10-Q 1 v219679_10q.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2011
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from |  | to |

Commission File Number | 1-13006

Park National Corporation
(Exact name of registrant as specified in its charter)

Ohio |  | 31-1179518
(State or other jurisdiction of |  | (I.R.S. Employer Identification No.)
incorporation or organization) |  |

50 North Third Street, Newark, Ohio 43055
(Address of principal executive offices) (Zip Code)

(740) 349-8451
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes | x | No | ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes | x | No | ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer | x | Accelerated filer | ¨
Non-accelerated filer | ¨ | Smaller reporting company | ¨
(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes | ¨ | No | x

15,398,919 Common shares, no par value per share, outstanding at May 2, 2011.

PARK NATIONAL CORPORATION
CONTENTS

| Page
PART I. FINANCIAL INFORMATION |
Item 1. Financial Statements | 3
Consolidated Condensed Balance Sheets as of March 31, 2011 (unaudited) and December 31, 2010 | 3
Consolidated Condensed Statements of Income for the three months ended March 31, 2011 and 2010 (unaudited) | 4
Consolidated Condensed Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2011 and 2010 (unaudited) | 6
Consolidated Condensed Statements of Cash Flows for the three months ended March 31, 2011 and 2010 (unaudited) | 7
Notes to Unaudited Consolidated Condensed Financial Statements | 9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 39
Item 3. Quantitative and Qualitative Disclosures about Market Risk | 57
Item 4. Controls and Procedures | 58
PART II. OTHER INFORMATION |
Item 1. Legal Proceedings | 59
Item 1A. Risk Factors | 59
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 60
Item 3. Defaults Upon Senior Securities | 61
Item 4. [Reserved] | 61
Item 5. Other Information | 61
Item 6. Exhibits | 61
SIGNATURES | 64

- 2 -

PARK NATIONAL CORPORATION
Consolidated Condensed Balance Sheets (Unaudited)
(in thousands, except share and per share data)

|  | March 31, |  |  | December 31, |
|  | 2011 |  |  | 2010 |
Assets: |  |  |  |  |  |
Cash and due from banks |  | $ | 111,472 |  |  | $ | 109,058 |
Money market instruments |  |  | 22,775 |  |  |  | 24,722 |
Cash and cash equivalents |  |  | 134,247 |  |  |  | 133,780 |
Investment securities |  |  |  |  |  |  |  |
Securities available-for-sale, at fair value (amortized cost of $1,349,431 and $1,274,258 at March 31, 2011 and December 31, 2010) |  |  | 1,362,893 |  |  |  | 1,297,522 |
Securities held-to-maturity, at amortized cost (fair value of $625,334 and $686,114 at March 31, 2011 and December 31, 2010) |  |  | 614,064 |  |  |  | 673,570 |
Other investment securities |  |  | 68,699 |  |  |  | 68,699 |
Total investment securities |  |  | 2,045,656 |  |  |  | 2,039,791 |
Loans |  |  | 4,750,975 |  |  |  | 4,732,685 |
Allowance for loan losses |  |  | (126,859 | ) |  |  | (121,397 | )
Net loans |  |  | 4,624,116 |  |  |  | 4,611,288 |
Bank owned life insurance |  |  | 150,683 |  |  |  | 146,450 |
Goodwill and other intangible assets |  |  | 77,708 |  |  |  | 78,377 |
Bank premises and equipment, net |  |  | 69,673 |  |  |  | 69,567 |
Other real estate owned |  |  | 47,133 |  |  |  | 44,325 |
Accrued interest receivable |  |  | 25,083 |  |  |  | 24,137 |
Mortgage loan servicing rights |  |  | 10,365 |  |  |  | 10,488 |
Other |  |  | 153,739 |  |  |  | 140,174 |
Total assets |  | $ | 7,338,403 |  |  | $ | 7,298,377 |
Liabilities and Stockholders' Equity: |  |  |  |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |
Noninterest bearing |  | $ | 955,005 |  |  | $ | 937,719 |
Interest bearing |  |  | 4,359,673 |  |  |  | 4,157,701 |
Total deposits |  |  | 5,314,678 |  |  |  | 5,095,420 |
Short-term borrowings |  |  | 316,719 |  |  |  | 663,669 |
Long-term debt |  |  | 786,709 |  |  |  | 636,733 |
Subordinated debentures and notes |  |  | 75,250 |  |  |  | 75,250 |
Accrued interest payable |  |  | 6,255 |  |  |  | 6,123 |
Other |  |  | 93,554 |  |  |  | 75,358 |
Total liabilities |  |  | 6,593,165 |  |  |  | 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) |  |  | 97,504 |  |  |  | 97,290 |
Common stock (No par value; 20,000,000 shares authorized; 16,151,052 shares issued at March 31, 2011 and 16,151,062 shares issued at December 31, 2010) |  |  | 301,203 |  |  |  | 301,204 |
Common stock warrants |  |  | 4,473 |  |  |  | 4,473 |
Retained earnings |  |  | 427,897 |  |  |  | 422,458 |
Treasury stock (752,129 shares at March 31, 2011 and 752,128 shares at December 31, 2010) |  |  | (77,733 | ) |  |  | (77,733 | )
Accumulated other comprehensive (loss), net of taxes |  |  | (8,106 | ) |  |  | (1,868 | )
Total stockholders' equity |  |  | 745,238 |  |  |  | 745,824 |
Total liabilities and stockholders' equity |  | $ | 7,338,403 |  |  | $ | 7,298,377 |

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
- 3 -

PARK NATIONAL CORPORATION
Consolidated Condensed Statements of Income (Unaudited)
(in thousands, except share and per share data)

|  | Three Months Ended |
|  | March 31, |
|  | 2011 |  |  | 2010 |
Interest and dividend income: |  |  |  |  |  |
Interest and fees on loans |  | $ | 65,454 |  |  | $ | 66,441 |
Interest and dividends on: |  |  |  |  |  |  |  |
Obligations of U.S. Government, its agencies and other securities |  |  | 19,053 |  |  |  | 20,475 |
Obligations of states and political subdivisions |  |  | 149 |  |  |  | 217 |
Other interest income |  |  | 6 |  |  |  | 69 |
Total interest and dividend income |  |  | 84,662 |  |  |  | 87,202 |
Interest expense: |  |  |  |  |  |  |  |
Interest on deposits: |  |  |  |  |  |  |  |
Demand and savings deposits |  |  | 991 |  |  |  | 1,775 |
Time deposits |  |  | 6,734 |  |  |  | 10,650 |
Interest on borrowings: |  |  |  |  |  |  |  |
Short-term borrowings |  |  | 267 |  |  |  | 344 |
Long-term debt |  |  | 7,357 |  |  |  | 7,053 |
Total interest expense |  |  | 15,349 |  |  |  | 19,822 |
Net interest income |  |  | 69,313 |  |  |  | 67,380 |
Provision for loan losses |  |  | 13,500 |  |  |  | 16,550 |
Net interest income after provision for loan losses |  |  | 55,813 |  |  |  | 50,830 |
Other income: |  |  |  |  |  |  |  |
Income from fiduciary activities |  |  | 3,722 |  |  |  | 3,422 |
Service charges on deposit accounts |  |  | 4,245 |  |  |  | 4,746 |
Other service income |  |  | 2,301 |  |  |  | 2,982 |
Checkcard fee income |  |  | 2,976 |  |  |  | 2,444 |
Bank owned life insurance income |  |  | 1,229 |  |  |  | 1,216 |
ATM fees |  |  | 654 |  |  |  | 765 |
OREO devaluations |  |  | (4,394 | ) |  |  | (1,145 | )
Other |  |  | 2,438 |  |  |  | 2,280 |
Total other income |  |  | 13,171 |  |  |  | 16,710 |
Gain on sale of securities |  |  | 6,635 |  |  |  | 8,304 |

Continued
- 4 -

PARK NATIONAL CORPORATION
Consolidated Condensed Statements of Income (Unaudited)
(Continued)
(in thousands, except share and per share data)

|  | Three Months Ended |
|  | March 31, |
|  | 2011 |  |  | 2010 |
Other expense: |  |  |  |  |  |
Salaries and employee benefits |  | $ | 25,064 |  |  | $ | 25,171 |
Occupancy expense |  |  | 3,000 |  |  |  | 3,117 |
Furniture and equipment expense |  |  | 2,657 |  |  |  | 2,632 |
Data processing fees |  |  | 1,253 |  |  |  | 1,593 |
Professional fees and services |  |  | 4,874 |  |  |  | 4,856 |
Amortization of intangibles |  |  | 669 |  |  |  | 936 |
Marketing |  |  | 623 |  |  |  | 902 |
Insurance |  |  | 2,269 |  |  |  | 2,198 |
Communication |  |  | 1,556 |  |  |  | 1,769 |
State taxes |  |  | 457 |  |  |  | 845 |
Other expense |  |  | 3,924 |  |  |  | 3,871 |
Total other expense |  |  | 46,346 |  |  |  | 47,890 |
Income before income taxes |  |  | 29,273 |  |  |  | 27,954 |
Income taxes |  |  | 7,895 |  |  |  | 7,175 |
Net income |  | $ | 21,378 |  |  | $ | 20,779 |
Preferred stock dividends and accretion |  |  | 1,464 |  |  |  | 1,452 |
Net income available to common shareholders |  | $ | 19,914 |  |  | $ | 19,327 |
Per Common Share: |  |  |  |  |  |  |  |
Net income available to common shareholders |  |  |  |  |  |  |  |
Basic |  | $ | 1.29 |  |  | $ | 1.30 |
Diluted |  | $ | 1.29 |  |  | $ | 1.30 |
Weighted average common shares outstanding |  |  |  |  |  |  |  |
Basic |  |  | 15,398,930 |  |  |  | 14,882,774 |
Diluted |  |  | 15,403,420 |  |  |  | 14,882,774 |
Cash dividends declared |  | $ | 0.94 |  |  | $ | 0.94 |

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
- 5 -

PARK NATIONAL CORPORATION
Consolidated Condensed Statements of Changes in Stockholders' Equity (Unaudited)
(in thousands, except per share data)

|  |  |  |  |  |  |  |  |  |  |  |  |  | Accumulated |  |  |  |
|  |  |  |  |  |  |  |  |  |  | Treasury |  |  | Other |  |  |  |
|  | Preferred |  |  | Common |  |  | Retained |  |  | Stock |  |  | Comprehensive |  |  | Comprehensive |
Three Months ended March 31, 2011 and 2010 |  | Stock |  |  | Stock |  |  | Earnings |  |  | at Cost |  |  | Income/(Loss) |  |  | Income |
Balance at December 31, 2009 |  | $ | 96,483 |  |  | $ | 306,569 |  |  | $ | 423,872 |  |  | $ | (125,321 | ) |  | $ | 15,661 |  |  |  |
Net Income |  |  |  |  |  |  |  |  |  |  | 20,779 |  |  |  |  |  |  |  |  |  |  | $ | 20,779 |
Other comprehensive income, net of tax: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized net holding loss on cash flow hedge, net of income taxes of $(60) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (111 | ) |  |  | (111 | )
Unrealized net holding loss on securities available-for-sale, net of income taxes of $(966) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (1,793 | ) |  |  | (1,793 | )
Total comprehensive income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 18,875 |
Cash dividends on common stock at $0.94 per share |  |  |  |  |  |  |  |  |  |  | (13,990 | ) |  |  |  |  |  |  |  |  |  |  |  |
Cash payment for fractional shares in dividend reinvestment plan |  |  |  |  |  |  | (1 | ) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Accretion of discount on preferred stock |  |  | 202 |  |  |  |  |  |  |  | (202 | ) |  |  |  |  |  |  |  |  |  |  |  |
Preferred stock dividends |  |  |  |  |  |  |  |  |  |  | (1,250 | ) |  |  |  |  |  |  |  |  |  |  |  |
Balance at March 31, 2010 |  | $ | 96,685 |  |  | $ | 306,568 |  |  | $ | 429,209 |  |  | $ | (125,321 | ) |  | $ | 13,757 |  |  |  |  |
Balance at December 31, 2010 |  | $ | 97,290 |  |  | $ | 305,677 |  |  | $ | 422,458 |  |  | $ | (77,733 | ) |  | $ | (1,868 | ) |  |  |  |
Net Income |  |  |  |  |  |  |  |  |  |  | 21,378 |  |  |  |  |  |  |  |  |  |  | $ | 21,378 |
Other comprehensive loss, net of tax: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized net holding gain on cash flow hedge, net of income taxes of $71 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 133 |  |  |  | 133 |
Unrealized net holding (loss) on securities available-for-sale, net of income taxes of $(3,431) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (6,371 | ) |  |  | (6,371 | )
Total comprehensive income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 15,140 |
Cash dividends on common stock at $0.94 per share |  |  |  |  |  |  |  |  |  |  | (14,475 | ) |  |  |  |  |  |  |  |  |  |  |  |
Cash payment for fractional shares in dividend reinvestment plan |  |  |  |  |  |  | (1 | ) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Accretion of discount on preferred stock |  |  | 214 |  |  |  |  |  |  |  | (214 | ) |  |  |  |  |  |  |  |  |  |  |  |
Preferred stock dividends |  |  |  |  |  |  |  |  |  |  | (1,250 | ) |  |  |  |  |  |  |  |  |  |  |  |
Balance at March 31, 2011 |  | $ | 97,504 |  |  | $ | 305,676 |  |  | $ | 427,897 |  |  | $ | (77,733 | ) |  | $ | (8,106 | ) |  |  |  |

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
- 6 -

PARK NATIONAL CORPORATION
Consolidated Condensed Statements of Cash Flows (Unaudited)
(in thousands)

|  | Three Months Ended |
|  | March 31, |
|  | 2011 |  |  | 2010 |
Operating activities: |  |  |  |  |  |
Net income |  | $ | 21,378 |  |  | $ | 20,779 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |  |  |
Depreciation, accretion and amortization |  |  | 2,784 |  |  |  | 2,205 |
Provision for loan losses |  |  | 13,500 |  |  |  | 16,550 |
Other-than-temporary impairment on investment securities |  |  | - |  |  |  | - |
Amortization of core deposit intangibles |  |  | 669 |  |  |  | 936 |
Realized net investment security gains |  |  | (6,635 | ) |  |  | (8,304 | )
OREO devaluations |  |  | 4,394 |  |  |  | 1,145 |
Changes in assets and liabilities: |  |  |  |  |  |  |  |
(Increase) in other assets |  |  | (21,217 | ) |  |  | (10,678 | )
(Decrease) in other liabilities |  |  | (6,539 | ) |  |  | (4,079 | )
Net cash provided by operating activities |  | $ | 8,334 |  |  | $ | 18,554 |
Investing activities: |  |  |  |  |  |  |  |
Proceeds from sales of available-for-sale securities |  | $ | 113,105 |  |  | $ | 284,031 |
Proceeds from maturity of: |  |  |  |  |  |  |  |
Available-for-sale securities |  |  | 75,071 |  |  |  | 269,462 |
Held-to-maturity securities |  |  | 59,506 |  |  |  | 22,478 |
Purchases of: |  |  |  |  |  |  |  |
Available-for-sale securities |  |  | (231,714 | ) |  |  | (533,677 | )
Held-to-maturity securities |  |  | - |  |  |  | (2,205 | )
Net (increase) decrease in loans |  |  | (25,403 | ) |  |  | 30,349 |
Purchases of bank owned life insurance, net |  |  | (3,000 | ) |  |  | (4,562 | )
Purchases of premises and equipment, net |  |  | (1,990 | ) |  |  | (1,862 | )
Net cash (used in) provided by investing activities |  | $ | (14,425 | ) |  | $ | 64,014 |

