Loans

The composition of the loan portfolio, by class of loan, as of March 31, 2013 and December 31, 2012 was as follows:



	March 31, 2013						December 31, 2012
(In thousands)	Loan balance		Accrued interest receivable		Recorded investment		Loan balance		Accrued interest receivable		Recorded investment
Commercial, financial and agricultural *	$	796,449	$	3,431	$	799,880	$	823,927	$	2,976	$	826,903
Commercial real estate *	1,108,915		4,084		1,112,999		1,092,164		3,839		1,096,003
Construction real estate:
SEPH commercial land and development *	12,285		26		12,311		15,105		37		15,142
Remaining commercial	115,589		285		115,874		115,473		331		115,804
Mortgage	24,522		74		24,596		26,373		81		26,454
Installment	8,055		31		8,086		8,577		33		8,610
Residential real estate:
Commercial	400,400		1,008		401,408		392,203		959		393,162
Mortgage	1,064,006		1,884		1,065,890		1,064,787		1,399		1,066,186
HELOC	210,981		861		211,842		212,905		892		213,797
Installment	41,204		163		41,367		43,750		176		43,926
Consumer	657,697		2,643		660,340		651,930		2,835		654,765
Leases	3,420		51		3,471		3,128		29		3,157
Total loans	$	4,443,523	$	14,541	$	4,458,064	$	4,450,322	$	13,587	$	4,463,909

* Included within commercial, financial and agricultural loans, commercial real estate loans, and 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 March 31, 2013 and December 31, 2012:



	March 31, 2013
(In thousands)	Nonaccrual loans		Accruing troubled debt restructurings		Loans past due 90 days or more and accruing		Total nonperforming loans
Commercial, financial and agricultural	$	20,339	$	1,414	$	—	$	21,753
Commercial real estate	36,724		3,351		—		40,075
Construction real estate:
SEPH commercial land and development	11,133		—		—		11,133
Remaining commercial	16,900		3,583		—		20,483
Mortgage	146		99		44		289
Installment	128		172		—		300
Residential real estate:
Commercial	35,469		1,253		—		36,722
Mortgage	23,938		11,126		544		35,608
HELOC	1,864		753		—		2,617
Installment	1,404		817		33		2,254
Consumer	3,494		1,789		768		6,051
Total loans	$	151,539	$	24,357	$	1,389	$	177,285



	December 31, 2012
(In thousands)	Nonaccrual loans		Accruing troubled debt restructurings		Loans past due 90 days or more and accruing		Total nonperforming loans
Commercial, financial and agricultural	$	17,324	$	5,277	$	37	$	22,638
Commercial real estate	40,983		3,295		1,007		45,285
Construction real estate:
SEPH commercial land and development	13,939		—		—		13,939
Remaining commercial	14,977		6,597		—		21,574
Mortgage	158		100		—		258
Installment	149		175		—		324
Residential real estate:
Commercial	33,961		1,661		94		35,716
Mortgage	28,260		9,425		950		38,635
HELOC	1,689		736		—		2,425
Installment	1,670		780		54		2,504
Consumer	2,426		1,900		888		5,214
Total loans	$	155,536	$	29,946	$	3,030	$	188,512

The following table provides additional information regarding those nonaccrual and accruing troubled debt restructured loans that were individually evaluated for impairment and those collectively evaluated for impairment as of March 31, 2013 and December 31, 2012.



	March 31, 2013						December 31, 2012
(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	$	21,753	$	21,742	$	11	$	22,601	$	22,587	$	14
Commercial real estate	40,075		40,075		—		44,278		44,278		—
Construction real estate:
SEPH commercial land and development	11,133		10,482		651		13,939		13,260		679
Remaining commercial	20,483		20,483		—		21,574		21,574		—
Mortgage	245		—		245		258		—		258
Installment	300		—		300		324		—		324
Residential real estate:
Commercial	36,722		36,722		—		35,622		35,622		—
Mortgage	35,064		—		35,064		37,685		—		37,685
HELOC	2,617		—		2,617		2,425		—		2,425
Installment	2,221		—		2,221		2,450		—		2,450
Consumer	5,283		799		4,484		4,326		18		4,308
Total loans	$	175,896	$	130,303	$	45,593	$	185,482	$	137,339	$	48,143

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 March 31, 2013 and December 31, 2012.



