Loans

The composition of the loan portfolio, by class of loan, as of June 30, 2012 and December 31, 2011 was as follows:



	June 30, 2012						December 31, 2011
	Loan balance		Accrued interest receivable		Recorded investment		Loan balance		Accrued interest receivable		Recorded investment
(In thousands)
Commercial, financial and agricultural *	$	771,702	$	3,478	$	775,180	$	743,797	$	3,121	$	746,918

Commercial real estate *	1,093,748		3,840		1,097,588		1,108,574		4,235		1,112,809
Construction real estate:
Vision/SEPH commercial land and development *	21,004		1		21,005		31,603		31		31,634
Remaining commercial	143,782		398		144,180		156,053		394		156,447
Mortgage	22,954		73		23,027		20,039		64		20,103
Installment	8,977		46		9,023		9,851		61		9,912
Residential real estate:
Commercial	392,547		758		393,305		395,824		1,105		396,929
Mortgage	1,039,189		1,660		1,040,849		953,758		1,522		955,280
HELOC	219,084		887		219,971		227,682		942		228,624
Installment	47,036		218		47,254		51,354		236		51,590
Consumer	623,288		2,704		625,992		616,505		2,930		619,435
Leases	3,540		29		3,569		2,059		43		2,102
Total loans	$	4,386,851	$	14,092	$	4,400,943	$	4,317,099	$	14,684	$	4,331,783

* Included within commercial, financial and agricultural loans, commercial real estate loans, and Vision/SEPH commercial land and development loans is an immaterial amount of consumer loans that are not broken out by class.

Credit Quality

The following tables present the recorded investment in nonaccrual, accruing restructured, and loans past due 90 days or more and still accruing by class of loan as of June 30, 2012 and December 31, 2011:



	June 30, 2012
(In thousands)	Nonaccrual loans		Accruing restructured loans		Loans past due 90 days or more and accruing		Total nonperforming loans
Commercial, financial and agricultural	$	37,356	$	4,235	$	2	$	41,593
Commercial real estate	39,074		4,895		—		43,969
Construction real estate:
SEPH commercial land and development	18,286		—		—		18,286
Remaining commercial	16,953		12,609		—		29,562
Mortgage	—		61		86		147
Installment	133		—		8		141
Residential real estate:
Commercial	37,257		20		—		37,277
Mortgage	26,145		5,506		1,045		32,696
HELOC	1,972		—		—		1,972
Installment	1,273		22		159		1,454
Consumer	1,932		—		615		2,547
Leases	—		—		—		—
Total loans	$	180,381	$	27,348	$	1,915	$	209,644



	December 31, 2011
(In thousands)	Nonaccrual loans		Accruing restructured loans		Loans past due 90 days or more and accruing		Total nonperforming loans
Commercial, financial and agricultural	$	37,797	$	2,848	$	—	$	40,645
Commercial real estate	43,704		8,274		—		51,978
Construction real estate:
Vision commercial land and development	25,761		—		—		25,761
Remaining commercial	14,021		11,891		—		25,912
Mortgage	66		—		—		66
Installment	30		—		—		30
Residential real estate:
Commercial	43,461		815		—		44,276
Mortgage	25,201		4,757		2,610		32,568
HELOC	1,412		—		—		1,412
Installment	1,777		98		58		1,933
Consumer	1,876		—		893		2,769
Leases	—		—		—		—
Total loans	$	195,106	$	28,683	$	3,561	$	227,350

The following table provides additional information regarding those nonaccrual and accruing restructured loans that were individually evaluated for impairment and those collectively evaluated for impairment as of June 30, 2012 and December 31, 2011.



