Loans

3 Months Ended

Mar. 31, 2019

Loans and Leases Receivable Disclosure [Abstract]

The composition of the loan portfolio, by class of loan, as of March 31, 2019 and December 31, 2018 was as follows:



	March 31, 2019						December 31, 2018
(In thousands)	Loan Balance		Accrued Interest Receivable		Recorded Investment		Loan Balance		Accrued Interest Receivable		Recorded Investment
Commercial, financial and agricultural *	$	1,086,690	$	5,574	$	1,092,264	$	1,072,786	$	4,603	$	1,077,389
Commercial real estate *	1,326,894		4,829		1,331,723		1,283,045		4,750		1,287,795
Construction real estate:
Commercial	168,880		760		169,640		175,300		801		176,101
Mortgage	71,855		189		72,044		70,541		151		70,692
Installment	2,325		9		2,334		2,433		7		2,440
Residential real estate:
Commercial	429,637		1,303		430,940		429,730		1,150		430,880
Mortgage	1,127,986		1,801		1,129,787		1,134,278		1,227		1,135,505
HELOC	208,313		1,190		209,503		215,283		1,159		216,442
Installment	13,634		40		13,674		14,327		36		14,363
Consumer	1,302,429		3,854		1,306,283		1,292,136		3,756		1,295,892
Leases	2,117		24		2,141		2,273		26		2,299
Total loans	$	5,740,760	$	19,573	$	5,760,333	$	5,692,132	$	17,666	$	5,709,798

* Included within each of 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 $12.3 million at March 31, 2019 and $12.5 million at December 31, 2018, which represented a net deferred income position in both periods. At March 31, 2019 and December 31, 2018, loans included purchase accounting adjustments of $4.2 million and $4.4 million, respectively, which represented a net deferred income position in both periods. This fair market value adjustment is expected to be recognized into interest income on a level yield basis over the remaining expected life of the loans.

Overdrawn deposit accounts of $2.2 million and $2.3 million had been reclassified to loans at March 31, 2019 and December 31, 2018, 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, 2019 and December 31, 2018:



	March 31, 2019
(In thousands)	Nonaccrual Loans		Accruing TDRs		Loans Past Due 90 Days or More and Accruing		Total Nonperforming Loans
Commercial, financial and agricultural	$	14,678	$	221	$	45	$	14,944
Commercial real estate	28,114		3,024		—		31,138
Construction real estate:
Commercial	2,401		478		—		2,879
Mortgage	—		8		80		88
Installment	11		8		—		19
Residential real estate:
Commercial	1,992		54		—		2,046
Mortgage	16,435		9,010		582		26,027
HELOC	1,848		954		155		2,957
Installment	505		1,174		—		1,679
Consumer	3,191		898		727		4,816
Total loans	$	69,175	$	15,829	$	1,589	$	86,593



	December 31, 2018
(In thousands)	Nonaccrual Loans		Accruing TDRs		Loans Past Due 90 Days or More and Accruing		Total Nonperforming Loans
Commercial, financial and agricultural	$	14,998	$	196	$	10	$	15,204
Commercial real estate	25,566		2,860		—		28,426
Construction real estate:
Commercial	1,866		—		—		1,866
Mortgage	—		15		20		35
Installment	19		9		—		28
Residential real estate:
Commercial	2,610		122		—		2,732
Mortgage	16,892		9,100		1,124		27,116
HELOC	2,158		1,028		9		3,195
Installment	468		1,049		24		1,541
Consumer	3,377		843		1,115		5,335
Total loans	$	67,954	$	15,222	$	2,302	$	85,478

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, 2019 and December 31, 2018.



	March 31, 2019						December 31, 2018
(In thousands)	Nonaccrual and Accruing TDRs		Loans Individually Evaluated for Impairment		Loans Collectively Evaluated for Impairment		Nonaccrual and Accruing TDRs		Loans Individually Evaluated for Impairment		Loans Collectively Evaluated for Impairment
Commercial, financial and agricultural	$	14,899	$	14,844	$	55	$	15,194	$	15,120	$	74
Commercial real estate	31,138		31,138		—		28,426		28,426		—
Construction real estate:
Commercial	2,879		2,879		—		1,866		1,866		—
Mortgage	8		—		8		15		—		15
Installment	19		—		19		28		—		28
Residential real estate:
Commercial	2,046		2,046		—		2,732		2,732		—
Mortgage	25,445		—		25,445		25,992		—		25,992
HELOC	2,802		—		2,802		3,186		—		3,186
Installment	1,679		—		1,679		1,517		—		1,517
Consumer	4,089		—		4,089		4,220		—		4,220
Total loans	$	85,004	$	50,907	$	34,097	$	83,176	$	48,144	$	35,032

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, 2019 and December 31, 2018.



