Loans

The composition of the loan portfolio, by class of loan, as of March 31, 2016 and December 31, 2015 was as follows:



	March 31, 2016						December 31, 2015
(In thousands)	Loan Balance		Accrued Interest Receivable		Recorded Investment		Loan Balance		Accrued Interest Receivable		Recorded Investment
Commercial, financial and agricultural *	$	941,481	$	3,592	$	945,073	$	955,727	$	3,437	$	959,164
Commercial real estate *	1,114,626		3,652		1,118,278		1,113,603		4,009		1,117,612
Construction real estate:
SEPH commercial land and development	2,043		—		2,043		2,044		—		2,044
Remaining commercial	129,167		321		129,488		128,046		321		128,367
Mortgage	37,295		74		37,369		36,722		75		36,797
Installment	5,941		20		5,961		6,533		21		6,554
Residential real estate:
Commercial	411,314		1,007		412,321		410,571		1,014		411,585
Mortgage	1,207,396		1,733		1,209,129		1,210,819		1,469		1,212,288
HELOC	209,260		784		210,044		211,415		769		212,184
Installment	21,734		82		21,816		22,638		78		22,716
Consumer	979,111		2,896		982,007		967,111		3,032		970,143
Leases	2,817		39		2,856		2,856		14		2,870
Total loans	$	5,062,185	$	14,200	$	5,076,385	$	5,068,085	$	14,239	$	5,082,324

* Included within commercial, financial and agricultural loans and commercial real estate 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 $10.3 million at March 31, 2016 and $10.4 million at December 31, 2015, which represented a net deferred income position in both periods.

Overdrawn deposit accounts of $1.9 million and $1.7 million have been reclassified to loans at March 31, 2016 and December 31, 2015, respectively, and are included in the commercial, financial and agricultural loan class above.

Credit Quality

The following tables present the recorded investment in nonaccrual loans, accruing troubled debt restructurings (TDRs), and loans past due 90 days or more and still accruing by class of loan as of March 31, 2016 and December 31, 2015:



	March 31, 2016
(In thousands)	Nonaccrual Loans		Accruing Troubled Debt Restructurings		Loans Past Due 90 Days or More and Accruing		Total Nonperforming Loans
Commercial, financial and agricultural	$	27,813	$	797	$	8	$	28,618
Commercial real estate	16,556		1,512		—		18,068
Construction real estate:
SEPH commercial land and development	2,043		—		—		2,043
Remaining commercial	4,336		509		—		4,845
Mortgage	6		108		—		114
Installment	21		108		—		129
Residential real estate:
Commercial	24,365		254		—		24,619
Mortgage	20,889		9,691		536		31,116
HELOC	1,653		829		8		2,490
Installment	1,445		608		—		2,053
Consumer	3,498		678		818		4,994
Total loans	$	102,625	$	15,094	$	1,370	$	119,089



	December 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	$	21,676	$	8,947	$	—	$	30,623
Commercial real estate	15,268		2,757		—		18,025
Construction real estate:
SEPH commercial land and development	2,044		—		—		2,044
Remaining commercial	4,162		514		—		4,676
Mortgage	7		110		—		117
Installment	64		114		—		178
Residential real estate:
Commercial	25,063		261		—		25,324
Mortgage	20,378		10,143		851		31,372
HELOC	1,749		873		27		2,649
Installment	1,657		635		4		2,296
Consumer	3,819		734		1,093		5,646
Total loans	$	95,887	$	25,088	$	1,975	$	122,950

The following table provides additional information regarding those nonaccrual loans and accruing TDR loans that were individually evaluated for impairment and those collectively evaluated for impairment as of March 31, 2016 and December 31, 2015.



	March 31, 2016						December 31, 2015
(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	$	28,610	$	28,596	$	14	$	30,623	$	30,595	$	28
Commercial real estate	18,068		18,068		—		18,025		18,025		—
Construction real estate:
SEPH commercial land and development	2,043		2,043		—		2,044		2,044		—
Remaining commercial	4,845		4,845		—		4,676		4,676		—
Mortgage	114		—		114		117		—		117
Installment	129		—		129		178		—		178
Residential real estate:
Commercial	24,619		24,619		—		25,324		25,324		—
Mortgage	30,580		—		30,580		30,521		—		30,521
HELOC	2,482		—		2,482		2,622		—		2,622
Installment	2,053		—		2,053		2,292		—		2,292
Consumer	4,176		—		4,176		4,553		—		4,553
Total loans	$	117,719	$	78,171	$	39,548	$	120,975	$	80,664	$	40,311

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, together with the related allowance recorded, as of March 31, 2016 and December 31, 2015.



