FINANCIAL REVIEW

This financial review presents management's discussion and analysis of the financial condition and results of operations for Park National Corporation and its subsidiaries ("Park" or the "Corporation").  This discussion should be read in conjunction with the consolidated financial statements and related notes and the five-year summary of selected financial data.  Management’s discussion and analysis contains forward-looking statements that are provided to assist in the understanding of anticipated future financial performance. Forward-looking statements provide current expectations or forecasts of future events and are not guarantees of future performance.  The forward-looking statements are based on management’s expectations and are subject to a number of risks and uncertainties.  Although management believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from those expressed or implied in such statements.  Risks and uncertainties that could cause actual results to differ materially include, without limitation: Park’s ability to execute its business plan successfully and within the expected timeframe; deterioration in the asset value of our loan portfolio may be worse than expected due to a number of factors, such as adverse changes in economic conditions that impair the ability of borrowers to repay their loans, the underlying collateral could prove less valuable than assumed and cash flows may be worse than expected; Park’s ability to sell OREO properties at anticipated prices; general economic and financial market conditions, and weakening in the economy, specifically the real estate market and credit markets, either nationally or in the states in which Park and its subsidiaries do business, may be worse than expected which could decrease the demand for loan, deposit and other financial services and increase loan delinquencies and defaults; changes in interest rates and prices may adversely impact the value of securities, loans, deposits and other financial instruments and the interest rate sensitivity of our consolidated balance sheet; changes in consumer spending, borrowing and saving habits; our liquidity requirements could be adversely affected by changes in our assets and liabilities; competitive factors among financial institutions may increase significantly, including product and pricing pressures and Park’s ability to attract, develop and retain qualified bank professionals; the nature, timing and effect of changes in banking regulations or other regulatory or legislative requirements affecting the respective businesses of Park and its subsidiaries, including changes in laws and regulations concerning taxes, accounting, banking, securities and other aspects of the financial services industry, specifically the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; the effect of changes in accounting policies and practices, as may be adopted by the Financial Accounting Standards Board (the “FASB”), the Securities and Exchange Commission (the “SEC”), the Public Company Accounting Oversight Board and other regulatory agencies, and the accuracy of our assumptions and estimates used to prepare our financial statements; the effect of fiscal and governmental policies of the United States federal government; the adequacy of our risk management program; a failure in or breach of our operational or security systems or infrastructure, or those of our third-party vendors and other service providers, including as a result of cyber attacks; demand for loans in the respective market areas served by Park and its subsidiaries; and other risk factors relating to our industry as detailed from time to time in Park’s reports filed with the SEC including those described in “Item 1A. Risk Factors” of Part I of Park’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.  Undue reliance should not be placed on the forward-looking statements, which speak only as of the date of this Annual Report.  Park does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions that may be made to update any forward-looking statement to reflect the events or circumstances after the date on which the forward-looking statement was made, or reflect the occurrence of unanticipated events, except to the extent required by law.

RESTATEMENT OF FINANCIAL STATEMENTS

In a Current Report on Form 8-K filed on January 31, 2012 (the “January 31, 2012 Form 8-K”), Park announced that on January 27, 2012, management determined that (i) Park’s previously issued audited consolidated financial statements incorporated by reference in Park’s Annual Report on Form 10-K for the year ended December 31, 2010, filed on February 28, 2011, and (ii) Park’s unaudited condensed consolidated financial statements included in Park’s Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2011, June 30, 2011, and September 30, 2011 should be restated.

The accounting treatment giving rise to the restatement was the inclusion of estimated future cash flows supporting the allowance for loan losses related to certain impaired commercial loans. For the year ended December 31, 2010, as part of Park’s process to measure impairment on certain impaired commercial loans at Vision Bank, management had relied on expected future cash flows from guarantors, with some of whom we were in litigation.  Management determined that reliance on expected future cash flows, which may require protracted litigation to actually be received, is inappropriate given the difficulty in obtaining objective verifiable evidence supporting a conclusion as to the amount and timing of the expected cash flows. GAAP requires that our assumptions be “reasonable and supportable” and the facts and circumstances around the existence of protracted litigation make this assumption more difficult to support.

The restatement also reflected certain OREO devaluations and additional loan loss provisions that were not related to guarantor support.  These expense items were related to valuation issues identified at December 31, 2010, where management utilized (i) the work of a third-party contractor, which was not a licensed appraiser, when calculating the fair value of collateral for certain impaired loans and the fair value of certain OREO held by Vision Bank, and management did not have sufficient documentation to support the estimates of this third-party contractor, and (ii) internal estimates of collateral value when calculating specific reserves for certain impaired loans when, at times, such internal estimates were outdated.  The impact was to reverse provisions for loan losses and OREO devaluations originally recorded in 2011 and recognize these provisions for loan losses and OREO devaluations in the restated audited consolidated financial statements for the year ended December 31, 2010.  Please see the following tables for a summary of the impact on Park’s income statement and balance sheet for the year ended December 31, 2010 and the nine months ended September 30, 2011 from the restatement.

On February 28, 2012, Park amended its previously filed 2010 Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2011, June 30, 2011 and September 30, 2011 to report the changes set forth above. The following discussion and impact is included again to assist in understanding those changes.

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Table 1 - Restatement Impact on Income Statement
For the year ended December 31, 2010
(in thousands)	As amended in the Form 10-K/A		As originally filed		Change
Net interest income	$	274,044	$	274,044		-----
Provision for loan losses		87,080		64,902		22,178
Fee income		63,016		65,632		(2,616	)
Security gains		11,864		11,864		-----
Operating expenses		187,107		187,107		-----
Income before taxes	$	74,737	$	99,531	$	(24,794	)
Income taxes		16,636		25,314		(8,678	)
Net income	$	58,101	$	74,217	$	(16,116	)

Table 2 - Restatement Impact on Income Statement
For the nine months ended September 30, 2011
(in thousands)	As amended in the Form 10-Q/A		As originally filed		Change
Net interest income	$	206,955	$	206,955		-----
Provision for loan losses		43,054		55,925		(12,871	)
Fee income		48,195		43,334		4,861
Security gains		25,462		25,462		-----
Operating expenses		138,952		138,952		-----
Income before taxes	$	98,606	$	80,874	$	17,732
Income taxes		27,076		20,870		6,206
Net income	$	71,530	$	60,004	$	11,526

Table 3 - Restatement Impact on Balance Sheet
at December 31, 2010
(in thousands)	As amended in the Form 10-K/A		As originally filed		Change
Allowance for loan losses	$	143,575	$	121,397	$	22,178
Net loans		4,589,110		4,611,288		(22,178	)
Other real estate owned		41,709		44,325		(2,616	)
Other assets		148,852		140,174		8,678
Total assets		7,282,261		7,298,377		(16,116	)
Retained Earnings		406,342		422,458		(16,116	)
Total stockholders' equity		729,708		745,824		(16,116	)
Total liabilities and stockholders' equity		7,282,261		7,298,377		(16,116	)

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Table 4 - Restatement Impact on Balance Sheet
at September 30, 2011
(in thousands)	As amended in the Form 10-Q/A		As originally filed		Change
Allowance for loan losses	$	107,310	$	100,248	$	7,062
Net loans		4,573,265		4,580,327		(7,062	)
Other real estate owned		46,911		46,911		-
Other assets		163,973		161,501		2,472
Total assets		7,095,098		7,099,688		(4,590	)
Retained Earnings		430,121		434,711		(4,590	)
Total stockholders' equity		755,053		759,643		(4,590	)
Total liabilities and stockholders' equity		7,095,098		7,099,688		(4,590	)

SALE OF VISION BANK

On November 16, 2011, Park and Vision Bank (“Vision”) entered into a Purchase and Assumption Agreement (the “Purchase Agreement”) with Home BancShares, Inc (“Home”) and its wholly-owned subsidiary Centennial Bank, an Arkansas state-chartered bank (“Centennial”), to sell substantially all of the performing loans, operating assets and liabilities associated with Vision to Centennial for a purchase price of $27.9 million.

Under the terms of the Purchase Agreement, Centennial will purchase the real estate and other assets described in the Purchase Agreement which are used in the banking business conducted by Vision at its eight offices in Baldwin County, Alabama and its nine offices in the Florida panhandle counties of Bay, Gulf, Okaloosa, Santa Rosa and Walton.  Centennial will assume Vision’s obligations relating to all of Vision’s deposit accounts, which had a balance of approximately $533 million at December 31, 2011.

Centennial will purchase performing loans, which had an unpaid principal balance of about $369 million at December 31, 2011.   These loans are shown on Park’s balance sheet as assets held for sale. Vision will retain all of the non-performing loans and certain performing loans under the terms of the Purchase Agreement.  As of December 31, 2011, the nonperforming loans totaled approximately $101 million and the performing loans totaled approximately $23 million.  Under the terms of the Purchase Agreement, the loans being acquired by Centennial will be sold by Vision at a discount of $13.1 million. Prior to the transfer to assets held for sale, Vision Bank’s allowance for loan losses totaled $23.8 million at December 31, 2011.  Upon the transfer, $13.1 million was transferred out of the allowance for loan losses with the related loans that moved to assets held for sale.  Management expects that the remaining loans at Vision Bank will be charged down by the remaining balance of the allowance for loan losses of $10.7 million prior to transfer to SE Property Holdings, LLC (“SE, LLC”).  Vision Bank will be merged into SE, LLC, a wholly-owned subsidiary of Park, following the closing of the transaction and the Florida banking charter will be surrendered to the state of Florida’s Office of Financial Regulation.

On February 16, 2012, Park completed the sale of Vision Bank as contemplated in the Purchase Agreement.  Park recognized a pre-tax gain, net of expenses directly related to the sale, of approximately $22 million.

OVERVIEW

Net income for 2011 was $82.1 million compared to $58.1 million in 2010 and $74.2 million in 2009.  As previously discussed, net income for 2010 was restated and decreased by $16.1 million as a result of an additional loan loss provision of $22.2 million and an increase in OREO devaluations of $2.6 million at Vision Bank for 2010.  The improvement in net income in 2011 was primarily due to a reduction in the net loss at Vision Bank.  The net loss at Vision Bank was $22.5 million in 2011, compared to a net loss of $45.4 million in 2010 and a net loss of $30.1 million in 2009.

Diluted earnings per common share were $4.95, $3.45 and $4.82 for 2011, 2010 and 2009, respectively.  Diluted earnings per common share for 2010 was originally reported as $4.51.

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The following tables show the components of net income for 2011, 2010 and 2009 for Park National Corporation and its wholly owned subsidiaries. The subsidiaries that will be reviewed in the tables are The Park National Bank (“PNB”), Vision Bank, Guardian Financial Services Company (“GFSC”) and the Parent Company for Park.  We have also included some summary information on the balance sheet.

Table 5 - PNB – Summary Income Statement For the years ended December 31,
(In thousands)	2011		2010		2009
Net interest income	$	236,282	$	237,281	$	236,107
Provision for loan losses		30,220		23,474		22,339
Fee income		67,348		68,648		75,430
Security gains		23,634		11,864		7,340
Operating expenses		146,235		144,051		148,048
Income before taxes		150,809		150,268		148,490
Federal income taxes		43,958		47,320		47,032
Net income	$	106,851	$	102,948	$	101,458

Balances at December 31,
(In thousands)	2011		2010		2009
Assets	$	6,281,747	$	6,495,558	$	6,182,257
Loans		4,172,424		4,074,775		3,950,599
Deposits		4,611,646		4,622,693		4,670,113

Net income for PNB exceeded $100 million for each of the past three years.  Excluding the after-tax impact of security gains, net income was $91.5 million in 2011, compared to $95.2 million in 2010 and $96.7 million in 2009.  The decrease in net income excluding the after-tax impact of security gains in 2011, compared to 2010, was primarily due to an increase in the provision for loan losses of $6.7 million or 28.7%.  This increase was largely due to an increase in the provision for loan losses pertaining to participation loans that PNB had purchased from Vision Bank in 2007 and 2008.  The loan loss provision for those participation loans was $11.1 million in 2011.  Management expects a significant reduction in the provision for loan losses at PNB in 2012 as the old participation loans with Vision Bank have largely been written down to current appraised values, less anticipated selling costs.  Management estimates that net income excluding the after-tax impact of security gains will be approximately $93 million for PNB in 2012.  The projected reduction in the provision for loan losses of about $14 million is expected to be partially offset by a decrease in net interest income of $5 million and an increase in operating expenses of about $5 million.

Table 6 - Vision Bank – Summary Income Statement For the years ended December 31,
(In thousands)	2011			2010 - Restated			2009
Net interest income	$	27,078		$	27,867		$	25,634
Provision for loan losses		31,052			61,407			44,430
Fee income		1,422			(6,024	)		(2,047	)
Security gains		5,195			-			-
Operating expenses		31,379			31,623			28,091
Loss before taxes	$	(28,736	)	$	(71,187	)	$	(48,934	)
State income taxes		6,088			(1,161	)		(2,461	)
Federal income taxes		(12,298	)		(24,612	)		(16,363	)
Net loss	$	(22,526	)	$	(45,414	)	$	(30,110	)

Balances at December 31,
(In thousands)	2011		2010 - Restated		2009
Assets	$	650,935	$	791,945	$	897,981
Assets held for sale		382,462		-		-
Loans		492,927		640,580		677,018
Deposits		532,630		633,432		688,900
Liabilities held for sale		536,186		-		-

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The financial results for Vision Bank were very poor for each of the past three years.  Real estate values in the markets in which Vision Bank operates in Alabama and Florida experienced sharp declines in value in 2007 and 2008.  A very high percentage of the Vision Bank loan portfolio was collateralized by real estate.  Due to the sudden and sharp decline in real estate values, these real estate loans became under-collateralized and the borrowers began experiencing financial difficulties.  As a result, Vision Bank has had to record an extraordinarily high provision for loan losses in each of the past three years.  Additionally, devaluations and losses on the sale of other real estate owned are included in fee income.  Fee income was negative in 2010 and 2009.

During the fourth quarter of 2011, management recorded state income tax expense of $6.1 million at Vision Bank to write off the state tax net operating loss carryforward.  With the pending sale of Vision Bank in the first quarter of 2012, this tax asset would not be able to be realized and needed to be written off.

As previously discussed, Vision Bank is being sold during the first quarter of 2012.  We expect that the operation of Vision Bank during the first quarter of 2012 will result in a small loss of about $3 million in 2012, prior to the expected pre-tax gain resulting from the sale to Centennial.

Table 7 - GFSC –Summary Income Statement For the years ended December 31,
(In thousands)	2011		2010		2009
Net interest income	$	8,693	$	7,611	$	7,010
Provision for loan losses		2,000		2,199		2,052
Fee income		-		2		3
Security gains		-		-		-
Operating expenses		2,506		2,326		2,264
Income before taxes	$	4,187	$	3,088	$	2,697
Federal income taxes		1,466		1,082		945
Net income	$	2,721	$	2,006	$	1,752

Balances at December 31,
(In thousands)	2011		2010		2009
Assets	$	46,682	$	43,209	$	38,606
Loans		47,111		43,714		38,550
Deposits		8,013		7,062		5,100

GFSC is a small consumer finance company that was started in 1999 with a $300,000 capital investment by Park.  GFSC is very well managed and is expected to earn $3 million in 2012.

Table 8 - Parent Company - Summary Income Statement For the years ended December 31,
(In thousands)	2011			2010			2009
Net interest income	$	1,180		$	1,285		$	4,740
Provision for loan losses		-			-			-
Fee income		(2,689	)		389			464
Security gains		-			-			-
Operating expenses		8,196			9,106			10,322
Income (loss) before taxes	$	(9,705	)	$	(7,432	)	$	(5,118	)
Federal income taxes		(4,799	)		(5,993	)		(6,210	)
Net income (loss)	$	(4,906	)	$	(1,439	)	$	1,092

The above table shows the summary results for Park’s Parent Company, which includes SE, LLC, the non-banking subsidiary of Park’s Parent Company, which holds other real estate owned (“OREO”) purchased from Vision Bank since March 2011.

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The loss at the Parent Company increased by $3.5 million in 2011 to $4.9 million, compared to a $1.4 million loss in 2010.  The increase in the loss was primarily due to devaluations and losses from the sale of OREO acquired from Vision Bank. These charges caused other fee income to be a loss of $2.7 million in 2011.

After the sale of Vision Bank was completed on February 16, 2012, Vision Bank merged into SE, LLC and become part of Park’s Parent Company.  Beginning in the first quarter of 2012, SE, LLC will become a separate segment for financial reporting purposes.  Approximately $110 million of loans became part of SE, LLC, after the sale of Vision Bank.  The servicing and collection of these loans will add additional expenses to the Parent Company.  Management estimates that the loss at the Parent Company will increase by approximately $5 million in 2012 and be about $10 million, excluding the gain from the sale of Vision Bank.  The pre-tax gain from the sale of Vision Bank is estimated to be approximately $22 million, net of anticipated expenses directly related to the sale, which results in an after-tax gain of approximately $14.3 million.  This gain will be recognized at Vision Bank immediately prior to its merger into SE, LLC.  Overall, including the gain from the sale of Vision Bank, we expect the Parent Company to earn about $4 million in 2012.

