5. Loans

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


	December 31, 2011						December 31, 2010
			Accrued						Accrued
	Loan		interest		Recorded		Loan		interest		Recorded
(In thousands)	balance		receivable		investment		balance		receivable		investment

Commercial, financial and agricultural *	$	743,797	$	3,121	$	746,918	$	737,902	$	2,886	$	740,788

Commercial real estate *		1,108,574		4,235		1,112,809		1,226,616		4,804		1,231,420
Construction real estate:
Vision commercial land and development *		31,603		31		31,634		171,334		282		171,616
Remaining commercial		156,053		394		156,447		195,693		622		196,315
Mortgage		20,039		64		20,103		26,326		95		26,421
Installment		9,851		61		9,912		13,127		54		13,181
Residential real estate
Commercial		395,824		1,105		396,929		464,903		1,403		466,306
Mortgage		953,758		1,522		955,280		906,648		2,789		909,437
HELOC		227,682		942		228,624		260,463		1,014		261,477
Installment		51,354		236		51,590		60,195		255		60,450
Consumer		616,505		2,930		619,435		666,871		3,245		670,116
Leases		2,059		43		2,102		2,607		56		2,663
Total loans	$	4,317,099	$	14,684	$	4,331,783	$	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.

Loans are shown net of deferred origination fees, costs and unearned income of $6.8 million at December 31, 2011 and $6.7 million at December 31, 2010, which is a net deferred income position in both years.

Overdrawn deposit accounts of $3.6 million and $2.6 million have been reclassified to loans at December 31, 2011 and 2010, respectively.

Credit Quality

The following table presents the recorded investment in nonaccrual, accruing restructured, and loans past due 90 days or more and still accruing by class of loans as of December 31, 2011 and December 31, 2010:


	December 31, 2011
(In thousands)	Nonaccrual loans		Accruing restructured loans		Loans past due 90 days or more and accruing		Total nonperforming loans
Commercial, financial and agricultural	$	37,797	$	2,848	$	-	$	40,645
Commercial real estate		43,704		8,274		-		51,978
Construction real estate:
Vision commercial land and development		25,761		-		-		25,761
Remaining commercial		14,021		11,891		-		25,912
Mortgage		66		-		-		66
Installment		30		-		-		30
Residential real estate
Commercial		43,461		815		-		44,276
Mortgage		25,201		4,757		2,610		32,568
HELOC		1,412		-		-		1,412
Installment		1,777		98		58		1,933
Consumer		1,876		-		893		2,769
Leases		-		-		-		-
Total loans	$	195,106	$	28,683	$	3,561	$	227,350


	December 31, 2010
			Accruing		Loans past due 90		Total
			restructured		days or more and		nonperforming
(In thousands)	Nonaccrual loans		loans		accruing		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 December 31, 2011 and December 31, 2010.


	December 31, 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	$	40,645	$	40,621	$	24	$	19,276	$	19,205	$	71
Commercial real estate		51,978		51,978		-		57,941		57,930		11
Construction real estate:
Vision commercial land and development		25,761		24,328		1,433		87,424		86,491		933
Remaining commercial		25,912		25,912		-		27,080		27,080		-
Mortgage		66		-		66		354		-		354
Installment		30		-		30		417		-		417
Residential real estate:
Commercial		44,276		44,276		-		60,227		60,227		-
Mortgage		29,958		-		29,958		32,479		-		32,479
HELOC		1,412		-		1,412		964		-		964
Installment		1,875		-		1,875		1,195		-		1,195
Consumer		1,876		20		1,856		1,911		-		1,911
Leases		-		-		-		-		-		-
Total loans	$	223,789	$	187,135	$	36,654	$	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 December 31, 2011 and December 31, 2010.


