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 2013 Annual Report.

With the inclusion of 2013 net charge-off information in the fourth quarter of 2013, management concluded that it was no longer appropriate to calculate the historical average with an even allocation across the five-year period. Rather than apply a 20% allocation to each year in the calculation of the historical annualized loss factor, 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. 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. Management will update the historical loss factors annually in the fourth quarter, or more frequently as deemed appropriate.

The activity in the allowance for loan losses for the three and six months ended June 30, 2014 and June 30, 2013 is summarized below.



	Three Months Ended June 30, 2014
(In thousands)	Commercial, financial and agricultural			Commercial real estate			Construction real estate			Residential real estate		Consumer		Leases			Total
Allowance for loan losses:
Beginning balance	$	13,762		$	15,754		$	8,121		$	14,207	$	8,413	$	—		$	60,257
Charge-offs	214			5,274			21			680		1,506		—			7,695
Recoveries	347			2,177			3,023			356		705		1			6,609
Net charge-offs/(recoveries)	(133		)	3,097			(3,002		)	324		801		(1		)	1,086
Provision/(recovery)	301			(1,595		)	(3,302		)	636		2,701		(1		)	(1,260		)
Ending balance	$	14,196		$	11,062		$	7,821		$	14,519	$	10,313	$	—		$	57,911



	Three Months Ended June 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	$	15,417	$	11,070	$	7,556		$	14,634		$	6,638	$	—		$	55,315
Charge-offs	776		742		153			648			1,520		—			3,839
Recoveries	728		222		421			1,142			448		1			2,962
Net charge-offs/(recoveries)	48		520		(268		)	(494		)	1,072		(1		)	877
Provision / (recovery)	22		475		(692		)	(481		)	1,350		(1		)	673
Ending balance	$	15,391	$	11,025	$	7,132		$	14,647		$	6,916	$	—		$	55,111



	Six Months Ended June 30, 2014
(In thousands)	Commercial, financial and agricultural		Commercial real estate			Construction real estate			Residential real estate			Consumer		Leases			Total
Allowance for loan losses:
Beginning balance	$	14,218	$	15,899		$	6,855		$	14,251		$	8,245	$	—		$	59,468
Charge-offs	853		6,068			24			1,276			3,301		—			11,522
Recoveries	594		3,913			5,974			1,593			1,374		2			13,450
Net charge-offs/(recoveries)	259		2,155			(5,950		)	(317		)	1,927		(2		)	(1,928		)
Provision/(recovery)	237		(2,682		)	(4,984		)	(49		)	3,995		(2		)	(3,485		)
Ending balance	$	14,196	$	11,062		$	7,821		$	14,519		$	10,313	$	—		$	57,911



	Six Months Ended June 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	3,484		1,076		1,671			1,322			2,794		—			10,347
Recoveries	917		262		1,848			4,640			1,251		1			8,919
Net charge-offs	2,567		814		(177		)	(3,318		)	1,543		(1		)	1,428
Provision/(recovery)	2,323		103		114			(3,430		)	1,893		(1		)	1,002
Ending balance	$	15,391	$	11,025	$	7,132		$	14,647		$	6,916	$	—		$	55,111

Loans collectively evaluated for impairment in the following tables include all performing loans at June 30, 2014 and December 31, 2013, 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 June 30, 2014 and December 31, 2013, 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 2013 Annual Report).

The composition of the allowance for loan losses at June 30, 2014 and December 31, 2013 was as follows:



	June 30, 2014
(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	$	2,860		$	781		$	2,174		$	447		$	81		$	—	$	6,343
Collectively evaluated for impairment	11,336			10,281			5,647			14,072			10,232			—		51,568
Total ending allowance balance	$	14,196		$	11,062		$	7,821		$	14,519		$	10,313		$	—	$	57,911

Loan balance:
Loans individually evaluated for impairment	$	17,628		$	35,135		$	14,336		$	28,743		$	132		$	—	$	95,974
Loans collectively evaluated for impairment	800,266			1,064,641			140,656			1,799,406			831,322			3,222		4,639,513
Total ending loan balance	$	817,894		$	1,099,776		$	154,992		$	1,828,149		$	831,454		$	3,222	$	4,735,487

Allowance for loan losses as a percentage of loan balance:
Loans individually evaluated for impairment	16.22		%	2.22		%	15.16		%	1.56		%	61.36		%	—		6.61		%
Loans collectively evaluated for impairment	1.42		%	0.97		%	4.01		%	0.78		%	1.23		%	—		1.11		%
Total	1.74		%	1.01		%	5.05		%	0.79		%	1.24		%	—		1.22		%

Recorded investment:
Loans individually evaluated for impairment	$	17,628		$	35,138		$	14,332		$	28,775		$	132		$	—	$	96,005
Loans collectively evaluated for impairment	803,206			1,067,973			141,060			1,802,999			834,101			3,254		4,652,593
Total ending recorded investment	$	820,834		$	1,103,111		$	155,392		$	1,831,774		$	834,233		$	3,254	$	4,748,598



	December 31, 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	$	3,268		$	5,496		$	1,132		$	555		$	—		$	—	$	10,451
Collectively evaluated for impairment	10,950			10,403			5,723			13,696			8,245			—		49,017
Total ending allowance balance	$	14,218		$	15,899		$	6,855		$	14,251		$	8,245		$	—	$	59,468

Loan balance:
Loans individually evaluated for impairment	$	20,724		$	41,816		$	15,559		$	33,406		$	799		$	—	$	112,304
Loans collectively evaluated for impairment	804,708			1,070,457			140,557			1,766,141			722,934			3,404		4,508,201
Total ending loan balance	$	825,432		$	1,112,273		$	156,116		$	1,799,547		$	723,733		$	3,404	$	4,620,505

Allowance for loan losses as a percentage of loan balance:
Loans individually evaluated for impairment	15.77		%	13.14		%	7.28		%	1.66		%	—			—		9.31		%
Loans collectively evaluated for impairment	1.36		%	0.97		%	4.07		%	0.78		%	1.14		%	—		1.09		%
Total	1.72		%	1.43		%	4.39		%	0.79		%	1.14		%	—		1.29		%

Recorded investment:
Loans individually evaluated for impairment	$	20,727		$	41,822		$	15,559		$	33,408		$	799		$	—	$	112,315
Loans collectively evaluated for impairment	807,784			1,074,216			140,944			1,769,604			725,709			3,427		4,521,684
Total ending recorded investment	$	828,511		$	1,116,038		$	156,503		$	1,803,012		$	726,508		$	3,427	$	4,633,999