Allowance for Loan Losses

The allowance for loan losses ("ALLL") 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 2016 Annual Report.

Loss factors are reviewed quarterly and updated at least annually to reflect recent loan loss history and incorporate current risk and trends which may not be recognized in historical data. The historical loss factors were last updated in the fourth quarter of 2016 to incorporate losses through December 31, 2016.

The activity in the allowance for loan losses for the three-month and six-month periods ended June 30, 2017 and June 30, 2016 is summarized in the following tables.



	Three Months Ended June 30, 2017
(In thousands)	Commercial, financial and agricultural		Commercial real estate		Construction real estate			Residential real estate			Consumer		Leases		Total
Allowance for loan losses:
Beginning balance	$	13,437	$	10,281	$	4,368		$	10,745		$	11,091	$	—	$	49,922
Charge-offs	318		310		—			290			2,128		—		3,046
Recoveries	163		241		325			336			1,300		—		2,365
Net charge-offs/(recoveries)	155		69		(325		)	(46		)	828		—		681
Provision/(recovery)	3,464		239		(16		)	(472		)	1,366		—		4,581
Ending balance	$	16,746	$	10,451	$	4,677		$	10,319		$	11,629	$	—	$	53,822



	Three Months Ended June 30, 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	$	14,240	$	9,452		$	8,687		$	13,388	$	11,180	$	1		$	56,948
Charge-offs	870		77			18			736		2,718		—			4,419
Recoveries	216		1,814			110			407		985		1			3,533
Net charge-offs/(recoveries)	654		(1,737		)	(92		)	329		1,733		(1		)	886
Provision/(recovery)	2,892		(1,986		)	(523		)	121		2,134		(1		)	2,637
Ending balance	$	16,478	$	9,203		$	8,256		$	13,180	$	11,581	$	1		$	58,699



	Six Months Ended June 30, 2017
(In thousands)	Commercial, financial and agricultural		Commercial real estate		Construction real estate			Residential real estate			Consumer		Leases		Total
Allowance for loan losses:
Beginning balance	$	13,434	$	10,432	$	5,247		$	10,958		$	10,553	$	—	$	50,624
Charge-offs	657		422		27			770			4,878		—		6,754
Recoveries	532		355		383			627			2,598		—		4,495
Net charge-offs/(recoveries)	125		67		(356		)	143			2,280		—		2,259
Provision/(recovery)	3,437		86		(926		)	(496		)	3,356		—		5,457
Ending balance	$	16,746	$	10,451	$	4,677		$	10,319		$	11,629	$	—	$	53,822



	Six Months Ended June 30, 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	1,144		78			18			1,483		5,097		—			7,820
Recoveries	643		2,032			1,049			878		1,875		1			6,478
Net charge-offs/(recoveries)	501		(1,954		)	(1,031		)	605		3,222		(1		)	1,342
Provision/(recovery)	3,285		(1,948		)	(1,339		)	271		3,279		(1		)	3,547
Ending balance	$	16,478	$	9,203		$	8,256		$	13,180	$	11,581	$	1		$	58,699

Loans collectively evaluated for impairment in the following tables include all performing loans at June 30, 2017 and December 31, 2016, 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, 2017 and December 31, 2016, 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 2016 Annual Report).

The composition of the allowance for loan losses at June 30, 2017 and December 31, 2016 was as follows:



	June 30, 2017
(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	$	3,774		$	290		$	44		$	29		$	8		$	—		$	4,145
Collectively evaluated for impairment	12,972			10,161			4,633			10,290			11,621			—			49,677
Total ending allowance balance	$	16,746		$	10,451		$	4,677		$	10,319		$	11,629		$	—		$	53,822

Loan balance:
Loans individually evaluated for impairment	$	28,475		$	21,742		$	1,634		$	21,236		$	8		$	—		$	73,095
Loans collectively evaluated for impairment	978,004			1,170,139			168,765			1,755,331			1,216,756			3,347			5,292,342
Total ending loan balance	$	1,006,479		$	1,191,881		$	170,399		$	1,776,567		$	1,216,764		$	3,347		$	5,365,437

Allowance for loan losses as a percentage of loan balance:
Loans individually evaluated for impairment	13.25		%	1.33		%	2.69		%	0.14		%	—		%	—		%	5.67		%
Loans collectively evaluated for impairment	1.33		%	0.87		%	2.75		%	0.59		%	0.96		%	—		%	0.94		%
Total	1.66		%	0.88		%	2.74		%	0.58		%	0.96		%	—		%	1.00		%

Recorded investment:
Loans individually evaluated for impairment	$	28,475		$	21,790		$	1,636		$	21,235		$	8		$	—		$	73,144
Loans collectively evaluated for impairment	981,841			1,174,051			169,248			1,758,425			1,219,946			3,377			5,306,888
Total ending recorded investment	$	1,010,316		$	1,195,841		$	170,884		$	1,779,660		$	1,219,954		$	3,377		$	5,380,032



	December 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	$	152		$	309		$	—		$	87		$	—		$	—		$	548
Collectively evaluated for impairment	13,282			10,123			5,247			10,871			10,553			—			50,076
Total ending allowance balance	$	13,434		$	10,432		$	5,247		$	10,958		$	10,553		$	—		$	50,624

Loan balance:
Loans individually evaluated for impairment	$	20,622		$	24,465		$	2,226		$	23,102		$	—		$	—		$	70,415
Loans collectively evaluated for impairment	973,997			1,131,238			186,719			1,785,395			1,120,850			3,243			5,201,442
Total ending loan balance	$	994,619		$	1,155,703		$	188,945		$	1,808,497		$	1,120,850		$	3,243		$	5,271,857

Allowance for loan losses as a percentage of loan balance:
Loans individually evaluated for impairment	0.74		%	1.26		%	—		%	0.38		%	—		%	—		%	0.78		%
Loans collectively evaluated for impairment	1.36		%	0.89		%	2.81		%	0.61		%	0.94		%	—		%	0.96		%
Total	1.35		%	0.90		%	2.78		%	0.61		%	0.94		%	—		%	0.96		%

Recorded investment:
Loans individually evaluated for impairment	$	20,624		$	24,474		$	2,226		$	23,102		$	—		$	—		$	70,426
Loans collectively evaluated for impairment	977,553			1,135,390			187,240			1,788,714			1,124,235			3,272			5,216,404
Total ending recorded investment	$	998,177		$	1,159,864		$	189,466		$	1,811,816		$	1,124,235		$	3,272		$	5,286,830