	December 31, 2011						December 31, 2010
(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	$	23,164	$	18,098	$	-	$	9,347	$	8,891	$	-
Commercial real estate		58,242		41,506		-		21,526		17,170		-
Construction real estate:
Vision commercial land and development		54,032		17,786		-		11,206		7,847		-
Remaining commercial		33,319		18,372		-		12,305		11,743		-
Residential real estate:
Commercial		49,341		38,686		-		46,344		43,031		-
Consumer		-		-		-		-		-		-

With an allowance recorded
Commercial, financial and agricultural		23,719		22,523		5,819		11,801		10,314		3,028
Commercial real estate		12,183		10,472		4,431		44,789		40,760		12,652
Construction real estate:
Vision commercial land and development		20,775		6,542		1,540		103,937		78,644		39,887
Remaining commercial		9,711		7,540		1,874		23,563		15,337		5,425
Residential real estate:
Commercial		6,402		5,590		2,271		19,716		17,196		5,912
Consumer		20		20		-		-		-		-

Total	$	290,908	$	187,135	$	15,935	$	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 December 31, 2011 and December 31, 2010, there were $83.7 million and $12.0 million, respectively, in partial charge-offs on loans individually evaluated for impairment with no related allowance recorded and $20.1 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 December 31, 2011 and 2010, of $15.9 million and $66.9 million, respectively, related to loans with a recorded investment of $52.7 million and $162.3 million.

The average balance of loans individually evaluated for impairment was $214.0 million, $210.4 million, and $184.7 million for 2011, 2010, and 2009, respectively.

Interest income on loans individually evaluated for impairment is recognized on a cash basis after all past due and current principal payments have been made.

The following table presents the average recorded investment and interest income recognized on loans individually evaluated for impairment for the year ended December 31, 2011.


			Year ended December 31, 2011
(In thousands)	Recorded investment as of December 31, 2011		Average recorded investment		Interest income recognized
Commercial, financial and agricultural	$	40,621	$	23,518	$	209
Commercial real estate		51,978		49,927		829
Construction real estate:
Vision commercial land and development		24,328		58,792		-
Remaining commercial		25,912		29,152		339
Residential real estate:
Commercial		44,276		52,640		214
Consumer		20		16		1

Total	$	187,135	$	214,045	$	1,592

For the year ended December 31, 2010, the Corporation recognized a net reversal to interest income for $1.3 million, consisting of $948,000 in interest recognized at PNB and $2.2 million in interest reversed at Vision, on loans that were individually evaluated for impairment as of the end of the year. For the year ended December 31, 2009, the Corporation recognized a net reversal to interest income of $1.3 million, consisting of $1.8 million in interest recognized at PNB and $3.1 million in interest reversed at Vision.

The following table presents the aging of the recorded investment in past due loans as of December 31, 2011 and December 31, 2010 by class of loans.


	December 31, 2011
			Past due
			nonaccrual
			loans and loans
	Accruing loans		past due 90						Total
	past due 30-89		days or more						recorded
(In thousands)	days		and accruing		Total past due		Total current		investment

Commercial, financial and agricultural	$	3,106	$	11,308	$	14,414	$	732,504	$	746,918
Commercial real estate		2,632		21,798		24,430		1,088,379		1,112,809
Construction real estate:
Vision commercial land and development		-		19,235		19,235		12,399		31,634
Remaining commercial		99		7,839		7,938		148,509		156,447
Mortgage		76		-		76		20,027		20,103
Installment		421		8		429		9,483		9,912
Residential real estate
Commercial		1,545		10,097		11,642		385,287		396,929
Mortgage		15,879		20,614		36,493		918,787		955,280
HELOC		1,015		436		1,451		227,173		228,624
Installment		1,549		1,136		2,685		48,905		51,590
Consumer		11,195		2,192		13,387		606,048		619,435
Leases		-		-		-		2,102		2,102
Total loans	$	37,517	$	94,663	$	132,180	$	4,199,603	$	4,331,783


	December 31, 2010
			Past due
			nonaccrual
			loans and loans
	Accruing loans		past due 90						Total
	past due 30-89		days or more						recorded
(In thousands)	days		and accruing		Total past due		Total current		investment

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

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) 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 (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 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 loans 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. Any commercial loan graded an 8 (loss) is completely charged-off.

