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 2012 Annual Report.

Management extended the historical loss calculation period from 48 months to 54 months during the third quarter of 2013, incorporating net charge-offs plus changes in specific reserves through June 30, 2013. This update was completed mid-year due to the significant decline in net charge-offs plus changes in specific reserves that have been experienced beginning in the first quarter of 2012 through June 30, 2013. As part of this mid-year historical loss update, management determined that it was appropriate to more heavily weight those years with higher losses in the historical loss calculation. Given the continued uncertainty in the current economic environment, management did not feel that it was appropriate to continue to apply equal percentages to each of the years in the historical loss calculation. Specifically, rather than applying equal percentages to each year in the historical loss calculation, management applied more weight to the 2009-2011 periods compared to the 2012 and 2013 periods. The impact of the change resulted in general reserves as a percentage of performing loans of 1.09% at September 30, 2013, which was consistent with the 1.09% at June 30, 2013.

The activity in the allowance for loan losses for the three and nine months ended September 30, 2013 and September 30, 2012 is summarized below.



	Three Months Ended September 30, 2013
(In thousands)	Commercial, financial and agricultural		Commercial real estate		Construction real estate			Residential real estate			Consumer		Leases		Total
Allowance for loan losses:
Beginning balance	$	15,391	$	11,025	$	7,132		$	14,647		$	6,916	$	—	$	55,111
Charge-offs	3,297		457		100			725			709		—		5,288
Recoveries	216		358		4,026			620			353		—		5,573
Net charge-offs/(recoveries)	3,081		99		(3,926		)	105			356		—		(285		)
Provision / (releases)	1,741		4,611		(4,704		)	(942		)	1,792		—		2,498
Ending balance	$	14,051	$	15,537	$	6,354		$	13,600		$	8,352	$	—	$	57,894



	Three Months Ended September 30, 2012
(In thousands)	Commercial, financial and agricultural		Commercial real estate			Construction real estate		Residential real estate			Consumer		Leases		Total
Allowance for loan losses:
Beginning balance	$	15,220	$	11,956		$	11,693	$	13,806		$	6,021	$	—	$	58,696
Charge-offs	16,515		953			2,969		1,159			1,282		—		22,878
Recoveries	215		164			690		1,421			602		—		3,092
Net charge-offs / (recoveries)	16,300		789			2,279		(262		)	680		—		19,786
Provision / (releases)	14,746		(294		)	1,596		(179		)	786		—		16,655
Ending balance	$	13,666	$	10,873		$	11,010	$	13,889		$	6,127	$	—	$	55,565



	Nine Months Ended September 30, 2013
(In thousands)	Commercial, financial and agricultural		Commercial real estate		Construction real estate			Residential real estate			Consumer		Leases			Total
Allowance for loan losses:
Beginning balance	$	15,635	$	11,736	$	6,841		$	14,759		$	6,566	$	—		$	55,537
Charge-offs	6,781		1,533		1,771			2,047			3,503		—			15,635
Recoveries	1,133		620		5,874			5,260			1,604		1			14,492
Net charge-offs/(recoveries)	5,648		913		(4,103		)	(3,213		)	1,899		(1		)	1,143
Provision / (releases)	4,064		4,714		(4,590		)	(4,372		)	3,685		(1		)	3,500
Ending balance	$	14,051	$	15,537	$	6,354		$	13,600		$	8,352	$	—		$	57,894



	Nine Months Ended September 30, 2012
(In thousands)	Commercial, financial and agricultural		Commercial real estate		Construction real estate		Residential real estate		Consumer		Leases		Total
Allowance for loan losses:
Beginning balance	$	16,950	$	15,539	$	14,433	$	15,692	$	5,830	$	—	$	68,444
Charge-offs	26,476		6,822		8,298		6,782		3,531		—		51,909
Recoveries	807		503		2,456		3,217		1,816		—		8,799
Net charge-offs	25,669		6,319		5,842		3,565		1,715		—		43,110
Provision	22,385		1,653		2,419		1,762		2,012		—		30,231
Ending balance	$	13,666	$	10,873	$	11,010	$	13,889	$	6,127	$	—	$	55,565

Loans collectively evaluated for impairment in the following tables include all performing loans at September 30, 2013 and December 31, 2012, 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, 2013 and December 31, 2012, 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 2012 Annual Report).

The composition of the allowance for loan losses at September 30, 2013 and December 31, 2012 was as follows:



	September 30, 2013
(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	$	1,728		$	5,906		$	1,221		$	442		$	—		$	—	$	9,297
Collectively evaluated for impairment	12,323			9,631			5,133			13,158			8,352			—		48,597
Total ending allowance balance	$	14,051		$	15,537		$	6,354		$	13,600		$	8,352		$	—	$	57,894

Loan balance:
Loans individually evaluated for impairment	$	19,861		$	41,003		$	22,088		$	34,474		$	799		$	—	$	118,225
Loans collectively evaluated for impairment	787,003			1,074,223			124,329			1,751,472			714,964			3,321		4,455,312
Total ending loan balance	$	806,864		$	1,115,226		$	146,417		$	1,785,946		$	715,763		$	3,321	$	4,573,537

Allowance for loan losses as a percentage of loan balance:
Loans individually evaluated for impairment	8.70		%	14.40		%	5.53		%	1.28		%	—			—		7.86		%
Loans collectively evaluated for impairment	1.57		%	0.90		%	4.13		%	0.75		%	1.17		%	—		1.09		%
Total ending loan balance	1.74		%	1.39		%	4.34		%	0.76		%	1.17		%	—		1.27		%

Recorded investment:
Loans individually evaluated for impairment	$	19,871		$	41,009		$	22,095		$	34,477		$	799		$	—	$	118,251
Loans collectively evaluated for impairment	790,229			1,078,105			124,694			1,755,118			717,528			3,370		4,469,044
Total ending recorded investment	$	810,100		$	1,119,114		$	146,789		$	1,789,595		$	718,327		$	3,370	$	4,587,295



	December 31, 2012
(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	$	3,180		$	1,540		$	2,277		$	1,279		$	—		$	—	$	8,276
Collectively evaluated for impairment	12,455			10,196			4,564			13,480			6,566			—		47,261
Total ending allowance balance	$	15,635		$	11,736		$	6,841		$	14,759		$	6,566		$	—	$	55,537

Loan balance:
Loans individually evaluated for impairment	$	22,523		$	44,267		$	34,814		$	35,616		$	18		$	—	$	137,238
Loans collectively evaluated for impairment	801,404			1,047,897			130,714			1,678,029			651,912			3,128		4,313,084
Total ending loan balance	$	823,927		$	1,092,164		$	165,528		$	1,713,645		$	651,930		$	3,128	$	4,450,322

Allowance for loan losses as a percentage of loan balance:
Loans individually evaluated for impairment	14.12		%	3.48		%	6.54		%	3.59		%	—			—		6.03		%
Loans collectively evaluated for impairment	1.55		%	0.97		%	3.49		%	0.80		%	1.01		%	—		1.10		%
Total ending loan balance	1.90		%	1.07		%	4.13		%	0.86		%	1.01		%	—		1.25		%

Recorded investment:
Loans individually evaluated for impairment	$	22,587		$	44,278		$	34,834		$	35,622		$	18		$	—	$	137,339
Loans collectively evaluated for impairment	804,316			1,051,725			131,176			1,681,449			654,747			3,157		4,326,570
Total ending recorded investment	$	826,903		$	1,096,003		$	166,010		$	1,717,071		$	654,765		$	3,157	$	4,463,909