	June 30, 2012						December 31, 2011
(In thousands)	Nonaccrual and accruing restructured loans		Loans individually evaluated for impairment		Loans collectively evaluated for impairment		Nonaccrual and accruing restructured loans		Loans individually evaluated for impairment		Loans collectively evaluated for impairment
Commercial, financial and agricultural	$	41,591	$	41,591	$	—	$	40,645	$	40,621	$	24
Commercial real estate	43,969		43,969		—		51,978		51,978		—
Construction real estate:
Vision/SEPH commercial land and development	18,286		17,272		1,014		25,761		24,328		1,433
Remaining commercial	29,562		29,562		—		25,912		25,912		—
Mortgage	61		—		61		66		—		66
Installment	133		—		133		30		—		30
Residential real estate:
Commercial	37,277		37,277		—		44,276		44,276		—
Mortgage	31,651		—		31,651		29,958		—		29,958
HELOC	1,972		—		1,972		1,412		—		1,412
Installment	1,295		—		1,295		1,875		—		1,875
Consumer	1,932		19		1,913		1,876		20		1,856
Leases	—		—		—		—		—		—
Total loans	$	207,729	$	169,690	$	38,039	$	223,789	$	187,135	$	36,654

All of the loans individually evaluated for impairment were evaluated using the fair value of the collateral or present value of expected future cash flows as the measurement method.

The following table presents loans individually evaluated for impairment by class of loan as of June 30, 2012 and December 31, 2011.



	June 30, 2012						December 31, 2011
	Unpaid principal balance		Recorded investment		Allowance for loan losses allocated		Unpaid principal balance		Recorded investment		Allowance for loan losses allocated
(in thousands)
With no related allowance recorded
Commercial, financial and agricultural	$	36,340	$	27,776	$	—	$	23,164	$	18,098	$	—
Commercial real estate	57,055		36,255		—		58,242		41,506		—
Construction real estate:
Vision/SEPH commercial land and development	63,422		17,272		—		54,032		17,786		—
Remaining commercial	32,923		18,926		—		33,319		18,372		—
Residential real estate:
Commercial	43,612		33,357		—		49,341		38,686		—
Consumer	19		19		—		20		20		—

With an allowance recorded
Commercial, financial and agricultural	17,685		13,815		4,793		23,719		22,523		5,819
Commercial real estate	9,414		7,714		1,354		12,183		10,472		4,431
Construction real estate:
Vision/SEPH commercial land and development	—		—		—		20,775		6,542		1,540
Remaining commercial	11,212		10,636		3,926		9,711		7,540		1,874
Residential real estate:
Commercial	5,072		3,920		873		6,402		5,590		2,271
Consumer	—		—		—		—		—		—

Total	$	276,754	$	169,690	$	10,946	$	290,908	$	187,135	$	15,935

Management’s general practice is to proactively charge down loans individually evaluated for impairment to the fair value of the underlying collateral, less costs to sell. At June 30, 2012 and December 31, 2011, there were $99.9 million and $83.7 million, respectively, of partial charge-offs on loans individually evaluated for impairment with no related allowance recorded and $7.3 million and $20.1 million, respectively, of partial charge-offs on loans individually evaluated for impairment that also had a specific reserve allocated.

The allowance for loan losses included specific reserves related to loans individually evaluated for impairment at June 30, 2012 and December 31, 2011, of $10.9 million and $15.9 million, respectively, related to loans with a recorded investment of $36.1 million and $52.7 million, respectively.

The following table presents the average recorded investment and interest income recognized on loans individually evaluated for impairment as of and for the three and six months ended June 30, 2012 and June 30, 2011:



	Three Months Ended June 30, 2012						Three Months Ended June 30, 2011
(in thousands)	Recorded investment as of June 30, 2012		Average recorded investment		Interest income recognized		Recorded investment as of June 30, 2011		Average recorded investment		Interest income recognized
Commercial, financial and agricultural	$	41,591	$	42,056	$	205	$	24,008	$	20,688	$	41
Commercial real estate	43,969		42,689		287		47,243		51,359		54
Construction real estate:
Vision/SEPH commercial land and development	17,272		18,412		—		46,847		71,682		—
Remaining commercial	29,562		31,428		199		33,685		27,998		136
Residential real estate:
Commercial	37,277		40,359		125		48,594		55,096		14
Consumer	19		19		1		23		5		1