Table 9 - Park – Summary Income Statement For the years ended December 31,
(In thousands)	2011		2010 – Restated			2009
Net interest income	$	273,234	$	274,044		$	273,491
Provision for loan losses		63,272		87,080			68,821
Fee income		66,081		63,016			73,850
Security gains		28,829		11,864			7,340
Operating expenses		188,317		187,107			188,725
Income before taxes	$	116,555	$	74,737		$	97,135
State income taxes		6,088		(1,161	)		(2,461	)
Federal income taxes		28,327		17,797			25,404
Net income	$	82,140	$	58,101		$	74,192

Balances at December 31,
(In thousands)	2011		2010 – Restated		2009
Assets	$	6,972,245	$	7,282,261	$	7,040,329
Assets held for sale (1)		382,462		-		-
Loans		4,317,099		4,732,685		4,640,432
Deposits		4,465,114		5,095,420		5,188,052
Liabilities held for sale (2)		536,186		-		-
(1)The assets held for sale represent the loans and other assets at Vision Bank that will be sold in the first quarter of 2012.      (2)The liabilities held for sale represent the deposits and other liabilities at Vision Bank that will be sold in the first quarter of 2012.

Management expects a significant improvement in net income in future years, because of the sale of Vision Bank in the first quarter of 2012.  Over the past three years, Vision Bank had aggregate net losses of $98.0 million.   Management is forecasting that Park’s net income in 2012 will be approximately $97 million.  This estimate is based on projected earnings of $93 million for PNB, $3 million for GFSC, $4 million for the Parent Company and a loss of $3 million at Vision Bank, before Vision Bank is merged with and into the SE, LLC.  Forecasted net income for 2012 certainly benefits from the projected after-tax gain from the sale of Vision Bank of approximately $14.3 million. However, Park’s earnings will benefit in future years as the remaining loans from Vision Bank are collected.  Specifically, management expects Park’s Parent Company will return to break-even net income when all of the old Vision Bank assets have been disposed.

SUMMARY DISCUSSION OF OPERATING RESULTS FOR PARK

A year ago, Park’s management projected that net interest income would be $268 million to $278 million in 2011.  The actual results in 2011 were $273.2 million, right in the middle of the estimated range.  Park’s management projected that the average interest earning assets for 2011 would be approximately $6,550 million.  The actual average interest earning assets for the year were $6,641 million, 1.4% higher than the projected balance.  Park’s forecast for the net interest margin in 2011 was a range of 4.10% to 4.20%.  The actual results for the year were 4.14%, slightly below the middle of the estimated range.

Park’s management also projected a year ago that the provision for loan losses would be $47 million to $57 million in 2011.  The actual provision for loan losses in 2011 was $63.3 million, which exceeded the top of the estimated range by $6.3 million.

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Fee income for 2011 was $66.1 million.  A year ago, Park’s management projected that fee income would be in a range of $63 million to $67 million.  The actual results were $3.1 million above the bottom of the range.

Gains from the sale of securities were $28.8 million in 2011.  Management had not forecast selling securities for gains in 2011, but decided to take advantage of market opportunities during the year.

A year ago, Park’s management projected that operating expenses would be approximately $183 million to $187 million.  Operating expenses for 2011 were $188.3 million; $1.3 million above the top of the estimated range.

ISSUANCE OF PREFERRED STOCK AND EMERGENCY ECONOMIC STABILIZATION ACT

On October 3, 2008, Congress passed the Emergency Economic Stabilization Act of 2008 (“EESA”), which created the Troubled Asset Relief Program (“TARP”) and provided the Secretary of the Treasury with broad authority to implement certain actions to help restore stability and liquidity to U.S. markets. The Capital Purchase Program (the “CPP”) was announced by the U.S. Department of the Treasury (the “U.S. Treasury”) on October 14, 2008 as part of TARP.  The CPP is voluntary and requires a participating institution to comply with a number of restrictions and provisions, including standards for executive compensation and corporate governance and limitations on share repurchases and the declaration and payment of dividends on common shares.

Park elected to apply for $100 million of funds through the CPP.  On December 23, 2008, Park completed the sale to the U.S. Treasury of $100 million of newly-issued Park non-voting preferred shares as part of the CPP.  Park entered into a Securities Purchase Agreement and a Letter Agreement with the U.S. Treasury on December 23, 2008. Pursuant to these agreements, Park issued and sold to the U.S. Treasury (i) 100,000 of Park’s Fixed Rate Cumulative Perpetual Preferred Shares, Series A, each without par value and having a liquidation preference of $1,000 per share (the “Series A Preferred Shares”), and (ii) a warrant (the “Warrant”) to purchase 227,376 Park common shares at an exercise price of $65.97 per share, for an aggregate purchase price of $100 million.  The Warrant has a ten-year term.  All of the proceeds from the sale of the Series A Preferred Shares and the Warrant by Park to the U.S. Treasury under the CPP qualify as Tier 1 capital for regulatory purposes.

U.S. Generally Accepted Accounting Principles (GAAP) require management to allocate the proceeds from the issuance of the Series A Preferred Shares between the Series A Preferred Shares and related Warrant.  The terms of the Series A Preferred Shares require Park to pay a cumulative dividend at the rate of 5 percent per annum until February 14, 2014, and 9 percent thereafter.  Management determined that the 5 percent dividend rate is below market value; therefore, the fair value of the Series A Preferred Shares would be less than the $100 million in proceeds.  Management determined that a reasonable market discount rate was 12 percent for the fair value of the Series A Preferred Shares and used the Black-Scholes model to calculate the fair value of the Warrant (and related common shares).  The allocation between the Series A Preferred Shares and the Warrant at December 23, 2008, the date of issuance, was $95.7 million and $4.3 million, respectively.  The discount on the Series A Preferred Shares of $4.3 million is being accreted through retained earnings using the level yield method over a 60-month period.  GAAP requires Park to measure earnings per share with earnings available to common shareholders.  Therefore, the Consolidated Statements of Income reflect a line item for “Preferred stock dividends and accretion” and a line item for “Income available to common shareholders”.  The dividends and accretion on the Series A Preferred Shares totaled $5,856,000 for 2011, $5,807,000 for 2010 and $5,762,000 for 2009.   The accretion of the discount was $856,000 in 2011, $807,000 in 2010 and $762,000 in 2009.  Management expects the accretion of the discount in 2012 will be $907,000.

Income available to common shareholders is net income minus the preferred stock dividends and accretion.  Income available to common shareholders was $76.3 million for 2011, $52.3 million for 2010, and $68.4 million for 2009.

See Note 1 and Note 25 of the Notes to Consolidated Financial Statements for additional information on the issuance of the Series A Preferred Shares.

DIVIDENDS ON COMMON SHARES

Park declared quarterly cash dividends on common shares in 2011 that totaled $3.76 per share.  The quarterly cash dividend on common shares was $0.94 per share for each quarter of 2011.

Under the terms of the Securities Purchase Agreement with the U.S. Treasury under the CPP, prior to December 23, 2011, Park is not permitted to increase the quarterly cash dividend on its common shares above $0.94 per share without seeking prior approval from the U.S. Treasury.  This restriction lapsed on December 23, 2011.

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Cash dividends declared on common shares were $3.76 in 2011, 2010 and 2009.  Park’s management expects to pay a quarterly cash dividend on its common shares of $0.94 per share in 2012.  This expectation is based on management’s current forecast that earnings will be sufficient to maintain historic dividend levels.

CRITICAL ACCOUNTING POLICIES

The significant accounting policies used in the development and presentation of Park’s consolidated financial statements are listed in Note 1 of the Notes to Consolidated Financial Statements.  The accounting and reporting policies of Park conform with U.S. GAAP and general practices within the financial services industry.  The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes.  Actual results could differ from those estimates.

Park believes the determination of the allowance for loan losses involves a higher degree of judgment and complexity than its other significant accounting policies.  The allowance for loan losses is calculated with the objective of maintaining a reserve level believed by management to be sufficient to absorb probable incurred credit losses in the loan portfolio.  Management’s determination of the adequacy of the allowance for loan losses is based on periodic evaluations of the loan portfolio and of current economic conditions.  However, this evaluation is inherently subjective as it requires material estimates, including expected default probabilities, the loss given default, the amounts and timing of expected future cash flows on impaired loans, and estimated losses on consumer loans and residential mortgage loans based on historical loss experience and current economic conditions.  All of these factors may be susceptible to significant change.  To the extent that actual results differ from management estimates, additional loan loss provisions may be required that would adversely impact earnings for future periods.  (Refer to the “Credit Experience-Provision for Loan Losses” section within this Financial Review for additional discussion.)

Other real estate owned (“OREO”), property acquired through foreclosure, is recorded at estimated fair value less anticipated selling costs (net realizable value). If the net realizable value is below the carrying value of the loan on the date of transfer, the difference is charged to the allowance for loan losses. Subsequent declines in value, OREO devaluations, are reported as adjustments to the carrying amount of OREO and are expensed within other income. Gains or losses not previously recognized, resulting from the sale of OREO, are recognized in other income on the date of sale.  At December 31, 2011, OREO totaled $42.3 million, representing a 1.4% increase compared to $41.7 million at December 31, 2010.

Effective January 1, 2008, management implemented the fair value hierarchy, which has the objective of maximizing the use of observable market inputs.  The related accounting guidance also requires enhanced disclosures regarding the inputs used to calculate fair value. These inputs are classified as Level 1, 2, and 3. Level 3 inputs are those with significant unobservable inputs that reflect a company’s own assumptions about the market for a particular instrument. Some of the inputs could be based on internal models and cash flow analysis. At December 31, 2011, financial assets valued using Level 3 inputs for Park had an aggregate fair value of approximately $130.8 million. This was 13.5% of the total amount of assets measured at fair value as of the end of the year. The fair value of impaired loans was approximately $87.8 million (or 67.1%) of the total amount of Level 3 inputs.  Additionally, there were $83.4 million of loans that were impaired and carried at cost, as fair value exceeded book value for each individual credit. The large majority of Park’s financial assets valued using Level 2 inputs consist of available-for-sale (“AFS”) securities. The fair value of these AFS securities is obtained largely by the use of matrix pricing, which is a mathematical technique widely used in the financial services industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities.

Management believes that the accounting for goodwill and other intangible assets also involves a higher degree of judgment than most other significant accounting policies.  GAAP establishes standards for the amortization of acquired intangible assets and the impairment assessment of goodwill.  Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in the business acquired.  Park’s goodwill relates to the value inherent in the banking industry and that value is dependent upon the ability of Park’s banking subsidiaries to provide quality, cost-effective banking services in a competitive marketplace.  The goodwill value is supported by revenue that is in part driven by the volume of business transacted.  A decrease in earnings resulting from a decline in the customer base, the inability to deliver cost-effective services over sustained periods or significant credit problems can lead to impairment of goodwill that could adversely impact earnings in future periods.  GAAP requires an annual evaluation of goodwill for impairment, or more frequently if events or changes in circumstances indicate that the asset might be impaired.  The fair value of the goodwill, which resides on the books of Park’s subsidiary banks, is estimated by reviewing the past and projected operating results for the Park subsidiary banks, deposit and loan totals for the Park subsidiary banks and banking industry comparable information.  Park recognized a goodwill impairment charge of $55.0 million in the third quarter of 2008 to eliminate the remaining goodwill balance pertaining to Vision Bank.  At December 31, 2011, on a consolidated basis, Park had core deposit intangibles of $2.5 million subject to amortization and $72.3 million of goodwill, which was not subject to periodic amortization.  The core deposit intangibles recorded on the balance sheet of PNB totaled $893,000 and the core deposit intangibles at Vision Bank were $1.6 million.  The goodwill asset of $72.3 million is carried on the balance sheet of PNB.

8

ABOUT OUR BUSINESS

Through its Ohio-based banking divisions, Park is engaged in the commercial banking and trust business, generally in small to medium population Ohio communities.  Vision Bank is primarily engaged in the commercial banking business throughout the panhandle of Florida and in Baldwin County, Alabama.  Management believes there are a significant number of consumers and businesses which seek long-term relationships with community-based financial institutions of quality and strength.  While not engaging in activities such as foreign lending, nationally syndicated loans or investment banking, Park attempts to meet the needs of its customers for commercial, real estate and consumer loans, consumer and commercial leases, and investment, fiduciary and deposit services.

Park’s subsidiaries compete for deposits and loans with other banks, savings associations, credit unions and other types of financial institutions.  At December 31, 2011, Park and its Ohio-based banking divisions operated 123 banking offices and a network of 144 automated teller machines in 28 Ohio counties and one county in northern Kentucky.  Vision Bank operated 17 banking offices and a network of 15 automated teller machines in Baldwin County, Alabama and in five counties in the panhandle of Florida.

A summary of financial data for Park’s banking subsidiaries and their divisions for 2011, 2010 and 2009 is shown in Table 10.  See Note 23 of the Notes to Consolidated Financial Statements for additional financial information for the Corporation’s subsidiaries.  Please note that the financial statements for various divisions of PNB are not maintained on a separate basis and, therefore, net income is only an estimate by management.

Table 10  -  Park National Corporation Affiliate Financial Data

	2011						2010						2009
	Average			Net			Average			Net			Average			Net
(In thousands)	Assets			Income			Assets			Income			Assets			Income
							(restated)
Park National Bank:
Park National Division	$	2,092,084		$	25,563		$	1,973,443		$	25,903		$	1,798,814		$	26,991
Security National Division		795,305			16,242			770,319			14,603			825,481			14,316
First-Knox National Division		709,569			15,093			642,343			14,374			633,260			12,411
Century National Division		685,813			11,233			647,798			9,860			650,488			11,387
Richland Trust Division		501,541			10,044			519,102			9,754			563,776			9,954
Fairfield National Division		465,178			10,236			459,050			9,695			484,849			9,368
Second National Division		425,170			7,977			385,534			7,570			371,079			6,926
Park National SW & N KY Division		381,739			722			405,889			2,590			416,502			1,841
United Bank Division		233,212			4,211			243,909			4,344			242,166			4,300
Unity National Division		207,703			3,389			185,003			2,918			182,373			2,251
Farmers & Savings Division		100,577			2,141			103,121			1,337			107,437			1,713
Vision Bank		743,344			(22,526	)		859,447			(45,414	)		904,897			(30,110	)
Parent Company,
including consolidating
entries		(135,065	)		(2,185	)		(152,297	)		567			(145,591	)		2,844
Consolidated Totals	$	7,206,170		$	82,140		$	7,042,661		$	58,101		$	7,035,531		$	74,192

9

SOURCE OF FUNDS

Deposits: Park’s major source of funds is deposits from individuals, businesses and local government entities.  These deposits consist of noninterest bearing and interest bearing deposits.

Average total deposits were $5,192 million in 2011, compared to $5,182 million in 2010 and $5,051 million in 2009.

On Park’s balance sheet, total deposits were $4,465 million at December 31, 2011, compared to $5,095 million at December 31, 2010.  This represents a decrease in total deposits of $630 million or 12.4% in 2011.  The reason for the balance sheet showing a large decrease in deposits is due to the pending sale of Vision Bank.  The deposits for Vision Bank of $533 million at year-end 2011 are included on Park’s balance sheet in the category of liabilities held for sale.  At December 31, 2010, total deposits for Vision Bank were $633 million.  The deposits for Park’s Ohio-based subsidiaries increased by $3 million in 2011.  Additionally, the brokered time deposits of $110 million on Park’s balance sheet at December 31, 2010, matured in 2011 and were not renewed.  The brokered time deposits were with PNB at year-end 2010.

Table 11 - Year-End Deposits
December 31,
(In thousands)	2011		2010		Change
Noninterest bearing checking	$	995,733	$	937,719	$	58,014
Interest bearing transaction accounts		1,037,385		1,283,158		(245,773	)
Savings		931,527		899,288		32,239
Brokered time deposits		-		110,065		(110,065	)
All other time deposits		1,499,105		1,863,838		(364,734	)
Other		1,364		1,352		13
Total	$	4,465,114	$	5,095,420	$	(630,306	)

Total year-end deposits decreased by $93 million or 1.8% in 2010.  Excluding brokered deposits in 2010, certificates of deposit decreased by $359 million or 16.1% in 2010.  Vision Bank’s year-end deposits decreased by $56 million or 8.0% in 2010 and deposits for Park’s Ohio based subsidiaries decreased by $37 million or 0.8% in 2010.

A year ago, management projected that total deposits (exclusive of brokered deposits) would increase by 1% in 2011.  The actual increase in deposits for Park’s Ohio-based subsidiaries (exclusive of brokered deposits) was about $113 million or 2.6%.  Management expects total deposits (exclusive of brokered deposits) to increase by 1% to 2% in 2012.

The Federal Open Market Committee (“FOMC”) of the Federal Reserve Board decreased the federal funds rate from 4.25% at December 31, 2007 to a range of 0% to 0.25% at year-end 2008.  The FOMC aggressively lowered the federal funds rate during 2008 as the severity of the economic recession increased.  The FOMC has maintained the targeted federal funds rate in the 0% to 0.25% range for all of 2009, 2010 and 2011 as the U.S. economy has gradually recovered from the severe recession.  The average federal funds rate was 0.10% for 2011, 0.18% for 2010 and 0.16% for 2009.  Management expects that the FOMC will maintain the targeted federal funds rate in a range of 0% to 0.25% throughout 2012.

The average interest rate paid on interest bearing deposits was 0.66% in 2011, compared to 0.98% in 2010 and 1.53% in 2009.  The average cost of interest bearing deposits for each quarter of 2011 was 0.60% for the fourth quarter, 0.63% for the third quarter, 0.67% for the second quarter and 0.74% for the first quarter.  Management expects a small decrease in the average interest rate paid on interest bearing deposits in 2012.