Continued
- 7 -

PARK NATIONAL CORPORATION
Consolidated Condensed Statements of Cash Flows (Unaudited)
(Continued)
(in thousands)

|  | Three Months Ended |
|  | March 31, |
|  | 2011 |  |  | 2010 |
Financing activities: |  |  |  |  |  |
Net increase in deposits |  | $ | 219,258 |  |  | $ | 80,806 |
Net (decrease) in short-term borrowings |  |  | (346,950 | ) |  |  | (57,144 | )
Proceeds from issuance of long-term debt |  |  | 150,000 |  |  |  | - |
Repayment of long-term debt |  |  | (24 | ) |  |  | (20 | )
Cash payment for fractional shares in dividend reinvestment plan |  |  | (1 | ) |  |  | (1 | )
Cash dividends paid on common and preferred stock |  |  | (15,725 | ) |  |  | (15,240 | )
Net cash provided by financing activities |  | $ | 6,558 |  |  | $ | 8,401 |
Increase in cash and cash equivalents |  |  | 467 |  |  |  | 90,969 |
Cash and cash equivalents at beginning of year |  |  | 133,780 |  |  |  | 159,091 |
Cash and cash equivalents at end of period |  | $ | 134,247 |  |  | $ | 250,060 |
Supplemental disclosures of cash flow information: |  |  |  |  |  |  |  |
Cash paid for: |  |  |  |  |  |  |  |
Interest |  | $ | 15,217 |  |  | $ | 20,494 |
Income taxes |  | $ | - |  |  | $ | - |
Non cash activities: |  |  |  |  |  |  |  |
Securities acquired through payable |  | $ | 25,000 |  |  | $ | 112,450 |

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
- 8 -

PARK NATIONAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1 – Basis of Presentation
The accompanying unaudited consolidated condensed financial statements included in this report have been prepared for Park National Corporation (the “Registrant”, “Corporation”, “Company”, or “Park”) and its subsidiaries. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of results of operations for the interim periods included herein have been made. The results of operations for the three month period ended March 31, 2011 are not necessarily indicative of the operating results to be anticipated for the fiscal year ending December 31, 2011.
The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and footnotes necessary for a fair presentation of the condensed balance sheets, condensed statements of income, condensed statements of changes in stockholders’ equity and condensed statements of cash flows in conformity with U.S. generally accepted accounting principles (“GAAP”). These financial statements should be read in conjunction with the consolidated financial statements incorporated by reference in the Annual Report on Form 10-K of Park for the fiscal year ended December 31, 2010 from Park’s 2010 Annual Report to Shareholders (“2010 Annual Report”).
Park’s significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in Park’s 2010 Annual Report. For interim reporting purposes, Park follows the same basic accounting policies, as updated by the information contained in this report, and considers each interim period an integral part of an annual period. Management has evaluated events occurring subsequent to the balance sheet date, determining no events require additional disclosure in these consolidated condensed financial statements.
Note 2 – Recent Accounting Pronouncements
Adoption of New Accounting Pronouncements:
Improving Disclosures About Fair Value Measurements: In January 2010, the FASB issued an amendment to Fair Value Measurements and Disclosures, Topic 820, Improving Disclosures About Fair Value Measurements. This amendment requires new disclosures regarding significant transfers in and out of Level 1 and 2 fair value measurements and the reasons for the transfers. This amendment also requires that a reporting entity present separately information about purchases, sales, issuances and settlements, on a gross basis rather than a net basis for activity in Level 3 fair value measurements using significant unobservable inputs. This amendment also clarifies existing disclosures on the level of disaggregation, in that the reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities, and that a reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for Level 2 and 3. The new disclosures and clarifications of existing disclosures for ASC 820 are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of ASC 820 did not have a material effect on the Company’s consolidated financial statements.
Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses: In July 2010, FASB issued Accounting Standards Update 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (ASU 2010-20), to address concerns about the sufficiency, transparency, and robustness of credit risk disclosures for finance receivables and the related allowance for credit losses. This ASU requires new and enhanced disclosures at disaggregated levels, specifically defined as “portfolio segments” and “classes”. Among other things, the expanded disclosures include roll-forward schedules of the allowance for credit losses and information regarding the credit quality of receivables as of the end of a reporting period. New and enhanced disclosures are required for interim and annual periods ending after December 15, 2010, although the disclosures of reporting period activity are required for interim and annual periods beginning after December 15, 2010. The adoption of the new guidance impacted interim and annual disclosures included in the Company’s consolidated financial statements.
- 9 -

No. 2011-01 - Receivables (Topic 310) Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2001-20: In January 2011, FASB issued Accounting Standards Update 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20 (ASU 2011-01). ASU 2011-01 was issued as a result of concerns raised from stakeholders that the introduction of new disclosure requirements (paragraphs 310-10-50-31 through 50-34 of the FASB Accounting Standards Codification) about troubled debt restructurings in one reporting period followed by a change in what constitutes a troubled debt restructuring shortly thereafter would be burdensome for preparers and may not provide financial statement users with useful information.
No. 2011-02 – Receivables (Topic 310) A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring: In April 2011, FASB issued Accounting Standards Update 2011-02, A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring (ASU 2011-02). The ASU provides additional guidance to creditors for evaluating whether a modification or restructuring of a receivable is a troubled debt restructuring (“TDR”). The new guidance requires creditors to evaluate modifications and restructurings of receivables using a more principles-based approach, which may result in more modifications and restructurings being considered TDRs. Additionally, creditors will be required to provide additional disclosures about their TDR activities in accordance with the requirements of ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses which was deferred by ASU 2011-01 Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20 (ASU 2011-01). The new guidance will be effective for the first interim or annual period beginning on or after June 15, 2011, with retrospective application required to the beginning of the annual period of adoption. Disclosures requirements will be effective for the first interim and annual period beginning on or after June 15, 2011. Management is currently working through the guidance to determine the impact, if any, to the consolidated financial statements.
Note 3 – Goodwill and Intangible Assets
The following table shows the activity in goodwill and core deposit intangibles for the first three months of 2011.

(in thousands) |  | Goodwill |  |  | Core Deposit Intangibles |  |  | Total |
December 31, 2010 |  | $ | 72,334 |  |  | $ | 6,043 |  |  | $ | 78,377 |
Amortization |  |  | - |  |  |  | 669 |  |  |  | 669 |
March 31, 2011 |  | $ | 72,334 |  |  | $ | 5,374 |  |  | $ | 77,708 |

The core deposit intangibles are being amortized to expense principally on the straight-line method, over periods ranging from six to ten years. Management expects that the core deposit intangibles amortization expense will be approximately $669,000 for the second, third and fourth quarters of 2011.
Core deposit intangibles amortization expense is projected to be as follows for each of the following years:

(in thousands) |  | Annual Amortization |
Remainder of 2011 |  | $ | 2,007 |
2012 |  |  | 2,677 |
2013 |  |  | 690 |
Total |  | $ | 5,374 |

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Note 4 – Loans
The composition of the loan portfolio, by class of loan, as of March 31, 2011 and December 31, 2010 was as follows:

|  | March 31, 2011 |  |  | December 31, 2010 |
|  | Loan Balance |  |  | Accrued Interest Receivable |  |  | Recorded Investment |  |  | Loan Balance |  |  | Accrued Interest Receivable |  |  | Recorded Investment |
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial, financial and agricultural * |  | $ | 727,993 |  |  | $ | 2,967 |  |  | $ | 730,960 |  |  | $ | 737,902 |  |  | $ | 2,886 |  |  | $ | 740,788 |
Commercial real estate * |  |  | 1,254,636 |  |  |  | 4,956 |  |  |  | 1,259,592 |  |  |  | 1,226,616 |  |  |  | 4,804 |  |  |  | 1,231,420 |
Construction real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Vision commercial land and development * |  |  | 161,140 |  |  |  | 290 |  |  |  | 161,430 |  |  |  | 171,334 |  |  |  | 282 |  |  |  | 171,616 |
Remaining commercial |  |  | 191,770 |  |  |  | 637 |  |  |  | 192,407 |  |  |  | 195,693 |  |  |  | 622 |  |  |  | 196,315 |
Mortgage |  |  | 21,685 |  |  |  | 74 |  |  |  | 21,759 |  |  |  | 26,326 |  |  |  | 95 |  |  |  | 26,421 |
Installment |  |  | 14,738 |  |  |  | 63 |  |  |  | 14,801 |  |  |  | 13,127 |  |  |  | 54 |  |  |  | 13,181 |
Residential real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  |  | 463,308 |  |  |  | 1,445 |  |  |  | 464,753 |  |  |  | 464,903 |  |  |  | 1,403 |  |  |  | 466,306 |
Mortgage |  |  | 944,309 |  |  |  | 2,955 |  |  |  | 947,264 |  |  |  | 906,648 |  |  |  | 2,789 |  |  |  | 909,437 |
HELOC |  |  | 256,329 |  |  |  | 959 |  |  |  | 257,288 |  |  |  | 260,463 |  |  |  | 1,014 |  |  |  | 261,477 |
Installment |  |  | 56,108 |  |  |  | 223 |  |  |  | 56,331 |  |  |  | 60,195 |  |  |  | 255 |  |  |  | 60,450 |
Consumer |  |  | 656,618 |  |  |  | 2,887 |  |  |  | 659,505 |  |  |  | 666,871 |  |  |  | 3,245 |  |  |  | 670,116 |
Leases |  |  | 2,341 |  |  |  | 44 |  |  |  | 2,385 |  |  |  | 2,607 |  |  |  | 56 |  |  |  | 2,663 |
Total loans |  | $ | 4,750,975 |  |  | $ | 17,500 |  |  | $ | 4,768,475 |  |  | $ | 4,732,685 |  |  | $ | 17,505 |  |  | $ | 4,750,190 |

* Included within commercial, financial and agricultural loans, commercial real estate loans, and Vision commercial land and development loans are an immaterial amount of consumer loans that are not broken out by class.
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The following tables present the recorded investment in nonaccrual, restructured, and loans past due 90 days or more and still accruing by class of loans as of March 31, 2011 and December 31, 2010:

|  | March 31, 2011 |
(In thousands) |  | Nonaccrual Loans |  |  | Restructured loans |  |  | Loans past due 90 days or more and accruing |  |  | Total nonperforming loans |
Commercial, financial and agricultural |  | $ | 19,464 |  |  | $ | - |  |  | $ | - |  |  | $ | 19,464 |
Commercial real estate |  |  | 53,259 |  |  |  | - |  |  |  | - |  |  |  | 53,259 |
Construction real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Vision commercial land and development |  |  | 82,799 |  |  |  | - |  |  |  | - |  |  |  | 82,799 |
Remaining commercial |  |  | 26,126 |  |  |  | - |  |  |  | - |  |  |  | 26,126 |
Mortgage |  |  | 61 |  |  |  | - |  |  |  | - |  |  |  | 61 |
Installment |  |  | 413 |  |  |  | - |  |  |  | - |  |  |  | 413 |
Residential real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  |  | 58,123 |  |  |  | - |  |  |  | - |  |  |  | 58,123 |
Mortgage |  |  | 32,927 |  |  |  | 260 |  |  |  | 1,526 |  |  |  | 34,713 |
HELOC |  |  | 1,944 |  |  |  | - |  |  |  | - |  |  |  | 1,944 |
Installment |  |  | 1,581 |  |  |  | - |  |  |  | 86 |  |  |  | 1,667 |
Consumer |  |  | 2,122 |  |  |  | - |  |  |  | 665 |  |  |  | 2,787 |
Leases |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Total loans |  | $ | 278,819 |  |  | $ | 260 |  |  | $ | 2,277 |  |  | $ | 281,356 |

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

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

|  | March 31, 2011 |
(In thousands) |  | Nonaccrual Loans |  |  | Loans individually evaluated for impairment |  |  | Loans collectively evaluated for impairment |
Commercial, financial and agricultural |  | $ | 19,464 |  |  | $ | 19,391 |  |  | $ | 73 |
Commercial real estate |  |  | 53,259 |  |  |  | 53,259 |  |  |  | - |
Construction real estate: |  |  |  |  |  |  |  |  |  |  |  |
Vision commercial land and development |  |  | 82,799 |  |  |  | 82,060 |  |  |  | 739 |
Remaining commercial |  |  | 26,126 |  |  |  | 26,126 |  |  |  | - |
Mortgage |  |  | 61 |  |  |  | - |  |  |  | 61 |
Installment |  |  | 413 |  |  |  | - |  |  |  | 413 |
Residential real estate: |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  |  | 58,123 |  |  |  | 58,123 |  |  |  | - |
Mortgage |  |  | 32,927 |  |  |  | - |  |  |  | 32,927 |
HELOC |  |  | 1,944 |  |  |  | - |  |  |  | 1,944 |
Installment |  |  | 1,581 |  |  |  | - |  |  |  | 1,581 |
Consumer |  |  | 2,122 |  |  |  | - |  |  |  | 2,122 |
Leases |  |  | - |  |  |  | - |  |  |  | - |
Total loans |  | $ | 278,819 |  |  | $ | 238,959 |  |  | $ | 39,860 |

|  | December 31, 2010 |
(In thousands) |  | Nonaccrual Loans |  |  | Loans individually evaluated for impairment |  |  | Loans collectively evaluated for impairment |
Commercial, financial and agricultural |  | $ | 19,276 |  |  | $ | 19,205 |  |  | $ | 71 |
Commercial real estate |  |  | 57,941 |  |  |  | 57,930 |  |  |  | 11 |
Construction real estate: |  |  |  |  |  |  |  |  |  |  |  |
Vision commercial land and development |  |  | 87,424 |  |  |  | 86,491 |  |  |  | 933 |
Remaining commercial |  |  | 27,080 |  |  |  | 27,080 |  |  |  | — |
Mortgage |  |  | 354 |  |  |  | — |  |  |  | 354 |
Installment |  |  | 417 |  |  |  | — |  |  |  | 417 |
Residential real estate: |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  |  | 60,227 |  |  |  | 60,227 |  |  |  | — |
Mortgage |  |  | 32,479 |  |  |  | — |  |  |  | 32,479 |
HELOC |  |  | 964 |  |  |  | — |  |  |  | 964 |
Installment |  |  | 1,195 |  |  |  | — |  |  |  | 1,195 |
Consumer |  |  | 1,911 |  |  |  | — |  |  |  | 1,911 |
Leases |  |  | - |  |  |  | — |  |  |  | — |
Total loans |  | $ | 289,268 |  |  | $ | 250,933 |  |  | $ | 38,335 |

