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 2015 Annual Report.

Management updates historical losses annually in the fourth quarter, or more frequently as deemed appropriate. With the inclusion of 2013 net charge-off information, management concluded that it was no longer appropriate to calculate the historical loss 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 extended the historical loss period to six years in 2014 and seven years in 2015. Due to the same factors that management considered in 2013, management has continued to apply more weight to the 2009 through 2011 periods compared to the 2012 through 2015 periods.

The activity in the allowance for loan losses for the three months ended March 31, 2016 and March 31, 2015 is summarized below.



	Three Months Ended March 31, 2016
(In thousands)	Commercial, financial and agricultural			Commercial real estate			Construction real estate			Residential real estate		Consumer		Leases		Total
Allowance for loan losses:
Beginning balance	$	13,694		$	9,197		$	8,564		$	13,514	$	11,524	$	1	$	56,494
Charge-offs	274			1			—			747		2,379		—		3,401
Recoveries	427			218			939			471		890		—		2,945
Net (recoveries)/charge-offs	(153		)	(217		)	(939		)	276		1,489		—		456
Provision/(recovery)	393			38			(816		)	150		1,145		—		910
Ending balance	$	14,240		$	9,452		$	8,687		$	13,388	$	11,180	$	1	$	56,948



	Three Months Ended March 31, 2015
(In thousands)	Commercial, financial and agricultural		Commercial real estate			Construction real estate			Residential real estate			Consumer		Leases			Total
Allowance for loan losses:
Beginning balance	$	10,719	$	8,808		$	8,652		$	14,772		$	11,401	$	—		$	54,352
Charge-offs	352		130			—			422			2,514		—			3,418
Recoveries	291		674			285			924			666		2			2,842
Net charge-offs/(recoveries)	61		(544		)	(285		)	(502		)	1,848		(2		)	576
Provision/(recovery)	703		(56		)	(182		)	(762		)	1,931		(2		)	1,632
Ending balance	$	11,361	$	9,296		$	8,755		$	14,512		$	11,484	$	—		$	55,408

Loans collectively evaluated for impairment in the following tables include all performing loans at March 31, 2016 and December 31, 2015, 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 March 31, 2016 and December 31, 2015, 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 2015 Annual Report).

The composition of the allowance for loan losses at March 31, 2016 and December 31, 2015 was as follows:



	March 31, 2016
(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	$	2,471		$	593		$	1,456		$	410		$	—		$	—		$	4,930
Collectively evaluated for impairment	11,769			8,859			7,231			12,978			11,180			1			52,018
Total ending allowance balance	$	14,240		$	9,452		$	8,687		$	13,388		$	11,180		$	1		$	56,948

Loan balance:
Loans individually evaluated for impairment	$	28,551		$	18,062		$	6,886		$	24,618		$	—		$	—		$	78,117
Loans collectively evaluated for impairment	912,930			1,096,564			167,560			1,825,086			979,111			2,817			4,984,068
Total ending loan balance	$	941,481		$	1,114,626		$	174,446		$	1,849,704		$	979,111		$	2,817		$	5,062,185

Allowance for loan losses as a percentage of loan balance:
Loans individually evaluated for impairment	8.65		%	3.28		%	21.14		%	1.67		%	—		%	—		%	6.31		%
Loans collectively evaluated for impairment	1.29		%	0.81		%	4.32		%	0.71		%	1.14		%	0.04		%	1.04		%
Total	1.51		%	0.85		%	4.98		%	0.72		%	1.14		%	0.04		%	1.12		%

Recorded investment:
Loans individually evaluated for impairment	$	28,596		$	18,068		$	6,888		$	24,619		$	—		$	—		$	78,171
Loans collectively evaluated for impairment	916,477			1,100,210			167,973			1,828,691			982,007			2,856			4,998,214
Total ending recorded investment	$	945,073		$	1,118,278		$	174,861		$	1,853,310		$	982,007		$	2,856		$	5,076,385



	December 31, 2015
(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	$	1,904		$	381		$	1,356		$	550		$	—		$	—		$	4,191
Collectively evaluated for impairment	11,790			8,816			7,208			12,964			11,524			1			52,303
Total ending allowance balance	$	13,694		$	9,197		$	8,564		$	13,514		$	11,524		$	1		$	56,494

Loan balance:
Loans individually evaluated for impairment	$	30,545		$	18,015		$	6,716		$	25,323		$	—		$	—		$	80,599
Loans collectively evaluated for impairment	925,182			1,095,588			166,629			1,830,120			967,111			2,856			4,987,486
Total ending loan balance	$	955,727		$	1,113,603		$	173,345		$	1,855,443		$	967,111		$	2,856		$	5,068,085

Allowance for loan losses as a percentage of loan balance:
Loans individually evaluated for impairment	6.23		%	2.11		%	20.19		%	2.17		%	—		%	—		%	5.20		%
Loans collectively evaluated for impairment	1.27		%	0.80		%	4.33		%	0.71		%	1.19		%	0.04		%	1.05		%
Total	1.43		%	0.83		%	4.94		%	0.73		%	1.19		%	0.04		%	1.11		%

Recorded investment:
Loans individually evaluated for impairment	$	30,595		$	18,025		$	6,720		$	25,324		$	—		$	—		$	80,664
Loans collectively evaluated for impairment	928,569			1,099,587			167,042			1,833,449			970,143			2,870			5,001,660
Total ending recorded investment	$	959,164		$	1,117,612		$	173,762		$	1,858,773		$	970,143		$	2,870		$	5,082,324