Short-Term Borrowings: Short-term borrowings consist of securities sold under agreements to repurchase, Federal Home Loan Bank advances, federal funds purchased and other borrowings.  These funds are used to manage the Corporation’s liquidity needs and interest rate sensitivity risk.  The average rate paid on short-term borrowings generally moves closely with changes in market interest rates for short-term investments.  The average rate paid on short-term borrowings was 0.28% in 2011 compared to 0.39% in 2010 and 0.76% in 2009.

Management expects that the average interest rate paid on short-term borrowings in 2012 will be approximately the same as the average rate paid in 2011.

10

The year-end balance for short-term borrowings was $264 million at December 31, 2011, compared to $664 million at December 31, 2010 and $324 million at December 31, 2009.  The increase at December 31, 2010 compared to 2009 of $340 million was due to investment security purchases at year-end 2010 that were temporarily funded through the use of short-term borrowings.

Long-Term Debt: Long-term debt primarily consists of borrowings from the Federal Home Loan Bank and repurchase agreements with investment banking firms.  (The average balance of long-term debt and the average cost of long-term debt includes the subordinated debentures discussed in the following section.)  In 2011, average long-term debt was $882 million compared to $725 million in 2010 and $780 million in 2009.  Average total debt (long-term and short-term) was $1,179 million in 2011 compared to $1,026 million in 2010 and $1,200 million in 2009.  Average total debt increased by $153 million or 14.9% in 2011 compared to 2010 and decreased by $174 million or 14.5% in 2010 compared to 2009.  The increase in average total debt in 2011 compared to 2010 was primarily due to the increase in average loans combined with an increase in average taxable investments.  Management increased the amount of long-term debt to partially offset the interest rate risk from maintaining 15-year, fixed-rate residential mortgage loans on Park’s balance sheet.  Average long-term debt was 75% of average total debt in 2011 compared to 71% in 2010 and 65% in 2009.

The average rate paid on long-term debt was 3.42% for 2011, compared to 3.91% for 2010 and 3.38% for 2009.  Management expects that the average interest rate paid on long-term debt in 2012 will be about the same as the average interest rate paid on long-term debt in 2011.

Subordinated Debentures/Notes: Park assumed with the Vision acquisition $15 million of floating rate junior subordinated notes.  The interest rate on these subordinated notes adjusts every quarter at 148 basis points above the three-month LIBOR interest rate.  The maturity date for the junior subordinated notes is December 30, 2035 and the junior subordinated notes may be prepaid after December 30, 2010.  These junior subordinated notes qualify as Tier 1 capital under current Federal Reserve Board guidelines.

Park’s Ohio-based banking subsidiary, PNB, issued a $25 million subordinated debenture on December 28, 2007.  The interest rate on this subordinated debenture adjusts every quarter at 200 basis points above the three-month LIBOR interest rate.  The maturity date for the subordinated debenture is December 29, 2017 and the subordinated debenture may be prepaid after December 28, 2012.  On January 2, 2008, Park entered into a “pay fixed-receive floating” interest rate swap agreement for a notional amount of $25 million with a maturity date of December 28, 2012.  This interest rate swap agreement was designed to hedge the cash flows pertaining to the $25 million subordinated debenture until December 28, 2012.  Management converted the cash flows to a fixed interest rate of 6.01% through the use of the interest rate swap.  This subordinated debenture qualifies as Tier 2 capital under the applicable regulations of the Office of the Comptroller of the Currency of the United States of America (the “OCC”) and the Federal Reserve Board.

On December 23, 2009, Park issued $35.25 million of subordinated notes to 38 purchasers.  These subordinated notes have a fixed annual interest rate of 10% with quarterly interest payments.  The maturity date of these subordinated notes is December 23, 2019.  These subordinated notes may be prepaid by Park any time after December 23, 2014.  The subordinated notes qualify as Tier 2 capital under applicable rules of the Federal Reserve Board.  Each subordinated note was purchased at a purchase price of 100% of the principal amount by an accredited investor.

See Note 11 of the Notes to Consolidated Financial Statements for additional information on the subordinated debentures and subordinated notes.

Sale of Common Stock:  Park sold an aggregate of 509,184 common shares, out of treasury shares, during 2010.  Of the 509,184 common shares sold in 2010, 437,200 common shares were issued upon the exercise of warrants associated with the capital raise that closed on October 30, 2009.   As part of the capital raise that closed on December 10, 2010, Park sold 71,984 common shares and issued warrants for the purchase of 71,984 shares of common stock.  The warrants issued as part of the December 10, 2010 transaction had an exercise price of $76.41 per share.  Warrants covering the purchase of an aggregate of 35,992 common shares expired on June 10, 2011 and warrants covering the purchase of the other 35,992 common shares expired on December 10, 2011.

In total for 2010, Park sold 509,184 common shares and warrants covering 71,984 common shares at a weighted average price per share of $67.99 for gross proceeds of $34.6 million.  Net of selling expenses and professional fees, Park raised $33.5 million of common equity from capital raising activities in 2010.

During 2009, Park sold 904,072 common shares and warrants covering 500,000 common shares at a weighted average price per share of $61.20 for gross proceeds of $55.3 million.  Net of selling expenses and professional fees, Park raised $53.5 million of common equity from capital raising activities in 2009.

11

Stockholders' Equity: Tangible stockholders’ equity (stockholders’ equity less goodwill and other intangible assets) to tangible assets (total assets less goodwill and other intangible assets) was 9.68% at December 31, 2011 compared to 9.04% at December 31, 2010 and 9.13% at December 31, 2009.

The ratio of tangible stockholders’ equity to tangible assets for each of the past three years includes the issuance of $100 million of Park Series A Preferred Shares to the U.S. Treasury on December 23, 2008.  Excluding the balance of Series A Preferred Shares, the ratio of tangible common stockholders’ equity to tangible assets was 8.25% at December 31, 2011, 7.69% at December 31, 2010 and 7.75% at December 31, 2009.

In accordance with GAAP, Park reflects any unrealized holding gain or loss on AFS securities, net of income taxes, as accumulated other comprehensive income (loss) which is part of Park’s stockholders’ equity.  The unrealized holding gain on AFS securities, net of income taxes, was $12.7 million at year-end 2011, compared to $15.1 million at year-end 2010 and $30.1 million at year-end 2009.  The decrease in the amount of unrealized holding gains on AFS securities, net of income taxes, at year-end 2010 and year-end 2011 was primarily due to the sale of AFS securities in 2010 and 2011 for gains.  Park sold AFS securities with an amortized cost value of $373 million in 2010 for a gain of $11.9 million and sold AFS securities with an amortized cost value of $557 million in 2011 for a gain of $27.7 million.  The large gain from the sale of securities in 2011 was possible due to the sharp decline in long-term interest rates during the year.

In accordance with GAAP, Park adjusts accumulated other comprehensive income (loss) to recognize the net actuarial gain or loss reflected in the accounting for Park’s Pension Plan.  See Note 13 of the Notes to Consolidated Financial Statements for information on the accounting for Park’s Pension Plan.

Pertaining to the Pension Plan, Park recognized a net comprehensive loss of $5.0 million in 2011, a net comprehensive loss of $2.4 million in 2010 and a net comprehensive gain of $6.3 million in 2009.  The comprehensive loss in 2011 and 2010 was due to changes in actuarial assumptions, specifically a decrease in the discount rate.  This actuarial loss more than offset the positive investment returns and contributions to the Pension Plan in 2010 and 2011.  The comprehensive gain in 2009 was due to positive investment returns and contributions to the Pension Plan.  At year-end 2011, the balance in accumulated other comprehensive income/(loss) pertaining to the Pension Plan was $(20.9) million, compared to $(15.9) million at December 31, 2010 and $(13.5) million at December 31, 2009.

Park also recognized net comprehensive income/(loss) of $0.5 million, $(0.1) million and $0.3 million for the years ended December 31, 2011, 2010 and 2009, respectively, due to the mark-to-market of the $25 million cash flow hedge.  See Note 19 of the Notes to Consolidated Financial Statements for information on the accounting for Park’s derivative instruments.

INVESTMENT OF FUNDS

Loans:  Average loans were $4,714 million in 2011, compared to $4,642 million in 2010 and $4,594 million in 2009.  The average yield on loans was 5.61% in 2011, compared to 5.80% in 2010 and 6.03% in 2009.  The average prime lending rate was 3.25% in 2011, 2010 and 2009.  Approximately 59% of Park’s loan balances mature or reprice within one year (see Table 30).  The yield on average loan balances for each quarter of 2011 was 5.59% for both the fourth and third quarters, compared to 5.61% for the second quarter and 5.63% for the first quarter.  Management expects that the yield on the loan portfolio will decrease modestly in 2012 compared to the average yield of 5.61% for 2011.  At December 31, 2011, loan balances were $4,317 million compared to $4,733 million at year-end 2010, a decrease of $416 million or 8.8%.  The large decrease in loan balances shown on Park’s balance sheet during 2011 was primarily due to $369 million of loans at Vision Bank being shown on Park’s balance sheet as assets held for sale at December 31, 2011.  These loan balances will be included in the sale of Vision Bank during the first quarter of 2012.  Park’s Ohio-based subsidiaries increased loans by $101 million or 2.5% to $4,193 million at year-end 2011.  The remaining balance of Vision Bank loans at year-end 2011 of $110 million will become assets of SE, LLC as a result of the merger of Vision Bank into SE, LLC during the first quarter of 2012, when the sale is completed.  At December 31, 2010, Vision Bank had $641 million of loans.

In 2010, year-end loan balances increased by $92 million or 2.0%.  Park’s Ohio-based subsidiaries increased loans by $129 million or 3.2% during 2010.  Vision Bank had a decline in loans of $37 million or 5.4% in 2010.

In 2009, year-end loan balances increased by $149 million or 3.3%.  At Vision Bank, year-end loan balances decreased by $13 million or 1.9% during 2009.  Park’s Ohio-based subsidiaries increased loans by $162 million or 4.3% during 2009.

A year ago, management projected that year-end loan balances would increase by 1% to 3% in 2011.  The actual change in year-end loan balances was a decrease of 8.8% due to the pending sale of Vision Bank.  As discussed previously, year-end loan balances for Park’s Ohio-based subsidiaries increased by 2.5% in 2011.  Management expects that loan growth in 2012 will be in the 1% to 3% range.

12

Year-end residential real estate loans were $1,629 million, $1,692 million and $1,555 million in 2011, 2010 and 2009, respectively.  Residential real estate loans decreased by $63.6 million or 3.8% in 2011, due to the pending sale of Vision Bank.  The residential real estate loans that will be included in the sale of Vision Bank in the first quarter of 2012 totaled $153.6 million at December 31, 2011, and were included in assets held for sale. Without the pending sale of Vision Bank, residential real estate loans would have increased by $90 million or 7.3% in 2011.  Residential real estate loans increased by $137 million or 8.8% in 2010 and decreased by $5 million or 0.3% in 2009.  The increase of $137 million in 2010 was primarily due to management’s decision to retain 15-year fixed-rate residential mortgage loans that were previously sold in the secondary market.  The balance of loans for this new product was $176 million at December 31, 2010, with a weighted average interest rate of 3.82%.  This 15-year, fixed-rate product increased by $153 million to $329 million at December 31, 2011, and has a weighted average interest rate of 3.79%.  Management expects an increase in residential real estate loans in 2012 of 3% to 5%.

The long-term fixed-rate residential mortgage loans that Park originates are generally sold in the secondary market and Park typically retains servicing on these loans.  As mentioned above, during 2010, Park began to retain on its balance sheet 15-year fixed-rate residential mortgage loans.  The balance of sold fixed-rate residential mortgage loans was $1,347 million at year-end 2011, compared to $1,471 million at year-end 2010 and $1,518 million at year-end 2009.  The decrease in Park’s sold residential mortgage loan portfolio of $171 million in the last two years was due to the retention of the 15-year fixed-rate residential mortgage loan product.  The increase in the 15-year fixed-rate residential mortgage loan product during 2010 and 2011, of $329 million, was $158 million more than the decrease in the long-term fixed-rate residential mortgage sold servicing portfolio.  Management is pleased with this performance as the 15-year fixed-rate mortgage loans retained on the balance sheet would have been sold prior to 2010 and included in the servicing portfolio.

Year-end consumer loans were $617 million, $667 million and $704 million in 2011, 2010 and 2009, respectively.  Consumer loans decreased by $50 million or 7.6% in 2011 and decreased by $37 million or 5.3% in 2010.  The consumer loans that will be included in the pending sale of Vision Bank were only $4 million at December 31, 2011.  The decrease in consumer loans in both 2011 and 2010 was primarily due to a decline in automobile loans originated in Ohio, as competition for automobile loans increased in 2010 and 2011.

Consumer loans increased by $61 million or 9.5% in 2009.  The increase in consumer loans in 2009 was primarily due to an increase in automobile loans originated through automobile dealers in Ohio.  Management expects that consumer loans will decrease by 1% to 2% in 2012.

On a combined basis, year-end commercial, financial and agricultural loans, real estate construction loans and commercial real estate loans totaled $2,070 million, $2,371 million and $2,377 million at year-end 2011, 2010 and 2009, respectively.  These combined loan totals decreased by $301 million or 12.7% in 2011.  This decrease was primarily due to the pending sale of Vision Bank as $211 million of these combined loan totals are classified as assets held for sale on Park’s balance sheet at December 31, 2011.  These combined loan totals declined by $6 million or 0.3% in 2010 and increased by $93 million or 4.1% in 2009.  Management expects that commercial, financial and agricultural loans, real estate construction loans and commercial real estate loans will grow by 1% to 3% in 2012.

Year-end lease balances were $2 million in 2011 and $3 million in both 2010 and 2009.  Management continues to de-emphasize leasing and expects the balance to further decline in 2012.

Table 12 reports year-end loan balances by type of loan for the past five years.

Table 12  -  Loans by Type
December 31,
(In thousands)	2011		2010		2009		2008		2007
Commercial, financial and agricultural	$	743,797	$	737,902	$	751,277	$	714,296	$	613,282
Real estate  -  construction		217,546		406,480		495,518		533,788		536,389
Real estate  -  residential		1,628,618		1,692,209		1,555,390		1,560,198		1,481,174
Real estate  -  commercial		1,108,574		1,226,616		1,130,672		1,035,725		993,101
Consumer		616,505		666,871		704,430		643,507		593,388
Leases		2,059		2,607		3,145		3,823		6,800
Total Loans	$	4,317,099	$	4,732,685	$	4,640,432	$	4,491,337	$	4,224,134

13

Table 13 - Selected Loan Maturity Distribution
			Over One		Over
December 31, 2011	One Year		Through		Five
(In thousands)	or Less (1)		Five Years		Years		Total
Commercial, financial and agricultural	$	315,077	$	268,998	$	159,722	$	743,797
Real estate-construction		130,995		28,260		58,291		217,546
Real estate-commercial		145,748		200,627		762,199		1,108,574
Total	$	591,820	$	497,885	$	980,212	$	2,069,917
Total of these selected loans due
after one year with:
Fixed interest rate							$	529,119
Floating interest rate							$	948,978
(1) Nonaccrual loans of $121.4 million are included within the one year or less classification above.

Investment Securities: Park’s investment securities portfolio is structured to minimize credit risk, provide liquidity and contribute to earnings. Park’s investment strategy is dynamic.  As conditions change over time, Park’s overall interest rate risk, liquidity needs and potential return on the investment portfolio will change.  Management regularly evaluates the securities in the investment portfolio as circumstances evolve.  Circumstances that could result in the sale of a security include: to better manage interest rate risk; to meet liquidity needs; or to improve the overall yield in the investment portfolio.

Park classifies the majority of its securities as AFS (see Note 4 of the Notes to Consolidated Financial Statements).  These securities are carried on the books at their estimated fair value with the unrealized holding gain or loss, net of federal taxes, accounted for as accumulated other comprehensive income (loss) which is part of the Corporation’s equity.  The securities that are classified as AFS are free to be sold in future periods in carrying out Park’s investment strategies.

Generally, Park classifies U.S. Government sponsored entity collateralized mortgage obligations (“CMOs”) that it purchases as held-to-maturity.  A classification of held-to-maturity means that Park has the positive intent and the ability to hold these securities until maturity.  Park classifies CMOs as held-to-maturity because these securities are generally not as liquid as the U.S. Government sponsored entity mortgage-backed securities and U.S. Government sponsored entity notes that Park classifies as AFS.  At year-end 2011, Park’s held-to-maturity securities portfolio was $820 million, compared to $674 million at year-end 2010 and $507 million at year-end 2009.  Park purchased $628 million of CMOs in 2011, $314 million of CMOs in 2010 and $119 million of CMOs in 2009. All of the mortgage-backed securities and CMOs in Park’s investment portfolio were issued by a U.S. Government sponsored entity.

Average taxable investment securities were $1,841 million in 2011, compared to $1,730 million in 2010 and $1,848 million in 2009.  The average yield on taxable securities was 3.74% in 2011, compared to 4.44% in 2010 and 4.90% in 2009.  Average tax-exempt investment securities were $8 million in 2011, compared to $17 million in 2010 and $30 million in 2009.  The average tax-equivalent yield on tax-exempt investment securities was 7.17% in 2011, compared to 7.24% in 2010 and 7.45% in 2009.

