Note 4 – Loans

The composition of the loan portfolio, by class of loan, as of September 30, 2011 and December 31, 2010 was as follows:


	September 30, 2011						December 31, 2010
	Loan balance		Accrued interest receivable		Recorded investment		Loan balance		Accrued interest receivable		Recorded investment
(In thousands)
Commercial, financial and agricultural *	$	756,888	$	2,992	$	759,880	$	737,902	$	2,886	$	740,788

Commercial real estate *		1,250,936		5,064		1,256,000		1,226,616		4,804		1,231,420
Construction real estate:
Vision commercial land and development *		102,271		232		102,503		171,334		282		171,616
Remaining commercial		163,606		341		163,947		195,693		622		196,315
Mortgage		19,857		62		19,919		26,326		95		26,421
Installment		15,007		65		15,072		13,127		54		13,181
Residential real estate
Commercial		456,670		1,276		457,946		464,903		1,403		466,306
Mortgage		968,330		1,355		969,685		906,648		2,789		909,437
HELOC		253,461		959		254,420		260,463		1,014		261,477
Installment		51,118		204		51,322		60,195		255		60,450
Consumer		640,267		2,679		642,946		666,871		3,245		670,116
Leases		2,164		40		2,204		2,607		56		2,663
Total loans	$	4,680,575	$	15,269	$	4,695,844	$	4,732,685	$	17,505	$	4,750,190

* Included within commercial, financial and agricultural loans, commercial real estate loans, and Vision commercial land and development loans are 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 loans as of September 30, 2011 and December 31, 2010:


	September 30, 2011
(In thousands)	Nonaccrual loans		Accruing restructured loans		Loans past due 90 days or more and accruing		Total nonperforming loans
Commercial, financial and agricultural	$	21,844	$	3,081	$	22	$	24,947
Commercial real estate		41,856		2,243		-		44,099
Construction real estate:
Vision commercial land and development		42,353		1,249		-		43,602
Remaining commercial		29,386		4,575		-		33,961
Mortgage		66		-		-		66
Installment		107		-		-		107
Residential real estate:
Commercial		47,422		-		-		47,422
Mortgage		25,976		4,393		1,237		31,606
HELOC		1,420		-		-		1,420
Installment		1,953		22		112		2,087
Consumer		1,983		-		851		2,834
Leases		-		-		-		-
Total loans	$	214,366	$	15,563	$	2,222	$	232,151


	December 31, 2010
(In thousands)	Nonaccrual loans		Accruing restructured loans		Loans past due 90 days or more and accruing		Total nonperforming loans
Commercial, financial and agricultural	$	19,276	$	-	$	-	$	19,276
Commercial real estate		57,941		-		20		57,961
Construction real estate:
Vision commercial land and development		87,424		-		-		87,424
Remaining commercial		27,080		-		-		27,080
Mortgage		354		-		-		354
Installment		417		-		13		430
Residential real estate:
Commercial		60,227		-		-		60,227
Mortgage		32,479		-		2,175		34,654
HELOC		964		-		149		1,113
Installment		1,195		-		277		1,472
Consumer		1,911		-		1,059		2,970
Leases		-		-		-		-
Total loans	$	289,268	$	-	$	3,693	$	292,961

The following table provides additional information regarding those nonaccrual and accruing restructured loans that are individually evaluated for impairment and those collectively evaluated for impairment as of September 30, 2011 and December 31, 2010.


	September 30, 2011						December 31, 2010
(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	$	24,925	$	24,925	$	-	$	19,276	$	19,205	$	71
Commercial real estate		44,099		44,099		-		57,941		57,930		11
Construction real estate:
Vision commercial land and development		43,602		42,036		1,566		87,424		86,491		933
Remaining commercial		33,961		33,961		-		27,080		27,080		-
Mortgage		66		-		66		354		-		354
Installment		107		-		107		417		-		417
Residential real estate:
Commercial		47,422		47,422		-		60,227		60,227		-
Mortgage		30,369		-		30,369		32,479		-		32,479
HELOC		1,420		-		1,420		964		-		964
Installment		1,975		-		1,975		1,195		-		1,195
Consumer		1,983		21		1,962		1,911		-		1,911
Leases		-		-		-		-		-		-
Total loans	$	229,929	$	192,464	$	37,465	$	289,268	$	250,933	$	38,335

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 loans as of September 30, 2011 and December 31, 2010.