Total	$	169,690	$	174,963	$	817	$	200,400	$	226,828	$	246



	Six Months Ended June 30, 2012						Six Months Ended June 30, 2011
(in thousands)	Recorded investment as of June 30, 2012		Average recorded investment		Interest income recognized		Recorded investment as of June 30, 2011		Average recorded investment		Interest income recognized
Commercial, financial and agricultural	$	41,591	$	41,218	$	310	$	24,008	$	20,203	$	106
Commercial real estate	43,969		45,758		494		47,243		53,619		124
Construction real estate:
Vision/SEPH commercial land and development	17,272		20,302		—		46,847		77,711		—
Remaining commercial	29,562		28,899		450		33,685		27,616		214
Residential real estate:
Commercial	37,277		41,541		165		48,594		57,269		153
Consumer	19		20		1		23		12		1

Total	$	169,690	$	177,738	$	1,420	$	200,400	$	236,430	$	598

The following tables present the aging of the recorded investment in past due loans as of June 30, 2012 and December 31, 2011 by class of loan.



	June 30, 2012
(in thousands)	Accruing loans past due 30-89 days		Past due nonaccrual loans and loans past due 90 days or more and accruing*		Total past due		Total current		Total recorded investment
Commercial, financial and agricultural	$	1,936	$	27,719	$	29,655	$	745,525	$	775,180
Commercial real estate	3,144		16,456		19,600		1,077,988		1,097,588
Construction real estate:
SEPH commercial land and development	—		14,820		14,820		6,185		21,005
Remaining commercial	147		4,991		5,138		139,042		144,180
Mortgage	61		86		147		22,880		23,027
Installment	172		24		196		8,827		9,023
Residential real estate:
Commercial	1,326		8,228		9,554		383,751		393,305
Mortgage	14,575		16,805		31,380		1,009,469		1,040,849
HELOC	635		351		986		218,985		219,971
Installment	756		578		1,334		45,920		47,254
Consumer	8,986		1,854		10,840		615,152		625,992
Leases	—		10		10		3,559		3,569
Total loans	$	31,738	$	91,922	$	123,660	$	4,277,283	$	4,400,943

* Includes $1.9 million of loans past due 90 days or more and accruing. The remaining are past due, nonaccrual loans.



	December 31, 2011
(in thousands)	Accruing loans past due 30-89 days		Past due nonaccrual loans and loans past due 90 days or more and accruing*		Total past due		Total current		Total recorded investment
Commercial, financial and agricultural	$	3,106	$	11,308	$	14,414	$	732,504	$	746,918
Commercial real estate	2,632		21,798		24,430		1,088,379		1,112,809
Construction real estate:
Vision commercial land and development	—		19,235		19,235		12,399		31,634
Remaining commercial	99		7,839		7,938		148,509		156,447
Mortgage	76		—		76		20,027		20,103
Installment	421		8		429		9,483		9,912
Residential real estate:
Commercial	1,545		10,097		11,642		385,287		396,929
Mortgage	15,879		20,614		36,493		918,787		955,280
HELOC	1,015		436		1,451		227,173		228,624
Installment	1,549		1,136		2,685		48,905		51,590
Consumer	11,195		2,192		13,387		606,048		619,435
Leases	—		—		—		2,102		2,102
Total loans	$	37,517	$	94,663	$	132,180	$	4,199,603	$	4,331,783

* Includes $3.6 million of loans past due 90 days or more and accruing. The remaining are past due, nonaccrual loans.

