Loans | Loans 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 Accrued Recorded Loan Accrued Recorded 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 Accruing Loans Past Due Total 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 Accruing Loans Past Due Total 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 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 Three Months Ended (In thousands) Recorded Investment at March 31, 2020 Average Interest Recorded Investment at March 31, 2019 Average Interest 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 Nonaccrual Loans and Loans Past Due 90 Days or More and Accruing (1) Total Past Due Total Current (2) Total Recorded 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 Nonaccrual Loans and Loans Past Due 90 Days or More and Accruing (1) Total Past Due Total Current (2) Total Recorded 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 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 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 (In thousands) Number of Accruing Nonaccrual Total 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 (In thousands) Number of Accruing Nonaccrual Total 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 Three Months Ended (In thousands) Number of Recorded Number of Recorded 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. |