	September 30, 2011 (Restated)						December 31, 2010
	Unpaid principal balance		Recorded investment		Allowance for loan losses allocated		Unpaid principal balance		Recorded investment		Allowance for loan losses allocated
(in thousands)
With no related allowance recorded
Commercial, financial and agricultural	$	17,903	$	12,329	$	—	$	9,347	$	8,891	$	—
Commercial real estate		39,400		30,680		—		21,526		17,170		—
Construction real estate:
Vision commercial land and development		41,022		15,952		—		11,206		7,847		—
Remaining commercial		17,582		16,299		—		12,305		11,743		—
Residential real estate:
Commercial		32,568		29,949		—		46,344		43,031		—
Consumer		—		—		—		—		—		—

With an allowance recorded
Commercial, financial and agricultural		15,945		12,596		6,400		11,801		10,314		3,028
Commercial real estate		18,560		12,419		5,183		44,789		40,760		12,652
Construction real estate:
Vision commercial land and development		52,623		26,084		15,133		103,937		78,644		39,887
Remaining commercial		30,813		17,662		8,940		23,563		15,337		5,425
Residential real estate:
Commercial		21,847		17,473		4,681		19,716		17,196		5,912
Consumer		21		21		—		—		—		—

Total	$	288,284	$	192,464	$	40,337	$	304,534	$	250,933	$	66,904

Management's general practice is to proactively charge down loans individually evaluated for impairment to the fair value of the underlying collateral. At September 30, 2011 and December 31, 2010, there were $42.3 million and $12.0 million, respectively, of partial charge-offs on loans individually evaluated for impairment with no related allowance recorded and $53.6 million and $41.6 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 September 30, 2011 and December 31, 2010, of $40.3 million and $66.9 million, respectively, related to loans with a recorded investment of $86.3 million and $162.3 million.

The following table presents the average recorded investment and interest income recognized on loans individually evaluated for impairment for the three and nine months ended September 30, 2011:


			Three months ended September 30, 2011				Nine months ended September 30, 2011
	Recorded investment as of September 30, 2011		Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
(in thousands)
Commercial, financial and agricultural	$	24,925	$	24,049	$	49	$	21,361	$	155
Commercial real estate		44,099		45,162		26		50,874		150
Construction real estate:
Vision commercial land and development		42,036		43,555		-		67,135		-
Remaining commercial		33,961		34,027		116		29,573		330
Residential real estate:
Commercial		47,422		48,064		-		54,454		153
Consumer		21		21		-		15		1

Total	$	192,464	$	194,878	$	191	$	223,412	$	789

The following tables present the aging of the recorded investment in past due loans as of September 30, 2011 and December 31, 2010 by class of loans.


	September 30, 2011
	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
(In thousands)
Commercial, financial and agricultural	$	2,211	$	16,457	$	18,668	$	741,212	$	759,880
Commercial real estate		9,543		23,119		32,662		1,223,338		1,256,000
Construction real estate:
Vision commercial land and development		425		35,654		36,079		66,424		102,503
Remaining commercial		-		17,807		17,807		146,140		163,947
Mortgage		145		66		211		19,708		19,919
Installment		202		69		271		14,801		15,072
Residential real estate:
Commercial		1,264		17,295		18,559		439,387		457,946
Mortgage		14,015		21,618		35,633		934,052		969,685
HELOC		539		673		1,212		253,208		254,420
Installment		1,428		499		1,927		49,395		51,322
Consumer		9,799		2,061		11,860		631,086		642,946
Leases		-		-		-		2,204		2,204
Total loans	$	39,571	$	135,318	$	174,889	$	4,520,955	$	4,695,844

* Includes $2.2 million of loans past due 90 days or more and accruing.


	December 31, 2010
	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
(In thousands)
Commercial, financial and agricultural	$	2,247	$	15,622	$	17,869	$	722,919	$	740,788
Commercial real estate		9,521		53,269		62,790		1,168,630		1,231,420
Construction real estate:
Vision commercial land and development		2,406		65,130		67,536		104,080		171,616
Remaining commercial		141		19,687		19,828		176,487		196,315
Mortgage		479		148		627		25,794		26,421
Installment		235		399		634		12,547		13,181
Residential real estate:
Commercial		3,281		26,845		30,126		436,180		466,306
Mortgage		17,460		24,422		41,882		867,555		909,437
HELOC		1,396		667		2,063		259,414		261,477
Installment		1,018		892		1,910		58,540		60,450
Consumer		11,204		2,465		13,669		656,447		670,116
Leases		5		-		5		2,658		2,663
Total loans	$	49,393	$	209,546	$	258,939	$	4,491,251	$	4,750,190

* Includes $3.6 million of loans past due 90 days or more and accruing.

Credit Quality Indicators

Management utilizes past due information as a credit quality indicator across the loan portfolio. 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) throughout the consumer loan segment. 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 deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loans 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 loans are inadequately protected by the current net worth and paying capacity of the obligor and/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 nonperforming and Park generally charges these loans down to their fair value by taking a partial charge-off or recording a specific reserve. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Any commercial loan graded an 8 (loss) is completely charged-off. The tables below present the recorded investment by loan grade at September 30, 2011 and December 31, 2010 for all commercial loans.


