Loans

The composition of the loan portfolio, by class of loan, as of March 31, 2015 and December 31, 2014 was as follows:



	March 31, 2015						December 31, 2014
(In thousands)	Loan balance		Accrued interest receivable		Recorded investment		Loan balance		Accrued interest receivable		Recorded investment
Commercial, financial and agricultural *	$	844,333	$	3,265	$	847,598	$	856,535	$	3,218	$	859,753
Commercial real estate *	1,071,265		3,529		1,074,794		1,069,637		3,546		1,073,183
Construction real estate:
SEPH commercial land and development *	2,182		1		2,183		2,195		—		2,195
Remaining commercial	109,820		293		110,113		115,139		300		115,439
Mortgage	30,886		81		30,967		31,148		72		31,220
Installment	6,887		26		6,913		7,322		23		7,345
Residential real estate:
Commercial	412,724		1,034		413,758		417,612		1,038		418,650
Mortgage	1,197,202		1,665		1,198,867		1,189,709		1,548		1,191,257
HELOC	213,594		820		214,414		216,915		803		217,718
Installment	25,885		91		25,976		27,139		97		27,236
Consumer	912,854		2,817		915,671		893,160		2,967		896,127
Leases	3,198		44		3,242		3,171		17		3,188
Total loans	$	4,830,830	$	13,666	$	4,844,496	$	4,829,682	$	13,629	$	4,843,311

* 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.

Loans are shown net of deferred origination fees, costs and unearned income of $9.6 million at March 31, 2015 and $9.4 million at December 31, 2014, which represented a net deferred income position in both periods.

Overdrawn deposit accounts of $3.2 million and $2.3 million have been reclassified to loans at March 31, 2015 and December 31, 2014, respectively.

Credit Quality

The following tables present the recorded investment in nonaccrual loans, accruing troubled debt restructurings, and loans past due 90 days or more and still accruing by class of loan as of March 31, 2015 and December 31, 2014:



	March 31, 2015
(In thousands)	Nonaccrual loans		Accruing troubled debt restructurings		Loans past due 90 days or more and accruing		Total nonperforming loans
Commercial, financial and agricultural	$	20,008	$	570	$	73	$	20,651
Commercial real estate	14,232		2,668		—		16,900
Construction real estate:
SEPH commercial land and development	2,077		—		—		2,077
Remaining commercial	5,671		54		—		5,725
Mortgage	89		93		—		182
Installment	111		121		—		232
Residential real estate:
Commercial	24,635		584		—		25,219
Mortgage	21,323		10,631		719		32,673
HELOC	1,822		780		—		2,602
Installment	1,643		708		64		2,415
Consumer	4,262		666		816		5,744
Total loans	$	95,873	$	16,875	$	1,672	$	114,420



	December 31, 2014
(In thousands)	Nonaccrual loans		Accruing troubled debt restructurings		Loans past due 90 days or more and accruing		Total nonperforming loans
Commercial, financial and agricultural	$	18,826	$	297	$	229	$	19,352
Commercial real estate	19,299		2,690		—		21,989
Construction real estate:
SEPH commercial land and development	2,078		—		—		2,078
Remaining commercial	5,558		51		—		5,609
Mortgage	59		94		9		162
Installment	115		125		—		240
Residential real estate:
Commercial	24,336		594		—		24,930
Mortgage	21,869		10,349		1,329		33,547
HELOC	1,879		630		9		2,518
Installment	1,743		779		—		2,522
Consumer	4,631		723		1,133		6,487
Total loans	$	100,393	$	16,332	$	2,709	$	119,434

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, 2015 and December 31, 2014.