Year-end total investment securities (at amortized cost) were $1,689 million in 2011, $2,017 million in 2010 and $1,817 million in 2009.  Management purchased investment securities totaling $1,268 million in 2011, $3,033 million in 2010 and $469 million in 2009.   The decrease in purchases during 2011 was primarily due to the reduced interest rate environment during the year and partially due to management’s decision to retain 15-year, fixed-rate residential mortgage loans on Park’s balance sheet.  The significant increase in purchases during 2010 was largely due to the purchase of $1,319 million of 28-day U.S. Government sponsored entity discount notes and $823 million of U.S. Government sponsored entity callable notes.  Proceeds from repayments and maturities of investment securities were $1,013 million in 2011, $2,385 million in 2010 and $467 million in 2009.  The decrease in proceeds from repayments and maturities in 2011 was primarily due to relative fewer holdings of 28-day U.S. Government sponsored entity discount notes during the year.  The increase in proceeds from repayments and maturities in 2010 was primarily due to the 28-day U.S. Government sponsored entity discount notes and U.S. Government sponsored entity callable notes, which had repayments or maturities of $1,319 million and $710 million, respectively, during the year.    Proceeds from sales of securities were $610 million in 2011, $460 million in 2010 and $204 million in 2009.  Park realized net security gains on a pre-tax basis of $28.8 million in 2011, $11.9 million in 2010 and $7.3 million in 2009.

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During 2011, Park sold investment securities during the first, second, third and fourth quarters.  In total, these sales resulted in proceeds of $610.0 million and a pre-tax gain of $28.8 million.

During the first quarter of 2011, Park sold $105.4 million of U.S. Government sponsored entity mortgage-backed securities for a pre-tax gain of $6.6 million.  These mortgage-backed securities had a weighted average remaining life of approximately 2 years, a weighted average book yield of 5.02% and were sold at an average price of 106.2% of the principal balance with an estimated yield to the buyer of 2.10%.  Additionally, Park sold $1.0 million of municipal securities held by Vision Bank for no gain or loss in the first quarter to reduce credit risk in the investment securities portfolio.  These securities had a weighted average tax-equivalent yield of 5.75% and a weighted average remaining life of approximately 4 years.

During the second quarter of 2011, Park sold $191.0 million of U.S. Government sponsored entity mortgage-backed securities for a pre-tax gain of $15.4 million.  These mortgage-backed securities had a weighted average remaining life of approximately 3 years, a weighted average book yield of 5.25% and were sold at an average price of 107.4% of the principal balance with an estimated yield to the buyer of 1.92%.

During the third quarter of 2011, Park sold $212.8 million of U.S. Government sponsored entity mortgage-backed securities for a pre-tax gain of $3.5 million.  These mortgage-backed securities had a weighted average book yield of 2.60% and a weighted average remaining life of approximately 3 years and were sold at an average price of 104.5% of the principal balance with an estimated yield to the buyer of 2.03%.

Late in the fourth quarter of 2011, Park liquidated Vision Bank’s securities portfolio.  These securities were sold in preparation of the sale of Vision Bank during the first quarter of 2012.  Park sold $45.7 million of U.S. Government sponsored entity mortgage-backed securities (available-for-sale securities) and $24.3 million of U.S. Government sponsored entity CMOs (held-to-maturity securities) held by Vision Bank for a pre-tax gain of $3.4 million.  While management would not normally sell held-to-maturity investment securities, the CMO’s held by Vision Bank were sold late in 2011 as management liquidated the entire Vision Bank securities portfolio in anticipation of the sale.  These securities had a weighted average book yield of 4.37% and a weighted average remaining life of approximately 3 years.  These securities were sold at an average price of approximately 104.9% of the principal balance with an estimated yield to the buyer of 2.12%.  Park also sold $896,000 of municipal securities held by Vision Bank for a pre-tax gain of $15,000.  The weighted average tax-equivalent yield on these municipal securities was 5.96% with a weighted average remaining life of approximately 2 years.  The proceeds from the sale of the Vision Bank securities were used to purchase U.S. Agency discount notes that mature during the first quarter of 2012.

During 2010, Park sold investment securities during the first, second and fourth quarters.  In total, these sales resulted in proceeds of $460.2 million and a pre-tax gain of $11.9 million.

During the first quarter of 2010, Park sold $200.7 million of U.S. Government sponsored entity mortgage-backed securities for a pre-tax gain of $8.3 million.  These mortgage-backed securities had a weighted average remaining life of approximately 3 years, a weighted average book yield of 4.75% and were sold at an average price of 103.7% of the principal balance with an estimated yield to the buyer of 2.99%.  Additionally, Park sold $75 million of U.S. Government sponsored entity callable notes for no gain or loss in the first quarter to reduce the extension risk in the investment securities portfolio in the case of interest rate increases in the future.  These securities had a book yield of 4.25% and a final maturity in approximately 9 years.

During the second quarter of 2010, Park sold $57 million of U.S. Government sponsored entity mortgage-backed securities for a pre-tax gain of $3.5 million.  These mortgage-backed securities had a weighted average remaining life of approximately 3 years, a weighted average book yield of 4.64% and were sold at an average price of 105.8% of the principal balance with an estimated yield to the buyer of 2.08%.

During the fourth quarter of 2010, Park sold $115.8 million of U.S. Government sponsored entity callable notes for a small gain of $45,000.  These securities had a book yield of 3.37% and a final maturity in approximately 10 years.

At year-end 2011 and 2010, the average tax-equivalent yield on the total investment portfolio was 3.31% and 4.01%, respectively.  The weighted average remaining maturity was 1.7 years at December 31, 2011 and 3.6 years at December 31, 2010.  U.S. Government sponsored entity asset-backed securities were approximately 74% of the total investment portfolio at year-end 2011 and were approximately 82% of the total investment portfolio at year-end 2010.  This segment of the investment portfolio consists predominantly of 15-year mortgage-backed securities and CMOs.

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The average maturity of the investment portfolio would lengthen if long-term interest rates would increase as the principal repayments from mortgage-backed securities and CMOs would be reduced and callable U.S. Government sponsored entity notes would extend to their maturity dates.  At year-end 2011, management estimated that the average maturity of the investment portfolio would lengthen to 5.3 years with a 100 basis point increase in long-term interest rates and to 7.0 years with a 200 basis point increase in long-term interest rates.  Likewise, the average maturity of the investment portfolio would shorten if long-term interest rates would decrease as the principal repayments from mortgage-backed securities and CMOs would increase as borrowers would refinance their mortgage loans and the callable U.S. Government sponsored entity notes would shorten to their call dates.  At year-end 2011, management estimated that the average maturity of the investment portfolio would decrease to 1.0 years with a 100 basis point decrease in long-term interest rates and to 0.8 years with a 200 basis point decrease in long-term interest rates.

Table 14 sets forth the carrying value of investment securities, as well as the percentage held within each category at year-end 2011, 2010 and 2009:

Table 14  -  Investment Securities
December 31,
(In thousands)	2011			2010			2009
Obligations of U.S. Treasury and other U.S. Government sponsored entities	$	371,657		$	273,313		$	347,595
Obligations of states and political subdivisions		4,652			14,211			20,123
U.S. Government asset-backed securities		1,262,527			1,681,815			1,425,361
Federal Home Loan Bank stock		60,728			61,823			62,044
Federal Reserve Bank stock		6,876			6,876			6,875
Equities		2,033			1,753			1,562
Total	$	1,708,473		$	2,039,791		$	1,863,560
Investments by category as a percentage of
total investment securities
Obligations of U.S. Treasury and other U.S. Government sponsored entities		21.8	%		13.4	%		18.6	%
Obligations of states and political subdivisions		0.3	%		0.7	%		1.1	%
U.S. Government asset-backed securities		73.9	%		82.5	%		76.5	%
Federal Home Loan Bank stock		3.5	%		3.0	%		3.3	%
Federal Reserve Bank stock		0.4	%		0.3	%		0.4	%
Equities		0.1	%		0.1	%		0.1	%
Total		100.0	%		100.0	%		100.0	%

ANALYSIS OF EARNINGS

Park’s principal source of earnings is net interest income, the difference between total interest income and total interest expense.  Net interest income results from average balances outstanding for interest earning assets and interest bearing liabilities in conjunction with the average rates earned and paid on them.  (See Table 15 for three years of history on the average balances of the balance sheet categories and the average rates earned on interest earning assets and the average rates paid on interest bearing liabilities.)

Net interest income decreased slightly by $810,000 or 0.3% to $273.2 million for 2011 compared to an increase of $553,000 or 0.2% to $274.0 million for 2010.  The tax equivalent net yield on interest earning assets was 4.14% for 2011 compared to 4.26% for 2010 and 4.22% for 2009.  The net interest rate spread (the difference between rates received for interest earning assets and the rates paid for interest bearing liabilities) was 3.94% for 2011, compared to 4.01% for 2010 and 3.94% for 2009.  The small decrease in net interest income in 2011 was due to the decrease in the net interest spread to 3.94% from 4.01%.  The average balance of interest earning assets increased by $159 million or 2.5% to $6,641 million in 2011.

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The average yield on interest earning assets was 5.03% in 2011 compared to 5.36% in 2010 and 5.67% in 2009.  The average federal funds rate for 2011 was 0.10%, compared to an average rate of 0.18% in 2010 and 0.16% in 2009.  On a quarterly basis for 2011, the average yield on interest earning assets was 4.93% for the fourth quarter, 4.95% for the third quarter, 5.08% for the second quarter and 5.14% for the first quarter.  Management expects that the average yield on interest earning assets will slightly decrease in 2012.

The average rate paid on interest bearing liabilities was 1.09% in 2011, compared to 1.35% in 2010 and 1.73% in 2009.  On a quarterly basis for 2011, the average rate paid on interest bearing liabilities was 1.07% for both the fourth and third quarters, 1.09% for the second quarter and 1.14% for the first quarter.  Management expects that the average rate paid on interest bearing liabilities will modestly decrease in 2012.

Table 15 - Distribution of Assets, Liabilities and Stockholders' Equity
December 31,				2011								2010								2009
(In thousands)	Daily					Average			Daily					Average			Daily					Average
	Average			Interest		Rate			Average			Interest		Rate			Average			Interest		Rate
ASSETS
Interest earning assets:
Loans (1) (2)	$	4,713,511		$	264,192		5.60	%	$	4,642,478		$	269,306		5.80	%	$	4,594,436		$	276,893		6.03	%
Taxable investment securities		1,840,842			68,873		3.74	%		1,729,511			76,838		4.44	%		1,847,706			90,558		4.90	%
Tax-exempt investment securities (3)		8,038			575		7.15	%		16,845			1,220		7.24	%		29,597			2,205		7.45	%
Money market instruments		78,593			178		0.23	%		93,009			200		0.22	%		52,658			116		0.22	%
Total interest earning assets		6,640,984			333,818		5.03	%		6,481,843			347,564		5.36	%		6,524,397			369,772		5.67	%
Noninterest earning assets:
Allowance for loan losses		(128,512	)							(119,639	)							(103,683	)
Cash and due from banks		124,649								116,961								110,227
Premises and equipment, net		69,507								69,839								67,944
Other assets		499,543								493,746								436,646
TOTAL	$	7,206,171							$	7,042,750							$	7,035,531

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Transaction accounts	$	1,430,492	$	2,686	0.19	%	$	1,354,392	$	4,450	0.33	%	$	1,229,553	$	7,889	0.64	%
Savings deposits		946,406		1,126	0.12	%		891,021		1,303	0.15	%		805,783		2,926	0.36	%
Time deposits		1,816,506		23,842	1.31	%		2,029,088		36,212	1.78	%		2,197,055		53,805	2.45	%
Total interest bearing deposits		4,193,404		27,654	0.66	%		4,274,501		41,965	0.98	%		4,232,391		64,620	1.53	%
Short-term borrowings		297,537		823	0.28	%		300,939		1,181	0.39	%		419,733		3,209	0.76	%
Long-term debt (4)		881,921		30,169	3.42	%		725,356		28,327	3.91	%		780,435		26,370	3.38	%
Total interest bearing liabilities		5,372,862		58,646	1.09	%		5,300,796		71,473	1.35	%		5,432,559		94,199	1.73	%
Noninterest bearing liabilities:
Demand deposits		999,085						907,514						818,243
Other		90,351						87,885						109,415
Total noninterest bearing liabilities		1,089,436						995,399						927,658
Stockholders' equity		743,873						746,555						675,314
TOTAL	$	7,206,171					$	7,042,750					$	7,035,531
Net interest earnings			$	275,172					$	276,091					$	275,573
Net interest spread					3.94	%					4.01	%					3.94	%
Net yield on interest earning assets (net interest margin)					4.14	%					4.26	%					4.22	%

(1) Loan income includes loan related fee income of $2,381 in 2011, $238 in 2010 and $1,669 in 2009.  Loan income also includes the effects of taxable equivalent

adjustments using a 35% tax rate in 2011, 2010 and 2009.  The taxable equivalent adjustment was $1,734 in 2011, $1,614 in 2010 and $1,294 in 2009.

(2) For the purpose of the computation, nonaccrual loans are included in the daily average loans outstanding.

(3) Interest income on tax-exempt investment securities includes the effects of taxable equivalent adjustments using a 35% tax rate in 2011, 2010 and 2009.

The taxable equivalent adjustments were $204 in 2011, $434 in 2010, and $788 in 2009.

(4) Includes subordinated debenture and subordinated notes.

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The following table displays (for each quarter of 2011) the average balance of interest earning assets, net interest income and the tax equivalent net interest margin.

Table 16  - Quarterly Net Interest Margin
(In thousands)	Average Interest Earning Assets		Net Interest Income		Tax Equivalent Net Interest Margin
First Quarter	$	6,722,136	$	69,313		4.21	%
Second Quarter		6,745,790		70,022		4.19	%
Third Quarter		6,610,953		67,620		4.09	%
Fourth Quarter		6,487,958		66,279		4.08	%
2011	$	6,640,984	$	273,234		4.14	%

Management expects that average interest earning assets will decrease significantly in 2012, due to the sale of Vision Bank during the first quarter of 2012.  Management projects that average interest earning assets will be approximately $6,200 million for 2012.  Management expects that net interest income will be in a range of $240 million to $250 million in 2012 and that the tax equivalent net interest margin will be in a range of 3.88% to 3.98% in 2012.  (Please see the “Summary Discussion of Operating Results for Park” section of this Financial Review for a comparison of 2011 results to management’s projections from a year ago.)

The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.

Table 17  -  Volume/Rate Variance Analysis

	Change from 2010 to 2011									Change from 2009 to 2010
(In thousands)	Volume			Rate			Total			Volume			Rate			Total
Increase (decrease) in:
Interest income:
Total loans	$	3,988		$	(9,102	)	$	(5,114	)	$	2,915		$	(10,502	)	$	(7,587	)
Taxable investments		4,711			(12,676	)		(7,965	)		(5,560	)		(8,160	)		(13,720	)
Tax-exempt investments		(631	)		(14	)		(645	)		(925	)		(60	)		(985	)
Money market instruments		(31	)		9			(22	)		84			-			84
Total interest income		8,037			(21,783	)		(13,746	)		(3,486	)		(18,722	)		(22,208	)
Interest expense:
Transaction accounts	$	237		$	(2,001	)	$	(1,764	)	$	725		$	(4,164	)	$	(3,439	)
Savings accounts		85			(262	)		(177	)		270			(1,893	)		(1,623	)
Time deposits		(3,514	)		(8,856	)		(12,370	)		(3,844	)		(13,749	)		(17,593	)
Short-term borrowings		(14	)		(344	)		(358	)		(746	)		(1,282	)		(2,028	)
Long-term debt		5,663			(3,821	)		1,842			(1,960	)		3,917			1,957
Total interest expense		2,457			(15,284	)		(12,827	)		(5,555	)		(17,171	)		(22,726	)
Net variance	$	5,580		$	(6,499	)	$	(919	)	$	2,069		$	(1,551	)	$	518

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Other Income:  Total other income was $94.9 million in 2011, compared to $74.9 million in 2010 and $81.2 million in 2009.  The large increase in total other income of $20.0 million in 2011 compared to 2010, was primarily due to the large increase in net gains from the sale of investment securities.  The net gain from the sale of investment securities was $28.8 million in 2011, compared to a net gain of $11.9 million in 2010.  In 2009, Park’s total other income included a “one-time” positive item of $3.0 million from the sale of all the Class B shares of stock that Park received from the initial public offering of Visa, Inc.

The following table displays total other income for Park in 2011, 2010 and 2009.

Table 18 - Other Income
Year Ended December 31,
(In thousands)	2011			2010 (restated)			2009
Income from fiduciary activities	$	14,965		$	13,874		$	12,468
Service charges on deposits		18,307			19,717			21,985
Net gains on sales of securities		28,829			11,864			7,340
Other service income		10,606			13,816			18,767
Checkcard fee income		12,496			11,177			9,339
Bank owned life insurance income		5,089			4,978			5,050
ATM fees		2,703			2,951			3,082
OREO devaluations		(8,219	)		(13,206	)		(6,818	)
Other		10,134			9,709			9,977
Total other income	$	94,910		$	74,880		$	81,190

Income from fiduciary activities increased by $1.1 million or 7.9% to $15.0 million in 2011 and increased by $1.4 million or 11.3% to $13.9 million in 2010.  The increase in fiduciary fee income in 2011 and 2010 was primarily due to improvements in the equity markets and also due to an increase in the total accounts served by Park’s Trust department.  Park charges fiduciary fees based on the market value of the assets being managed.  The Dow Jones Industrial Average stock index annual average was 8,885 for calendar year 2009, 10,669 for calendar year 2010 and 11,958 for calendar year 2011.  The market value of the assets that Park manages was $3.3 billion at December 31, 2011 and December 31, 2010, compared to $3.1 billion at December 31, 2009.  Management expects an increase of approximately 2% to 4% in fee income from fiduciary activities in 2012.

