 31, 2019, and did not meet the definition of a TDR. Many of these loans were to borrowers who were not experiencing financial difficulties but who were looking to reduce their cost of funds. Additionally, there were $270,000 and $440,000 of modified PCI loans that were accounted for under a pooled approach as of March 31, 2020 and December 31, 2019, respectively, that did not meet the definition of a TDR.

Through March 31, 2020, Park modified $248.1 million of commercial loans and $5.0 million of consumer loans in COVID-19 related modifications. Of these COVID-19 modifications, $5.5 million of commercial loans and $27,000 of consumer loans were already classified as TDRs due to previous modifications. The remaining loans met the exclusion criteria for TDR accounting either in Section 4013 of the CARES Act or applicable interagency guidance.

The following tables detail the number of contracts modified as TDRs during the three-month periods ended March 31, 2020 and March 31, 2019, as well as the recorded investment of these contracts at March 31, 2020 and March 31, 2019. The recorded investment pre- and post-modification is generally the same due to the fact that Park does not typically forgive principal.


	Three Months Ended March 31, 2020
(In thousands)	Number of Contracts	Accruing		Nonaccrual		Total Recorded Investment
Commercial, financial and agricultural	4	$	—	$	1,094	$	1,094
Commercial real estate	2	1,136		60		1,196
Construction real estate:
Commercial	—	—		—		—
Mortgage	1	11		—		11
Installment	1	15		—		15
Residential real estate:
Commercial	—	—		—		—
Mortgage	6	111		280		391
HELOC	3	101		9		110
Installment	8	110		17		127
Consumer	57	112		352		464
Total loans	82	$	1,596	$	1,812	$	3,408


	Three Months Ended March 31, 2019
(In thousands)	Number of Contracts	Accruing		Nonaccrual		Total Recorded Investment
Commercial, financial and agricultural	5	$	—	$	472	$	472
Commercial real estate	2	—		2,215		2,215
Construction real estate:
Commercial	1	480		—		480
Mortgage	—	—		—		—
Installment	—	—		—		—
Residential real estate:
Commercial	—	—		—		—
Mortgage	8	54		510		564
HELOC	3	—		81		81
Installment	8	94		95		189
Consumer	69	24		535		559
Total loans	96	$	652	$	3,908	$	4,560

Of those loans which were modified and determined to be a TDR during the three-month period ended March 31, 2020, $0.3 million were on nonaccrual status at December 31, 2019. Of those loans which were modified and determined to be a TDR during the three-month period ended March 31, 2019, $0.7 million were on nonaccrual status at December 31, 2018.

The following tables present the recorded investment in loans which were modified as TDRs within the previous 12 months and for which there was a payment default during the three-month periods ended March 31, 2020 and March 31, 2019, respectively. For these tables, a loan is considered to be in default when it becomes 30 days contractually past due under the modified terms. The additional allowance for loan loss resulting from the defaults on TDR loans was immaterial.


	Three Months Ended March 31, 2020				Three Months Ended March 31, 2019
(In thousands)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Commercial, financial and agricultural	2	$	4,068	6	$	153
Commercial real estate	—	—		—	—
Construction real estate:
Commercial	—	—		—	—
Mortgage	1	77		—	—
Installment	1	15		—	—
Residential real estate:
Commercial	—	—		—	—
Mortgage	4	443		3	68
HELOC	4	71		5	68
Installment	1	17		1	28
Consumer	36	369		40	343
Leases	—	—		—	—
Total loans	49	$	5,060	55	$	660

Of the $5.1 million in modified TDRs which defaulted during the three-month period ended March 31, 2020, $4.5 million were accruing loans and $0.5 million were nonaccrual loans. Of the $0.7 million in modified TDRs which defaulted during the three-month period ended March 31, 2019, $9,000 were accruing loans and $0.7 million were nonaccrual loans.