Credit Quality Indicators

Management utilizes past due information as a credit quality indicator across the loan portfolio. Past due information as of June 30, 2012 and December 31, 2011 is included in the tables above. Generally, Park considers loans 90 days or more past due to be nonperforming. The past due information is the primary credit quality indicator within the following classes of loans: (1) mortgage loans and installment loans in the construction real estate segment; (2) mortgage loans, HELOC and installment loans in the residential real estate segment; and (3) consumer loans. The primary credit indicator for commercial loans is based on an internal grading system that grades all commercial loans from 1 to 8. Credit grades are continuously monitored by the respective loan officer and adjustments are made when appropriate. A grade of 1 indicates little or no credit risk and a grade of 8 is considered a loss. Commercial loans with grades of 1 to 4.5 (pass-rated) are considered to be of acceptable credit risk. Commercial loans graded a 5 (special mention) are considered to be watch list credits and a higher loan loss reserve percentage is allocated to these loans. Loans classified as special mention have potential weaknesses that require management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Commercial loans graded 6 (substandard), also considered watch list credits, are considered to represent higher credit risk and, as a result, a higher loan loss reserve percentage is allocated to these loans. Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Commercial loans that are graded a 7 (doubtful) are shown as nonaccrual and Park generally charges these loans down to their fair value by taking a partial charge-off or recording a specific reserve. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Any commercial loan graded an 8 (loss) is completely charged-off.

The tables below present the recorded investment by loan grade at June 30, 2012 and December 31, 2011 for all commercial loans:



	June 30, 2012
(in thousands)	5 Rated		6 Rated		Impaired		Pass Rated		Recorded Investment
Commercial, financial and agricultural	$	7,485	$	1,790	$	41,591	$	724,314	$	775,180

Commercial real estate	34,413		6,551		43,969		1,012,655		1,097,588

Construction real estate:
SEPH commercial land and development	1,935		—		18,286		784		21,005
Remaining commercial	8,462		232		29,562		105,924		144,180

Residential real estate:
Commercial	13,510		1,748		37,277		340,770		393,305

Leases	—		—		—		3,569		3,569

Total Commercial Loans	$	65,805	$	10,321	$	170,685	$	2,188,016	$	2,434,827



	December 31, 2011
(in thousands)	5 Rated		6 Rated		Impaired		Pass Rated		Recorded Investment
Commercial, financial and agricultural	$	11,785	$	7,628	$	40,645	$	686,860	$	746,918

Commercial real estate	37,445		10,460		51,978		1,012,926		1,112,809

Construction real estate:
Vision commercial land and development	3,102		—		25,761		2,771		31,634
Remaining commercial	6,982		8,311		25,912		115,242		156,447

Residential real estate:
Commercial	17,120		3,785		44,276		331,748		396,929
Leases	—		—		—		2,102		2,102

Total Commercial Loans	$	76,434	$	30,184	$	188,572	$	2,151,649	$	2,446,839

Troubled Debt Restructurings (TDRs)

Management classifies loans as TDRs when a borrower is experiencing financial difficulties and Park has granted a concession. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy. Management’s policy is to modify loans by extending the term or by granting a temporary or permanent contractual interest rate below the market rate, not by forgiving debt. Certain loans which were modified during the period ended June 30, 2012 did not meet the definition of a TDR as the modification was a delay in a payment that was considered to be insignificant. Management considers a forbearance period of up to three months or a delay in payment of up to 30 days to be insignificant. TDRs may be classified as accruing if the borrower has been current for a period of at least six months with respect to loan payments and management expects that the borrower will be able to continue to make payments in accordance with the terms of the restructured note. Management reviews all accruing TDRs quarterly to ensure payments continue to be made in accordance with the modified terms.

At June 30, 2012 and December 31, 2011, there were $102.4 million and $100.4 million, respectively, of TDRs included in nonaccrual loan totals. As of June 30, 2012 and December 31, 2011, there were $27.3 million and $28.7 million, respectively, of TDRs included in accruing loan totals. At June 30, 2012 and December 31, 2011, $68.4 million and $79.9 million of the nonaccrual TDRs were current. Management will continue to review the restructured loans and may determine it appropriate to move certain of the loans back to accrual status in the future. At June 30, 2012 and December 31, 2011, Park had commitments to lend $3.5 million and $4.0 million, respectively, of additional funds to borrowers whose terms had been modified in a TDR.