Service charges on deposit accounts decreased by $1.4 million or 7.2% to $18.3 million in 2011 and decreased by $2.3 million or 10.3% to $19.7 million in 2010.  The decrease in service charge income in 2011 was primarily due to a decrease in fee income from overdraft charges and other non-sufficient funds (NSF) charges.  Park’s customers did not use our courtesy overdraft program as frequently in 2011 and, as a result, this fee income decreased by $1.3 million or 8.7% in 2011 compared to 2010.  Management expects that revenue from service charges on deposits in 2012 will be within a range of $16 million to $18 million.

Fee income earned from origination and sale into the secondary market of long-term fixed-rate mortgage loans is included within other non-yield related fees in the subcategory “Other service income”.  Other service income decreased by $3.2 million, or 23.2%, to $10.6 million in 2011, compared to $13.8 million in 2010.   The decrease in other service income was primarily due to a decline in the amount of fixed-rate mortgage loans originated and sold in 2011.  The amount of fixed-rate mortgage loans originated and sold in 2011 was $190 million, compared to $358 million in 2010 and $615 million in 2009.  As previously discussed, Park began to originate and retain 15-year, fixed-rate residential mortgages in 2010, which contributed to the decline in loans sold in the secondary market.  The balance of loans for this product was $329 million at December 31, 2011, an increase of $153 million compared to $176 million at December 31, 2010.  Management expects an increase in residential real estate loans in 2012 of 3% to 5%.  In 2010, other service income decreased by $5.0 million or 26.4% to $13.8 million, which was due to a decline in the volume of fixed-rate residential mortgage loans that Park originated and sold into the secondary market in 2010 compared to 2009. Park’s management expects that the volume of sold fixed-rate residential mortgage loans will continue to decline in 2012 and as a result expects that other service income will decrease by approximately 12% to 14% in 2012.

Checkcard fee income, which is generated from debit card transactions increased $1.3 million or 11.8% to $12.5 million in 2011.  During 2010, checkcard fee income increased $1.8 million or 19.7% to $11.2 million.  The increases in both 2011 and 2010 were attributable to continued increases in the volume of debit card transactions.  Park’s management expects checkcard fee income will decline by approximately 4% to 6% in 2012, largely due to the full year impact of the Durbin Amendment that became a part of the Dodd-Frank Wall Street Reform and Consumer Protection Act and became effective on October 1, 2011.

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OREO devaluations, which result from declines in the fair value (less anticipated selling costs) of property acquired through foreclosure, totaled $8.2 million in 2011, a decrease of $5.0 million or 37.8% compared to $13.2 million in 2010.  The OREO devaluations in 2011 related primarily to other real estate owned at Vision Bank.  As previously discussed, throughout the 2011 year, Vision Bank’s OREO property was transferred to SE, LLC.  Of the $8.2 million in OREO devaluations in 2011, $3.0 million and $4.2 million were related to devaluations recognized at Vision Bank and SE, LLC, respectively.  Park’s management expects that OREO devaluations will be less significant in 2012 as property values throughout Park’s footprint continue to stabilize.

The subcategory of “Other” income includes fees earned from the sale of official checks and printed checks, rental fee income from safe deposit boxes, gains and losses from the sale of OREO and other miscellaneous income.  Total other income increased by $425,000 or 4.4% to $10.1 million in 2011 and decreased by $268,000 or 2.7% to $9.7 million in 2010.  Park’s management expects 2012 revenue within the subcategory of other income, prior to the impact of the Vision Bank sale, will be consistent with the results experienced in 2011.  On February 16, 2012, the sale of Vision Bank closed and a pre-tax gain of $22 million, net of anticipated expenses directly related to the sale, was recognized by Park’s Parent Company.

Park recognized net gains from the sale of investment securities of $28.8 million in 2011, $11.9 million in 2010 and $7.3 million in 2009.  The majority of the investment securities sold in 2011, with an amortized cost of $579.2 million, were U.S. Government sponsored entity mortgage-backed securities. The remaining investment securities sold in 2011 were municipal securities.  The following table provides a summary of the gains realized from the sale of investment securities in 2011.  Park’s management does not expect to recognize any gains from the sale of investment securities in 2012.

Table 19 - Gain on Sale of Securities
(in thousands)	Amortized Cost		Book Yield			Sales Proceeds		Yield to buyer			Gain
Fourth Quarter	$	70,848		4.39	%	$	74,215		2.17	%	$	3,367
Third Quarter		212,799		2.60	%		216,264		2.03	%		3,465
Second Quarter		191,037		5.25	%		206,399		1.92	%		15,362
First Quarter		106,470		5.03	%		113,105		2.13	%		6,635
Total	$	581,154		4.13	%	$	609,983		2.03	%	$	28,829

A year ago, Park’s management forecast that total other income, excluding gains from the sale of securities, would be approximately $63 million to $67 million for 2011.  The actual performance for 2011 was in line with management’s original estimate, at $66.1 million.  For 2012, Park’s management expects that total other income, excluding gains from the sale of Vision Bank, will be approximately $62 million to $66 million.

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Other Expense: Total other expense was $188.3 million in 2011, compared to $187.1 million in 2010 and $188.7 million in 2009.  Total other expense increased by $1.2 million, or 0.6%, to $188.3 million in 2011.  Total other expense decreased by $1.6 million or 0.9% to $187.1 million in 2010.  The following table displays total other expense for Park in 2011, 2010 and 2009.

Table 20 - Other Expense
Year Ended December 31,
(In thousands)	2011		2010		2009
Salaries and employee benefits	$	102,068	$	98,315	$	101,225
Data processing fees		4,965		5,728		5,674
Fees and service charges		21,119		19,972		15,935
Net occupancy expense of bank premises		11,295		11,510		11,552
Amortization of intangibles		3,534		3,422		3,746
Furniture and equipment expense		10,773		10,435		9,734
Insurance		6,821		8,983		12,072
Marketing		2,967		3,656		3,775
Postage and telephone		6,060		6,648		6,903
Other		18,715		18,438		18,109
Total other expense	$	188,317	$	187,107	$	188,725
Full time equivalent employees		1,920		1,969		2,024

Salaries and employee benefits expense increased by $3.8 million or 3.8% to $102.1 million in 2011 and decreased by $2.9 million or 2.9% to $98.3 million in 2010.  The increase in 2011 was primarily related to an increase in employee benefit costs, due to an increase in medical claims of $2.6 million.  Full-time equivalent employees at year-end 2011 were 1,920, compared to 1,969 at year-end 2010 and 2,024 at year-end 2009.  A year ago, Park’s management projected that salaries and benefit expense would be $102 million for 2011.  The actual performance for the year was consistent with this estimate.  For 2012, management is projecting a decline in salaries and employee benefits expense to $95 million to $97 million, primarily due to the sale of Vision Bank.

Fees and service charges increased by $1.1 million or 5.7% to $21.1 million in 2011 and increased by $4.0 million or 25.3% to $20.0 million in 2010.  This subcategory of total other expense includes legal fees, management consulting fees, director fees, audit fees, regulatory examination fees and memberships in industry associations.  The increase in fees and service charges expense in both 2010 and 2011 was primarily due to an increase in legal fees and consulting fees.  This additional expense was primarily related to an increase in costs associated with the workout of problem loans at Park’s Vision Bank subsidiary.  Park’s management expects that fees and service charges will be approximately $17 million to $18 million in 2012.

Insurance expense decreased by $2.2 million or 24.1% to $6.8 million in 2011 and decreased by $3.1 million or 25.6% to $9.0 million in 2010.  During the third quarter of 2011, Park began recognizing insurance expense for premiums paid to the FDIC based on a new assessment methodology utilizing total assets less tangible equity. The new methodology resulted in a decline in insurance expense in the second half of 2011 and will impact the full 2012 year.  Park’s management expects that insurance expense will be between $5 million to $6 million in 2012.

The subcategory “other” expense includes expenses for supplies, travel, charitable contributions, amortization of low income housing tax investments, state taxes, expenses pertaining to other real estate owned and other miscellaneous expenses.  The subcategory other expense increased by $276,000 or 1.5% to $18.7 million in 2011 and increased by $329,000 or 1.8% to $18.4 million in 2010.

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A year ago, Park’s management projected that total other expense would be approximately $183 million to $187 million in 2011.  The actual expense for the year of $188.3 million was $1.3 million or 0.7% higher than the upper end of management’s estimate.  Management expects that total other expense for 2012 will be approximately $170 million to $175 million.

Income Taxes: Federal income tax expense was $28.3 million in 2011, compared to $17.8 million in 2010 and $25.4 million in 2009.  Federal income tax expense as a percentage of income before taxes, adjusted for the state income tax expense or benefit, was 25.6% in 2011, compared to 23.4% in 2010 and to 25.5% in 2009.  A lower federal effective tax rate than the statutory rate of 35% is primarily due to tax-exempt interest income from state and municipal investments and loans, low income housing tax credits and income from bank owned life insurance.  For the year ending December 31, 2012, management expects the effective federal income tax rate will be between 26% and 28%.

State income tax expense was $6.1 million in 2011, compared to state income tax benefits of $1.2 million in 2010 and $2.5 million in 2009.  All of the state income tax expense or benefit pertains to Vision Bank, as Park and its Ohio-based subsidiaries do not pay state income tax to the state of Ohio, but pay franchise tax based on year-end equity.  The franchise tax expense is included in “state taxes” as part of total other expense on Park’s Consolidated Statements of Income.

Park recognized $6.1 million in state tax expense during 2011, which was the charge necessary to write off the previously reported state operating loss carryforward asset and other state deferred tax assets at Vision Bank. Prior to the execution of the Purchase Agreement with Centennial, management of Park believed that a merger of Vision Bank into The Park National Bank (the national bank subsidiary of Park) would enable Park to fully utilize the state net operating loss carryforward asset recorded at Vision Bank. The structure of the transactions contemplated by the Purchase Agreement will not allow either the buyer or the seller to benefit from the previously recorded net operating loss carryforward asset at Vision Bank to offset future taxable income; therefore, this asset was written off by Vision Bank at December 31, 2011.

State income tax expense was a credit in 2010 and 2009 as a result of losses at Vision Bank in those years.  Park performed an analysis in those years to determine if a valuation allowance against deferred tax assets was required in accordance with GAAP.  Vision Bank is subject to state income tax in Alabama and Florida.  In 2010, a state tax benefit of $1.16 million was recorded by Vision Bank, consisting of a gross benefit of $3.46 million and a valuation allowance of $2.30 million ($1.5 million net of the federal income tax benefit).

CREDIT EXPERIENCE

Provision for Loan Losses: The provision for loan losses is the amount added to the allowance for loan losses to absorb future loan charge-offs. The amount of the loan loss provision is determined by management after reviewing the risk characteristics of the loan portfolio, historic and current loan loss experience and current economic conditions.

The provision for loan losses was $63.3 million in 2011, $87.1 million in 2010 and $68.8 million in 2009. Net loan charge-offs were $125.1 million in 2011, $60.2 million in 2010 and $52.2 million in 2009. The ratio of net loan charge-offs to average loans was 2.65% in 2011, 1.30% in 2010 and 1.14% in 2009.

The loan loss provision for Vision Bank was $31.1 million in 2011, $61.4 million in 2010 and $44.4 million in 2009.  Net loan charge-offs for Vision Bank were $75.9 million in 2011, $36.6 million in 2010 and $28.9 million in 2009. Vision Bank’s ratio of net loan charge-offs to average loans was 13.04% in 2011, 5.48% in 2010 and 4.18% in 2009.

Park’s Ohio-based subsidiaries had a combined loan loss provision of $32.2 million in 2011, $25.7 million in 2010 and $24.4 million in 2009. Net loan charge-offs for Park’s Ohio-based subsidiaries were $49.2 million in 2011, $23.6 million in 2010 and $23.3 million in 2009. The net loan charge-off ratio for Park’s Ohio-based subsidiaries was 1.19% for 2011 and 0.60% for both 2010 and 2009.  Of the $49.2 million in net loan charge-offs for Park’s Ohio-based subsidiaries in 2011, $18.1 million related to participations in Vision Bank loans that PNB had purchased.  Absent the charge-offs on these Vision Bank loan participations, net charge-offs for Park’s Ohio-based operations were $31.1 million and the net loan charge-off ratio was 0.75% for 2011.

At year-end 2011, the allowance for loan losses was $68.4 million or 1.59% of total loans outstanding, compared to $143.6 million or 3.03% of total loans outstanding at year-end 2010 and $116.7 million or 2.52% of total loans outstanding at year-end 2009. The decrease in the allowance for loan losses as a percentage of total loans outstanding in 2011 is primarily due to the significant decrease in specific reserves established for impaired commercial loans.  The table below provides additional information related to specific reserves on impaired commercial loans and general reserves for all other loans in Park’s portfolio at December 31, 2011, 2010 and 2009.

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Table 21 - General Reserve Trends - Park National Corporation
Year Ended December 31,
(In thousands)	2011			2010			2009
Allowance for loan losses, end of period	$	68,444		$	143,575		$	116,717
Specific reserves		15,935			66,904			36,721
General reserves	$	52,509		$	76,671		$	79,996
Total loans	$	4,317,099		$	4,732,685		$	4,640,432
Impaired commercial loans		187,074			250,933			201,143
Non-impaired loans	$	4,130,025		$	4,481,752		$	4,439,289
Allowance for loan losses as a % of period end loans		1.59	%		3.03	%		2.52	%
General reserves as a % of non-impaired loans		1.27	%		1.71	%		1.80	%

The table below provides information related to the specific reserves on impaired commercial loans and general reserves for all other loans in the retained Vision Bank portfolio at December 31, 2011, as well as historical Vision Bank information at December 31, 2010 and 2009.  The retained portfolio at December 31, 2011 represents those loans that will remain with Vision Bank and will become assets of SE, LLC as a result of the merger of Vision Bank into SE, LLC subsequent to the close of the Vision Bank sale.

Table 22 - General Reserve Trends - Vision Bank
Year Ended December 31,	2011
(In thousands)	Retained portfolio			2010			2009
Allowance for loan losses, end of period	$	10,739		$	68,937		$	44,087
Specific reserves		8,889			53,928			29,225
General reserves	$	1,850		$	15,009		$	14,862
Total loans	$	123,883		$	640,580		$	677,018
Impaired commercial loans		91,965			160,239			139,310
Non-impaired loans	$	31,918		$	480,341		$	537,708
Allowance for loan losses as a % of period end loans		8.67	%		10.76	%		6.51	%
General reserves as a % of non-impaired loans		5.80	%		3.12	%		2.76	%

The table below provides information related to the specific reserves on impaired commercial loans and general reserves for all other loans in Park’s Ohio-based subsidiaries portfolio at December 31, 2011, 2010 and 2009.

Table 23 - General Reserve Trends - Park's Ohio-Based Subsidiaries
Year Ended December 31,
(In thousands)	2011			2010			2009
Allowance for loan losses, end of period	$	57,705		$	74,638		$	72,630
Specific reserves		7,046			12,976			7,496
General reserves	$	50,659		$	61,662		$	65,134
Total loans	$	4,193,216		$	4,092,105		$	3,963,414
Impaired commercial loans		95,109			90,694			61,833
Non-impaired loans	$	4,098,107		$	4,001,411		$	3,901,581
Allowance for loan losses as a % of period end loans		1.38	%		1.82	%		1.83	%
General reserves as a % of non-impaired loans		1.24	%		1.54	%		1.67	%

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As disclosed in Table 21 above, Park’s general reserves were $52.5 million at December 31, 2011, a decline of approximately $24.2 million in 2011 from $76.7 million at December 31, 2010.  A significant portion of the decline in general reserves is due to the impact of the sale of Vision Bank, as $13.1 million of general reserves were transferred to assets held for sale at December 31, 2011.  As such, the Vision Bank sale  results in a significant decline in non-impaired loans and the general reserves associated with those loans.  The retained Vision Bank loan portfolio, as noted in Table 22 above, had a general reserve balance of $1.85 million at December 31, 2011, a decline of $13.2 million from the general reserve balance of $15.0 million at December 31, 2010.  The remaining decline in general reserves of $11.0 million is a result of declines in new nonaccrual loans and delinquent loans throughout Park’s loan portfolio.  Management expects new nonaccrual loans in 2012 will continue to be well below levels experienced in 2009 and 2010, and as a result of the Vision Bank sale, will also decline from the levels experienced in 2011. The following table shows new nonaccrual loans for 2011 and the two previous years.

Table 24 – New nonaccrual loan information
Year Ended December 31,
(In thousands)	2011		2010		2009
Nonaccrual loans, beginning of period	$	289,268	$	233,544	$	159,512
New nonaccrual loans – Ohio-based subsidiaries		78,316		85,081		57,641
New nonaccrual loans – Vision Bank		45,842		90,094		126,540
Resolved nonaccrual loans		218,320		119,451		110,149
Nonaccrual loans, end of period	$	195,106	$	289,268	$	233,544

Management believes that the allowance for loan losses at year-end 2011 is adequate to absorb probable incurred credit losses in the loan portfolio. See Note 1 of the Notes to Consolidated Financial Statements and the discussion under the heading “Critical Accounting Policies” earlier in this Financial Review for additional information on management’s evaluation of the adequacy of the allowance for loan losses.

