Note 5 – 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 Park's 2010 Annual Report.

The activity in the allowance for loan losses for the three and nine months ended September 30, 2011 and September 30, 2010 is summarized in the following table. As noted below, management included a reallocation of the beginning allowance for credit losses balance, which primarily impacted the commercial loan segments of the loan portfolio. At December 31, 2010, management's allowance calculation was performed in the aggregate for all commercial loans and then allocated across each segment of the commercial loan portfolio on a pro rata basis. During the first quarter of 2011, management determined that it would be more appropriate to perform the allowance calculation at the segment level and has provided an adjusted beginning balance for the allowance for credit losses in the nine months ended September 30, 2011 table below.


	Three months ended September 30, 2011
	Commercial, financial and agricultural		Commercial real estate		Construction real estate		Residential real estate		Consumer		Leases			Total
(In thousands)

Allowance for credit losses:
Beginning balance	$	12,607	$	22,470	$	35,280	$	32,105	$	7,721	$	4		$	110,187
Charge-offs		4,361		6,505		12,587		5,886		1,682		-			31,021
Recoveries		154		845		621		341		595		1			2,557
Net Charge-offs		4,207		5,660		11,966		5,545		1,087		(1	)		28,464
Provision		2,733		1,749		9,900		3,725		419		(1	)		18,525
Ending balance	$	11,133	$	18,559	$	33,214	$	30,285	$	7,053	$	4		$	100,248


	Nine months ended September 30, 2011
	Commercial, financial and agricultural			Commercial real estate			Construction real estate		Residential real estate		Consumer			Leases			Total
(In thousands)

Allowance for credit losses:
Beginning balance	$	13,584		$	28,515		$	46,194	$	25,845	$	7,228		$	31		$	121,397
Reallocation of allowance		(1,888	)		(6,604	)		5,759		2,948		(189	)		(26	)		-
Adjusted beginning balance:		11,696			21,911			51,953		28,793		7,039			5			121,397
Charge-offs		10,125			14,855			39,686		13,162		5,597			-			83,425
Recoveries		1,050			1,669			834		1,232		1,562			4			6,351
Net Charge-offs		9,075			13,186			38,852		11,930		4,035			(4	)		77,074
Provision		8,512			9,834			20,113		13,422		4,049			(5	)		55,925
Ending balance	$	11,133		$	18,559		$	33,214	$	30,285	$	7,053		$	4		$	100,248

The activity in the allowance for loan losses for the three and nine months ended September 30, 2010 is summarized as follows:


(In thousands)	Three months ended September 30, 2010		Nine months ended September 30, 2010
Allowance for credit losses:
Beginning balance	$	120,676	$	116,717
Charge-offs		19,205		48,056
Recoveries		1,280		4,290
Net Charge-offs		17,925		43,766
Provision		14,654		44,454
Ending balance	$	117,405	$	117,405

The composition of the allowance for loan losses at September 30, 2011 and December 31, 2010 was as follows:


	September 30, 2011
	Commercial, financial and agricultural			Commercial real estate			Construction real estate			Residential real estate			Consumer			Leases			Total
(In thousands)
Allowance for loan losses:
Ending allowance balance attributed to loans:
Individually evaluated for impairment	$	2,511		$	5,183		$	20,900		$	4,681		$	-		$	-		$	33,275
Collectively evaluated for impairment		8,622			13,376			12,314			25,604			7,053			4			66,973
Total ending allowance balance	$	11,133		$	18,559		$	33,214		$	30,285		$	7,053		$	4		$	100,248

Loan Balance:
Loans individually evaluated for impairment	$	24,899		$	44,051		$	75,970		$	47,422		$	21		$	-		$	192,363
Loans collectively evaluated for impairment		731,989			1,206,885			224,771			1,682,157			640,246			2,164			4,488,212
Total ending loan balance	$	756,888		$	1,250,936		$	300,741		$	1,729,579		$	640,267		$	2,164		$	4,680,575

Allowance for loan losses as a percentage of loan balance:
Loans individually evaluated for impairment		10.08	%		11.77	%		27.51	%		9.87	%		-			-			17.30	%
Loans collectively evaluated for impairment		1.18	%		1.11	%		5.48	%		1.52	%		1.10	%		0.18	%		1.49	%
Total ending loan balance		1.47	%		1.48	%		11.04	%		1.75	%		1.10	%		0.18	%		2.14	%

Recorded Investment:
Loans individually evaluated for impairment	$	24,925		$	44,099		$	75,997		$	47,422		$	21		$	-		$	192,464
Loans collectively evaluated for impairment		734,955			1,211,901			225,444			1,685,951			642,925			2,204			4,503,380
Total ending loan balance	$	759,880		$	1,256,000		$	301,441		$	1,733,373		$	642,946		$	2,204		$	4,695,844


	December 31, 2010
	Commercial, financial and agricultural			Commercial real estate			Construction real estate			Residential real estate			Consumer			Leases			Total
(In thousands)
Allowance for loan losses:
Ending allowance balance attributed to loans:
Individually evaluated for impairment	$	3,028		$	10,001		$	26,387		$	4,043		$	-		$	-		$	43,459
Collectively evaluated for impairment		10,556			18,514			19,807			21,802			7,228			31			77,938
Total ending allowance balance	$	13,584		$	28,515		$	46,194		$	25,845		$	7,228		$	31		$	121,397

Reallocated allowance for loan losses:
Ending allowance balance attributed to loans:
Individually evaluated for impairment	$	3,028		$	10,001		$	26,387		$	4,043		$	-		$	-		$	43,459
Collectively evaluated for impairment		8,668			11,910			25,566			24,750			7,039			5			77,938
Total ending allowance balance	$	11,696		$	21,911		$	51,953		$	28,793		$	7,039		$	5		$	121,397

Loan Balance:
Loans individually evaluated for impairment	$	19,205		$	57,930		$	113,571		$	60,227		$	-		$	-		$	250,933
Loans collectively evaluated for impairment		718,697			1,168,686			292,909			1,631,982			666,871			2,607			4,481,752
Total ending loan balance	$	737,902		$	1,226,616		$	406,480		$	1,692,209		$	666,871		$	2,607		$	4,732,685

Reallocated allowance for loan losses as a percentage of loan balance:
Loans individually evaluated for impairment		15.77	%		17.26	%		23.23	%		6.71	%		-			-			17.32	%
Loans collectively evaluated for impairment		1.21	%		1.02	%		8.73	%		1.52	%		1.06	%		0.19	%		1.74	%
Total ending loan balance		1.59	%		1.79	%		12.78	%		1.70	%		1.06	%		0.19	%		2.57	%

Recorded Investment:
Loans individually evaluated for impairment	$	19,205		$	57,930		$	113,571		$	60,227		$	-		$	-		$	250,933
Loans collectively evaluated for impairment		721,583			1,173,490			293,962			1,637,443			670,116			2,663			4,499,257
Total ending loan balance	$	740,788		$	1,231,420		$	407,533		$	1,697,670		$	670,116		$	2,663		$	4,750,190

Loans collectively evaluated for impairment above include all performing loans at September 30, 2011 and December 31, 2010, 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. If these consumer loans become 180 days past due, they are charged off or charged down to the appraised value of the underlying collateral, less anticipated selling costs. Loans individually evaluated for impairment include all impaired loans internally classified as commercial loans at September 30, 2011 and December 31, 2010, which are evaluated for impairment in accordance with GAAP (see Note 1 of Park's 2010 Annual Report).