	March 31, 2019						December 31, 2018
(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	$	4,221	$	3,488	$	—	$	8,999	$	3,713	$	—
Commercial real estate	29,876		29,429		—		26,663		26,213		—
Construction real estate:
Commercial	5,693		2,879		—		4,679		1,866		—
Residential real estate:
Commercial	2,048		1,993		—		2,691		2,374		—

With an allowance recorded:
Commercial, financial and agricultural	18,238		11,356		2,403		13,736		11,407		2,169
Commercial real estate	1,709		1,709		58		2,255		2,213		86
Construction real estate:
Commercial	—		—		—		—		—		—
Residential real estate:
Commercial	53		53		7		358		358		18
Total	$	61,838	$	50,907	$	2,468	$	59,381	$	48,144	$	2,273

Management’s general practice is to charge down loans individually evaluated for impairment to the fair value of the underlying collateral. At March 31, 2019 and December 31, 2018, there were $4.1 million and $8.8 million, respectively, of partial charge-offs on loans individually evaluated for impairment with no related allowance recorded and $6.9 million and $2.4 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 March 31, 2019 and December 31, 2018 of $2.5 million and $2.3 million, respectively. These loans with specific reserves had a recorded investment of $13.1 million and $14.0 million as of March 31, 2019 and December 31, 2018, respectively.

Interest income on nonaccrual loans individually evaluated for impairment is recognized on a cash basis only when Park expects to receive the entire recorded investment of the loans. Interest income on accruing TDRs individually evaluated for impairment continues to be recorded on an accrual basis. 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, 2019 and March 31, 2018:



	Three Months Ended March 31, 2019						Three Months Ended March 31, 2018
(In thousands)	Recorded Investment as of March 31, 2019		Average Recorded Investment		Interest Income Recognized		Recorded Investment as of March 31, 2018		Average Recorded Investment		Interest Income Recognized
Commercial, financial and agricultural	$	14,844	$	14,924	$	47	$	27,050	$	20,078	$	174
Commercial real estate	31,138		28,851		271		18,983		18,193		202
Construction real estate:
Commercial	2,879		2,239		12		1,393		1,377		14
Residential real estate:
Commercial	2,046		2,588		20		2,896		11,215		31
Total	$	50,907	$	48,602	$	350	$	50,322	$	50,863	$	421

The following tables present the aging of the recorded investment in past due loans as of March 31, 2019 and December 31, 2018 by class of loan.



	March 31, 2019
(In thousands)	Accruing Loans Past Due 30-89 Days		Past Due Nonaccrual Loans and Loans Past Due 90 Days or More and Accruing ⁽¹⁾		Total Past Due		Total Current ⁽²⁾		Total Recorded Investment
Commercial, financial and agricultural	$	1,428	$	2,290	$	3,718	$	1,088,546	$	1,092,264
Commercial real estate	57		3,886		3,943		1,327,780		1,331,723
Construction real estate:
Commercial	368		2,299		2,667		166,973		169,640
Mortgage	254		80		334		71,710		72,044
Installment	18		11		29		2,305		2,334
Residential real estate:
Commercial	124		873		997		429,943		430,940
Mortgage	9,913		8,524		18,437		1,111,350		1,129,787
HELOC	462		975		1,437		208,066		209,503
Installment	98		338		436		13,238		13,674
Consumer	6,035		1,679		7,714		1,298,569		1,306,283
Leases	—		—		—		2,141		2,141
Total loans	$	18,757	$	20,955	$	39,712	$	5,720,621	$	5,760,333

(1) Includes an aggregate of $1.6 million of loans past due 90 days or more and accruing. The remaining loans were past due nonaccrual loans.

(2) Includes an aggregate off $49.8 million of nonaccrual loans which were current in regards to contractual principal and interest payments.