Management expects the loan loss provision for 2012 will be approximately $20 million to $27 million. This estimate reflects management’s expectation that: (1) future declines in collateral values will be moderate as the economy continues to improve and pricing stabilizes throughout 2012; (2) new nonperforming loans will continue to decline in 2012; and (3) loan delinquencies continue to remain at or near their current low levels.  This estimated range could change significantly as circumstances for individual loans and economic conditions change.

A year ago, management projected the provision for loan losses would be $47 million to $57 million in 2011.  The actual performance was above the high end of our expectation by $6.3 million, at $63.3 million for the 2011 year.  As previously discussed, Park restated its financial statements for the year ended December 31, 2010 and for each of the quarterly periods in 2011.  This restatement resulted in a $22.2 million increase to the provision for loan losses for the year ended December 31, 2010 and a decrease to the provision for loan losses of $12.9 million for the nine months ended September 30, 2011.  As discussed throughout the remainder of this “Credit Experience” section, the primary reasons that the provision for loan losses was greater than management’s projection were declines in collateral values for those loans that are collateral dependent.  The table below provides a summary of the loan loss experience over the past five years:

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Table 25  -  Summary of Loan Loss Experience
(In thousands)	2011			2010			2009			2008			2007
Average loans (net of unearned interest)	$	4,713,511		$	4,642,478		$	4,594,436		$	4,354,520		$	4,011,307
Allowance for loan losses:
Beginning balance		143,575			116,717			100,088			87,102			70,500
Charge-offs:
Commercial, financial
and agricultural		18,350			8,484			10,047			2,953			4,170
Real estate - construction		64,166			23,308			21,956			34,052			7,899
Real estate - residential		20,691			18,401			11,765			12,600			5,785
Real estate - commercial		23,063			7,748			5,662			4,126			1,899
Consumer		7,612			8,373			9,583			9,181			8,020
Leases		-			-			9			4			3
Total charge-offs	$	133,882		$	66,314		$	59,022		$	62,916		$	27,776
Recoveries:
Commercial, financial
and agricultural	$	1,402		$	1,237		$	1,010		$	861		$	1,011
Real estate - construction		1,463			813			1,322			137			180
Real estate - residential		1,719			1,429			1,723			1,128			718
Real estate - commercial		1,825			850			771			451			560
Consumer		2,385			1,763			2,001			2,807			3,035
Leases		4			-			3			31			64
Total recoveries	$	8,798		$	6,092		$	6,830		$	5,415		$	5,568
Net charge-offs	$	125,084		$	60,222		$	52,192		$	57,501		$	22,208
Provision charged to earnings		63,272			87,080			68,821			70,487			29,476
Transfer of loans at fair value		(219	)		-			-			-			-
Allowance for loan losses acquired          (transferred) related to Vision Bank		(13,100	)		-			-			-			9,334
Ending balance	$	68,444		$	143,575		$	116,717		$	100,088		$	87,102
Ratio of net charge-offs to average loans		2.65	%		1.30	%		1.14	%		1.32	%		0.55	%
Ratio of allowance for loan losses
to end of year loans, net of
unearned interest		1.59	%		3.03	%		2.52	%		2.23	%		2.06	%

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The following table summarizes the allocation of the allowance for loan losses for the past five years:

Table 26 - Allocation of Allowance for Loan Losses
	2011					2010					2009					2008					2007
			Percent					Percent					Percent					Percent					Percent
			of Loans					of Loans					of Loans					of Loans					of Loans
December 31,			Per					Per					Per					Per					Per
(In thousands)	Allowance		Category			Allowance		Category			Allowance		Category			Allowance		Category			Allowance		Category
Commercial,
financial and
Agricultural	$	16,950		17.23	%	$	11,555		15.59	%	$	14,725		16.19	%	$	14,286		15.90	%	$	14,557		14.52	%
Real estate -
construction		15,539		5.04	%		70,462		8.59	%		47,521		10.68	%		24,794		11.88	%		20,007		12.70	%
Real estate -
residential		14,433		37.72	%		30,259		35.75	%		19,753		33.51	%		22,077		34.74	%		15,997		35.06	%
Real estate -
commercial		15,692		25.68	%		24,369		25.92	%		23,970		24.37	%		15,498		23.06	%		15,989		23.51	%
Consumer		5,830		14.28	%		6,925		14.09	%		10,713		15.18	%		23,391		14.33	%		20,477		14.05	%
Leases		-		0.05	%		5		0.06	%		35		0.07	%		42		0.09	%		75		0.16	%
Total	$	68,444		100.00	%	$	143,575		100.00	%	$	116,717		100.00	%	$	100,088		100.00	%	$	87,102		100.00	%

As of December 31, 2011, Park had no significant concentrations of loans to borrowers engaged in the same or similar industries nor did Park have any loans to foreign governments.

Nonperforming Assets: Nonperforming loans include: 1) loans whose interest is accounted for on a nonaccrual basis; 2) renegotiated loans on accrual status; and 3) loans which are contractually past due 90 days or more as to principal or interest payments but whose interest continues to accrue.  Prior to Park’s adoption of ASU 2011-02, Park classified all troubled debt restructurings (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, management deemed it appropriate to return $28.6 million TDRs to accrual status, while the remaining $92.1 million of TDRs are on nonaccrual status.  At December 31, 2010, there were $80.7 million of troubled debt restructurings included in nonaccrual loan totals.  Other real estate owned results from taking possession of property used as collateral for a defaulted loan.

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The following is a summary of Park National Corporation’s nonaccrual loans, renegotiated loans not currently on nonaccrual, loans past due 90 days or more and still accruing and other real estate owned for the last five years:

Table 27  -  Park - Nonperforming Assets
December 31, (In thousands)	2011			2010			2009			2008			2007
Nonaccrual loans	$	195,106		$	289,268		$	233,544		$	159,512		$	101,128
Renegotiated loans		28,607			-			142			2,845			2,804
Loans past due 90 days or more		3,489			3,590			14,773			5,421			4,545
Total nonperforming loans		227,202			292,858			248,459			167,778			108,477
Other real estate owned – Park National Bank		13,240			8,385			6,037			6,149			6,369
Other real estate owned – Vision Bank		-			33,324			35,203			19,699			7,074
Other real estate owned – SE, LLC		29,032			-			-			-			-
Total nonperforming assets	$	269,474		$	334,567		$	289,699		$	193,626		$	121,920
Percentage of nonperforming loans to loans		5.26	%		6.19	%		5.35	%		3.74	%		2.57	%
Percentage of nonperforming assets to loans		6.24	%		7.07	%		6.24	%		4.31	%		2.89	%
Percentage of nonperforming assets to total assets		3.86	%		4.59	%		4.11	%		2.74	%		1.88	%

Tax equivalent interest income from loans for 2011 was $264.2 million.  Park has forgone interest income of approximately $12.8 million from nonaccrual loans as of December 31, 2011 that would have been earned during the year if all loans had performed in accordance with their original terms.

During the first quarter of 2011, Park formed SE, LLC, a limited liability company under the laws of the state of Ohio as a direct subsidiary of Park. The purpose of SE, LLC is to purchase OREO from Vision Bank and continue to market such property for sale. As of December 31, 2011, approximately $29.0 million of OREO was held by SE, LLC and purchased from Vision Bank (at the then current fair market value) during 2011. Management plans to continue marketing the properties held by SE, LLC and sell such properties in an efficient manner.

Vision Bank nonperforming assets for the last five years were as follows:

Table 28 - Vision Bank - Nonperforming Assets
December 31, (In thousands)	2011			2010			2009			2008			2007
Nonaccrual loans	$	98,993		$	171,453		$	148,347		$	91,206		$	63,015
Renegotiated loans		2,265			-			-			2,845			-
Loans past due 90 days or more		122			364			11,277			644			457
Total nonperforming loans		101,380			171,817			159,624			94,695			63,472
Other real estate owned		-			33,324			35,203			19,699			7,074
Total nonperforming assets	$	101,380		$	205,141		$	194,827		$	114,394		$	70,546
Percentage of nonperforming loans to loans		81.84	%		26.82	%		23.58	%		13.71	%		9.93	%
Percentage of nonperforming assets to loans		81.84	%		32.02	%		28.78	%		16.57	%		11.04	%
Percentage of nonperforming assets to total assets		37.40	%		25.90	%		21.70	%		12.47	%		8.24	%

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Nonperforming assets for Park, excluding Vision Bank for the last five years were as follows:

Table 29 - Park Excluding Vision Bank - Nonperforming Assets
December 31, (In thousands)	2011			2010			2009			2008			2007
Nonaccrual loans	$	96,113		$	117,815		$	85,197		$	68,306		$	38,113
Renegotiated loans		26,342			-			142			-			2,804
Loans past due 90 days or more		3,367			3,226			3,496			4,777			4,088
Total nonperforming loans		125,822			121,041			88,835			73,083			45,005
Other real estate owned – Park National Bank		13,240			8,385			6,037			6,149			6,369
Other real estate owned – SE, LLC		29,032			-			-			-			-
Total nonperforming assets	$	168,094		$	129,426		$	94,872		$	79,232		$	51,374
Percentage of nonperforming loans to loans		3.00	%		2.96	%		2.24	%		1.92	%		1.26	%
Percentage of nonperforming assets to loans		4.01	%		3.16	%		2.39	%		2.08	%		1.43	%
Percentage of nonperforming assets to total assets		2.64	%		1.99	%		1.54	%		1.29	%		0.91	%

Economic conditions began deteriorating during the second half of 2007 and continued throughout 2008 and 2009. While conditions across the U.S. improved slightly in 2010 and 2011, the economic recovery continues to be a slow process.  Park and many other financial institutions throughout the country experienced a sharp increase in net loan charge-offs and nonperforming loans over the past five years. Financial institutions operating in Florida and Alabama (including Vision Bank) have been particularly hard hit by the severe recession as the demand for real estate and the price of real estate have sharply decreased.

Park had $134.5 million of commercial loans included on the watch list of potential problem commercial loans at December 31, 2011 compared to $238.7 million at year-end 2010 and $277.7 million at year-end 2009. Commercial loans include: (1) commercial, financial and agricultural loans, (2) commercial real estate loans, (3) certain real estate construction loans, and (4) certain residential real estate loans. Park’s watch list includes all criticized and classified commercial loans, defined by Park as loans rated special mention or worse, less those commercial loans currently considered to be impaired. As a percentage of year-end total loans, Park’s watch list of potential problem loans was 3.1% in 2011, 5.0% in 2010 and 6.0% in 2009. The existing conditions of these loans do not warrant classification as nonaccrual. However, these loans have shown some weakness and management performs additional analyses regarding a borrower’s ability to comply with payment terms for watch list loans.

Park’s allowance for loan losses includes an allocation for loans specifically identified as impaired under GAAP. At December 31, 2011, loans considered to be impaired consisted substantially of commercial loans graded as “doubtful” and placed on non-accrual status.  These specific reserves are typically based on management’s best estimate of the fair value of collateral securing these loans. The amount ultimately charged-off for these loans may be different from the specific reserve as the ultimate liquidation of the collateral may be for amounts different from management’s estimates.

When determining the quarterly loan loss provision, Park reviews the grades of commercial loans.  These loans are graded from 1 to 8.  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.  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.  Generally, commercial loans that are graded a 6 are considered for partial charge-off.  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.  Any commercial loan graded an 8 (loss) is completely charged-off.

As of December 31, 2011, management had taken partial charge-offs of approximately $103.8 million related to the $191.5 million of commercial loans considered to be impaired, compared to charge-offs of approximately $53.6 million related to the $250.9 million of impaired commercial loans at December 31, 2010.  Historically, Park’s management has been quick to recognize charge-offs on problem loans.  However, there is a higher level of uncertainty when valuing collateral in Vision Bank’s Florida and Alabama markets due to the illiquid nature of the collateral, and thus management had significant specific reserves recorded at Vision Bank of $53.9 million at December 31, 2010.  During 2011, Park determined it was appropriate to charge-off the majority of the specific reserves at Vision Bank, and total specific reserves were down to $8.9 million at December 31, 2011.

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A significant portion of Park’s allowance for loan losses is allocated to commercial loans classified as “special mention” or “substandard.” “Special mention” loans are loans that have potential weaknesses that may result in loss exposure to Park.  “Substandard” loans are those that exhibit a well defined weakness, jeopardizing repayment of the loan, resulting in a higher probability that Park will suffer a loss on the loan unless the weakness is corrected. Park’s annualized 36-month loss experience, defined as charge-offs plus changes in specific reserves, within the commercial loan portfolio has been 0.71% of the principal balance of these loans.  This annualized 36-month loss experience excludes Vision Bank loans, as the majority of the Vision Bank performing loan portfolio will be acquired by Centennial Bank.  The allowance for loan losses related to performing commercial loans was $37.9 million or 1.69% of the outstanding principal balance of other accruing commercial loans at December 31, 2011.  The overall reserve of 1.69% for other accruing commercial loans breaks down as follows: pass-rated commercial loans are reserved at 1.36%; special mention commercial loans are reserved at 5.20%; and substandard commercial loans are reserved at 14.90%.  The reserve levels for pass-rated, special mention and substandard commercial loans in excess of the annualized 36-month loss experience of 0.71% are due to the following factors which management reviews on a quarterly or annual basis:

• Loss Emergence Period Factor: Annually during the fourth quarter, management calculates the loss emergence period for each commercial loan segment.  This loss emergence period is calculated based upon the average period of time it takes a credit to move from pass-rated to nonaccrual.  If the loss emergence period for any commercial loan segment is greater than one year, management applies additional general reserves to all performing loans within that segment of the commercial loan portfolio.

• Loss Migration Factor: Park’s commercial loans are individually risk graded. If loan downgrades occur, the probability of default increases, and accordingly, management allocates a higher percentage reserve to those accruing commercial loans graded special mention and substandard.  Annually, management calculates a loss migration factor for each commercial loan segment for special mention and substandard credits based on a review of losses over the past three year period, considering how each individual credit was rated at the beginning of the three year period.

• Environmental Loss Factor: Management has identified certain macroeconomic factors that trend in accordance with losses in Park’s commercial loan portfolio.  These macroeconomic factors are reviewed quarterly and adjustments to the environmental loss factor impacting each segment in the performing commercial loan portfolio correlates to changes in the macroeconomic environment.

Generally, consumer loans are not individually graded.  Consumer loans include: (1) mortgage and installment loans included in the construction real estate segment of the loan portfolio; (2) mortgage, home equity lines of credit (HELOC), and installment loans included in the residential real estate segment of the loan portfolio; and (3) all loans included in the consumer segment of the loan portfolio.  The amount of loan loss reserve assigned to these loans is based on historical loss experience over the past 36 months.  Management generally considers a one-year coverage period (the “Historical Loss Factor”) appropriate because the probable loss on any given loan in the consumer loan pool should ordinarily become apparent in that time frame. However, management may incorporate adjustments to the Historical Loss Factor as circumstances warrant additional reserves (e.g., increased loan delinquencies, improving or deteriorating economic conditions, changes in lending management and underwriting standards, etc.).  At December 31, 2011, the coverage level within the consumer portfolio was approximately 1.38 years.

The judgmental increases discussed above incorporates management’s evaluation of the impact of environmental qualitative factors which pose additional risks and assigns a component of the allowance for loan losses in consideration of these factors.  Such environmental factors include: national and local economic trends and conditions; experience, ability and depth of lending management and staff; effects of any changes in lending policies and procedures; levels of, and trends in, consumer bankruptcies, delinquencies, impaired loans and charge-offs and recoveries.  The determination of this component of the allowance for loan losses requires considerable management judgment.  As always, management is working to address weaknesses in those loans that may result in future loss.  Actual loss experience may be more or less than the amount allocated.

CAPITAL RESOURCES

Liquidity and Interest Rate Sensitivity Management: Park’s objective in managing its liquidity is to maintain the ability to continuously meet the cash flow needs of customers, such as borrowings or deposit withdrawals, while at the same time seeking higher yields from longer-term lending and investing activities.

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Cash and cash equivalents increased by $23.7 million during 2011 to $157.5 million at year-end.  Cash provided by operating activities was $126.7 million in 2011, $126.1 million in 2010 and $72.3 million in 2009.  Net income was the primary source of cash for operating activities during each year.

Cash provided by investing activities was $271.2 million in 2011.  Cash used in investing activities was $352.1 million in 2010 and $5.3 million in 2009.  Investment security transactions are the major use or source of cash in investing activities.  Proceeds from the sale, repayment or maturity of securities provide cash and purchases of securities use cash.  Net security transactions provided cash of $354.8 million in 2011, used cash of $187.7 million in 2010 and provided cash of $202.7 million in 2009.  Another major use or source of cash in investing activities is the net increase or decrease in the loan portfolio.  Cash used by the net increase in the loan portfolio, including proceeds from the sale of loans, was $75.1 million in 2011, $152.5 million in 2010 and $199.9 million in 2009.