The tables below present the recorded investment by loan grade at December 31, 2011 and December 31, 2010 for all commercial loans:


	December 31, 2011
(In thousands)	5 Rated		6 Rated		Nonaccrual		Pass Rated		Recorded Investment
Commercial , financial and agricultural:	$	11,785	$	7,628	$	40,645	$	686,860	$	746,918
Commercial real estate:		37,445		10,460		51,978		1,012,926		1,112,809
Construction real estate:
Vision commercial land and development		3,102		-		25,761		2,771		31,634
Remaining commercial		6,982		8,311		25,912		115,242		156,447
Residential real estate:
Commercial		17,120		3,785		44,276		331,748		396,929
Leases		-		-		-		2,102		2,102
Total Commercial Loans	$	76,434	$	30,184	$	188,572	$	2,151,649	$	2,446,839


	December 31, 2010
(In thousands)	5 Rated		6 Rated		Nonaccrual		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 Restructuring (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 December 31, 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 December 31, 2011 and December 31, 2010, there were $100.4 million and $80.7 million, respectively, of TDRs included in nonaccrual loan totals. As of December 31, 2011, there were $28.7 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 December 31, 2011 and December 31, 2010, $79.9 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 December 31, 2011 and December 31, 2010, Park had commitments to lend $4.0 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 December 31, 2011 and December 31, 2010 was $9.1 million and $9.4 million, respectively. Modifications made in 2011 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 evaluated for impairment under ASC 310. An immaterial amount of additional specific reserves were recorded during the period ending December 31, 2011 as a result of TDRs identified in the 2011 year.

The terms of certain other loans were modified during the period ended December 31, 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 December 31, 2011 of $13.6 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 December 31, 2011 of $19.6 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 12 months ended December 31, 2011 as well as the period end recorded investment of these contracts. The recorded investment pre- and post-modification is generally the same, as historically Park has not forgiven debt.


	12 months ended December 31, 2011
(In thousands)	Number of Contracts		Recorded Investment
Commercial, financial and agricultural		56	$	24,100
Commercial real estate		23		7,163
Construction real estate:
Vision commercial land and development		12		4,268
Remaining commercial		24		18,602
Mortgage		1		66
Installment		-		-
Residential real estate:
Commercial		30		29,595
Mortgage		37		5,925
HELOC		2		56
Installment		7		221
Consumer		1		18
Leases		-		-
Total loans		193	$	90,014

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 12 month period ended December 31, 2011. For this table, a loan is considered to be in default when it becomes 30 days contractually past due under modified terms. The additional allowance for loan loss resulting from the defaults on TDR loans was immaterial.


	12 months ended December 31, 2011
(In thousands)	Number of Contracts		Recorded Investment
Commercial, financial and agricultural		19	$	3,878
Commercial real estate		5		2,353
Construction real estate:
Vision commercial land and development		5		3,406
Remaining commercial		4		1,277
Mortgage		1		66
Installment		----		---
Residential real estate:
Commercial		10		20,195
Mortgage		7		1,193
HELOC		1		50
Installment		2		44
Consumer		----		---
Leases		----		---
Total loans		54	$	32,462

Management transfers a loan to other real estate owned at the time that Park takes title of the asset. At December 31, 2011 and 2010, Park had $42.3 million and $41.7 million, respectively, of other real estate owned.

Certain of the Corporation's executive officers, directors and related entities of directors are loan customers of the Corporation's two banking subsidiaries. As of December 31, 2011 and 2010, loans and lines of credit aggregating approximately $53.0 million and $53.6 million, respectively, were outstanding to such parties. During 2011, $4.9 million of new loans were made to these executive officers and directors and repayments totaled $5.5 million. New loans and repayments for 2010 were $2.1 million and $5.3 million, respectively.