	December 31, 2018
(in thousands)	Accruing Loans Past Due 30-89 Days		Past Due Nonaccrual Loans and Loans Past Due 90 Days or More and Accruing ⁽¹⁾		Total Past Due		Total Current ⁽²⁾		Total Recorded Investment
Commercial, financial and agricultural	$	4,786	$	1,375	$	6,161	$	1,071,228	$	1,077,389
Commercial real estate	780		3,584		4,364		1,283,431		1,287,795
Construction real estate:
Commercial	—		1,635		1,635		174,466		176,101
Mortgage	133		20		153		70,539		70,692
Installment	28		19		47		2,393		2,440
Residential real estate:
Commercial	683		1,104		1,787		429,093		430,880
Mortgage	13,210		8,553		21,763		1,113,742		1,135,505
HELOC	620		907		1,527		214,915		216,442
Installment	155		274		429		13,934		14,363
Consumer	9,524		2,131		11,655		1,284,237		1,295,892
Leases	—		—		—		2,299		2,299
Total loans	$	29,919	$	19,602	$	49,521	$	5,660,277	$	5,709,798

(1) Includes an aggregate of $2.3 million of loans past due 90 days or more and accruing. The remaining loans were past due nonaccrual loans.

(2) Includes an aggregate of $50.7 million of nonaccrual loans which were current in regards to contractual principal and interest payments.

Credit Quality Indicators

Management utilizes past due information as a credit quality indicator across the loan portfolio. Past due information as of March 31, 2019 and December 31, 2018 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 a 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 placed on nonaccrual status and 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, 2019 and December 31, 2018 for all commercial loans:



	March 31, 2019
(In thousands)	5 Rated		6 Rated		Nonaccrual and Accruing TDRs		Purchase Credit Impaired ⁽¹⁾		Pass-Rated		Recorded Investment
Commercial, financial and agricultural *	$	12,980	$	543	$	14,899	$	330	$	1,063,512	$	1,092,264
Commercial real estate *	4,412		9		31,138		3,012		1,293,152		1,331,723
Construction real estate:
Commercial	493		2		2,879		—		166,266		169,640
Residential real estate:
Commercial	1,761		104		2,046		30		426,999		430,940
Leases	—		—		—		—		2,141		2,141
Total commercial loans	$	19,646	$	658	$	50,962	$	3,372	$	2,952,070	$	3,026,708

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

(1) Excludes loans acquired with deteriorated credit quality which are nonaccrual or TDRs due to additional credit deterioration or modification post acquisition. These loans had a recorded investment of $924,000 at March 31, 2019.



	December 31, 2018
(In thousands)	5 Rated		6 Rated		Nonaccrual and Accruing TDRs		Purchase Credit Impaired ⁽¹⁾		Pass-Rated		Recorded Investment
Commercial, financial and agricultural *	$	11,509	$	444	$	15,194	$	148	$	1,050,094	$	1,077,389
Commercial real estate *	2,707		—		28,426		3,059		1,253,603		1,287,795
Construction real estate:
Commercial	1,560		—		1,866		503		172,172		176,101
Residential real estate:
Commercial	272		41		2,732		251		427,584		430,880
Leases	—		—		—		—		2,299		2,299
Total Commercial Loans	$	16,048	$	485	$	48,218	$	3,961	$	2,905,752	$	2,974,464

* Included within each of 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 Acquired with Deteriorated Credit Quality

In conjunction with the NewDominion acquisition, Park acquired loans with a book value of $277.9 million as of July 1, 2018. These loans were recorded at the initial fair value of $272.8 million.

Loans acquired with deteriorated credit quality with a book value of $5.1 million were recorded at the initial fair value of $4.9 million. The carrying amount of loans acquired with deteriorated credit quality at March 31, 2019 and December 31, 2018 was $4.3 million and $4.4 million, respectively, while the outstanding customer balance was $4.5 million and $4.6 million, respectively. At March 31, 2019 and December 31, 2018, no allowance for loan losses had been recognized related to the acquired impaired loans.

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, 2019 and March 31, 2018 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.

Quarterly, 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 did not contain a concessionary interest rate or other concessionary terms and the terms of the renewal/modification are considered to be market terms based on the current risk characteristics of the borrower, management considers the potential removal of the TDR classification. If deemed appropriate, the TDR classification is removed if 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 $23,000 and $324,000 of loans during the three-month periods ended March 31, 2019 and March 31, 2018, respectively.