Cash used in financing activities was $374.2 million in 2011 and $79.2 million in 2009.  Cash provided by financing activities was $200.6 million in 2010.  A major source of cash for financing activities is the net change in deposits.  Deposits decreased and used $97.7 million of cash in 2011, and also decreased in 2010 and used cash of $92.6 million.  In 2009, deposits increased and provided cash of $426.3 million.  Another major source of cash for financing activities is short-term borrowings and long-term debt.  In 2011, net short-term borrowings declined, using $400.1 million in cash and net long-term borrowings increased, providing $186.4 million in cash.  In 2010, net short-term borrowings increased, providing $339.5 million in cash and net long-term borrowings declined, using $17.6 million in cash.  In 2009, net short-term borrowings declined, using $335.0 million in cash and net long-term borrowings declined, using $201.2 million in cash.  Park’s management generated cash in both 2010 and 2009 from the sale of common stock previously held as treasury shares.  The sale of common stock provided cash of $33.5 million in 2010 and $53.5 million in 2009.  The issuance of subordinated notes in 2009 provided cash of $35.3 million.  Additionally, cash declined by $62.9 million in 2011, $62.1 million in 2010 and $58.0 million in 2009, from cash dividends paid.

Funds are available from a number of sources, including the securities portfolio, the core deposit base, Federal Home Loan Bank borrowings and the capability to securitize or package loans for sale.  The present funding sources provide more than adequate liquidity for Park to meet its cash flow needs.

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The following table shows interest rate sensitivity data for five different time intervals as of December 31, 2011:

Table 30  -  Interest Rate Sensitivity
(In thousands)		0-3			3-12			1-3			3-5		Over 5			Total
Interest earning assets:	Months			Months			Years			Years			Years
Investment securities  (1)	$	373,909		$	644,127		$	403,371		$	128,725		$	158,341		$	1,708,473
Money market instruments		19,716			-			-			-			-			19,716
Loans  (1)		1,163,853			1,363,241			1,395,881			263,830			130,294			4,317,099
Loans held for sale		369,044			-			-			-			-			369,044
Total interest earning assets		1,926,522			2,007,368			1,799,252			392,555			288,635			6,414,332
Interest bearing liabilities:
Interest bearing transaction accounts (2)		568,504			-			468,881			-			-			1,037,385
Savings accounts (2)		203,610			-			727,917			-			-			931,527
Time deposits		344,381			692,923			332,885			127,371			1,545			1,499,105
Other		1,364			-			-			-			-			1,364
Total deposits		1,117,859			692,923			1,529,683			127,371			1,545			3,469,381
Deposits held for sale		452,667			-			-			-			-			452,667
Short-term borrowings		263,594			-			-			-			-			263,594
Long-term debt		-			15,500			151,000			52,000			604,682			823,182
Subordinated debentures/notes		15,000			-			25,000			35,250			-			75,250
Total interest bearing liabilities		1,849,120			708,423			1,705,683			214,621			606,227			5,084,074
Interest rate sensitivity gap		77,402			1,298,945			93,569			177,934			(317,592	)		1,330,258
Cumulative rate sensitivity gap		77,402			1,376,347			1,469,916			1,647,850			1,330,258
Cumulative gap as a
percentage of total
interest earning assets		1.21	%		21.46	%		22.92	%		25.69	%		20.74	%
(1) Investment securities and loans that are subject to prepayment are shown in the table by the earlier of their re-pricing date or their expected repayment date and not by their contractual maturity date. Nonaccrual loans of $195.1 million are included within the three to twelve month maturity.  (2) Management considers interest bearing transaction accounts and savings accounts to be core deposits and, therefore, not as rate sensitive as other deposit accounts and borrowed money. Accordingly, only 55% of interest bearing transaction accounts and 22% of savings accounts are considered to re-price within one year. If all of the interest bearing checking accounts and savings accounts were considered to re-price within one year, the one year cumulative gap would change from a positive 21.46% to a positive 2.80%.

The interest rate sensitivity gap analysis provides a good overall picture of Park’s static interest rate risk position.  At December 31, 2011, the cumulative interest earning assets maturing or repricing within twelve months were $3,934 million compared to the cumulative interest bearing liabilities maturing or repricing within twelve months of $2,558 million.  For the twelve-month cumulative gap position, rate sensitive assets exceed rate sensitive liabilities by $1,376 million or 21.46% of interest earning assets.

At December 31, 2011, Park had $369 million in loans held for sale which represents loans to be sold by Vision Bank to Centennial.  Also, at December 31, 2011, Park had $453 million of interest bearing deposits held for sale which represents the interest bearing deposits to be sold by Vision Bank to Centennial.  These interest earning assets and interest bearing liabilities are included in the 0-3 months portion of Table 30.

A positive twelve month cumulative rate sensitivity gap (assets exceed liabilities) would suggest that Park’s net interest margin would increase if interest rates were to increase.  Conversely, a negative twelve month cumulative rate sensitivity gap would suggest that Park’s net interest margin would decrease if interest rates were to decrease. However, the usefulness of the interest sensitivity gap analysis as a forecasting tool in projecting net interest income is limited.  The gap analysis does not consider the magnitude, timing or frequency by which assets or liabilities will reprice during a period and also contains assumptions as to the repricing of transaction and savings accounts that may not prove to be correct.

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A year ago, the cumulative twelve month interest rate sensitivity gap position at year-end 2010 was a positive $648 million or 9.53% of interest earning assets.  The percentage of interest earning assets maturing or repricing within one year was 61.3% at year-end 2011 compared to 53.7% at year-end 2010.  The percentage of interest bearing liabilities maturing or repricing within one year was 50.3% at year-end 2011 compared to 54.2% at year-end 2010.

Management supplements the interest rate sensitivity gap analysis with periodic simulations of balance sheet sensitivity under various interest rate and what-if scenarios to better forecast and manage the net interest margin.  Park’s management uses an earnings simulation model to analyze net interest income sensitivity to movements in interest rates.  This model is based on actual cash flows and repricing characteristics for balance sheet instruments and incorporates market-based assumptions regarding the impact of changing interest rates on the prepayment rate of certain assets and liabilities.  This model also includes management’s projections for activity levels of various balance sheet instruments and noninterest fee income and operating expense.  Assumptions based on the historical behavior of deposit rates and balances in relation to changes in interest rates are also incorporated into this earnings simulation model.  These assumptions are inherently uncertain and, as a result, the model cannot precisely measure net interest income and net income.  Actual results will differ from simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies.

Management uses a 50 basis point change in market interest rates per quarter for a total of 200 basis points per year in evaluating the impact of changing interest rates on net interest income and net income over a twelve month horizon.  At December 31, 2011, the earnings simulation model projected that net income would increase by 2.14% using a rising interest rate scenario and decrease by 3.52% using a declining interest rate scenario over the next year.  At December 31, 2010, the earnings simulation model projected that net income would increase by 2.4% using a rising interest rate scenario and decrease by 1.4% using a declining interest rate scenario over the next year and at December 31, 2009, the earnings simulation model projected that net income would increase by 2.2% using a rising interest rate scenario and decrease by 0.1% using a declining interest rate scenario over the next year.  Consistently, over the past several years, Park’s earnings simulation model has projected that changes in interest rates would have only a small impact on net income and the net interest margin.  Park’s net interest margin has been relatively stable over the past three years at 4.14% in 2011, 4.26% in 2010, and 4.22% in 2009.  A major goal of Park’s asset/liability committee is to maintain a relatively stable net interest margin regardless of the level of interest rates.  Management expects that the net interest margin will be approximately 3.88% to 3.98% in 2012.  The expected decline in the net interest margin in 2012 is primarily due to the decrease in long-term interest rates during the second half of 2011.  This decline in interest rates will negatively impact the yield on our investment portfolio in 2012.

CONTRACTUAL OBLIGATIONS

In the ordinary course of operations, Park enters into certain contractual obligations.  Such obligations include the funding of operations through debt issuances as well as leases for premises.  The following table summarizes Park’s significant and determinable obligations by payment date at December 31, 2011.

Further discussion of the nature of each specified obligation is included in the referenced Note to the Consolidated Financial Statements.

Table 31 - Contractual Obligations
December 31, 2011	Payments Due In

				0 -1		1 - 3		3 - 5	Over 5
(In thousands)	Note		Years		Years		Years		Years		Total
Deposits without stated maturity		8	$	2,966,009	$	-	$	-	$	-	$	2,966,009
Certificates of deposit		8		1,035,594		334,594		127,372		1,545		1,499,105
Short-term borrowings		9		263,594		-		-		-		263,594
Long-term debt		10		15,569		151,155		127,181		529,277		823,182
Subordinated debentures/notes		11		-		-		-		75,250		75,250
Operating leases		7		1,448		2,014		1,171		961		5,594
Purchase obligations				1,470		-		-		-		1,470
Total contractual obligations			$	4,283,684	$	487,763	$	255,724	$	607,033	$	5,634,204

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The Corporation’s operating lease obligations represent short-term and long-term lease and rental payments for facilities and equipment.  Purchase obligations represent obligations under agreements to purchase goods or services that are enforceable and legally binding on the Corporation.

Commitments, Contingent Liabilities, and Off-Balance Sheet Arrangements: In order to meet the financing needs of its customers, the Corporation issues loan commitments and standby letters of credit. At December 31, 2011, the Corporation had $809.1 million of loan commitments for commercial, commercial real estate, and residential real estate loans and had $18.8 million of standby letters of credit.  At December 31, 2010, the Corporation had $716.6 million of loan commitments for commercial, commercial real estate and residential real estate loans and had $24.5 million of standby letters of credit.

Commitments to extend credit under loan commitments and standby letters of credit do not necessarily represent future cash requirements.  These commitments often expire without being drawn upon.  However, all of the loan commitments and standby letters of credit are permitted to be drawn upon in 2012.  See Note 18 of the Notes to Consolidated Financial Statements for additional information on loan commitments and standby letters of credit.

The Corporation did not have any unrecorded significant contingent liabilities at December 31, 2011.

Capital: Park’s primary means of maintaining capital adequacy is through net retained earnings.  At December 31, 2011, the Corporation’s stockholders’ equity was $742.4 million, compared to $729.7 million at December 31, 2010.  Stockholders’ equity at December 31, 2011 was 10.65% of total assets compared to 10.02% of total assets at December 31, 2010.  During 2010, Park issued an aggregate of 509,184 common shares previously held as treasury shares, at a weighted average purchase price per share of $67.99, for net proceeds of $33.5 million.

Tangible stockholders’ equity (stockholders’ equity less goodwill and other intangible assets) was $667.5 million at December 31, 2011 and was $651.3 million at December 31, 2010.  At December 31, 2011, tangible stockholders’ equity was 9.68% of total tangible assets (total assets less goodwill and other intangible assets), compared to 9.04% at December 31, 2010.

Tangible common equity (tangible stockholders’ equity less the balance of the Series A Preferred Shares) was $569.4 million at December 31, 2011 compared to $554.0 million at December 31, 2010.  At December 31, 2011, tangible common equity was 8.25% of tangible assets, compared to 7.69% at December 31, 2010.

Net income for 2011 was $82.1 million, $58.1 million in 2010 and $74.2 million in 2009.

Preferred stock dividends paid as a result of Park’s participation in the CPP were $5.0 million in 2011, 2010, and 2009.  Accretion of the discount on the Series A Preferred Shares was $856,000 in 2011, $807,000 in 2010 and $762,000 in 2009.  Income available to common shareholders is net income less the preferred stock dividends and accretion.  Income available to common shareholders was $76.3 million for 2011, $52.3 million in 2010, and $68.4 million in 2009.

Cash dividends declared for common shares were $57.9 million in 2011, $57.1 million in 2010, and $53.6 million in 2009.  On a per share basis, the cash dividends declared were $3.76 per share in each of 2011, 2010 and 2009.

Park did not purchase any treasury stock during 2011, 2010 or 2009.  Treasury stock had a balance in stockholders’ equity of $77.0 million at December 31, 2011, $77.7 million at December 31, 2010, and $125.3 million at December 31, 2009.  During 2011, the value of treasury stock was reduced by $726,000 as a result of the issuance of an aggregate of 7,020 common shares to directors of the Board of Directors of Park and Park’s bank subsidiaries (and their divisions). During 2010, Park issued 437,200 shares of common stock as a result of the exercise of warrants that were originally issued in 2009.  Also during 2010, Park issued 71,984 shares of common stock resulting in a total of 509,184 shares of common stock issued in 2010, which reduced the amount of treasury stock available.  The issuance of these shares out of treasury stock reduced the value of treasury stock by the weighted average cost of $47.0 million. Additionally, the value of treasury stock was reduced by $634,000 as a result of the issuance of an aggregate of 7,020 common shares to the Board of Directors of Park and Park’s bank subsidiaries (and their divisions).  During 2009, Park issued 904,072 shares of common stock out of treasury stock. The issuance of these shares out of treasury stock during 2009 resulted in a reduction in treasury stock by the weighted average cost of $81.7 million. Additionally, the value of treasury stock was reduced by $634,000 as a result of the issuance of an aggregate of 7,020 common shares to directors of the Board of Directors of Park and Park’s bank subsidiaries (and their divisions).

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Park did not issue any new common shares (that were not already held in treasury stock, as discussed above) in either 2011 or 2010. However, in 2010, Park recorded $0.2 million for the warrants that were issued as part of the issuance of the 71,984 common shares discussed above and also recorded a reduction of $1.1 million as warrants were either exercised or cancelled during 2010.  In 2009, Park recorded $1.1 million for the common stock warrants that were issued as part of the issuance of the 904,072 shares discussed above (see Note 1 and Note 26 of the Notes to Consolidated Financial Statements).  Common stock had a balance in stockholders’ equity of $301.2 million at each of the years ended December 31, 2011, 2010, and 2009.

Accumulated other comprehensive income (loss) was $(8.8) million at December 31, 2011 compared to $(1.9) million at December 31, 2010 and $15.7 million at December 31, 2009.  Long-term interest rates declined significantly in the fourth quarter of 2007, continued declining in 2008 and remained low throughout 2009. In 2010, long-term interest rates remained low through the first three quarters, but then increased fairly significantly during the fourth quarter.

During the 2009 year, the change in net unrealized gains, net of tax, was an increase of $3.3 million and Park realized after-tax gains of $4.8 million, resulting in an unrealized gain of $30.1 million at December 31, 2009.  During the 2010 year, the change in net unrealized gains, net of tax, was a loss of $7.3 million and Park realized after-tax gains of $7.7 million, resulting in an unrealized gain of $15.1 million at December 31, 2010.  During the 2011 year, the change in net unrealized gains, net of tax, was a gain of $16.3 million and Park realized after-tax gains of $18.7 million, resulting in an unrealized gain of $12.7 million at December 31, 2011. In addition, Park recognized other comprehensive loss of $5.0 million related to the change in Pension Plan assets and benefit obligations in 2011 compared to a loss of $2.4 million in 2010.  Finally, Park has recognized other comprehensive gain of $0.5 million in 2011 due to the mark-to-market of a cash flow hedge at December 31, 2011 compared to a $0.1 million loss in comprehensive income for the year ended December 31, 2010.

Financial institution regulators have established guidelines for minimum capital ratios for banks, thrifts, and bank holding companies.  Park’s accumulated other comprehensive income (loss) is not included in computing regulatory capital.  The minimum leverage capital ratio (defined as stockholders’ equity less intangible assets divided by tangible assets) is 4% and the well capitalized ratio is greater than or equal to 5%.  Park’s leverage ratio was 9.81% at December 31, 2011 and exceeded the minimum capital required by $409 million.  The minimum Tier 1 risk-based capital ratio (defined as leverage capital divided by risk-adjusted assets) is 4% and the well capitalized ratio is greater than or equal to 6%.  Park’s Tier 1 risk-based capital ratio was 14.15% at December 31, 2011 and exceeded the minimum capital required by $495 million.  The minimum total risk-based capital ratio (defined as leverage capital plus supplemental capital divided by risk-adjusted assets) is 8% and the well capitalized ratio is greater than or equal to 10%.  Park’s total risk-based capital ratio was 16.65% at December 31, 2011 and exceeded the minimum capital required by $422 million.

At December 31, 2011, Park exceeded the well capitalized regulatory guidelines for bank holding companies.  Park exceeded the well capitalized leverage capital ratio of 5% by $339 million, exceeded the well capitalized Tier 1 risk-based capital ratio of 6% by $398 million and exceeded the well capitalized total risk-based capital ratio of 10% by $324 million.

The two financial institution subsidiaries of Park each met the well capitalized ratio guidelines at December 31, 2011.  See Note 22 of the Notes to Consolidated Financial Statements for the capital ratios for Park and its two financial institution subsidiaries.

Effects of Inflation: Balance sheets of financial institutions typically contain assets and liabilities that are monetary in nature and, therefore, differ greatly from most commercial and industrial companies which have significant investments in premises, equipment and inventory.  During periods of inflation, financial institutions that are in a net positive monetary position will experience a decline in purchasing power, which does have an impact on growth.  Another significant effect on internal equity growth is other expenses, which tend to rise during periods of inflation.

Management believes the most significant impact on financial results is the Corporation's ability to align its asset/liability management program to react to changes in interest rates.

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SELECTED FINANCIAL DATA

Table 32 summarizes five-year financial information.