	March 31, 2015						December 31, 2014
(In thousands)	Nonaccrual and accruing troubled debt restructurings		Loans individually evaluated for impairment		Loans collectively evaluated for impairment		Nonaccrual and accruing troubled debt restructurings		Loans individually evaluated for impairment		Loans collectively evaluated for impairment
Commercial, financial and agricultural	$	20,578	$	20,571	$	7	$	19,123	$	19,106	$	17
Commercial real estate	16,900		16,900		—		21,989		21,989		—
Construction real estate:
SEPH commercial land and development	2,077		2,077		—		2,078		2,078		—
Remaining commercial	5,725		5,725		—		5,609		5,609		—
Mortgage	182		—		182		153		—		153
Installment	232		—		232		240		—		240
Residential real estate:
Commercial	25,219		25,219		—		24,930		24,930		—
Mortgage	31,954		—		31,954		32,218		—		32,218
HELOC	2,602		—		2,602		2,509		—		2,509
Installment	2,351		—		2,351		2,522		—		2,522
Consumer	4,928		—		4,928		5,354		—		5,354
Total loans	$	112,748	$	70,492	$	42,256	$	116,725	$	73,712	$	43,013

All of the loans individually evaluated for impairment were evaluated using the fair value of the underlying collateral or the 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, 2015 and December 31, 2014.



	March 31, 2015						December 31, 2014
(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	$	25,671	$	17,301	$	—	$	30,601	$	17,883	$	—
Commercial real estate	16,963		15,513		—		27,923		20,696		—
Construction real estate:
SEPH commercial land and development	10,861		2,077		—		11,026		2,078		—
Remaining commercial	1,432		444		—		1,427		391		—
Residential real estate:
Commercial	25,770		23,852		—		25,822		23,352		—
Consumer	—		—		—		—		—		—

With an allowance recorded:
Commercial, financial and agricultural	7,444		3,270		1,839		1,251		1,223		981
Commercial real estate	1,419		1,387		645		1,310		1,293		262
Construction real estate:
SEPH commercial land and development	—		—		—		—		—		—
Remaining commercial	5,281		5,281		2,157		5,218		5,218		1,812
Residential real estate:
Commercial	1,394		1,367		423		1,578		1,578		605
Consumer	—		—		—		—		—		—
Total	$	96,235	$	70,492	$	5,064	$	106,156	$	73,712	$	3,660

Management’s general practice is to proactively charge down loans individually evaluated for impairment to the fair value of the underlying collateral. At March 31, 2015 and December 31, 2014, there were $21.6 million and $32.4 million, respectively, of partial charge-offs on loans individually evaluated for impairment with no related allowance recorded and $4.2 million and $45,000, 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 March 31, 2015 and December 31, 2014 of $5.1 million and $3.7 million, respectively. These loans with specific reserves had a recorded investment of $11.3 million and $9.3 million as of March 31, 2015 and December 31, 2014, respectively.

Interest income on loans individually evaluated for impairment is recognized on a cash basis only when Park expects to receive the entire recorded investment of the loan. The following table presents the average recorded investment and interest income recognized subsequent to impairment on loans individually evaluated for impairment as of and for the three months ended March 31, 2015 and March 31, 2014:



	Three Months Ended March 31, 2015						Three Months Ended March 31, 2014
(In thousands)	Recorded investment as of March 31, 2015		Average recorded investment		Interest income recognized		Recorded investment as of March 31, 2014		Average recorded investment		Interest income recognized
Commercial, financial and agricultural	$	20,571	$	19,876	$	131	$	19,835	$	20,140	$	61
Commercial real estate	16,900		18,977		163		39,395		40,995		253
Construction real estate:
SEPH commercial land and development	2,077		2,077		8		4,102		4,464		56
Remaining commercial	5,725		5,697		5		10,530		10,379		47
Residential real estate:
Commercial	25,219		25,373		255		31,213		31,101		263
Consumer	—		—		—		798		799		—
Total	$	70,492	$	72,000	$	562	$	105,873	$	107,878	$	680

The following tables present the aging of the recorded investment in past due loans as of March 31, 2015 and December 31, 2014 by class of loan.



	March 31, 2015
(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	$	5,331	$	6,019	$	11,350	$	836,248	$	847,598
Commercial real estate	317		1,818		2,135		1,072,659		1,074,794
Construction real estate:
SEPH commercial land and development	—		2,069		2,069		114		2,183
Remaining commercial	163		75		238		109,875		110,113
Mortgage	108		68		176		30,791		30,967
Installment	116		6		122		6,791		6,913
Residential real estate:
Commercial	447		19,015		19,462		394,296		413,758
Mortgage	8,985		9,176		18,161		1,180,706		1,198,867
HELOC	490		132		622		213,792		214,414
Installment	202		454		656		25,320		25,976
Consumer	7,546		3,133		10,679		904,992		915,671
Leases	—		—		—		3,242		3,242
Total loans	$	23,705	$	41,965	$	65,670	$	4,778,826	$	4,844,496

* Includes $1.7 million of loans past due 90 days or more and accruing. The remaining are past due, nonaccrual loans and accruing troubled debt restructurings.