At March 31, 2019 and December 31, 2018, there were $23.7 million and $24.6 million, respectively, of TDRs included in the nonaccrual loan totals. At March 31, 2019 and December 31, 2018, $18.0 million and $19.2 million, respectively, of these nonaccrual TDRs were performing in accordance with the terms of the restructured note. As of March 31, 2019 and December 31, 2018, loans with a recorded investment of $15.8 million and $15.2 million, respectively, were included in accruing TDR loan totals. Management will continue to review the restructured loans and may determine it is appropriate to move certain nonaccrual TDRs to accrual status in the future.

At March 31, 2019 and December 31, 2018, Park had commitments to lend $0.2 million and $0.3 million, respectively, of additional funds to borrowers whose outstanding loan terms had been modified in a TDR.

At March 31, 2019 and December 31, 2018, there were $1.3 million and $1.2 million of specific reserves related to TDRs. Modifications made in 2018 and 2019 were largely the result of renewals and extending the maturity date of the loans at terms consistent with the original notes. 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. There were no additional specific reserves recorded during the three-month period ended March 31, 2019 as a result of TDRs identified in the period. There were $10,000 of additional specific reserves recorded during the three-month period ended March 31, 2018 as a result of TDRs identified in the period.

The terms of certain other loans were modified during the three-month periods ended March 31, 2019 and March 31, 2018 that did not meet the definition of a TDR. There were no substandard commercial loans modified during the three-month periods ended March 31, 2019 and 2018 which did not meet the definition of a TDR. Consumer loans modified during the three-month period ended March 31, 2019 which did not meet the definition of a TDR had a total recorded investment of $7.2 million. Consumer loans with a recorded investment of $6.0 million were modified during the three-month period ended March 31, 2018 and did not meet the definition of a TDR. 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, 2019 and March 31, 2018, as well as the recorded investment of these contracts at March 31, 2019 and March 31, 2018. The recorded investment pre- and post-modification is generally the same due to the fact that Park does not typically forgive principal.



	Three Months Ended March 31, 2019
(In thousands)	Number of Contracts	Accruing		Nonaccrual		Total Recorded Investment
Commercial, financial and agricultural	5	$	—	$	472	$	472
Commercial real estate	2	—		2,215		2,215
Construction real estate:
Commercial	1	480		—		480
Mortgage	—	—		—		—
Installment	—	—		—		—
Residential real estate:
Commercial	—	—		—		—
Mortgage	8	54		510		564
HELOC	3	—		81		81
Installment	8	94		95		189
Consumer	69	24		535		559
Total loans	96	$	652	$	3,908	$	4,560



	Three Months Ended March 31, 2018
(In thousands)	Number of Contracts	Accruing		Nonaccrual		Total Recorded Investment
Commercial, financial and agricultural	4	$	—	$	55	$	55
Commercial real estate	3	—		249		249
Construction real estate:
Commercial	1	63		—		63
Mortgage	—	—		—		—
Installment	—	—		—		—
Residential real estate:
Commercial	—	—		—		—
Mortgage	9	—		650		650
HELOC	2	251		88		339
Installment	5	102		13		115
Consumer	50	13		351		364
Total loans	74	$	429	$	1,406	$	1,835

Of those loans which were modified and determined to be a TDR during the three-month period ended March 31, 2019, $0.7 million were on nonaccrual status as of December 31, 2018. Of those loans which were modified and determined to be a TDR during the three-month period ended March 31, 2018, $0.5 million were on nonaccrual status as of December 31, 2017.

The following table presents the recorded investment in loans 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, 2019 and March 31, 2018, 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, 2019			Three Months Ended March 31, 2018
(In thousands)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Commercial, financial and agricultural	6	$	153	3	$	207
Commercial real estate	—	—		1	114
Construction real estate:
Commercial	—	—		—	—
Mortgage	—	—		—	—
Installment	—	—		—	—
Residential real estate:
Commercial	—	—		1	17
Mortgage	3	68		7	536
HELOC	5	68		3	174
Installment	1	28		—	—
Consumer	40	343		41	329
Leases	—	—		—	—
Total loans	55	$	660	56	$	1,377

Of the $0.7 million in modified TDRs which defaulted during the three-month period ended March 31, 2019, $9,000 were accruing loans and $0.7 million were nonaccrual loans. Of the $1.4 million in modified TDRs which defaulted during the three-month period ended March 31, 2018, $72,000 were accruing loans and $1.3 million were nonaccrual loans.