	March 31, 2013						December 31, 2012
(In thousands)	Unpaid principal balance		Recorded investment		Allowance for loan losses allocated		Unpaid principal balance		Recorded investment		Allowance for loan losses allocated
With no related allowance recorded:
Commercial, financial and agricultural	$	22,392	$	13,403	$	—	$	23,782	$	14,683	$	—
Commercial real estate	58,637		34,750		—		56,258		35,097		—
Construction real estate:
SEPH commercial land and development	53,287		10,482		—		56,075		12,740		—
Remaining commercial	24,614		11,209		—		29,328		14,093		—
Residential real estate:
Commercial	40,341		32,566		—		39,918		31,957		—
Consumer	799		799		—		18		18		—

With an allowance recorded:
Commercial, financial and agricultural	12,924		8,339		3,519		12,268		7,904		3,180
Commercial real estate	5,667		5,325		648		11,412		9,181		1,540
Construction real estate:
SEPH commercial land and development	—		—		—		1,271		520		—
Remaining commercial	9,984		9,274		2,939		8,071		7,481		2,277
Residential real estate:
Commercial	4,498		4,156		1,154		3,944		3,665		1,279
Consumer	—		—		—		—		—		—
Total	$	233,143	$	130,303	$	8,260	$	242,345	$	137,339	$	8,276

Management’s general practice is to proactively charge down loans individually evaluated for impairment to the fair value of the underlying collateral. At both March 31, 2013 and December 31, 2012, there were $96.9 million of partial charge-offs on loans individually evaluated for impairment with no related allowance recorded and $6.0 million and $8.2 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 of $8.3 million related to loans individually evaluated for impairment at both March 31, 2013 and December 31, 2012. These loans with specific reserves had a recorded investment of $27.1 million and $28.8 million as of March 31, 2013 and December 31, 2012, respectively.

Interest income on loans individually evaluated for impairment is recognized on a cash basis. The following table presents the average recorded investment and interest income recognized on loans individually evaluated for impairment as of and for the three months ended March 31, 2013 and March 31, 2012:



	Three Months Ended March 31, 2013						Three Months Ended March 31, 2012
(In thousands)	Recorded investment as of March 31, 2013		Average recorded investment		Interest income recognized		Recorded investment as of March 31, 2012		Average recorded investment		Interest income recognized
Commercial, financial and agricultural	$	21,742	$	21,479	$	128	$	40,241	$	40,135	$	105
Commercial real estate	40,075		43,191		256		43,305		48,214		207
Construction real estate:
SEPH commercial land and development	10,482		12,082		—		19,433		21,974		—
Remaining commercial	20,483		20,912		220		32,673		27,314		251
Residential real estate:
Commercial	36,722		35,859		130		43,752		43,276		40
Consumer	799		204		—		20		20		—
Total	$	130,303	$	133,727	$	734	$	179,424	$	180,933	$	603

The following tables present the aging of the recorded investment in past due loans as of March 31, 2013 and December 31, 2012 by class of loan.



	March 31, 2013
(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	$	3,891	$	16,030	$	19,921	$	779,959	$	799,880
Commercial real estate	2,502		23,275		25,777		1,087,222		1,112,999
Construction real estate:
SEPH commercial land and development	773		9,041		9,814		2,497		12,311
Remaining commercial	334		4,221		4,555		111,319		115,874
Mortgage	356		129		485		24,111		24,596
Installment	77		—		77		8,009		8,086
Residential real estate:
Commercial	937		4,628		5,565		395,843		401,408
Mortgage	11,165		13,366		24,531		1,041,359		1,065,890
HELOC	344		732		1,076		210,766		211,842
Installment	444		683		1,127		40,240		41,367
Consumer	8,313		3,706		12,019		648,321		660,340
Leases	—		—		—		3,471		3,471
Total loans	$	29,136	$	75,811	$	104,947	$	4,353,117	$	4,458,064

* Includes $1.4 million of loans past due 90 days or more and accruing. The remaining are past due, nonaccrual loans and accruing TDRs.