	December 31, 2014
(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	$	6,482	$	7,508	$	13,990	$	845,763	$	859,753
Commercial real estate	808		8,288		9,096		1,064,087		1,073,183
Construction real estate:
SEPH commercial land and development	—		2,068		2,068		127		2,195
Remaining commercial	166		77		243		115,196		115,439
Mortgage	39		68		107		31,113		31,220
Installment	21		25		46		7,299		7,345
Residential real estate:
Commercial	250		19,592		19,842		398,808		418,650
Mortgage	11,146		10,637		21,783		1,169,474		1,191,257
HELOC	262		387		649		217,069		217,718
Installment	596		464		1,060		26,176		27,236
Consumer	11,304		3,818		15,122		881,005		896,127
Leases	—		—		—		3,188		3,188
Total loans	$	31,074	$	52,932	$	84,006	$	4,759,305	$	4,843,311

* Includes $2.7 million of loans past due 90 days or more and accruing. The remaining are past due, nonaccrual loans and accruing troubled debt restructurings.

Credit Quality Indicators

Management utilizes past due information as a credit quality indicator across the loan portfolio. Past due information as of March 31, 2015 and December 31, 2014 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 on a scale from 1 to 8. Credit grades are continuously monitored by the responsible 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 that are 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 to be 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 the value 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 Park 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, 2015 and December 31, 2014 for all commercial loans:



	March 31, 2015
(In thousands)	5 Rated		6 Rated		Impaired		Pass Rated		Recorded Investment
Commercial, financial and agricultural *	$	3,017	$	595	$	20,578	$	823,408	$	847,598
Commercial real estate *	12,389		1,496		16,900		1,044,009		1,074,794
Construction real estate:
SEPH commercial land and development *	—		—		2,077		106		2,183
Remaining commercial	4,006		—		5,725		100,382		110,113
Residential real estate:
Commercial	2,185		436		25,219		385,918		413,758
Leases	—		—		—		3,242		3,242
Total commercial loans	$	21,597	$	2,527	$	70,499	$	2,357,065	$	2,451,688



	December 31, 2014
(In thousands)	5 Rated		6 Rated		Impaired		Pass Rated		Recorded Investment
Commercial, financial and agricultural *	$	1,874	$	1,201	$	19,123	$	837,555	$	859,753
Commercial real estate *	8,448		1,712		21,989		1,041,034		1,073,183
Construction real estate:
SEPH commercial land and development *	—		—		2,078		117		2,195
Remaining commercial	3,349		57		5,609		106,424		115,439
Residential real estate:
Commercial	2,581		598		24,930		390,541		418,650
Leases	—		—		—		3,188		3,188
Total Commercial Loans	$	16,252	$	3,568	$	73,729	$	2,378,859	$	2,472,408

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 in accordance with 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 three- month periods ended March 31, 2015 and March 31, 2014 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.

Management reviews renewals/modifications of loans previously identified as TDRs to consider if it is appropriate to remove the TDR classification. If the borrower is no longer experiencing financial difficulty and the renewal/modification does not contain a concessionary interest rate or other concessionary terms, management considers the potential removal of the TDR classification. If deemed appropriate, the TDR classification is removed as the borrower has complied with the terms of the loan at the date of the renewal/modification and there was a reasonable expectation that the borrower would continue to comply with the terms of the loan subsequent to the date of the renewal/modification. The majority of these TDRs were originally considered restructurings in a prior year as a result of a renewal/modification with an interest rate that was not commensurate with the risk of the underlying loan at the time of the renewal/modification. The TDR classification was not removed on any loans during the three months ended March 31, 2015. During the three months ended March 31, 2014, Park removed the TDR classification on $1.0 million of loans that met the requirements discussed above.