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All of the loans individually evaluated for impairment were evaluated using the fair value of the collateral or present value of expected future cash flows as the measurement method.
The following tables present loans individually evaluated for impairment by class of loans as of March 31, 2011 and December 31, 2010.

|  | March 31, 2011 |
|  | Unpaid principal balance |  |  | Recorded Investment |  |  | Allowance for loan losses allocated |
(in thousands) |  |  |
With no related allowance recorded |  |  |  |  |  |  |  |  |
Commercial, financial and agricultural |  | $ | 7,226 |  |  | $ | 6,819 |  |  | $ | - |
Commercial real estate |  |  | 22,864 |  |  |  | 17,653 |  |  |  | - |
Construction real estate: |  |  |  |  |  |  |  |  |  |  |  |
Vision commercial land and development |  |  | 11,632 |  |  |  | 9,333 |  |  |  | - |
Remaining commercial |  |  | 13,118 |  |  |  | 12,251 |  |  |  | - |
Residential real estate: |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  |  | 39,886 |  |  |  | 38,072 |  |  |  | - |
With an allowance recorded |  |  |  |  |  |  |  |  |  |  |  |
Commercial, financial and agricultural |  |  | 14,197 |  |  |  | 12,572 |  |  |  | 2,980 |
Commercial real estate |  |  | 38,583 |  |  |  | 35,606 |  |  |  | 9,760 |
Construction real estate: |  |  |  |  |  |  |  |  |  |  |  |
Vision commercial land and development |  |  | 100,966 |  |  |  | 72,727 |  |  |  | 25,543 |
Remaining commercial |  |  | 22,373 |  |  |  | 13,875 |  |  |  | 2,842 |
Residential real estate: |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  |  | 23,510 |  |  |  | 20,051 |  |  |  | 6,162 |
Total |  | $ | 294,355 |  |  | $ | 238,959 |  |  | $ | 47,287 |

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|  | December 31, 2010 |
|  | Unpaid principal balance |  |  | Recorded Investment |  |  | Allowance for loan losses allocated |
(in thousands) |  |  |  |  |  |  |  |  |
With no related allowance recorded |  |  |  |  |  |  |  |  |
Commercial, financial and agricultural |  | $ | 9,347 |  |  | $ | 8,891 |  |  | $ | - |
Commercial real estate |  |  | 24,052 |  |  |  | 19,697 |  |  |  | - |
Construction real estate: |  |  |  |  |  |  |  |  |  |  |  |
Vision commercial land and development |  |  | 23,021 |  |  |  | 20,162 |  |  |  | - |
Remaining commercial |  |  | 15,192 |  |  |  | 14,630 |  |  |  | - |
Residential real estate: |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  |  | 51,261 |  |  |  | 47,009 |  |  |  | - |
With an allowance recorded |  |  |  |  |  |  |  |  |  |  |  |
Commercial, financial and agricultural |  |  | 11,801 |  |  |  | 10,314 |  |  |  | 3,028 |
Commercial real estate |  |  | 42,263 |  |  |  | 38,233 |  |  |  | 10,001 |
Construction real estate: |  |  |  |  |  |  |  |  |  |  |  |
Vision commercial land and development |  |  | 92,122 |  |  |  | 66,329 |  |  |  | 23,585 |
Remaining commercial |  |  | 20,676 |  |  |  | 12,450 |  |  |  | 2,802 |
Residential real estate: |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  |  | 14,799 |  |  |  | 13,218 |  |  |  | 4,043 |
Total |  | $ | 304,534 |  |  | $ | 250,933 |  |  | $ | 43,459 |

Management’s general practice is to proactively charge down loans individually evaluated for impairment to the fair value of the underlying collateral. At March 31, 2011 and December 31, 2010, there were $10.6 million and $12.5 million, respectively, of partial charge-offs on loans individually evaluated for impairment with no related allowance recorded and $44.8 million and $41.1 million, respectively, of partial charge-offs on loans individually evaluated for impairment that also had a specific reserve allocated.
The allowance for loan losses included specific reserves related to loans individually evaluated for impairment at March 31, 2011 and December 31, 2010, of $47.3 million and $43.5 million, respectively, related to loans with a recorded investment of $154.8 million and $140.5 million.
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The following table presents the average recorded investment and interest income recognized on loans individually evaluated for impairment for the three months ended March 31, 2011:

|  |  |  |  | Three months ended March 31, 2011 |
|  | Recorded investment as of March 31, 2011 |  |  | Average recorded investment |  |  | Interest income recognized |
(in thousands) |  |  |  |  |  |  |  |  |
Commercial, financial and agricultural |  | $ | 19,391 |  |  | $ | 19,515 |  |  | $ | 65 |
Commercial real estate |  |  | 53,259 |  |  |  | 55,076 |  |  |  | 70 |
Construction real estate: |  |  |  |  |  |  |  |  |  |  |  |
Vision commercial land and development |  |  | 82,060 |  |  |  | 84,272 |  |  |  | - |
Remaining commercial |  |  | 26,126 |  |  |  | 26,789 |  |  |  | 78 |
Residential real estate: |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  |  | 58,123 |  |  |  | 59,465 |  |  |  | 139 |
Consumer |  |  | - |  |  |  | 22 |  |  |  | - |
Total |  | $ | 238,959 |  |  | $ | 245,139 |  |  | $ | 352 |

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

|  | March 31, 2011 |
|  | Accruing loans past due 30-89 days |  |  | Past due nonaccrual loans and loans past due 90 days or more and accruing* |  |  | Total past due |  |  | Total current |  |  | Total recorded investment |
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial, financial and agricultural |  | $ | 4,573 |  |  | $ | 14,185 |  |  | $ | 18,758 |  |  | $ | 712,202 |  |  | $ | 730,960 |
Commercial real estate |  |  | 7,187 |  |  |  | 49,324 |  |  |  | 56,511 |  |  |  | 1,203,081 |  |  |  | 1,259,592 |
Construction real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Vision commercial land and development |  |  | 4,077 |  |  |  | 72,679 |  |  |  | 76,756 |  |  |  | 84,674 |  |  |  | 161,430 |
Remaining commercial |  |  | 47 |  |  |  | 18,312 |  |  |  | 18,359 |  |  |  | 174,048 |  |  |  | 192,407 |
Mortgage |  |  | 47 |  |  |  | 61 |  |  |  | 108 |  |  |  | 21,651 |  |  |  | 21,759 |
Installment |  |  | 354 |  |  |  | 386 |  |  |  | 740 |  |  |  | 14,061 |  |  |  | 14,801 |
Residential real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  |  | 3,814 |  |  |  | 25,576 |  |  |  | 29,390 |  |  |  | 435,363 |  |  |  | 464,753 |
Mortgage |  |  | 15,076 |  |  |  | 22,782 |  |  |  | 37,858 |  |  |  | 909,406 |  |  |  | 947,264 |
HELOC |  |  | 551 |  |  |  | 1,101 |  |  |  | 1,652 |  |  |  | 255,636 |  |  |  | 257,288 |
Installment |  |  | 1,014 |  |  |  | 972 |  |  |  | 1,986 |  |  |  | 54,345 |  |  |  | 56,331 |
Consumer |  |  | 7,489 |  |  |  | 2,117 |  |  |  | 9,606 |  |  |  | 649,899 |  |  |  | 659,505 |
Leases |  |  | 5 |  |  |  | - |  |  |  | 5 |  |  |  | 2,380 |  |  |  | 2,385 |
Total loans |  | $ | 44,234 |  |  | $ | 207,495 |  |  | $ | 251,729 |  |  | $ | 4,516,746 |  |  | $ | 4,768,475 |

* Includes $2.2 million of loans past due 90 days or more and accruing.
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|  | December 31, 2010 |
|  | Accruing loans past due 30-89 days |  |  | Past due nonaccrual loans and loans past due 90 days or more and accruing* |  |  | Total past due |  |  | Total current |  |  | Total recorded investment |
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial, financial and agricultural |  | $ | 2,247 |  |  | $ | 15,622 |  |  | $ | 17,869 |  |  | $ | 722,919 |  |  | $ | 740,788 |
Commercial real estate |  |  | 9,521 |  |  |  | 53,269 |  |  |  | 62,790 |  |  |  | 1,168,630 |  |  |  | 1,231,420 |
Construction real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Vision commercial land and development |  |  | 2,406 |  |  |  | 65,130 |  |  |  | 67,536 |  |  |  | 104,080 |  |  |  | 171,616 |
Remaining commercial |  |  | 141 |  |  |  | 19,687 |  |  |  | 19,828 |  |  |  | 176,487 |  |  |  | 196,315 |
Mortgage |  |  | 479 |  |  |  | 148 |  |  |  | 627 |  |  |  | 25,794 |  |  |  | 26,421 |
Installment |  |  | 235 |  |  |  | 399 |  |  |  | 634 |  |  |  | 12,547 |  |  |  | 13,181 |
Residential real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  |  | 3,281 |  |  |  | 26,845 |  |  |  | 30,126 |  |  |  | 436,180 |  |  |  | 466,306 |
Mortgage |  |  | 17,460 |  |  |  | 24,422 |  |  |  | 41,882 |  |  |  | 867,555 |  |  |  | 909,437 |
HELOC |  |  | 1,396 |  |  |  | 667 |  |  |  | 2,063 |  |  |  | 259,414 |  |  |  | 261,477 |
Installment |  |  | 1,018 |  |  |  | 892 |  |  |  | 1,910 |  |  |  | 58,540 |  |  |  | 60,450 |
Consumer |  |  | 11,204 |  |  |  | 2,465 |  |  |  | 13,669 |  |  |  | 656,447 |  |  |  | 670,116 |
Leases |  |  | 5 |  |  |  | - |  |  |  | 5 |  |  |  | 2,658 |  |  |  | 2,663 |
Total loans |  | $ | 49,393 |  |  | $ | 209,546 |  |  | $ | 258,939 |  |  | $ | 4,491,251 |  |  | $ | 4,750,190 |

* Includes $3.6 million of loans past due 90 days or more and accruing.
Management’s policy is to initially place all renegotiated loans (troubled debt restructurings) on nonaccrual status. At March 31, 2011 and December 31, 2010, there were $81.1 million and $80.7 million, respectively, of troubled debt restructurings included in nonaccrual loan totals. Many of these troubled debt restructurings are performing under the renegotiated terms. At March 31, 2011 and December 31, 2010, $42.3 million and $50.3 million of the total troubled debt restructurings were included within current loans above. Management will continue to review the renegotiated loans and may determine it appropriate to move certain of the loans back to accrual status in the future. At March 31, 2011 and December 31, 2010, Park had commitments to lend $289,000 and $434,000, respectively, of additional funds to borrowers whose terms had been modified in a troubled debt restructuring.
Management utilizes past due information as a credit quality indicator across the loan portfolio. The past due information is the primary credit quality indicator within the following classes of loans: (1) mortgage loans and installment loans in the construction real estate segment; (2) mortgage loans, HELOC and installment loans in the residential real estate segment; and (3) throughout the consumer loan segment. The primary credit indicator for commercial loans is based on an internal grading system that grades all commercial loans from 1 to 8. Credit grades are continuously monitored by the respective loan officer and adjustments are made when appropriate. A grade of 1 indicates little or no credit risk and a grade of 8 is considered a loss. Commercial loans with grades of 1 to 4 (pass-rated) are considered to be of acceptable credit risk. Commercial loans graded a 5 (special mention) are considered to be watch list credits and a higher loan loss reserve percentage is allocated to these loans. Loans classified as special mention have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loans or of the institution’s credit position at some future date. Commercial loans graded 6 (substandard), also considered watch list credits, are considered to represent higher credit risk and, as a result, a higher loan loss reserve percentage is allocated to these loans. Loans classified as substandard loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Commercial loans that are graded a 7 (doubtful) are shown as nonperforming and Park generally charges these loans down to their fair value by taking a partial charge-off or recording a specific reserve. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Any commercial loan graded an 8 (loss) is completely charged-off. The tables below present the recorded investment by loan grade at March 31, 2011 and December 31, 2010 for all commercial loans.
- 17 -

|  | March 31, 2011 |
(in thousands) |  | 5 Rated |  |  | 6 Rated |  |  | Nonaccrual |  |  | Pass Rated |  |  | Recorded Investment |
Commercial, financial and agricultural: |  | $ | 23,616 |  |  | $ | 11,122 |  |  | $ | 19,464 |  |  | $ | 676,758 |  |  | $ | 730,960 |
Commercial real estate: |  |  | 72,684 |  |  |  | 23,943 |  |  |  | 53,259 |  |  |  | 1,109,706 |  |  |  | 1,259,592 |
Construction real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Vision commercial land and development |  |  | 13,394 |  |  |  | 7,399 |  |  |  | 82,799 |  |  |  | 57,838 |  |  |  | 161,430 |
Remaining commercial |  |  | 15,147 |  |  |  | 39,159 |  |  |  | 26,126 |  |  |  | 111,975 |  |  |  | 192,407 |
Residential real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  |  | 27,311 |  |  |  | 17,948 |  |  |  | 58,123 |  |  |  | 361,371 |  |  |  | 464,753 |
Leases |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,385 |  |  |  | 2,385 |
Total Commercial Loans |  | $ | 152,152 |  |  | $ | 99,571 |  |  | $ | 239,771 |  |  | $ | 2,320,033 |  |  | $ | 2,811,527 |

|  | December 31, 2010 |
(in thousands) |  | 5 Rated |  |  | 6 Rated |  |  | Nonaccrual |  |  | Pass Rated |  |  | Recorded Investment |
Commercial, financial and agricultural: |  | $ | 26,322 |  |  | $ | 11,447 |  |  | $ | 19,276 |  |  | $ | 683,743 |  |  | $ | 740,788 |
Commercial real estate: |  |  | 57,394 |  |  |  | 26,992 |  |  |  | 57,941 |  |  |  | 1,089,093 |  |  |  | 1,231,420 |
Construction real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Vision commercial land and development |  |  | 10,220 |  |  |  | 7,941 |  |  |  | 87,424 |  |  |  | 66,031 |  |  |  | 171,616 |
Remaining commercial |  |  | 14,021 |  |  |  | 39,062 |  |  |  | 27,080 |  |  |  | 116,152 |  |  |  | 196,315 |
Residential real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  |  | 29,206 |  |  |  | 18,117 |  |  |  | 60,227 |  |  |  | 358,756 |  |  |  | 466,306 |
Leases |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,663 |  |  |  | 2,663 |
Total Commercial Loans |  | $ | 137,163 |  |  | $ | 103,559 |  |  | $ | 251,948 |  |  | $ | 2,316,438 |  |  | $ | 2,809,108 |

