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, 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 months ended March 31, 2014 and March 31, 2013 is summarized below.



	Three Months Ended March 31, 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	639			794			8			591			1,795			—			3,827
Recoveries	247			1,558			794			1,227			3,014			1			6,841
Net charge-offs/(recoveries)	392			(764		)	(786		)	(636		)	(1,219		)	(1		)	(3,014		)
Provision/(recovery)	(64		)	(909		)	480			(680		)	(1,051		)	(1		)	(2,225		)
Ending balance	$	13,762		$	15,754		$	8,121		$	14,207		$	8,413		$	—		$	60,257



	Three Months Ended March 31, 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	2,708		334			1,518		674			1,274		—		6,508
Recoveries	189		40			1,427		3,498			803		—		5,957
Net charge-offs/(recoveries)	2,519		294			91		(2,824		)	471		—		551
Provision/(recovery)	2,301		(372		)	806		(2,949		)	543		—		329
Ending balance	$	15,417	$	11,070		$	7,556	$	14,634		$	6,638	$	—	$	55,315

Loans collectively evaluated for impairment in the following tables include all performing loans at March 31, 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 March 31, 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 March 31, 2014 and December 31, 2013 was as follows:



	March 31, 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	$	3,064		$	5,514		$	2,304		$	440		$	—		$	—	$	11,322
Collectively evaluated for impairment	10,698			10,240			5,817			13,767			8,413			—		48,935
Total ending allowance balance	$	13,762		$	15,754		$	8,121		$	14,207		$	8,413		$	—	$	60,257

Loan balance:
Loans individually evaluated for impairment	$	19,837		$	39,387		$	14,629		$	31,182		$	798		$	—	$	105,833
Loans collectively evaluated for impairment	786,895			1,060,610			140,785			1,768,928			757,549			3,326		4,518,093
Total ending loan balance	$	806,732		$	1,099,997		$	155,414		$	1,800,110		$	758,347		$	3,326	$	4,623,926

Allowance for loan losses as a percentage of loan balance:
Loans individually evaluated for impairment	15.45		%	14.00		%	15.75		%	1.41		%	—			—		10.70		%
Loans collectively evaluated for impairment	1.36		%	0.97		%	4.13		%	0.78		%	1.11		%	—		1.08		%
Total ending loan balance	1.71		%	1.43		%	5.23		%	0.79		%	1.11		%	—		1.30		%

Recorded investment:
Loans individually evaluated for impairment	$	19,835		$	39,395		$	14,632		$	31,213		$	798		$	—	$	105,873
Loans collectively evaluated for impairment	790,134			1,063,932			141,157			1,772,465			760,127			3,373		4,531,188
Total ending recorded investment	$	809,969		$	1,103,327		$	155,789		$	1,803,678		$	760,925		$	3,373	$	4,637,061



	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 ending loan balance	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