At March 31, 2015 and December 31, 2014, there were $42.6 million and $47.5 million, respectively, of TDRs included in the nonaccrual loan totals. At March 31, 2015 and December 31, 2014, $18.1 million and $15.7 million of these nonaccrual TDRs were performing in accordance with the terms of the restructured note. As of March 31, 2015 and December 31, 2014, there were $16.9 million and $16.3 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, 2015 and December 31, 2014, Park had commitments to lend $2.2 million and $1.4 million, respectively, of additional funds to borrowers whose outstanding loan terms had been modified in a TDR.

The specific reserve related to TDRs at March 31, 2015 and December 31, 2014 was $3.5 million and $2.4 million, respectively. Modifications made in 2014 and 2015 were largely the result of renewals and 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 $857,000 and $18,000 were recorded during the three-month periods ended March 31, 2015 and March 31, 2014, respectively, as a result of TDRs identified in the respective year.

The terms of certain other loans were modified during the three-month periods ended March 31, 2015 and March 31, 2014 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, 2015 and March 31, 2014 of $131,000 and $392,000, respectively. The renewal/modification of these loans: (1) involved a renewal/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, 2015 and March 31, 2014 of $4.5 million and $5.7 million, respectively. 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, 2015 and March 31, 2014, as well as the recorded investment of these contracts at March 31, 2015 and March 31, 2014. The recorded investment pre- and post-modification is generally the same due to the fact that Park does not typically provide for forgiveness of principal.



	Three Months Ended March 31, 2015
(In thousands)	Number of Contracts	Accruing		Nonaccrual		Total Recorded Investment
Commercial, financial and agricultural	13	$	398	$	597	$	995
Commercial real estate	6	—		1,314		1,314
Construction real estate:
SEPH commercial land and development	—	—		—		—
Remaining commercial	—	—		—		—
Mortgage	1	—		21		21
Installment	—	—		—		—
Residential real estate:
Commercial	3	—		513		513
Mortgage	7	328		206		534
HELOC	10	193		108		301
Installment	—	—		—		—
Consumer	66	29		463		492
Total loans	106	$	948	$	3,222	$	4,170



	Three Months Ended March 31, 2014
(In thousands)	Number of Contracts	Accruing		Nonaccrual		Total Recorded Investment
Commercial, financial and agricultural	5	$	—	$	60	$	60
Commercial real estate	3	161		523		684
Construction real estate:
SEPH commercial land and development	—	—		—		—
Remaining commercial	—	—		—		—
Mortgage	—	—		—		—
Installment	—	—		—		—
Residential real estate:
Commercial	2	—		68		68
Mortgage	7	164		495		659
HELOC	—	—		—		—
Installment	4	36		36		72
Consumer	71	382		108		490
Total loans	92	$	743	$	1,290	$	2,033

Of those loans which were modified and determined to be a TDR during the three-month period ended March 31, 2015, $1.1 million were on nonaccrual status as of December 31, 2014. Of those loans which were modified and determined to be a TDR during the three-month period ended March 31, 2014, $900,000 were on nonaccrual status as of December 31, 2013.

The following tables present 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 periods ended March 31, 2015 and March 31, 2014, respectively. For these tables, 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, 2015			Three Months Ended March 31, 2014
(In thousands)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Commercial, financial and agricultural	3	$	70	7	$	89
Commercial real estate	—	—		5	872
Construction real estate:
SEPH commercial land and development	—	—		—	—
Remaining commercial	—	—		—	—
Mortgage	—	—		—	—
Installment	—	—		—	—
Residential real estate:
Commercial	—	—		2	302
Mortgage	13	689		19	1,144
HELOC	—	—		—	—
Installment	1	8		6	108
Consumer	47	349		49	345
Leases	—	—		—	—
Total loans	64	$	1,116	88	$	2,860

Of the $1.1 million in modified TDRs which defaulted during the three months ended March 31, 2015, there were no accruing loans. Of the $2.9 million in modified TDRs which defaulted during the three months ended March 31, 2014, $499,000 were accruing loans and $2.4 million were nonaccrual loans.