The specific reserve related to TDRs at June 30, 2012 and December 31, 2011 was $7.4 million and $9.1 million, respectively. Modifications made in 2011 and 2012 were largely the result of renewals, extending the maturity date of the loan, at terms consistent with the original note. These modifications were deemed to be TDRs primarily due to Park’s conclusion that the borrower would likely not have qualified for similar terms through another lender. Many of the modifications deemed to be TDRs were previously identified as impaired loans, and thus were also previously evaluated for impairment under ASC 310. Additional specific reserves of $818,000 and $1.1 million were recorded during the three month and six month periods ending June 30, 2012, respectively, as a result of TDRs identified in the 2012 year.

The terms of certain other loans were modified during the six month period ended June 30, 2012 that did not meet the definition of a TDR. Modified substandard commercial loans which did not meet the definition of a TDR had a total recorded investment as of June 30, 2012 of $1.2 million. The modification of these loans: (1) involved a modification of the terms of a loan to a borrower who was not experiencing financial difficulties, (2) resulted in a delay in a payment that was considered to be insignificant, or (3) resulted in Park obtaining additional collateral or guarantees that improved the likelihood of the ultimate collection of the loan such that the modification was deemed to be at market terms. Modified consumer loans which did not meet the definition of a TDR had a total recorded investment as of June 30, 2012 of $16.0 million. Many of these loans were to borrowers who were not experiencing financial difficulties but who were looking to reduce their cost of funds.

The following tables detail the number of contracts modified as TDRs during the three and six month periods ended June 30, 2012 as well as the recorded investment of these contracts at June 30, 2012. The recorded investment pre- and post-modification is generally the same.



	Three Months Ended June 30, 2012
	Number of Contracts	Accruing		Nonaccrual		Total Recorded Investment
(In thousands)
Commercial, financial and agricultural	11	$	175	$	2,692	$	2,867
Commercial real estate	4	—		1,739		1,739
Construction real estate:
SEPH commercial land and development	—	—		—		—
Remaining commercial	1	—		258		258
Mortgage	—	—		—		—
Installment	—	—		—		—
Residential real estate:
Commercial	2	—		675		675
Mortgage	6	—		1,338		1,338
HELOC	—	—		—		—
Installment	3	—		169		169
Consumer	—	—		—		—
Leases	—	—		—		—
Total loans	27	$	175	$	6,871	$	7,046



	Six Months Ended June 30, 2012
	Number of Contracts	Accruing		Nonaccrual		Total Recorded Investment
(In thousands)
Commercial, financial and agricultural	16	$	1,862	$	3,428	$	5,290
Commercial real estate	20	1,836		4,677		6,513
Construction real estate:
SEPH commercial land and development	4	—		862		862
Remaining commercial	10	3,776		6,575		10,351
Mortgage	—	—		—		—
Installment	—	—		—		—
Residential real estate:
Commercial	5	—		814		814
Mortgage	15	222		2,379		2,601
HELOC	—	—		—		—
Installment	3	—		170		170
Consumer	1	—		91		91
Leases	—	—		—		—
Total loans	74	$	7,696	$	18,996	$	26,692

As of December 31, 2011, $2.2 million and $8.0 million of those loans modified during the three and six month periods, respectively, ended June 30, 2012 were on nonaccrual status.

The following table presents the recorded investment in financing receivables which were modified as TDRs within the previous 12 months and for which there was a payment default during the three and/or six month period ended June 30, 2012. For this table, a loan is considered to be in default when it becomes 30 days contractually past due under the modified terms.



	Three Months Ended June 30, 2012			Six Months Ended June 30, 2012
	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
(In thousands)
Commercial, financial and agricultural	6	$	6,546	9	$	6,786
Commercial real estate	7	1,820		7	1,820
Construction real estate:
SEPH commercial land and development	3	639		3	639
Remaining commercial	4	3,267		7	4,699
Mortgage	—	—		—	—
Installment	—	—		—	—
Residential real estate:
Commercial	6	1,626		6	1,626
Mortgage	9	830		11	1,165
HELOC	1	46		1	46
Installment	2	169		2	169
Consumer	—	—		—	—
Leases	—	—		—	—
Total loans	38	$	14,943	46	$	16,950

Of the $17.0 million in modified TDRs which defaulted during the period ended June 30, 2012, $110,000 were accruing loans and $16.9 million were nonaccrual loans.