	September 30, 2011
(in thousands)	5 Rated		6 Rated		Impaired		Pass Rated		Recorded Investment
Commercial, financial and agricultural	$	36,037	$	7,150	$	24,925	$	691,768	$	759,880

Commercial real estate		51,417		21,222		44,099		1,139,262		1,256,000

Construction real estate:
Vision commercial land and development		10,791		2,040		42,036		47,636		102,503
Remaining commercial		7,954		14,626		33,961		107,406		163,947

Residential real estate:
Commercial		22,825		14,096		47,422		373,603		457,946

Leases		-		-		-		2,204		2,204

Total Commercial Loans	$	129,024	$	59,134	$	192,443	$	2,361,879	$	2,742,480


	December 31, 2010
(in thousands)	5 Rated		6 Rated		Impaired		Pass Rated		Recorded Investment
Commercial, financial and agricultural	$	26,322	$	11,447	$	19,276	$	683,743	$	740,788

Commercial real estate		57,394		26,992		57,941		1,089,093		1,231,420

Construction real estate:
Vision commercial land and development		10,220		7,941		87,424		66,031		171,616
Remaining commercial		14,021		39,062		27,080		116,152		196,315

Residential real estate:
Commercial		29,206		18,117		60,227		358,756		466,306

Leases		-		-		-		2,663		2,663

Total Commercial Loans	$	137,163	$	103,559	$	251,948	$	2,316,438	$	2,809,108

Troubled Debt Restructurings (TDRs)

Management classifies loans as TDRs when a borrower is experiencing financial difficulties and Park has granted a concession. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the company's internal underwriting policy. Management's policy is to modify loans by extending the term or by granting a temporary or permanent contractual interest rate below the market rate, not by forgiving debt. Certain loans which were modified during the period ending September 30, 2011 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 September 30, 2011 and December 31, 2010, there were $82.1 million and $80.7 million, respectively, of TDRs included in nonaccrual loan totals. As of September 30, 2011, there were $15.6 million of TDRs included in accruing loan totals. None of the TDRs as of December 31, 2010 were accruing. Prior to management's adoption of ASU 2011-02, Park classified all TDRs as nonaccrual loans. With the adoption of ASU 2011-02, management determined it was appropriate to return certain TDRs to accrual status. Specifically, if the restructured note has been current for a period of at least six months and management expects the borrower will remain current throughout the renegotiated contract, the loan may be returned to accrual status. At September 30, 2011 and December 31, 2010, $55.9 million and $50.3 million of the nonaccrual TDRs were current. Management will continue to review the renegotiated loans and may determine it appropriate to move certain of the loans back to accrual status in the future. At September 30, 2011 and December 31, 2010, Park had commitments to lend $1.2 million and $434,000, respectively, of additional funds to borrowers whose terms had been modified in a TDR.

The specific reserve related to TDRs at September 30, 2011 and December 30, 2010 was $12.2 million and $9.4 million respectively. Classifying these loans as TDRs generally resulted in a reduction of the allowance for loan losses as a result of performing an individual impairment analysis rather than apply a general reserve percentage.

The terms of certain other loans were modified during the period ending September 30, 2011 that did not meet the definition of a troubled debt restructuring. Modified substandard commercial loans which did not meet the definition of a TDR have a total recorded investment as of September 30, 2011 of $6.0 million. The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties or resulted in a delay in a payment that was considered to be insignificant. Modified consumer loans which did not meet the definition of a TDR have a total recorded investment as of September 30, 2011 of $11.7 million. Many of these loans were modified as a lower cost option than a full refinancing to borrowers who were not experiencing financial difficulties.

The following table details the number of contracts modified as TDRs during the 3 months and 9 months ended September 30, 2011 as well as the period end recorded investment of these contracts. The recorded investment pre and post modification is generally the same.


	3 months ended September 30, 2011				9 months ended September 30, 2011
	Number of Contracts		Recorded Investment		Number of Contracts		Total recorded investment
(In thousands)
Commercial, financial and agricultural		14	$	1,977		32	$	5,677
Commercial real estate		4		2,763		21		7,633
Construction real estate:
Vision commercial land and development		2		504		8		3,342
Remaining commercial		3		2,192		16		14,795
Mortgage		-		-		1		66
Installment		-		-		-		-
Residential real estate:
Commercial		3		239		10		3,493
Mortgage		7		1,550		27		4,137
HELOC		-		-		1		50
Installment		1		17		2		36
Consumer		-		-		-		-
Leases		-		-		-		-
Total loans		34	$	9,242		118	$	39,229

The following table presents the recorded investment in financing receivables which were modified as troubled debt restructurings within the previous 12 months and for which there was a payment default during the 3 month and 9 month periods ended September 30, 2011. For this table, a loan is considered to be in default when it becomes 30 days contractually past due under modified terms.


	3 months ended September 30, 2011				9 months ended September 30, 2011
	Number of Contracts		Recorded Investment		Number of Contracts		Total recorded investment
(In thousands)
Commercial, financial and agricultural		3	$	506		7	$	642
Commercial real estate		5		8,511		7		12,994
Construction real estate:
Vision commercial land and development		2		1,962		3		1,979
Remaining commercial		1		5,000		1		5,000
Mortgage		1		66		1		66
Installment		-		-		-		-
Residential real estate:
Commercial		1		607		5		20,061
Mortgage		4		736		8		1,695
HELOC		1		50		1		50
Installment		-		-		-		-
Total loans		18	$	17,438		33	$	42,487