- 18 -

Note 5 – Allowance for Loan Losses
The allowance for loan losses is that amount management believes is adequate to absorb probable incurred credit losses in the loan portfolio based on management’s evaluation of various factors including overall growth in the loan portfolio, an analysis of individual loans, prior and current loss experience, and current economic conditions. A provision for loan losses is charged to operations based on management’s periodic evaluation of these and other pertinent factors as discussed within Note 1 of Park’s 2010 Annual Report.
The activity in the allowance for loan losses for the three months ended March 31, 2011 and March 31, 2010 is summarized. As noted below, management included a reallocation of the beginning allowance for credit losses balance, which primarily impacted the commercial loan segments of the loan portfolio. At December 31, 2010, management’s allowance calculation was performed in the aggregate for all commercial loans and then allocated across each segment of the commercial loan portfolio on a pro rata basis. During the first quarter of 2011, management determined that it would be more appropriate to perform the allowance calculation at the segment level and has provided an adjusted beginning balance for the allowance for credit losses in the table below.

|  | Three months ended March 31, 2011 |
|  | Commercial, financial and agricultural |  |  | Commercial real estate |  |  | Construction real estate |  |  | Residential real estate |  |  | Consumer |  |  | Leases |  |  | Total |
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for credit losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance: |  | $ | 13,584 |  |  | $ | 28,515 |  |  | $ | 46,194 |  |  | $ | 25,845 |  |  | $ | 7,228 |  |  | $ | 31 |  |  | $ | 121,397 |
Reallocation of allowance |  |  | (1,888 | ) |  |  | (6,604 | ) |  |  | 5,759 |  |  |  | 2,948 |  |  |  | (189 | ) |  |  | (26 | ) |  |  | - |
Adjusted beginning balance: |  |  | 11,696 |  |  |  | 21,911 |  |  |  | 51,953 |  |  |  | 28,793 |  |  |  | 7,039 |  |  |  | 5 |  |  |  | 121,397 |
Charge-offs |  |  | 734 |  |  |  | 1,785 |  |  |  | 3,420 |  |  |  | 2,487 |  |  |  | 1,973 |  |  |  | - |  |  |  | 10,399 |
Recoveries |  |  | 569 |  |  |  | 802 |  |  |  | 96 |  |  |  | 501 |  |  |  | 390 |  |  |  | 3 |  |  |  | 2,361 |
Net Charge-offs |  |  | 165 |  |  |  | 983 |  |  |  | 3,324 |  |  |  | 1,986 |  |  |  | 1,583 |  |  |  | (3 | ) |  |  | 8,038 |
Provision |  |  | 260 |  |  |  | 1,646 |  |  |  | 5,043 |  |  |  | 4,746 |  |  |  | 1,809 |  |  |  | (4 | ) |  |  | 13,500 |
Ending balance: |  | $ | 11,791 |  |  | $ | 22,574 |  |  | $ | 53,672 |  |  | $ | 31,553 |  |  | $ | 7,265 |  |  | $ | 4 |  |  | $ | 126,859 |

The activity in the allowance for loan losses for the three months ended March 31, 2010 is summarized as follows:

(In thousands) |  | March 31, 2010 |
Allowance for credit losses: |  |  |
Beginning balance: |  | $ | 116,717 |
Charge-offs |  |  | 15,578 |
Recoveries |  |  | 1,985 |
Net Charge-offs |  |  | 13,593 |
Provision |  |  | 16,550 |
Ending balance: |  | $ | 119,674 |

- 19 -

The composition of the allowance for loan losses at March 31, 2011 and December 31, 2010 was as follows:

|  | March 31, 2011 |
|  | Commercial, financial and agricultural |  |  | Commercial real estate |  |  | Construction real estate |  |  | Residential real estate |  |  | Consumer |  |  | Leases |  |  | Total |
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending allowance balance attributed to loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 2,980 |  |  | $ | 9,760 |  |  | $ | 28,385 |  |  | $ | 6,162 |  |  | $ | - |  |  | $ | - |  |  | $ | 47,287 |
Collectively evaluated for impairment |  |  | 8,811 |  |  |  | 12,814 |  |  |  | 25,287 |  |  |  | 25,391 |  |  |  | 7,265 |  |  |  | 4 |  |  |  | 79,572 |
Total ending allowance balance |  | $ | 11,791 |  |  | $ | 22,574 |  |  | $ | 53,672 |  |  | $ | 31,553 |  |  | $ | 7,265 |  |  | $ | 4 |  |  | $ | 126,859 |
Loan Balance: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment |  | $ | 19,391 |  |  | $ | 53,259 |  |  | $ | 108,186 |  |  | $ | 58,123 |  |  | $ | - |  |  | $ | - |  |  | $ | 238,959 |
Loans collectively evaluated for impairment |  |  | 708,602 |  |  |  | 1,201,377 |  |  |  | 281,147 |  |  |  | 1,661,931 |  |  |  | 656,618 |  |  |  | 2,341 |  |  |  | 4,512,016 |
Total ending loan balance |  | $ | 727,993 |  |  | $ | 1,254,636 |  |  | $ | 389,333 |  |  | $ | 1,720,054 |  |  | $ | 656,618 |  |  | $ | 2,341 |  |  | $ | 4,750,975 |
Allowance for loan losses as a percentage of loan balance: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment |  |  | 15.37 | % |  |  | 18.33 | % |  |  | 26.24 | % |  |  | 10.60 | % |  |  | - |  |  |  | - |  |  |  | 19.79 | %
Loans collectively evaluated for impairment |  |  | 1.24 | % |  |  | 1.07 | % |  |  | 8.99 | % |  |  | 1.53 | % |  |  | 1.11 | % |  |  | 0.17 | % |  |  | 1.76 | %
Total ending loan balance |  |  | 1.62 | % |  |  | 1.80 | % |  |  | 13.79 | % |  |  | 1.83 | % |  |  | 1.11 | % |  |  | 0.17 | % |  |  | 2.67 | %
Recorded Investment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment |  | $ | 19,391 |  |  | $ | 53,259 |  |  | $ | 108,186 |  |  | $ | 58,123 |  |  | $ | - |  |  | $ | - |  |  | $ | 238,959 |
Loans collectively evaluated for impairment |  |  | 711,569 |  |  |  | 1,206,333 |  |  |  | 282,211 |  |  |  | 1,667,513 |  |  |  | 659,505 |  |  |  | 2,385 |  |  |  | 4,529,516 |
Total ending loan balance |  | $ | 730,960 |  |  | $ | 1,259,592 |  |  | $ | 390,397 |  |  | $ | 1,725,636 |  |  | $ | 659,505 |  |  | $ | 2,385 |  |  | $ | 4,768,475 |

- 20 -

|  | December 31, 2010 |
|  | Commercial, financial and agricultural |  |  | Commercial real estate |  |  | Construction real estate |  |  | Residential real estate |  |  | Consumer |  |  | Leases |  |  | Total |
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending allowance balance attributed to loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 3,028 |  |  | $ | 10,001 |  |  | $ | 26,387 |  |  | $ | 4,043 |  |  | $ | - |  |  | $ | - |  |  | $ | 43,459 |
Collectively evaluated for impairment |  |  | 10,556 |  |  |  | 18,514 |  |  |  | 19,807 |  |  |  | 21,802 |  |  |  | 7,228 |  |  |  | 31 |  |  |  | 77,938 |
Total ending allowance balance |  | $ | 13,584 |  |  | $ | 28,515 |  |  | $ | 46,194 |  |  | $ | 25,845 |  |  | $ | 7,228 |  |  | $ | 31 |  |  | $ | 121,397 |
Reallocated allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending allowance balance attributed to loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 3,028 |  |  | $ | 10,001 |  |  | $ | 26,387 |  |  | $ | 4,043 |  |  | $ | - |  |  | $ | - |  |  | $ | 43,459 |
Collectively evaluated for impairment |  |  | 8,668 |  |  |  | 11,910 |  |  |  | 25,566 |  |  |  | 24,750 |  |  |  | 7,039 |  |  |  | 5 |  |  |  | 77,938 |
Total ending allowance balance |  | $ | 11,696 |  |  | $ | 21,911 |  |  | $ | 51,953 |  |  | $ | 28,793 |  |  | $ | 7,039 |  |  | $ | 5 |  |  | $ | 121,397 |
Loan Balance: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment |  | $ | 19,205 |  |  | $ | 57,930 |  |  | $ | 113,571 |  |  | $ | 60,227 |  |  | $ | - |  |  | $ | - |  |  | $ | 250,933 |
Loans collectively evaluated for impairment |  |  | 718,697 |  |  |  | 1,168,686 |  |  |  | 292,909 |  |  |  | 1,631,982 |  |  |  | 666,871 |  |  |  | 2,607 |  |  |  | 4,481,752 |
Total ending loan balance |  | $ | 737,902 |  |  | $ | 1,226,616 |  |  | $ | 406,480 |  |  | $ | 1,692,209 |  |  | $ | 666,871 |  |  | $ | 2,607 |  |  | $ | 4,732,685 |
Reallocated allowance for loan losses as a percentage of loan balance: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment |  |  | 15.77 | % |  |  | 17.26 | % |  |  | 23.23 | % |  |  | 6.71 | % |  |  | - |  |  |  | - |  |  |  | 17.32 | %
Loans collectively evaluated for impairment |  |  | 1.21 | % |  |  | 1.02 | % |  |  | 8.73 | % |  |  | 1.52 | % |  |  | 1.06 | % |  |  | 0.19 | % |  |  | 1.74 | %
Total ending loan balance |  |  | 1.59 | % |  |  | 1.79 | % |  |  | 12.78 | % |  |  | 1.70 | % |  |  | 1.06 | % |  |  | 0.19 | % |  |  | 2.57 | %
Recorded Investment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment |  | $ | 19,205 |  |  | $ | 57,930 |  |  | $ | 113,571 |  |  | $ | 60,227 |  |  | $ | - |  |  | $ | - |  |  | $ | 250,933 |
Loans collectively evaluated for impairment |  |  | 721,583 |  |  |  | 1,173,490 |  |  |  | 293,962 |  |  |  | 1,637,443 |  |  |  | 670,116 |  |  |  | 2,663 |  |  |  | 4,499,257 |
Total ending loan balance |  | $ | 740,788 |  |  | $ | 1,231,420 |  |  | $ | 407,533 |  |  | $ | 1,697,670 |  |  | $ | 670,116 |  |  | $ | 2,663 |  |  | $ | 4,750,190 |

- 21 -

Loans collectively evaluated for impairment above include all performing loans at March 31, 2011 and December 31, 2010, as well as nonperforming loans internally classified as consumer loans. Nonperforming consumer loans are not typically individually evaluated for impairment, but receive a portion of the statistical allocation of the allowance for loan losses. Loans individually evaluated for impairment include all impaired loans internally classified as commercial loans at March 31, 2011 and December 31, 2010, which are evaluated for impairment in accordance with GAAP (see Note 1 of Park’s 2010 Annual Report).
Note 6 – Earnings Per Common Share
The following table sets forth the computation of basic and diluted earnings per common share for the three months ended March 31, 2011 and 2010.

(in thousands, except share and per share data) |  | Three months ended March 31, |
|  | 2011 |  |  | 2010 |
Numerator: |  |  |  |  |  |
Income available to common shareholders |  | $ | 19,914 |  |  | $ | 19,327 |
Denominator: |  |  |  |  |  |  |  |
Denominator for basic earnings per share (weighted average common shares outstanding) |  |  | 15,398,930 |  |  |  | 14,882,774 |
Effect of dilutive options and warrants |  |  | 4,490 |  |  |  | - |
Denominator for diluted earnings per share (weighted average common shares outstanding adjusted for the effect of dilutive options and warrants) |  |  | 15,403,420 |  |  |  | 14,882,774 |
Earnings per common share: |  |  |  |  |  |  |  |
Basic earnings per common share |  | $ | 1.29 |  |  | $ | 1.30 |
Diluted earnings per common share |  | $ | 1.29 |  |  | $ | 1.30 |

As of March 31, 2011 and 2010, options to purchase 75,895 and 254,120 common shares, respectively, were outstanding under the Park National Corporation 2005 Incentive Stock Option Plan (the “2005 Plan”). A warrant to purchase 227,376 common shares was outstanding at both March 31, 2011 and 2010 as a result of Park’s participation in the U.S. Treasury’s Capital Purchase Program (the “CPP”). Warrants to purchase an aggregate of 71,984 common shares were outstanding at March 31, 2011 as a result of the issuance of common stock and warrants on December 10, 2010. In addition, warrants to purchase an aggregate of 500,000 common shares were outstanding at March 31, 2010 as a result of the issuance of common stock and warrants on October 30, 2009. All warrants issued on October 30, 2009 were exercised or expired as of October 30, 2010 and thus had no impact on the period ended March 31, 2011.
The common shares represented by the options and the warrants at March 31, 2011 and 2010, totaling a weighted average of 149,591 and 981,852, respectively, were not included in the computation of diluted earnings per common share because the respective exercise prices exceeded the market value of the underlying common shares such that their inclusion would have had an anti-dilutive effect. The warrant to purchase 227,376 common shares pertaining to the CPP was not included in the 149,591 at March 31, 2011, as the dilutive effect of this warrant was 4,490 shares of common stock at March 31, 2011. The exercise price of the CPP warrant to purchase 227,376 common shares is $65.97.
- 22 -

Note 7 – Segment Information
The Corporation is a multi-bank holding company headquartered in Newark, Ohio. The operating segments for the Corporation are its two chartered bank subsidiaries, The Park National Bank (headquartered in Newark, Ohio) (“PNB”) and Vision Bank (headquartered in Panama City, Florida) (“VB”). Management is required to disclose information about the different types of business activities in which a company engages and also information on the different economic environments in which a company operates, so that the users of the financial statements can better understand a company’s performance, better understand the potential for future cash flows, and make more informed judgments about the company as a whole. Park has two operating segments, as: (i) there are two separate and distinct geographic markets in which Park operates, (ii) discrete financial information is available for each operating segment and (iii) the segments are aligned with internal reporting to Park’s Chief Executive Officer, who is the chief operating decision maker.