Table 32 - Consolidated Five-Year Selected Financial Data
December 31, (Dollars in thousands, except per share data)	2011		2010		2009		2008		2007
Results of Operations:
Interest income	$	331,880	$	345,517	$	367,690	$	391,339	$	401,824
Interest expense		58,646		71,473		94,199		135,466		167,147
Net interest income		273,234		274,044		273,491		255,873		234,677
Provision for loan losses		63,272		87,080		68,821		70,487		29,476
Net interest income after provision for loan losses		209,962		186,964		204,670		185,386		205,201
Net gains on sale of securities		28,829		11,864		7,340		1,115		-
Noninterest income		66,081		63,016		73,850		83,719		71,640
Noninterest expense		188,317		187,107		188,725		234,501		224,164
Net income		82,140		58,101		74,192		13,708		22,707
Net income available to common shareholders		76,284		52,294		68,430		13,566		22,707
Per common share:
Net income per common share - basic		4.95		3.45		4.82		0.97		1.60
Net income per common share - diluted		4.95		3.45		4.82		0.97		1.60
Cash dividends declared		3.76		3.76		3.76		3.77		3.73
Average Balances:
Loans	$	4,713,511	$	4,642,478	$	4,594,436	$	4,354,520	$	4,011,307
Investment securities		1,848,880		1,746,356		1,877,303		1,801,299		1,596,205
Money market instruments and other		78,593		93,009		52,658		15,502		17,838
Total earning assets		6,640,984		6,481,843		6,524,397		6,171,321		5,625,350
Noninterest bearing deposits		999,085		907,514		818,243		739,993		697,247
Interest bearing deposits		4,193,404		4,274,501		4,232,391		3,862,780		3,706,231
Total deposits		5,192,489		5,182,015		5,050,634		4,602,773		4,403,478
Short-term borrowings	$	297,537	$	300,939	$	419,733	$	609,219	$	494,160
Long-term debt		881,921		725,356		780,435		835,522		568,575
Stockholders' equity		743,873		746,555		675,314		567,965		618,758
Common stockholders' equity		646,169		649,682		579,224		565,612		618,758
Total assets		7,206,171		7,042,750		7,035,531		6,708,086		6,169,156

Ratios:
Return on average assets (x)	1.06	%	0.74	%	0.97	%	0.20	%	0.37	%
Return on average common equity (x)	11.81	%	8.05	%	11.81	%	2.40	%	3.67	%
Net interest margin  (1)	4.14	%	4.26	%	4.22	%	4.16	%	4.20	%
Dividend payout ratio	70.50	%	98.24	%	78.27	%	387.79	%	232.35	%
Average stockholders' equity to
average total assets	10.32	%	10.60	%	9.60	%	8.47	%	10.03	%
Leverage capital	9.81	%	9.54	%	9.04	%	8.36	%	7.10	%
Tier 1 capital	14.15	%	13.24	%	12.45	%	11.69	%	10.16	%
Risk-based capital	16.65	%	15.71	%	14.89	%	13.47	%	11.97	%
(1) Computed on a fully taxable equivalent basis.
(x) Reported measure uses net income available to common shareholders.

The following table is a summary of selected quarterly results of operations for the years ended December 31, 2011 and 2010.  Certain quarterly amounts have been reclassified to conform to the year-end financial statement presentation.

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Table 33  -  Quarterly Financial Data
(Dollars in thousands, except per share data)	Three Months Ended
2011:
		March 31		June 30		Sept. 30
		(Restated)		(Restated)		(Restated)		Dec. 31
Interest income		$	84,662	$	84,922	$	82,065	$	80,231
Interest expense			15,349		14,900		14,445		13,952
Net interest income			69,313		70,022		67,620		66,279
Provision for loan losses			14,100		12,516		16,438		20,218
Gain on sale of securities			6,635		15,362		3,465		3,367
Income before income taxes			30,532		41,000		27,075		17,948
Net income			22,196		28,954		20,381		10,609
Net income available to common shareholders			20,732		27,490		18,917		9,145
Per common share data:
Net income per common share -  basic (x)			1.35		1.79		1.23		0.59
Net income per common share -  diluted (x)			1.35		1.79		1.23		0.59
Weighted-average common stock outstanding - basic			15,398,930		15,398,919		15,398,909		15,403,861
Weighted-average common stock equivalent - diluted			15,403,420		15,399,593		15,398,909		15,403,861
2010:								(Restated)
Interest income		$	87,202	$	87,242	$	86,682	$	84,391
Interest expense			19,822		18,521		17,237		15,893
Net interest income			67,380		68,721		69,445		68,498
Provision for loan losses			16,550		13,250		14,654		42,626
Gain on sale of securities			8,304		3,515		-		45
Income before income taxes			27,954		28,632		26,625		(8,474	)
Net income			20,779		21,166		19,577		(3,421	)
Net income available to common shareholders			19,327		19,715		18,125		(4,873	)
Per common share data:
Net income per common share -  basic (x)			1.30		1.30		1.19		(0.32	)
Net income per common share -  diluted (x)			1.30		1.30		1.19		(0.32	)
Weighted-average common stock outstanding - basic			14,882,774		15,114,846		15,272,720		15,340,427
Weighted-average common stock equivalent - diluted			14,882,774		15,114,846		15,272,720		15,352,600
(x) Reported measure uses net income available to common shareholders.

Non-GAAP Financial Measures:  Park’s management uses certain non-GAAP (generally accepted accounting principles) financial measures to evaluate Park’s performance.  Specifically, management reviews (i) net income available to common shareholders before impairment charge, (ii) net income available to common shareholders before impairment charge per common share-diluted, (iii) return on average assets before impairment charge, (iv) return on average common equity before impairment charge, and (v) the ratio of noninterest expense excluding impairment charge to net revenue (collectively, the “adjusted performance metrics”) and has included in this annual report information relating to the adjusted performance metrics for the twelve-month period ended December 31, 2008 and 2007.  Management believes the adjusted performance metrics present a more reasonable view of Park’s operating performance and ensures comparability of operating performance from period to period while eliminating the one-time non-recurring impairment charges.  Park has provided reconciliations of the GAAP measures to the adjusted performance metrics solely for the purpose of complying with SEC Regulation G and not as an indication that the adjusted performance metrics are a substitute for other measures determined by GAAP.

36

The following table displays net income available to common shareholders and related performance metrics after excluding the 2007 and 2008 goodwill impairment charges related to the Vision Bank acquisition.

Table 34 – Net income available to common shareholders and related performance metrics
December 31,				(Restated)
(Dollars in thousands, except per share data)	2011			2010			2009			2008			2007
Results of Operations:
Net income available to common  shareholders      excluding impairment charge (a)	$	76,284		$	52,294		$	68,430		$	68,552		$	76,742
Per common share:
Net income per common share excluding      impairment charge – diluted (a)		4.95			3.45			4.82			4.91			5.40
Ratios:
Return on average assets excluding                                                                                       impairment charge (a)(b)		1.06	%		0.74	%		0.97	%		1.02	%		1.24	%
Return on average common equity excluding      Impairment charge (a)(x)		11.81	%		8.05	%		11.81	%		12.12	%		12.40	%
Noninterest expense excluding impairment      charge to net revenue (1)		55.18	%		55.18	%		54.01	%		52.59	%		55.21	%

(1) Computed on a fully tax equivalent basis.

(x) Reported measure uses net income available to common stockholders.

(a) Net income for the year has been adjusted for the impairment charge to goodwill.  Net income before impairment charge equals net income for the year plus the impairment charge to goodwill of $54,986 and $54,035 for 2008 and 2007, respectively.

(b) Net income for the year available to common stockholders.

The Corporation's common stock (symbol: PRK) is traded on the NYSE Amex.  At December 31, 2011, the Corporation had 4,344 stockholders of record.  The following table sets forth the high, low and closing sale prices of, and dividends declared on the common stock for each quarterly period for the years ended December 31, 2011 and 2010, as reported by NYSE Amex.

Table 35  -  Market and Dividend Information

	High		Low		Last Price		Cash Dividend Declared Per Share
2011:
First Quarter	$	73.64	$	62.99	$	66.82	$	0.94
Second Quarter		69.59		62.14		65.86		0.94
Third Quarter		66.21		49.00		52.88		0.94
Fourth Quarter		65.70		49.80		65.06		0.94
2010:
First Quarter	$	64.70	$	52.58	$	62.31	$	0.94
Second Quarter		70.25		61.50		65.04		0.94
Third Quarter		67.54		59.35		64.04		0.94
Fourth Quarter		74.39		62.66		72.67		0.94

37

PERFORMANCE GRAPH

Table 36 compares the total return performance for Park common shares with the NYSE Amex Composite Index, the NASDAQ Bank Stocks Index and the SNL Financial Bank and Thrift Index for the five-year period from December 31, 2006 to December 31, 2011.  The NYSE Amex Composite Index is a market capitalization-weighted index of the stocks listed on NYSE Amex.  The NASDAQ Bank Stocks Index is comprised of all depository institutions, holding companies and other investment companies that are traded on The NASDAQ Global Select and Global Markets.  Park considers a number of bank holding companies traded on The NASDAQ Global Select to be within its peer group.  The SNL Financial Bank and Thrift Index is comprised of all publicly traded bank and thrift stocks researched by SNL Financial.

The NYSE Amex Financial Stocks Index includes the stocks of banks, thrifts, finance companies and securities broker-dealers.  Park believes that the NASDAQ Bank Stocks Index and the SNL Financial Bank and Thrift Index are more appropriate industry indices for Park to use for the five-year total return performance comparison.

 

Table 36 – Total Return Performance			Period Ending
Index	12/31/06		12/31/07		12/31/08		12/31/09		12/31/10		12/31/11
Park National Corporation		100.00		68.11		80.17		70.06		91.82		87.57
NYSE Amex Composite		100.00		121.19		72.17		97.85		122.89		130.62
NASDAQ Bank		100.00		80.09		62.84		52.60		60.04		53.74
SNL Bank and Thrift Index		100.00		76.26		43.85		43.27		48.30		37.56

The total return for Park’s common shares has underperformed the total return of the NYSE Amex Composite Index in the five-year comparison as indicated in Table 36, but outperformed both the NASDAQ Bank Stocks Index and the SNL Bank and Thrift Index for the same five-year period.  The annual compound total return on Park’s common shares for the past five years was a negative 2.6%.  By comparison, the annual compound total returns for the past five years on the NYSE Amex Composite Index, the NASDAQ Bank Stocks Index and the SNL Bank and Thrift Index were positive 5.5%, negative 11.7% and negative 17.8%, respectively.

38

Management’s Report on Internal Control Over Financial Reporting

To the Board of Directors and Stockholders

Park National Corporation

The management of Park National Corporation (the “Corporation”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a – 15(f) and 15d – 15(f) under the Securities Exchange Act of 1934. The Corporation’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The Corporation’s internal control over financial reporting includes those policies and procedures that:

a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Corporation and its consolidated subsidiaries;

b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Corporation and its consolidated subsidiaries are being made only in accordance with authorizations of management and directors of the Corporation; and

c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the assets of the Corporation and its consolidated subsidiaries that could have a material effect on the financial statements.

The Corporation’s internal control over financial reporting as it relates to the financial statements is evaluated for effectiveness by management and tested for reliability through a program of internal audits. Actions are taken to correct potential deficiencies as they are identified.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even an effective system of internal control over financial reporting will provide only reasonable assurance with respect to financial statement preparation.

With the participation of our Chairman of the Board and Chief Executive Officer, our President and our Chief Financial

Officer, management evaluated the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2011, the end of the Corporation’s fiscal year. In making this assessment, management used the criteria set forth for effective internal control over financial reporting by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

Based on our assessment under the criteria described in the preceding paragraph, management concluded that the

Corporation maintained effective internal control over financial reporting as of December 31, 2011.

The Corporation’s independent registered public accounting firm, Crowe Horwath LLP, has audited the Corporation’s 2011 and 2010 consolidated financial statements included in this Annual Report and the Corporation’s internal control over financial reporting as of December 31, 2011, and has issued their Report of Independent Registered Public Accounting Firm, which appears in this Annual Report.

/s/ C. Daniel DeLawder	/s/ David L. Trautman	/s/ John W. Kozak
C. Daniel DeLawder	David L. Trautman	John W. Kozak
Chairman and Chief Executive	President	Chief Financial Officer Officer
February 29, 2012

39

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Park National Corporation

Newark, Ohio

We have audited the accompanying consolidated balance sheets of Park National Corporation as of December 31, 2011 and 2010 and the related consolidated statements of income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2011. We also have audited Park National Corporation’s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Park National Corporation’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the company's internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Park National Corporation as of December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, Park National Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control – Integrated Framework issued by the COSO.

/s/ Crowe Horwath LLP

Crowe Horwath LLP

Columbus, Ohio

February 29, 2012

40

Park National Corporation and Subsidiaries

Consolidated Balance Sheets

at December 31, 2011 and 2010

(In thousands, except share and per share data)	2011			2010
Assets
Cash and due from banks	$	137,770		$	109,058
Money market instruments		19,716			24,722
Cash and cash equivalents		157,486			133,780
Investment securities:
Securities available-for-sale, at fair value (amortized cost of $801,147 and $1,274,258 at December 31, 2011 and 2010, respectively)		820,645			1,297,522
Securities held-to-maturity, at amortized cost (fair value of $834,574 and $686,114 at December 31, 2011 and 2010, respectively)		820,224			673,570
Other investment securities		67,604			68,699
Total investment securities		1,708,473			2,039,791
Total loans		4,317,099			4,732,685
Allowance for loan losses		(68,444	)		(143,575	)
Net loans		4,248,655			4,589,110
Other assets:
Bank owned life insurance		154,567			146,450
Goodwill		72,334			72,334
Other intangibles		2,509			6,043
Premises and equipment, net		53,741			69,567
Accrued interest receivable		19,697			24,137
Other real estate owned		42,272			41,709
Mortgage loan servicing rights		9,301			10,488
Other		120,748			148,852
Assets held for sale		382,462			-
Total other assets		857,631			519,580
Total assets	$	6,972,245		$	7,282,261

The accompanying notes are an integral part of the consolidated financial statements.

F-1

Park National Corporation and Subsidiaries

Consolidated Balance Sheets

at December 31, 2011 and 2010

(In thousands, except share and per share data)	2011			2010
Liabilities and stockholders’ equity
Deposits:
Noninterest bearing	$	995,733		$	937,719
Interest bearing		3,469,381			4,157,701
Total deposits		4,465,114			5,095,420
Short-term borrowings		263,594			663,669
Long-term debt		823,182			636,733
Subordinated debentures		75,250			75,250
Total borrowings		1,162,026			1,375,652
Other liabilities:
Accrued interest payable		4,916			6,123
Other		61,639			75,358
Liabilities held for sale		536,186			-
Total other liabilities		602,741			81,481
Total liabilities		6,229,881			6,552,553
Commitments and Contingencies
Stockholders’ equity:
Preferred stock (200,000 shares authorized; 100,000 shares issued with $1,000 per share liquidation preference)		98,146			97,290
Common stock, no par value (20,000,000 shares authorized; 16,151,021 shares issued at December 31, 2011 and 16,151,062 issued at December 31, 2010)		301,202			301,204
Common stock warrants		4,297			4,473
Accumulated other comprehensive income (loss), net		(8,831	)		(1,868	)
Retained earnings		424,557			406,342
Less: Treasury stock (745,109 shares at December 31, 2011 and 752,128 shares at December 31, 2010)		(77,007	)		(77,733	)
Total stockholders’ equity		742,364			729,708
Total liabilities and stockholders’ equity	$	6,972,245		$	7,282,261

The accompanying notes are an integral part of the consolidated financial statements.

F-2

Park National Corporation and Subsidiaries

Consolidated Statements of Income

for years ended December 31, 2011, 2010 and 2009

(In thousands, except per share data)	2011			2010			2009
Interest and dividend income:
Interest and fees on loans	$	262,458		$	267,692		$	275,599
Interest and dividends on:
Obligations of U.S. Government, its agencies and other securities		68,873			76,839			90,558
Obligations of states and political subdivisions		371			786			1,417
Other interest income		178			200			116
Total interest and dividend income		331,880			345,517			367,690
Interest expense:
Interest on deposits:
Demand and savings deposits		3,812			5,753			10,815
Time deposits		23,842			36,212			53,805
Interest on short-term borrowings		823			1,181			3,209
Interest on long-term debt		30,169			28,327			26,370
Total interest expense		58,646			71,473			94,199
Net interest income		273,234			274,044			273,491
Provision for loan losses		63,272			87,080			68,821
Net interest income after provision for loan losses		209,962			186,964			204,670
Other income:
Income from fiduciary activities		14,965			13,874			12,468
Service charges on deposit accounts		18,307			19,717			21,985
Net gains on sales of securities		28,829			11,864			7,340
Other service income		10,606			13,816			18,767
Checkcard fee income		12,496			11,177			9,339
Bank owned life insurance income		5,089			4,978			5,050
ATM fees		2,703			2,951			3,082
OREO devaluations		(8,219	)		(13,206	)		(6,818	)
Other		10,134			9,709			9,977
Total other income		94,910		$	74,880		$	81,190

The accompanying notes are an integral part of the consolidated financial statements.

F-3

Park National Corporation and Subsidiaries

Consolidated Statements of Income

for years ended December 31, 2011, 2010 and 2009

<

(In thousands, except per share data)	2011		2010		2009
Other expense:
Salaries and employee benefits	$	102,068	$	98,315	$	101,225
Data processing fees		4,965		5,728		5,674
Professional fees and services		21,119		19,972		15,935
Net occupancy expense of bank premises		11,295		11,510		11,552
Amortization of intangibles		3,534		3,422		3,746
Furniture and equipment expense		10,773		10,435		9,734
Insurance		6,821		8,983		12,072
Marketing		2,967		3,656		3,775
Postage and telephone		6,060		6,648		6,903
State taxes		1,544		3,171		3,206
Other		17,171		15,267		14,903
Total other expense		188,317		187,107		188,725
Income before income taxes		116,555		74,737		97,135