	December 31, 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	$	6,251	$	11,811	$	18,062	$	808,841	$	826,903
Commercial real estate	2,212		26,355		28,567		1,067,436		1,096,003
Construction real estate:
SEPH commercial land and development	686		11,314		12,000		3,142		15,142
Remaining commercial	3,652		5,838		9,490		106,314		115,804
Mortgage	171		85		256		26,198		26,454
Installment	135		40		175		8,435		8,610
Residential real estate:
Commercial	1,163		5,917		7,080		386,082		393,162
Mortgage	11,948		17,370		29,318		1,036,868		1,066,186
HELOC	620		309		929		212,868		213,797
Installment	563		787		1,350		42,576		43,926
Consumer	12,924		2,688		15,612		639,153		654,765
Leases	—		—		—		3,157		3,157
Total loans	$	40,325	$	82,514	$	122,839	$	4,341,070	$	4,463,909

* Includes $3.0 million of loans past due 90 days or more and accruing. The remaining are past due, nonaccrual loans and accruing TDRs.

Credit Quality Indicators

Management utilizes past due information as a credit quality indicator across the loan portfolio. Past due information as of March 31, 2013 and December 31, 2012 is included in the tables above. 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. Certain 6-rated loans and all 7-rated loans are included within the impaired category. A loan is deemed impaired when management determines the borrower's ability to perform in accordance with the contractual loan agreement is in doubt. Any commercial loan graded an 8 (loss) is completely charged-off.

The tables below present the recorded investment by loan grade at March 31, 2013 and December 31, 2012 for all commercial loans:



	March 31, 2013
(In thousands)	5 Rated		6 Rated		Impaired		Pass Rated		Recorded Investment
Commercial, financial and agricultural *	$	8,233	$	9,797	$	21,753	$	760,097	$	799,880
Commercial real estate *	25,402		3,136		40,075		1,044,386		1,112,999
Construction real estate:
SEPH commercial land and development *	400		—		11,133		778		12,311
Remaining commercial	6,556		—		20,483		88,835		115,874
Residential real estate:
Commercial	8,676		1,231		36,722		354,779		401,408
Leases	—		—		—		3,471		3,471
Total Commercial Loans	$	49,267	$	14,164	$	130,166	$	2,252,346	$	2,445,943



	December 31, 2012
(In thousands)	5 Rated		6 Rated		Impaired		Pass Rated		Recorded Investment
Commercial, financial and agricultural *	$	9,537	$	10,874	$	22,601	$	783,891	$	826,903
Commercial real estate *	25,616		3,960		44,278		1,022,149		1,096,003
Construction real estate:
SEPH commercial land and development *	411		—		13,939		792		15,142
Remaining commercial	6,734		—		21,574		87,496		115,804
Residential real estate:
Commercial	8,994		2,053		35,622		346,493		393,162
Leases	—		—		—		3,157		3,157
Total Commercial Loans	$	51,292	$	16,887	$	138,014	$	2,243,978	$	2,450,171

Troubled Debt Restructurings (TDRs)

Management classifies loans as TDRs when a borrower is experiencing financial difficulties and Park has granted a concession to the borrower as part of a modification or in the loan renewal process. 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 the borrower's 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 March 31, 2013 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 March 31, 2013 and December 31, 2012, there were $84.3 million and $84.7 million, respectively, of TDRs included in nonaccrual loan totals. At March 31, 2013 and December 31, 2012, $54.8 million and $52.6 million of these nonaccrual TDRs were performing in accordance with the terms of the restructured note. As of March 31, 2013 and December 31, 2012, there were $24.4 million and $29.9 million, respectively, of TDRs included in accruing loan totals. 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 March 31, 2013 and December 31, 2012, Park had commitments to lend $4.4 million and $5.0 million, respectively, of additional funds to borrowers whose terms had been modified in a TDR.