	March 31, 2016						December 31, 2015
(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	$	37,013	$	23,192	$	—	$	32,583	$	18,763	$	—
Commercial real estate	15,369		15,148		—		15,138		14,916		—
Construction real estate:
SEPH commercial land and development	10,832		2,043		—		10,834		2,044		—
Remaining commercial	2,474		1,497		—		2,506		1,531		—
Residential real estate:
Commercial	22,932		22,806		—		23,798		23,480		—

With an allowance recorded:
Commercial, financial and agricultural	9,496		5,404		2,471		16,155		11,832		1,904
Commercial real estate	2,920		2,920		593		3,195		3,109		381
Construction real estate:
Remaining commercial	3,348		3,348		1,456		3,145		3,145		1,356
Residential real estate:
Commercial	2,155		1,813		410		1,951		1,844		550
Total	$	106,539	$	78,171	$	4,930	$	109,305	$	80,664	$	4,191

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, 2016 and December 31, 2015, there were $24.0 million and $24.2 million, respectively, of partial charge-offs on loans individually evaluated for impairment with no related allowance recorded and $4.4 million and $4.5 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 $4.9 million and $4.2 million related to loans individually evaluated for impairment at March 31, 2016 and December 31, 2015, respectively. These loans with specific reserves had a recorded investment of $13.5 million and $19.9 million as of March 31, 2016 and December 31, 2015, 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, 2016 and March 31, 2015:



	Three Months Ended March 31, 2016						Three Months Ended March 31, 2015
(In thousands)	Recorded Investment as of March 31, 2016		Average Recorded Investment		Interest Income Recognized		Recorded Investment as of March 31, 2015		Average Recorded Investment		Interest Income Recognized
Commercial, financial and agricultural	$	28,596	$	29,858	$	238	$	20,571	$	19,876	$	131
Commercial real estate	18,068		17,100		180		16,900		18,977		163
Construction real estate:
SEPH commercial land and development	2,043		2,043		—		2,077		2,077		8
Remaining commercial	4,845		4,771		13		5,725		5,697		5
Residential real estate:
Commercial	24,619		24,897		1,965		25,219		25,373		255
Total	$	78,171	$	78,669	$	2,396	$	70,492	$	72,000	$	562

The following tables present the aging of the recorded investment in past due loans as of March 31, 2016 and December 31, 2015 by class of loan.



	March 31, 2016
(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	$	177	$	7,926	$	8,103	$	936,970	$	945,073
Commercial real estate	570		1,853		2,423		1,115,855		1,118,278
Construction real estate:
SEPH commercial land and development	—		2,043		2,043		—		2,043
Remaining commercial	—		139		139		129,349		129,488
Mortgage	52		—		52		37,317		37,369
Installment	158		18		176		5,785		5,961
Residential real estate:
Commercial	498		10,296		10,794		401,527		412,321
Mortgage	10,369		9,857		20,226		1,188,903		1,209,129
HELOC	521		669		1,190		208,854		210,044
Installment	292		181		473		21,343		21,816
Consumer	7,352		2,641		9,993		972,014		982,007
Leases	—		—		—		2,856		2,856
Total loans	$	19,989	$	35,623	$	55,612	$	5,020,773	$	5,076,385

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



	December 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	$	670	$	7,536	$	8,206	$	950,958	$	959,164
Commercial real estate	142		530		672		1,116,940		1,117,612
Construction real estate:
SEPH commercial land and development	—		2,044		2,044		—		2,044
Remaining commercial	165		84		249		128,118		128,367
Mortgage	63		7		70		36,727		36,797
Installment	200		46		246		6,308		6,554
Residential real estate:
Commercial	325		19,521		19,846		391,739		411,585
Mortgage	10,569		8,735		19,304		1,192,984		1,212,288
HELOC	487		186		673		211,511		212,184
Installment	426		318		744		21,972		22,716
Consumer	11,458		3,376		14,834		955,309		970,143
Leases	—		—		—		2,870		2,870
Total loans	$	24,505	$	42,383	$	66,888	$	5,015,436	$	5,082,324

* Includes $2.0 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 March 31, 2016 and December 31, 2015 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 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 (graded an 1 through a 4) 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 Park’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, 2016 and December 31, 2015 for all commercial loans:



	March 31, 2016
(In thousands)	5 Rated		6 Rated		Impaired		Pass-Rated		Recorded Investment
Commercial, financial and agricultural *	$	4,685	$	272	$	28,610	$	911,506	$	945,073
Commercial real estate *	14,156		3,052		18,068		1,083,002		1,118,278
Construction real estate:
SEPH commercial land and development	—		—		2,043		—		2,043
Remaining commercial	1,820		121		4,845		122,702		129,488
Residential real estate:
Commercial	2,438		1,483		24,619		383,781		412,321
Leases	—		—		—		2,856		2,856
Total commercial loans	$	23,099	$	4,928	$	78,185	$	2,503,847	$	2,610,059

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



	December 31, 2015
(In thousands)	5 Rated		6 Rated		Impaired		Pass-Rated		Recorded Investment
Commercial, financial and agricultural *	$	4,392	$	347	$	30,623	$	923,802	$	959,164
Commercial real estate *	14,880		3,417		18,025		1,081,290		1,117,612
Construction real estate:
SEPH commercial land and development	—		—		2,044		—		2,044
Remaining commercial	2,151		122		4,676		121,418		128,367
Residential real estate:
Commercial	3,280		386		25,324		382,595		411,585
Leases	—		—		—		2,870		2,870
Total Commercial Loans	$	24,703	$	4,272	$	80,692	$	2,511,975	$	2,621,642

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

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. A court's discharge of a borrower's debt in a Chapter 7 bankruptcy is considered a concession when the borrower does not reaffirm the discharged debt. Certain loans which were modified during the three-month periods ended March 31, 2016 and March 31, 2015 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 removed on $806,000 of loans during the three-month period ended March 31, 2016. The TDR classification was not removed on any loans during the three-month period ended March 31, 2015.

At March 31, 2016 and December 31, 2015, there were $49.4 million and $41.1 million, respectively, of TDRs included in the nonaccrual loan totals. At March 31, 2016 and December 31, 2015, $35.9 million and $19.1 million of these nonaccrual TDRs were performing in accordance with the terms of the restructured note. As of March 31, 2016 and December 31, 2015, there were $15.1 million and $25.1 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, 2016 and December 31, 2015, Park had commitments to lend $2.7 million and $2.3 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, 2016 and December 31, 2015 was $2.6 million and $2.3 million, respectively. Modifications made in 2015 and 2016 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 Accounting Standards Codification (ASC) 310. Additional specific reserves of $25,000 and $857,000 were recorded during the three-month periods ended March 31, 2016 and 2015, respectively, as a result of TDRs identified in the respective period.

The terms of certain other loans were modified during the three-month periods ended March 31, 2016 and 2015 that did not meet the definition of a TDR. There were no modified substandard commercial loans which did not meet the definition of a TDR at March 31, 2016. Modified substandard commercial loans which did not meet the definition of a TDR had a total recorded investment as of March 31, 2015 of $131,000. 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 of $2.0 million and $4.5 million, as of March 31, 2016 and 2015, 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, 2016 and 2015, as well as the recorded investment of these contracts at March 31, 2016 and 2015. 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, 2016
(In thousands)	Number of Contracts	Accruing		Nonaccrual		Total Recorded Investment
Commercial, financial and agricultural	7	$	131	$	716	$	847
Commercial real estate	—	—		—		—
Construction real estate:
SEPH commercial land and development	—	—		—		—
Remaining commercial	—	—		—		—
Mortgage	—	—		—		—
Installment	—	—		—		—
Residential real estate:
Commercial	2	—		617		617
Mortgage	5	99		217		316
HELOC	6	64		122		186
Installment	—	—		—		—
Consumer	64	52		511		563
Total loans	84	$	346	$	2,183	$	2,529



	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

Of those loans which were modified and determined to be a TDR during the three-month period ended March 31, 2016, $922,000 were on nonaccrual status as of December 31, 2015. 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.

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, 2016 and 2015, 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, 2016			Three Months Ended March 31, 2015
(In thousands)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Commercial, financial and agricultural	1	$	1	3	$	70
Commercial real estate	—	—		—	—
Construction real estate:
SEPH commercial land and development	—	—		—	—
Remaining commercial	—	—		—	—
Mortgage	—	—		—	—
Installment	—	—		—	—
Residential real estate:
Commercial	1	90		—	—
Mortgage	8	516		13	689
HELOC	—	—		—	—
Installment	1	25		1	8
Consumer	44	463		47	349
Leases	—	—		—	—
Total loans	55	$	1,095	64	$	1,116

Of the $1.1 million in modified TDRs which defaulted during the three months ended March 31, 2016, $37,000 were accruing loans and $1.1 million were nonaccrual loans. Of the $1.1 million in modified TDRs which defaulted during the three months ended March 31, 2015, there were no accruing loans.