Operating Results for the three months ended March 31, 2011 |
(in thousands) |  | PNB |  |  | VB |  |  | All Other |  |  | Total |
Net interest income |  | $ | 60,236 |  |  | $ | 6,755 |  |  | $ | 2,322 |  |  | $ | 69,313 |
Provision for loan losses |  |  | 4,975 |  |  |  | 8,000 |  |  |  | 525 |  |  |  | 13,500 |
Other income (loss) and security gains |  |  | 22,897 |  |  |  | (3,177 | ) |  |  | 86 |  |  |  | 19,806 |
Other expense |  |  | 36,321 |  |  |  | 7,425 |  |  |  | 2,600 |  |  |  | 46,346 |
Net income (loss) |  |  | 29,030 |  |  |  | (7,664 | ) |  |  | 12 |  |  |  | 21,378 |
Balance at March 31, 2011 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets |  | $ | 6,573,541 |  |  | $ | 802,154 |  |  | $ | (37,292 | ) |  | $ | 7,338,403 |

Operating Results for the three months ended March 31, 2010 |
(in thousands) |  | PNB |  |  | VB |  |  | All Other |  |  | Total |
Net interest income |  | $ | 58,399 |  |  | $ | 6,891 |  |  | $ | 2,090 |  |  | $ | 67,380 |
Provision for loan losses |  |  | 4,750 |  |  |  | 11,300 |  |  |  | 500 |  |  |  | 16,550 |
Other income and security gains |  |  | 24,778 |  |  |  | 151 |  |  |  | 85 |  |  |  | 25,014 |
Other expense |  |  | 36,802 |  |  |  | 7,854 |  |  |  | 3,234 |  |  |  | 47,890 |
Net income (loss) |  |  | 28,335 |  |  |  | (7,456 | ) |  |  | (100 | ) |  |  | 20,779 |
Balance at March 31, 2010 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets |  | $ | 6,310,720 |  |  | $ | 881,705 |  |  | $ | (16,338 | ) |  | $ | 7,176,087 |

The operating results of the Parent Company and Guardian Financial Services Company (GFC) in the “All Other” column are used to reconcile the segment totals to the consolidated condensed statements of income for the three month periods ended March 31, 2011 and 2010. The reconciling amounts for consolidated total assets for the three month periods ended March 31, 2011 and 2010, consist of the elimination of intersegment borrowings and the assets of the Parent Company and GFC which are not eliminated.
- 23 -

Note 8 – Stock Option Plan
Park did not grant any stock options during the three month periods ended March 31, 2011 and 2010. Additionally, no stock options vested during the first three months of 2011 or 2010.
The following table summarizes stock option activity during the first three months of 2011.

|  | Stock Options |  |  | Weighted Average Exercise Price Per Share |
Outstanding at December 31, 2010 |  |  | 78,075 |  |  | $ | 74.96 |
Granted |  |  | - |  |  |  | - |
Exercised |  |  | - |  |  |  | - |
Forfeited/Expired |  |  | 2,180 |  |  | $ | 74.96 |
Outstanding at March 31, 2011 |  |  | 75,895 |  |  | $ | 74.96 |

All of the stock options outstanding at March 31, 2011 were exercisable. The aggregate intrinsic value of the outstanding stock options at March 31, 2011 was $0. No stock options were exercised during the first three months of 2011 or 2010. The weighted average contractual remaining term was 1.7 years for the stock options outstanding at March 31, 2011.
All of the common shares delivered upon exercise of incentive stock options granted under the 2005 Plan are to be treasury shares. At March 31, 2011, incentive stock options granted under the 2005 Plan covering 75,895 common shares were outstanding. At March 31, 2011, Park held 452,769 treasury shares that are available for the 2005 Plan.
Note 9 – Mortgage Loans Held For Sale
Mortgage loans held for sale are carried at their fair value. At March 31, 2011 and December 31, 2010 respectively, Park had approximately $4.7 million and $8.3 million in mortgage loans held for sale. These amounts are included in loans on the consolidated condensed balance sheets and in the residential real estate segments in Notes 4 and 5.
- 24 -

Note 10 – Investment Securities
The amortized cost and fair values of investment securities are shown in the following table. Management performs a quarterly evaluation of investment securities for any other-than-temporary impairment. For the three months ended March 31, 2011 and 2010, there were no investment securities deemed to be other-than-temporarily impaired.
Investment securities at March 31, 2011, were as follows:

(in thousands) |  |  |  |  |  |  |  |  |  |  |  |
March 31, 2011 Securities Available-for-Sale |  | Amortized Cost |  |  | Gross Unrealized Holding Gains |  |  | Gross Unrealized Holding Losses |  |  | Estimated Fair Value |
Obligations of U.S. Treasury and other U.S. Government sponsored entities |  | $ | 317,301 |  |  | $ | 1,870 |  |  | $ | 2,688 |  |  | $ | 316,483 |
Obligations of states and political subdivisions |  |  | 8,977 |  |  |  | 111 |  |  |  | - |  |  |  | 9,088 |
U.S. Government sponsored entities asset-backed securities |  |  | 1,022,215 |  |  |  | 23,550 |  |  |  | 10,160 |  |  |  | 1,035,605 |
Other equity securities |  |  | 938 |  |  |  | 826 |  |  |  | 47 |  |  |  | 1,717 |
Total |  | $ | 1,349,431 |  |  | $ | 26,357 |  |  | $ | 12,895 |  |  | $ | 1,362,893 |
March 31, 2011 Securities Held-to-Maturity |  | Amortized Cost |  |  | Gross Unrecognized Holding Gains |  |  | Gross Unrecognized Holding Losses |  |  | Estimated Fair Value |
Obligations of states and political subdivisions |  | $ | 2,867 |  |  | $ | 9 |  |  | $ | - |  |  | $ | 2,876 |
U.S. Government sponsored entities asset-backed securities |  |  | 611,197 |  |  |  | 15,452 |  |  |  | 4,191 |  |  |  | 622,458 |
Total |  | $ | 614,064 |  |  | $ | 15,461 |  |  | $ | 4,191 |  |  | $ | 625,334 |

Management does not believe any individual unrealized loss as of March 31, 2011 or December 31, 2010, represents an other-than-temporary impairment. Should the impairment of any of these securities become other-than-temporary, the cost basis of the investment will be reduced and the resulting loss recognized within net income in the period the other-than-temporary impairment is identified.
- 25 -

Securities with unrealized losses at March 31, 2011, were as follows:

(in thousands) |  | Less than 12 months |  |  | 12 months or longer |  |  | Total |
March 31, 2011 Securities Available-for-Sale |  | Fair value |  |  | Unrealized losses |  |  | Fair value |  |  | Unrealized losses |  |  | Fair value |  |  | Unrealized losses |
Obligations of U.S. Treasury and other U.S. Government sponsored entities |  | $ | 144,627 |  |  | $ | 2,688 |  |  | $ | - |  |  | $ | - |  |  | $ | 144,627 |  |  | $ | 2,688 |
U.S. Government sponsored entities asset-backed securities |  |  | 409,981 |  |  |  | 10,160 |  |  |  | - |  |  |  | - |  |  |  | 409,981 |  |  |  | 10,160 |
Other equity securities |  |  | 80 |  |  |  | 30 |  |  |  | 211 |  |  |  | 17 |  |  |  | 291 |  |  |  | 47 |
Total |  | $ | 554,688 |  |  | $ | 12,878 |  |  | $ | 211 |  |  | $ | 17 |  |  | $ | 554,899 |  |  | $ | 12,895 |
March 31, 2011 Securities Held-to-Maturity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government sponsored entities asset-backed securities |  | $ | 285,106 |  |  | $ | 4,191 |  |  | $ | - |  |  | $ | - |  |  | $ | 285,106 |  |  | $ | 4,191 |

Investment securities at December 31, 2010, were as follows:

(in thousands) |  |  |  |  |  |  |  |  |  |  |  |
December 31, 2010 Securities Available-for-Sale |  | Amortized cost |  |  | Gross unrealized holding gains |  |  | Gross unrealized holding losses |  |  | Estimated fair value |
Obligations of U.S. Treasury and other U.S. Government sponsored entities |  | $ | 272,301 |  |  | $ | 2,968 |  |  | $ | 1,956 |  |  | $ | 273,313 |
Obligations of states and political subdivisions |  |  | 10,815 |  |  |  | 281 |  |  |  | 52 |  |  |  | 11,044 |
U.S. Government sponsored entities asset-backed securities |  |  | 990,204 |  |  |  | 30,633 |  |  |  | 9,425 |  |  |  | 1,011,412 |
Other equity securities |  |  | 938 |  |  |  | 858 |  |  |  | 43 |  |  |  | 1,753 |
Total |  | $ | 1,274,258 |  |  | $ | 34,740 |  |  | $ | 11,476 |  |  | $ | 1,297,522 |
December 31, 2010 Securities Held-to-Maturity |  | Amortized cost |  |  | Gross unrealized holding gains |  |  | Gross unrealized holding losses |  |  | Estimated fair value |
Obligations of states and political subdivisions |  | $ | 3,167 |  |  | $ | 7 |  |  | $ | - |  |  | $ | 3,174 |
U.S. Government sponsored entities asset-backed securities |  |  | 670,403 |  |  |  | 17,157 |  |  |  | 4,620 |  |  |  | 682,940 |
Total |  | $ | 673,570 |  |  | $ | 17,164 |  |  | $ | 4,620 |  |  | $ | 686,114 |

- 26 -

Securities with unrealized losses at December 31, 2010, were as follows:

(in thousands) |  | Less than 12 months |  |  | 12 months or longer |  |  | Total |
December 31, 2010 Securities Available-for-Sale |  | Fair value |  |  | Unrealized losses |  |  | Fair value |  |  | Unrealized losses |  |  | Fair value |  |  | Unrealized losses |
Obligations of U.S. Treasury and other U.S. Government sponsored entities |  | $ | 74,379 |  |  | $ | 1,956 |  |  | $ | - |  |  | $ | - |  |  | $ | 74,379 |  |  | $ | 1,956 |
Obligations of states and political subdivisions |  |  | 1,459 |  |  |  | 52 |  |  |  |  |  |  |  |  |  |  |  | 1,459 |  |  |  | 52 |
U.S. Government sponsored entities asset-backed securities |  |  | 418,156 |  |  |  | 9,425 |  |  |  | - |  |  |  | - |  |  |  | 418,156 |  |  |  | 9,425 |
Other equity securities |  |  | 74 |  |  |  | 29 |  |  |  | 221 |  |  |  | 14 |  |  |  | 295 |  |  |  | 43 |
Total |  | $ | 494,068 |  |  | $ | 11,462 |  |  | $ | 221 |  |  | $ | 14 |  |  | $ | 494,289 |  |  | $ | 11,476 |
December 31, 2010 Securities Held-to-Maturity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government sponsored entities asset-backed securities |  | $ | 297,584 |  |  | $ | 4,620 |  |  | $ | - |  |  | $ | - |  |  | $ | 297,584 |  |  | $ | 4,620 |

Park’s U.S. Government sponsored entities asset-backed securities consist primarily of 15-year residential mortgage-backed securities and collateralized mortgage obligations.
- 27 -

The amortized cost and estimated fair value of investments in debt securities at March 31, 2011, are shown in the following table by contractual maturity or the expected call date, except for asset-backed securities, which are shown as a single total, due to the unpredictability of the timing in principal repayments.

(in thousands) |  | Amortized cost |  |  | Fair value |
Securities Available-for-Sale |  |  |  |  |  |
U.S. Treasury and sponsored entities notes: |  |  |  |  |  |
Due within one year |  | $ | 124,986 |  |  | $ | 126,762 |
Due one through five years |  |  | 25,000 |  |  |  | 25,000 |
Due five through ten years |  |  | 142,980 |  |  |  | 141,326 |
Due over ten years |  |  | 24,335 |  |  |  | 23,395 |
Total |  | $ | 317,301 |  |  | $ | 316,483 |
Obligations of states and political subdivisions: |  |  |  |  |
Due within one year |  | $ | 7,674 |  |  | $ | 7,699 |
Due one through five years |  |  | 1,303 |  |  |  | 1,389 |
Total |  | $ | 8,977 |  |  | $ | 9,088 |
U.S. Government sponsored entities asset-backed securities: |  |  |  |  |  |  |  |
Total |  | $ | 1,022,215 |  |  | $ | 1,035,605 |
(in thousands) |  | Amortized cost |  |  | Fair value |
Securities Held-to-Maturity |  |  |  |  |  |  |  |
Obligations of state and political subdivisions: |  |  |  |  |
Due within one year |  | $ | 2,867 |  |  | $ | 2,876 |
Total |  | $ | 2,867 |  |  | $ | 2,876 |
U.S. Government sponsored entities asset-backed securities: |  |  |  |  |  |  |  |
Total |  | $ | 611,197 |  |  | $ | 622,458 |

All of Park’s securities shown in the above table as U.S. Treasury and sponsored entities notes are callable notes. These callable securities have a final maturity in 8 to 12 years, but are shown in the table at their expected call date.
Note 11 – Other Investment Securities
Other investment securities consist of stock investments in the Federal Home Loan Bank and the Federal Reserve Bank. These restricted stock investments are carried at their redemption value.

|  | March 31, |  |  | December 31, |
(in thousands) |  | 2011 |  |  | 2010 |
Federal Home Loan Bank stock |  | $ | 61,823 |  |  | $ | 61,823 |
Federal Reserve Bank stock |  |  | 6,876 |  |  |  | 6,876 |
Total |  | $ | 68,699 |  |  | $ | 68,699 |

- 28 -

Note 12 – Pension Plan
Park has a noncontributory defined benefit pension plan covering substantially all of its employees. The plan provides benefits based on an employee’s years of service and compensation.
Park’s funding policy is to contribute annually an amount that can be deducted for federal income tax purposes using a different actuarial cost method and different assumptions from those used for financial reporting purposes. Pension plan contributions were $14 million and zero for the three month periods ended March 31, 2011 and 2010, respectively.
The following table shows the components of net periodic benefit expense:

(in thousands) |  | Three months ended March 31, |
|  | 2011 |  |  | 2010 |
Service cost |  | $ | 1,139 |  |  | $ | 918 |
Interest cost |  |  | 992 |  |  |  | 896 |
Expected return on plan assets |  |  | (1,886 | ) |  |  | (1,457 | )
Amortization of prior service cost |  |  | 5 |  |  |  | 5 |
Recognized net actuarial loss |  |  | 353 |  |  |  | 270 |
Benefit expense |  | $ | 603 |  |  | $ | 632 |

Note 13 – Derivative Instruments
FASB ASC 815, Derivatives and Hedging, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. As required by GAAP, the Company records all derivatives on the consolidated condensed balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.
For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings) and subsequently reclassified into earnings when the hedged transaction affects earnings, with any ineffective portion of changes in the fair value of the derivative recognized directly in earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged item or transaction.
During the first quarter of 2008, the Company executed an interest rate swap to hedge a $25 million floating-rate subordinated note that was entered into by Park during the fourth quarter of 2007. The Company’s objective in using this derivative is to add stability to interest expense and to manage its exposure to interest rate risk. Our interest rate swap involves the receipt of variable-rate amounts in exchange for fixed-rate payments over the life of the agreement without exchange of the underlying principal amount, and has been designated as a cash flow hedge.
At March 31, 2011, the interest rate swap’s fair value of $(1.4) million was included in other liabilities. No hedge ineffectiveness on the cash flow hedge was recognized during the three months ended March 31, 2011. At March 31, 2011, the variable rate on the $25 million subordinated note was 2.30% (3-month LIBOR plus 200 basis points) and Park was paying 6.01% (4.01% fixed rate on the interest rate swap plus 200 basis points).
- 29 -