The specific reserve related to TDRs at both March 31, 2013 and December 31, 2012 was $5.6 million. Modifications made in 2012 and 2013 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 $238,000 and $252,000 were recorded during the three-month periods ending March 31, 2013 and March 31, 2012, respectively, as a result of TDRs identified in the respective year.

The terms of certain other loans were modified during the three-month period ended March 31, 2013 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 March 31, 2013 of $0.8 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 March 31, 2013 of $6.6 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-month periods ended March 31, 2013 and March 31, 2012, as well as the recorded investment of these contracts at March 31, 2013 and March 31, 2012. The recorded investment pre- and post-modification is generally the same.



	Three Months Ended March 31, 2013
(In thousands)	Number of Contracts	Accruing		Nonaccrual		Total Recorded Investment
Commercial, financial and agricultural	7	$	—	$	320	$	320
Commercial real estate	2	25		152		177
Construction real estate:
SEPH commercial land and development	—	—		—		—
Remaining commercial	1	37		—		37
Mortgage	—	—		—		—
Installment	2	—		26		26
Residential real estate:
Commercial	6	493		1,561		2,054
Mortgage	12	880		242		1,122
HELOC	4	54		—		54
Installment	4	40		9		49
Consumer	72	332		137		469
Total loans	110	$	1,861	$	2,447	$	4,308



	Three Months Ended March 31, 2012
(In thousands)	Number of Contracts	Accruing		Nonaccrual		Total Recorded Investment
Commercial, financial and agricultural	5	$	1,289	$	750	$	2,039
Commercial real estate	16	2,212		2,967		5,179
Construction real estate:
SEPH commercial land and development	4	—		894		894
Remaining commercial	9	8,641		1,565		10,206
Mortgage	—	—		—		—
Installment	—	—		—		—
Residential real estate:
Commercial	3	—		318		318
Mortgage	9	111		1,170		1,281
HELOC	—	—		—		—
Installment	—	—		—		—
Consumer	1	—		91		91
Total loans	47	$	12,253	$	7,755	$	20,008

Of those loans listed in the tables above which were modified during the three-month period ended March 31, 2013, $0.3 million were on nonaccrual status as of December 31, 2012, but were not classified as TDRs. Of those loans which were modified during the three-month period ended March 31, 2012, $6.2 million were on nonaccrual status as of December 31, 2011, but were not classified as TDRs.

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-month period ended March 31, 2013 and March 31, 2012, respectively. For this table, a loan is considered to be in default when it becomes 30 days contractually past due under the modified terms. The additional allowance for loan loss resulting from the defaults on TDR loans was immaterial.



	Three Months Ended March 31, 2013			Three Months Ended March 31, 2012
(In thousands)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Commercial, financial and agricultural	10	$	979	15	$	8,469
Commercial real estate	2	198		8	3,201
Construction real estate:
SEPH commercial land and development	2	45		3	659
Remaining commercial	3	506		8	4,155
Mortgage	1	85		—	—
Installment	1	12		—	—
Residential real estate:
Commercial	2	857		6	3,948
Mortgage	34	3,430		5	684
HELOC	2	77		1	48
Installment	10	273		—	—
Consumer	100	617		—	—
Leases	—	—		—	—
Total loans	167	$	7,079	46	$	21,164

Of the $7.1 million in modified TDRs which defaulted during the three months ended March 31, 2013, $768,000 were accruing loans and $6.3 million were nonaccrual loans. Of the $21.2 million in modified TDRs which defaulted during the three months ended March 31, 2012, $205,000 were accruing loans and $21.0 million were nonaccrual loans.