For the three months ended March 31, 2011, the change in the fair value of the interest rate swap reported in other comprehensive income was a gain of $133,000 (net of taxes of $71,000). Amounts reported in accumulated other comprehensive income related to the interest rate swap will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt.
As of March 31, 2011, no derivatives were designated as fair value hedges or hedges of net investments in foreign operations. Additionally, the Company does not use derivatives for trading or speculative purposes.
As of March 31, 2011, Park had mortgage loan interest rate lock commitments outstanding of approximately $6.0 million. Park has specific forward contracts to sell each of these loans to a third party investor. These loan commitments represent derivative instruments, which are required to be carried at fair value. The derivative instruments used are not designated as hedges under GAAP. At March 31, 2011, the fair value of the derivative instruments was approximately $85,000. The fair value of the derivative instruments is included within loans held for sale and the corresponding income is included within non-yield loan fee income. Gains and losses resulting from expected sales of mortgage loans are recognized when the respective loan contract is entered into between the borrower, Park, and the third party investor. The fair value of Park’s mortgage interest rate lock commitments (IRLCs) is based on current secondary market pricing.
In connection with the sale of Park’s Class B Visa shares during the 2009 year, Park entered into a swap agreement with the purchaser of the shares. The swap agreement adjusts for dilution in the conversion ratio of Class B Visa shares resulting from certain Visa litigation. At March 31, 2011, the fair value of the swap liability of $60,000 is an estimate of the exposure based upon probability-weighted potential Visa litigation losses.
Note 14 – Loan Servicing
Park serviced sold mortgage loans of $1.44 billion at March 31, 2011, compared to $1.47 billion at December 31, 2010 and $1.53 billion at March 31, 2010. At March 31, 2011, $34.1 million of the sold mortgage loans were sold with recourse compared to $50.5 million at March 31, 2010. Management closely monitors the delinquency rates on the mortgage loans sold with recourse. At March 31, 2011, management determined that no liability was deemed necessary for these loans.
When Park sells mortgage loans with servicing rights retained, servicing rights are initially recorded at fair value. Park selected the “amortization method” as permissible within GAAP, whereby the servicing rights capitalized are amortized in proportion to and over the period of estimated future servicing income of the underlying loan. At the end of each reporting period, the carrying value of mortgage servicing rights (“MSRs”) is assessed for impairment with a comparison to fair value. MSRs are carried at the lower of their amortized cost or fair value.
- 30 -

Activity for MSRs and the related valuation allowance follows:

(in thousands) |  | Three Months Ended March 31, |
|  | 2011 |  |  | 2010 |
Mortgage servicing rights: |  |  |  |  |  |
Carrying amount, net, beginning of period |  | $ | 10,488 |  |  |  | 10,780 |
Additions |  |  | 330 |  |  |  | 575 |
Amortization |  |  | (521 | ) |  |  | (496 | )
Change in valuation allowance |  |  | 68 |  |  |  | - |
Carrying amount, net, end of period |  | $ | 10,365 |  |  | $ | 10,859 |
Valuation allowance: |  |  |  |  |  |  |  |
Beginning of period |  | $ | 748 |  |  | $ | 574 |
Change in valuation allowance |  |  | (68 | ) |  |  | - |
End of period |  | $ | 680 |  |  | $ | 574 |

Servicing fees included in other service income were $1.4 million for the three months ended March 31, 2011. For the three months ended March 31, 2010, servicing fees included in other service income were $1.3 million.
Note 15 – Fair Value
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that Park uses to measure fair value are as follows:

| § | Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that Park has the ability to access as of the measurement date.

| § | Level 2: Level 1 inputs for assets or liabilities that are not actively traded. Also consists of an observable market price for a similar asset or liability. This includes the use of “matrix pricing” to value debt securities absent the exclusive use of quoted prices.

| § | Level 3: Consists of unobservable inputs that are used to measure fair value when observable market inputs are not available. This could include the use of internally developed models, financial forecasting and similar inputs.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability between market participants at the balance sheet date. When possible, the Company looks to active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, the Company looks to observable market data for similar assets and liabilities. However, certain assets and liabilities are not traded in observable markets and Park must use other valuation methods to develop a fair value. The fair value of impaired loans is based on the fair value of the underlying collateral, which is estimated through third party appraisals or internal estimates of collateral values.
- 31 -

Assets and Liabilities Measured at Fair Value on a Recurring Basis:
The following table presents assets and liabilities measured at fair value on a recurring basis:

Fair Value Measurements at March 31, 2011 using: |
(in thousands) |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Balance at March 31, 2011 |
Assets |  |  |  |  |  |  |  |  |  |  |  |
Investment securities |  |  |  |  |  |  |  |  |  |  |  |
Obligations of U.S. Treasury and other U.S. Government sponsored entities |  | $ | - |  |  | $ | 316,483 |  |  | $ | - |  |  | $ | 316,483 |
Obligations of states and political subdivisions |  |  | - |  |  |  | 6,618 |  |  |  | 2,470 |  |  |  | 9,088 |
U.S. Government sponsored entities’ asset-backed securities |  |  | - |  |  |  | 1,035,605 |  |  |  | - |  |  |  | 1,035,605 |
Equity securities |  |  | 977 |  |  |  | - |  |  |  | 740 |  |  |  | 1,717 |
Mortgage loans held for sale |  |  | - |  |  |  | 4,656 |  |  |  | - |  |  |  | 4,656 |
Mortgage IRLCs |  |  | - |  |  |  | 85 |  |  |  | - |  |  |  | 85 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap |  | $ | - |  |  | $ | 1,430 |  |  | $ | - |  |  | $ | 1,430 |
Fair value swap |  |  | - |  |  |  | - |  |  |  | 60 |  |  |  | 60 |

Fair Value Measurements at December 31, 2010 using: |
(in thousands) |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Balance at December 31, 2010 |
Assets |  |  |  |  |  |  |  |  |  |  |  |
Investment securities |  |  |  |  |  |  |  |  |  |  |  |
Obligations of U.S. Treasury and other U.S. Government sponsored entities |  | $ | - |  |  | $ | 273,313 |  |  | $ | - |  |  | $ | 273,313 |
Obligations of states and political subdivisions |  |  | - |  |  |  | 8,446 |  |  |  | 2,598 |  |  |  | 11,044 |
U.S. Government sponsored entities’ asset-backed securities |  |  | - |  |  |  | 1,011,412 |  |  |  | - |  |  |  | 1,011,412 |
Equity securities |  |  | 1,008 |  |  |  | - |  |  |  | 745 |  |  |  | 1,753 |
Mortgage loans held for sale |  |  | - |  |  |  | 8,340 |  |  |  | - |  |  |  | 8,340 |
Mortgage IRLCs |  |  | - |  |  |  | 166 |  |  |  | - |  |  |  | 166 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap |  | $ | - |  |  | $ | 1,634 |  |  | $ | - |  |  | $ | 1,634 |
Fair value swap |  |  | - |  |  |  | - |  |  |  | 60 |  |  |  | 60 |

The following methods and assumptions were used by the Corporation in determining fair value of the financial assets and liabilities discussed above:
- 32 -

Investment securities: Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. The Fair Value Measurements tables exclude Park’s Federal Home Loan Bank stock and Federal Reserve Bank stock. These assets are carried at their respective redemption values, as it is not practicable to calculate their fair values. For securities where quoted prices or market prices of similar securities are not available, which include municipal securities, fair values are calculated using discounted cash flows.
Interest rate swap: The fair value of the interest rate swap represents the estimated amount Park would pay or receive to terminate the agreement, considering current interest rates and the current creditworthiness of the counterparty.
Fair value swap: The fair value of the swap agreement entered into with the purchaser of the Visa Class B shares represents an internally developed estimate of the exposure based upon probability-weighted potential Visa litigation losses.
Mortgage Interest Rate Lock Commitments (IRLCs): IRLCs are based on current secondary market pricing and are classified as Level 2.
Mortgage loans held for sale: Mortgage loans held for sale are carried at their fair value. Mortgage loans held for sale are estimated using security prices for similar product types and, therefore, are classified in Level 2.
The table below is a reconciliation of the beginning and ending balances of the Level 3 inputs for the three months ended March 31, 2011 and 2010, for financial instruments measured on a recurring basis and classified as Level 3:

Level 3 Fair Value Measurements Three months ended March 31, 2011 and 2010 |
(in thousands) |  | Obligations of states and political subdivisions |  |  | Equity Securities |  |  | Fair value swap |
Balance, at January 1, 2011 |  | $ | 2,598 |  |  | $ | 745 |  |  | $ | (60 | )
Total gains/(losses) |  |  |  |  |  |  |  |  |  |  |  |
Included in earnings – realized |  |  | - |  |  |  |  |  |  |  | - |
Included in earnings – unrealized |  |  | - |  |  |  |  |  |  |  | - |
Included in other comprehensive income |  |  | (128 | ) |  |  | (5 | ) |  |  | - |
Purchases, sales, issuances and settlements, other, net |  |  | - |  |  |  |  |  |  |  | - |
Other |  |  | - |  |  |  |  |  |  |  | - |
Balance March 31, 2011 |  | $ | 2,470 |  |  | $ | 740 |  |  | $ | (60 | )
Balance, at January 1, 2010 |  | $ | 2,751 |  |  | $ | - |  |  | $ | (500 | )
Total gains/(losses) |  |  |  |  |  |  |  |  |  |  |  |
Included in earnings – realized |  |  | - |  |  |  | - |  |  |  | - |
Included in earnings – unrealized |  |  | - |  |  |  | - |  |  |  | - |
Included in other comprehensive income |  |  | (7 | ) |  |  | - |  |  |  | - |
Purchases, sales, issuances and settlements, other, net |  |  | - |  |  |  | - |  |  |  | - |
Other |  |  | - |  |  |  | - |  |  |  | - |
Balance March 31, 2010 |  | $ | 2,744 |  |  | $ | - |  |  | $ | (500 | )

- 33 -

Assets and liabilities measured at fair value on a nonrecurring basis:
The following table presents assets and liabilities measured at fair value on a nonrecurring basis:

Fair Value Measurements at March 31, 2011 using: |
(in thousands) |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |  |  | Balance at March 31, 2011 |
Impaired loans: |  |  |  |  |  |  |  |  |  |  |  |
Commercial, financial and agricultural |  | $ | - |  |  | $ | - |  |  | $ | 10,418 |  |  | $ | 10,418 |
Commercial real estate |  |  | - |  |  |  | - |  |  |  | 29,306 |  |  |  | 29,306 |
Construction real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Vision commercial land and development |  |  | - |  |  |  | - |  |  |  | 49,061 |  |  |  | 49,061 |
Remaining commercial |  |  | - |  |  |  | - |  |  |  | 12,219 |  |  |  | 12,219 |
Residential real estate |  |  | - |  |  |  | - |  |  |  | 16,618 |  |  |  | 16,618 |
Total impaired loans |  | $ | - |  |  | $ | - |  |  | $ | 117,622 |  |  | $ | 117,622 |
Mortgage servicing rights |  |  | - |  |  |  | 2,668 |  |  |  | - |  |  |  | 2,668 |
Other real estate owned |  |  | - |  |  |  | - |  |  |  | 47,133 |  |  |  | 47,133 |

Fair Value Measurements at December 31, 2010 Using: |
(in thousands) |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |  |  | Balance at December 31, 2010 |
Impaired loans: |  |  |  |  |  |  |  |  |  |  |  |
Commercial, financial and agricultural |  | $ | - |  |  | $ | - |  |  | $ | 8,276 |  |  | $ | 8,276 |
Commercial real estate |  |  |  |  |  |  |  |  |  |  | 32,354 |  |  |  | 32,354 |
Construction real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Vision commercial land and development |  |  |  |  |  |  |  |  |  |  | 45,121 |  |  |  | 45,121 |
Remaining commercial |  |  |  |  |  |  |  |  |  |  | 10,202 |  |  |  | 10,202 |
Residential real estate |  |  |  |  |  |  |  |  |  |  | 15,304 |  |  |  | 15,304 |
Total impaired loans |  | $ | - |  |  | $ | - |  |  | $ | 111,257 |  |  | $ | 111,257 |
Mortgage servicing rights |  |  | - |  |  |  | 3,813 |  |  |  | - |  |  |  | 3,813 |
Other real estate owned |  |  | - |  |  |  | - |  |  |  | 44,325 |  |  |  | 44,325 |

Impaired loans, which are measured for impairment using the fair value of the underlying collateral or the present value of expected future cash flows, had a book value of $239.0 million at March 31, 2011, after partial charge-offs of $55.4 million. In addition, these loans had a specific valuation allowance of $47.3 million. Of the $239.0 million impaired loan portfolio, loans with a book value of $164.9 million were carried at their fair value of $117.6 million, as a result of the aforementioned charge-offs and specific valuation allowance. The remaining $74.1 million of impaired loans are carried at cost, as the fair value of the underlying collateral or present value of expected future cash flows on these loans exceeds the book value for each individual credit. At December 31, 2010, impaired loans had a book value of $250.9 million. Of these, $111.3 million were carried at fair value, as a result of partial charge-offs of $53.6 million and a specific valuation allowance of $43.5 million. The remaining $96.2 million of impaired loans at December 31, 2010 were carried at cost.
MSRs, which are carried at the lower of cost or fair value, were recorded at $10.4 million at March 31, 2011. Of the $10.4 million MSR carrying balance at March 31, 2011, $2.7 million was recorded at fair value and included a valuation allowance of $680,000. The remaining $7.7 million was recorded at cost, as the fair value exceeds cost at March 31, 2011. MSRs do not trade in active, open markets with readily observable prices. For example, sales of MSRs do occur, but precise terms and conditions typically are not readily available. As such, management, with the assistance of a third party specialist, determined fair value based on the discounted value of the future cash flows estimated to be received. Significant inputs include the discount rate and assumed prepayment speeds utilized. The calculated fair value was then compared to market values where possible to ascertain the reasonableness of the valuation in relation to current market expectations for similar products. Accordingly, MSRs are classified Level 2. At December 31, 2010, MSRs were recorded at $10.5 million, including a valuation allowance of $748,000.
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Other real estate owned (OREO) is recorded at fair value based on property appraisals, less estimated selling costs, at the date of transfer. The carrying value of OREO is not re-measured to fair value on a recurring basis, but is subject to fair value adjustments when the carrying value exceeds the fair value, less estimated selling costs. At March 31, 2011 and December 31, 2010, the estimated fair value of OREO, less estimated selling costs amounted to $47.1 million and $44.3 million, respectively. The financial impact of OREO devaluation adjustments for the three months ended March 31, 2011 was $4.4 million.
The following methods and assumptions were used by the Corporation in estimating its fair value disclosures for assets and liabilities not discussed above:
Cash and cash equivalents: The carrying amounts reported in the consolidated condensed balance sheet for cash and short-term instruments approximate those assets’ fair values.
Interest bearing deposits with other banks: The carrying amounts reported in the consolidated condensed balance sheet for interest bearing deposits with other banks approximate those assets’ fair values.
Loans receivable: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for certain mortgage loans (e.g., one-to-four family residential) are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. The fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.
Off-balance sheet instruments: Fair values for the Corporation’s loan commitments and standby letters of credit are based on the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The carrying amount and fair value are not material.
Deposit liabilities: The fair values disclosed for demand deposits (e.g., interest and non-interest checking, savings, and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts for variable-rate, fixed-term certificates of deposit approximate their fair values at the reporting date. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities of time deposits.
Short-term borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase agreements and other short-term borrowings approximate their fair values.
Long-term debt: Fair values for long-term debt are estimated using a discounted cash flow calculation that applies interest rates currently being offered on long-term debt to a schedule of monthly maturities.
Subordinated debentures and notes: Fair values for subordinated debentures and notes are estimated using a discounted cash flow calculation that applies interest rate spreads currently being offered on similar debt structures to a schedule of monthly maturities.
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The fair value of financial instruments at March 31, 2011 and December 31, 2010, is as follows:

(in thousands) |  | March 31, 2011 |  |  | December 31, 2010 |
|  | Carrying value |  |  | Fair value |  |  | Carrying value |  |  | Fair value |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |
Cash and money market instruments |  | $ | 134,247 |  |  | $ | 134,247 |  |  | $ | 133,780 |  |  | $ | 133,780 |
Investment securities |  |  | 1,976,957 |  |  |  | 1,988,227 |  |  |  | 1,971,092 |  |  |  | 1,983,636 |
Accrued interest receivable |  |  | 25,083 |  |  |  | 25,083 |  |  |  | 24,137 |  |  |  | 24,137 |
Mortgage loans held for sale |  |  | 4,656 |  |  |  | 4,656 |  |  |  | 8,340 |  |  |  | 8,340 |
Impaired loans carried at fair value |  |  | 117,622 |  |  |  | 117,622 |  |  |  | 111,257 |  |  |  | 111,257 |
Other loans |  |  | 4,501,838 |  |  |  | 4,513,284 |  |  |  | 4,491,691 |  |  |  | 4,511,419 |
Loans receivable, net |  | $ | 4,624,116 |  |  | $ | 4,635,562 |  |  | $ | 4,611,288 |  |  | $ | 4,631,016 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Noninterest bearing checking accounts |  | $ | 955,005 |  |  | $ | 955,005 |  |  | $ | 937,719 |  |  | $ | 937,719 |
Interest bearing transactions accounts |  |  | 1,459,934 |  |  |  | 1,459,934 |  |  |  | 1,283,159 |  |  |  | 1,283,159 |
Savings accounts |  |  | 938,585 |  |  |  | 938,585 |  |  |  | 899,288 |  |  |  | 899,288 |
Time deposits |  |  | 1,958,301 |  |  |  | 1,970,493 |  |  |  | 1,973,903 |  |  |  | 1,990,163 |
Other |  |  | 2,853 |  |  |  | 2,853 |  |  |  | 1,351 |  |  |  | 1,351 |
Total deposits |  | $ | 5,314,678 |  |  | $ | 5,326,870 |  |  | $ | 5,095,420 |  |  | $ | 5,111,680 |
Short-term borrowings |  | $ | 316,719 |  |  | $ | 316,719 |  |  | $ | 663,669 |  |  | $ | 663,669 |
Long-term debt |  |  | 786,709 |  |  |  | 841,797 |  |  |  | 636,733 |  |  |  | 699,080 |
Subordinated debentures/notes |  |  | 75,250 |  |  |  | 63,292 |  |  |  | 75,250 |  |  |  | 63,099 |
Accrued interest payable |  |  | 6,255 |  |  |  | 6,255 |  |  |  | 6,123 |  |  |  | 6,123 |
Derivative financial instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap |  | $ | 1,430 |  |  | $ | 1,430 |  |  | $ | 1,634 |  |  | $ | 1,634 |
Fair value swap |  |  | 60 |  |  |  | 60 |  |  |  | 60 |  |  |  | 60 |

Note 16 –Participation in the U.S. Treasury Capital Purchase Program (CPP)
On December 23, 2008, Park issued $100 million of cumulative perpetual preferred shares, with a liquidation preference of $1,000 per share (the “Senior Preferred Shares”). The Senior Preferred Shares constitute Tier 1 capital and rank senior to Park’s common shares. The Senior Preferred Shares pay cumulative dividends at a rate of 5% per annum through February 14, 2014 and will reset to a rate of 9% per annum thereafter. For the three months ended March 31, 2011, Park recognized a charge to retained earnings of $1.5 million representing the preferred stock dividend and accretion of the discount on the preferred stock, associated with Park’s participation in the CPP.
As part of its participation in the CPP, Park also issued a warrant to the U.S. Treasury to purchase 227,376 common shares, which is equal to 15% of the aggregate amount of the Senior Preferred Shares purchased by the U.S. Treasury, having an exercise price of $65.97. The initial exercise price for the warrant and the market price for determining the number of common shares subject to the warrant were determined by reference to the market price of the common shares on the date the Company’s application for participation in the CPP was approved by the U.S. Department of the Treasury (calculated on a 20-day trailing average). The warrant has a term of 10 years.
A company that participates in the CPP must adopt certain standards for compensation and corporate governance, established under the American Recovery and Reinvestment Act of 2009 (the “ARRA”), which amended and replaced the executive compensation provisions of the Emergency Economic Stabilization Act of 2008 (“EESA”) in their entirety, and the Interim Final Rule promulgated by the Secretary of the U.S. Treasury under 31 C.F.R. Part 30 (collectively, the “Troubled Asset Relief Program (TARP) Compensation Standards”). In addition, Park’s ability to declare or pay dividends on or repurchase its common shares is partially restricted as a result of its participation in the CPP.
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Note 17 – Other Comprehensive Income (Loss)
Other comprehensive income (loss) components and related taxes are shown in the following table for the three months ended March 31, 2011 and 2010:

Three months ended March 31, (in thousands) |  | Before-tax amount |  |  | Tax expense (benefit) |  |  | Net-of-tax amount |
2011: |  |  |  |  |  |  |  |  |
Unrealized losses on available-for-sale securities |  | $ | (3,166 | ) |  | $ | (1,108 | ) |  | $ | (2,058 | )
Reclassification adjustment for gains realized in net income |  |  | (6,635 | ) |  |  | (2,322 | ) |  |  | (4,313 | )
Unrealized net holding gain on cash flow hedge |  |  | 204 |  |  |  | 71 |  |  |  | 133 |
Other comprehensive loss |  | $ | (9,597 | ) |  | $ | (3,359 | ) |  | $ | (6,238 | )
2010: |  |  |  |  |  |  |  |  |  |  |  |
Unrealized gains on available-for-sale securities |  | $ | 5,545 |  |  | $ | 1,940 |  |  | $ | 3,605 |
Reclassification adjustment for gains realized in net income |  |  | (8,304 | ) |  |  | (2,906 | ) |  |  | (5,398 | )
Unrealized net holding loss on cash flow hedge |  |  | (171 | ) |  |  | (60 | ) |  |  | (111 | )
Other comprehensive loss |  | $ | (2,930 | ) |  | $ | (1,026 | ) |  | $ | (1,904 | )

The ending balance of each component of accumulated other comprehensive income (loss) was as follows:

(in thousands) |  | Before-tax amount |  |  | Tax expense (benefit) |  |  | Net-of-tax amount |
March 31, 2011: |  |  |  |  |  |  |  |  |
Changes in pension plan assets and benefit obligations |  | $ | (24,503 | ) |  | $ | (8,576 | ) |  | $ | (15,927 | )
Unrealized gains on available-for-sale securities |  |  | 13,462 |  |  |  | 4,712 |  |  |  | 8,750 |
Unrealized net holding loss on cash flow hedge |  |  | (1,430 | ) |  |  | (501 | ) |  |  | (929 | )
Total accumulated other comprehensive loss |  | $ | (12,471 | ) |  | $ | (4,365 | ) |  | $ | (8,106 | )
December 31, 2010: |  |  |  |  |  |  |  |  |  |  |  |
Changes in pension plan assets and benefit obligations |  | $ | (24,503 | ) |  | $ | (8,576 | ) |  | $ | (15,927 | )
Unrealized gains on available-for-sale securities |  |  | 23,263 |  |  |  | 8,142 |  |  |  | 15,121 |
Unrealized net holding loss on cash flow hedge |  |  | (1,634 | ) |  |  | (572 | ) |  |  | (1,062 | )
Total accumulated other comprehensive loss |  | $ | (2,874 | ) |  | $ | (1,006 | ) |  | $ | (1,868 | )
March 31, 2010: |  |  |  |  |  |  |  |  |  |  |  |
Changes in pension plan assets and benefit obligations |  | $ | (20,769 | ) |  | $ | (7,269 | ) |  | $ | (13,500 | )
Unrealized gains on available-for-sale securities |  |  | 43,588 |  |  |  | 15,256 |  |  |  | 28,332 |
Unrealized net holding loss on cash flow hedge |  |  | (1,654 | ) |  |  | (579 | ) |  |  | (1,075 | )
Total accumulated other comprehensive income |  | $ | 21,165 |  |  | $ | 7,408 |  |  | $ | 13,757 |

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Note 18 — Sale of Common Shares and Issuance of Common Stock Warrants
No additional shares of common stock were issued during the three months ended March 31, 2011. Outstanding as of March 31, 2011 were 35,992 Series A Common Share Warrants and 35,992 Series B Common Share Warrants which were issued as part of the registered direct public offering completed on December 10, 2010. The Series A and Series B Common Share Warrants have an exercise price of $76.41 and expiration dates of June 10, 2011 and December 10, 2011, respectively.
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ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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. We have tried, whenever possible, to identify such statements by using words such as “anticipate,” “estimate,” “expect,” “forecast,” “project,” “intend,” “plan,” “believe,” and similar expressions in connection with any discussion of future operating or financial performance. The forward-looking statements are based on management’s current 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 value of the collateral could prove less valuable than assumed and cash flows may be worse than expected; Park’s ability to sell OREO properties at prices as favorable as anticipated; changes in 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; the effects of the Gulf of Mexico oil spill; 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 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 fiscal and governmental policies of the United States federal government; demand for loans in the respective market areas served by Park and its subsidiaries; and other risk factors relating to the banking industry as detailed from time to time in Park’s reports filed with the Securities and Exchange Commission (“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, 2010 and in “Item 1A. Risk Factors” of Part II of this Quarterly Report on Form 10-Q. Undue reliance should not be placed on the forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. 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 is made, or reflect the occurrence of unanticipated events, except to the extent required by law.
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Critical Accounting Policies
Note 1 of the Notes to Consolidated Financial Statements included in Park’s 2010 Annual Report to Shareholders (“2010 Annual Report”) lists significant accounting policies used in the development and presentation of Park’s consolidated financial statements. The accounting and reporting policies of Park conform with U.S. generally accepted accounting principles (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 “Provision for Loan Losses” section within this MD&A 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 March 31, 2011, OREO totaled $47.1 million, representing a 6.3% increase compared to $44.3 million at December 31, 2010. The $2.8 million net increase in OREO during the first quarter of 2011 was a result of $10.3 million in new OREO offset by sales of $3.1 million and devaluations of $4.4 million.
U.S. GAAP requires management to establish a fair value hierarchy, which has the objective of maximizing the use of observable market inputs. U.S. GAAP also requires enhanced disclosures regarding the inputs used to calculate fair value. These 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 these inputs could be based on internal models and cash flow analysis. At March 31, 2011, the fair value of assets based on Level 3 inputs for Park was approximately $168.0 million. This was 10.9% of the total amount of assets measured at fair value as of the end of the first quarter. The fair value of impaired loans was approximately $117.6 million (or 70.0%) of the total amount of Level 3 inputs. Additionally, there were $74.1 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 Level 2 inputs consist of available-for-sale (“AFS”) securities. The fair value of these AFS securities is obtained largely through 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.
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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. At March 31, 2011, on a consolidated basis, Park had core deposit intangibles of $5.4 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 $1.3 million and the core deposit intangibles at Vision Bank were $4.1 million. The goodwill asset of $72.3 million is carried on the balance sheet of PNB. Please see Note 3 – Goodwill and Intangible Assets of the Notes to Unaudited Consolidated Condensed Financial Statements in this Quarterly Report on Form 10-Q for additional information on intangible assets.
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Comparison of Results of Operations
For the Three Months Ended March 31, 2011 and 2010
Summary Discussion of Results
Net income for the three months ended March 31, 2011 was $21.4 million compared to $20.8 million for the first quarter of 2010, an increase of $599,000 or 2.9%. Net income available to common shareholders (which is net of the preferred stock dividends and the related accretion) was $19.9 million for the first quarter of 2011 compared to $19.3 million for the three months ended March 31, 2010, an increase of $587,000 or 3.0%. Preferred stock dividends and the related accretion of the discount on the preferred stock, pertaining to the $100 million of preferred stock issued to the U.S. Treasury on December 23, 2008, were $1.46 million for the first quarter of 2011 and $1.45 million for the same quarter in 2010.
Diluted earnings per common share were $1.29 for the first quarter of 2011 compared to $1.30 for the first quarter of 2010, a decrease of $0.01 per share or 0.8%. Weighted average common shares outstanding were 15,398,930 for the three months ended March 31, 2011 compared to 14,882,774 common shares for the first quarter of 2010, an increase of 516,156 common shares or 3.5%. Park sold a total of 509,184 common shares, issued from treasury shares, during the last three quarters of 2010. Most of the sales of common shares (437,200) resulted from the exercise of Series A and Series B Common Share Warrants issued in connection with the registered direct public offering which closed on October 30, 2009. In addition, Park sold 71,984 common shares, out of treasury shares, in connection with a registered direct public offering which closed on December 10, 2010.
The following tables compare the components of net income for the three month period ended March 31, 2011 with the components of net income for the three month period ended March 31, 2010. This information is provided for Park, Vision Bank and Park excluding Vision Bank (“Park’s Ohio-based operations”). In general for 2011, the operating results for Park’s Ohio-based operations were a little stronger than management projected, but the results for Vision Bank were weaker than anticipated.

Park – Summary Income Statement |
|  | Three months ended March 31, |
(in thousands) |  | 2011 |  |  | 2010 |  |  | % Change |
Net interest income |  | $ | 69,313 |  |  | $ | 67,380 |  |  |  | 2.87 | %
Provision for loan losses |  |  | 13,500 |  |  |  | 16,550 |  |  |  | -18.43 | %
Total other income |  |  | 13,171 |  |  |  | 16,710 |  |  |  | -21.18 | %
Gain on sale of securities |  |  | 6,635 |  |  |  | 8,304 |  |  |  | -20.10 | %
Total other expense |  |  | 46,346 |  |  |  | 47,890 |  |  |  | -3.22 | %
Income before taxes |  | $ | 29,273 |  |  | $ | 27,954 |  |  |  | 4.72 | %
Income taxes |  |  | 7,895 |  |  |  | 7,175 |  |  |  | 10.03 | %
Net income |  | $ | 21,378 |  |  | $ | 20,779 |  |  |  | 2.88 | %

For the three months ended March 31, 2011, the operating results for net interest income, provision for loan losses, and total other expense were consistent with management’s forecast for the projected operating results for 2011. The operating results for total other income were below management’s forecast for 2011. This guidance was included in Park’s 2010 Annual Report in the “Financial Review” section on pages 38 through 40.
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The following table compares the guidance for 2011 that management had provided in the 2010 Annual Report with the actual results for the three month period ended March 31, 2011.

(in thousands) |  | Projected results for 2011 |  |  | 25% of annual projection |  |  | Actual results for the first quarter of 2011 |
Net interest income |  | $ | 268,000 to $278,000 |  |  | $ | 67,000 - $69,500 |  |  | $ | 69,313 |
Provision for loan losses |  | $ | 47,000 to $57,000 |  |  | $ | 11,750 - $14,250 |  |  | $ | 13,500 |
Total other income |  | $ | 63,000 to $67,000 |  |  | $ | 15,750 - $16,750 |  |  | $ | 13,171 |
Total other expense |  | $ | 183,000 to $187,000 |  |  | $ | 45,750 - $46,750 |  |  | $ | 46,346 |

Park’s management believes that the guidance previously provided for net interest income, provision for loan losses and total other expense continues to be a good estimate for 2011. Management’s latest projection for total other income is a range of $60 million to $64 million for 2011. This adjustment in our guidance for total other income in 2011 is primarily due to the net $4.1 million charge during the first quarter of 2011 for devaluations and gains and losses on the sale of other real estate owned, which was an increase from management’s original projection.
Park’s management sold approximately $105 million of U. S. Government sponsored entity mortgage-backed securities during the first quarter of 2011 for a pre-tax gain of $6.6 million. These securities were sold at a price of approximately 106.2% of par with an estimated yield to the buyer of 2.10%. The book yield on these mortgage-backed securities was approximately 5.02%. Management reinvested the proceeds from the sale of the mortgage-backed securities during the month of March in 15 year U.S. Government sponsored entity mortgage-backed securities at a purchase yield of approximately 3.60%. Management does not currently forecast the sale of additional securities in 2011. However, the sale of additional securities for a gain in 2011 is possible. At March 31, 2011, Park owned approximately $267 million of U.S. Government sponsored entity mortgage-backed securities with a coupon interest rate of 5.00% or higher. This portion of the investment portfolio has a weighted average book yield of 5.33% and an unrealized gain of $21 million.
The following table provides a summary income statement for Vision Bank.

Vision Bank – Summary Statement of Operations |
|  | Three Months Ended March 31, |
(in thousands) |  | 2011 |  |  | 2010 |  |  | % Change |
Net interest income |  | $ | 6,755 |  |  | $ | 6,891 |  |  |  | -1.97 | %
Provision for loan losses |  |  | 8,000 |  |  |  | 11,300 |  |  |  | -29.20 | %
Other income |  |  | (3,177 | ) |  |  | 151 |  |  | N.M. |
Gain on sale of securities |  |  | — |  |  |  | — |  |  |  | — |
Other expense |  |  | 7,425 |  |  |  | 7,854 |  |  |  | -5.46 | %
Loss before taxes |  | $ | (11,847 | ) |  | $ | (12,112 | ) |  |  | 2.19 | %
Income tax credits |  |  | (4,183 | ) |  |  | (4,656 | ) |  |  | 10.16 | %
Net loss |  | $ | (7,664 | ) |  | $ | (7,456 | ) |  |  | -2.79 | %
N.M. – Not Meaningful |  |  |  |  |

The operating results for Vision Bank for the first quarter of 2011 were worse than management forecast. This negative variance was primarily due to the recognized losses from devaluations of other real estate owned of $4.3 million which resulted in a loss in total other income of $3.2 million for the three months ended March 31, 2011. Management expects that the devaluations of other real estate owned will not be as significant over the next three quarters at Vision Bank.
The following table provides a summary income statement for Park excluding Vision Bank.
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Park Excluding Vision Bank – Summary Income Statement |
|  | Three Months Ended March 31, |
(in thousands) |  | 2011 |  |  | 2010 |  |  | % Change |
Net interest income |  | $ | 62,558 |  |  | $ | 60,489 |  |  |  | 3.42 | %
Provision for loan losses |  |  | 5,500 |  |  |  | 5,250 |  |  |  | 4.76 | %
Other income |  |  | 16,348 |  |  |  | 16,559 |  |  |  | -1.27 | %
Gain on sale of securities |  |  | 6,635 |  |  |  | 8,304 |  |  |  | -20.10 | %
Other expense |  |  | 38,921 |  |  |  | 40,036 |  |  |  | -2.78 | %
Income before taxes |  | $ | 41,120 |  |  | $ | 40,066 |  |  |  | 2.63 | %
Income taxes |  |  | 12,078 |  |  |  | 11,831 |  |  |  | 2.09 | %
Net income |  | $ | 29,042 |  |  | $ | 28,235 |  |  |  | 2.86 | %

As previously mentioned, the operating results for Park’s Ohio-based banking divisions for the three month period ended March 31, 2011 were very solid and better than management’s forecast.
Net Interest Income Comparison for the First Quarter of 2011 and 2010
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. Net interest income increased by $1.9 million or 2.9% to $69.3 million for the first quarter of 2011 compared to $67.4 million for the first quarter of 2010.
The following table compares the average balance and tax equivalent yield on interest earning assets and the average balance and cost of interest bearing liabilities for the first quarter of 2011 with the same quarter in 2010.

Three months ended March 31, |
|  | 2011 |  |  | 2010 |
(in thousands) |  | Average balance |  |  | Tax equivalent % |  |  | Average balance |  |  | Tax equivalent % |
Loans (1) |  | $ | 4,743,075 |  |  |  | 5.63 | % |  | $ | 4,617,479 |  |  |  | 5.87 | %
Taxable investments |  |  | 1,939,873 |  |  |  | 3.98 | % |  |  | 1,766,642 |  |  |  | 4.70 | %
Tax exempt investments |  |  | 12,240 |  |  |  | 7.63 | % |  |  | 18,233 |  |  |  | 7.49 | %
Money market instruments |  |  | 26,948 |  |  |  | 0.10 | % |  |  | 125,795 |  |  |  | 0.22 | %
Interest earning assets |  | $ | 6,722,136 |  |  |  | 5.14 | % |  | $ | 6,528,149 |  |  |  | 5.45 | %
Interest bearing deposits |  | $ | 4,245,255 |  |  |  | 0.74 | % |  | $ | 4,367,017 |  |  |  | 1.15 | %
Short-term borrowings |  |  | 391,366 |  |  |  | 0.28 | % |  |  | 306,266 |  |  |  | 0.46 | %
Long-term debt |  |  | 847,800 |  |  |  | 3.52 | % |  |  | 729,618 |  |  |  | 3.92 | %
Interest bearing liabilities |  | $ | 5,484,421 |  |  |  | 1.14 | % |  | $ | 5,402,901 |  |  |  | 1.49 | %
Excess interest earning assets |  | $ | 1,237,715 |  |  |  |  |  |  | $ | 1,125,248 |  |  |  |  |
Net interest spread |  |  |  |  |  |  | 4.00 | % |  |  |  |  |  |  | 3.96 | %
Net interest margin |  |  |  |  |  |  | 4.21 | % |  |  |  |  |  |  | 4.22 | %

(1) For purposes of the computation, nonaccrual loans are included in the average balance.
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Average interest earning assets for the first quarter of 2011 increased by $194 million or 3.0% to $6,722 million compared to $6,528 million for the first quarter of 2010. The average yield on interest earning assets decreased by 31 basis points to 5.14% for the first quarter of 2011 compared to 5.45% for the first quarter of 2010.
Average interest bearing liabilities for the first quarter of 2011 increased by $81.5 million or 1.5% to $5,484 million compared to $5,403 million for the first quarter of 2010. The average cost of interest bearing liabilities decreased by 35 basis points to 1.14% for the first quarter of 2011 compared to 1.49% for the first quarter of 2010.
Interest Rates
Short-term interest rates continue to be extremely low. The average federal funds rate was 0.16% for the first quarter of 2011 and 0.13% for the first quarter of 2010.
In December 2008, the Federal Open Market Committee (“FOMC”) of the Federal Reserve lowered the targeted federal funds rate to a range of 0% to 0.25% in response to a severe recession in the U.S. economy. Economic conditions began to improve in the second half of 2009 and continued to improve throughout 2010. However, the U.S. unemployment rate continues to be relatively high at 8.8% at March 31, 2011.
Park’s management expects that the FOMC will continue to maintain the targeted federal funds interest rate in the range of 0% to 0.25% during 2011. The annual average federal funds rate was 0.16% for 2009 and 0.18% for 2010.
Discussion of Loans, Investments, Deposits and Borrowings
Average loan balances increased by $126 million or 2.7% to $4,743 million for the three months ended March 31, 2011, compared to $4,617 million for the first quarter of 2010. The average yield on the loan portfolio decreased by 24 basis points to 5.63% for the first quarter of 2011 compared to 5.87% for the first quarter of 2010.
Total loan balances outstanding at March 31, 2011 were $4,751 million compared to $4,733 million at December 31, 2010, an increase of $18 million or 0.4%. Park’s management continues to forecast modest loan growth in 2011 with a projected increase of 1% to 3% for the year.
The average balance of taxable investment securities increased by $173 million or 9.8% to $1,940 million for the first quarter of 2011 compared to $1,767 million for the first quarter of 2010. The average yield on taxable investment securities was 3.98% for the first quarter of 2011 compared to 4.70% for the first quarter of 2010.
The average balance of tax exempt investment securities decreased by $6 million or 32.9% to $12 million for the first quarter of 2011 compared to $18 million for the first quarter of 2010. The tax equivalent yield on tax exempt investment securities was 7.63% for the first quarter of 2011 and 7.49% for the first quarter of 2010. Park has not purchased any tax exempt investment securities for the past several quarters and does not plan to purchase tax exempt securities in 2011.
The average balance of money market instruments decreased by $99 million or 78.6% to $27 million for the first quarter of 2011 compared to $126 million for the first quarter of 2010. The average yield on money market instruments was 0.10% for the first quarter of 2011 compared to 0.22% for the first quarter of 2010. Park’s management plans on being fully invested in 2011 and as a result expects that the average balance of money market instruments for the last three quarters of 2011 will be similar to the average balance of money market instruments for the first quarter of 2011.
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The amortized cost of total investment securities was $2,032 million at March 31, 2011, compared to $2,017 million at December 31, 2010. Management expects to maintain the total investment portfolio at approximately $2,000 million during the last three quarters of 2011.
At March 31, 2011, the tax equivalent yield on Park’s investment portfolio was 3.86% and the remaining average life was 4.25 years.
Average interest bearing deposit accounts decreased by $122 million or 2.8% to $4,245 million for the first quarter of 2011 compared to $4,367 million for the first quarter of 2010. The average interest rate paid on interest bearing deposits decreased by 41 basis points to 0.74% for the first quarter of 2011 compared to 1.15% for the first quarter last year.
Average total borrowings were $1,239 million for the three months ended March 31, 2011, compared to $1,036 million for the first quarter of 2010, an increase of $203 million or 19.6%. The average interest rate paid on total borrowings was 2.50% for the first quarter of 2011 compared to 2.90% for the first quarter of 2010.
The net interest spread (the difference between the tax equivalent yield on interest earning assets and the cost of interest bearing liabilities) increased by 4 basis points to 4.00% for the first quarter of 2011 compared to 3.96% for the first quarter last year. The net interest margin (the annualized tax equivalent net interest income divided by average interest earning assets) was 4.21% for the first quarter of 2011 compared to 4.22% for the first quarter of 2010.
Guidance on Net Interest Income for 2011
Management provided guidance in Park’s 2010 Annual Report (page 38) that net interest income for 2011 would be approximately $268 million to $278 million, the tax equivalent net interest margin would be approximately 4.10% to 4.20% and the average interest earning assets for 2011 would be approximately $6,550 million.
The actual results for the first three months of 2011 were slightly above management’s guidance. Net interest income for the first three months of 2011 was $69.3 million, which annualized would be approximately $281 million for 2011. The tax equivalent net interest margin was 4.21% and average interest earning assets were $6,722 million for the first three months of 2011.
The following table displays for the past five quarters the average balance of interest earning assets, net interest income and the tax equivalent net interest margin.

(in thousands) |  | Average interest earning assets |  |  | Net interest income |  |  | Tax equivalent net interest margin |
March 2010 |  | $ | 6,528,149 |  |  | $ | 67,380 |  |  |  | 4.22 | %
June 2010 |  | $ | 6,468,094 |  |  | $ | 68,721 |  |  |  | 4.29 | %
September 2010 |  | $ | 6,484,941 |  |  | $ | 69,445 |  |  |  | 4.28 | %
December 2010 |  | $ | 6,447,046 |  |  | $ | 68,498 |  |  |  | 4.25 | %
March 2011 |  | $ | 6,722,136 |  |  | $ | 69,313 |  |  |  | 4.21 | %

Management’s current forecast projects that net interest income for 2011 will be near the top of the range of $268 million to $278 million. Management also expects that average interest earning assets will be approximately $6,750 million for the remaining three quarters of 2011 and that the tax equivalent net interest margin will be about 4.10% for the last nine months of 2011.
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Provision for Loan Losses
The provision for loan losses was $13.5 million for the three months ended March 31, 2011, compared to $16.6 million for the same period in 2010. Net loan charge-offs were $8.0 million for the first quarter of 2011, compared to $13.6 million for the first quarter of 2010. The annualized ratio of net loan charge-offs to average loans was 0.69% for the three months ended March 31, 2011, compared to 1.19% for the same period in 2010.
The loan loss provision for Vision Bank was $8.0 million for the three months ended March 31, 2011, compared to $11.3 million for the same quarter in 2010. Vision Bank had net loan charge-offs of $4.0 million, or an annualized 2.53% of average loans for the first quarter of 2011, compared to net loan charge-offs of $9.1 million, or 5.40% of average loans for the same period in 2010.
Park’s Ohio-based operations had a provision for loan losses of $5.5 million for the first quarter of 2011, compared to $5.3 million for the first quarter of 2010. Net loan charge-offs for Park’s Ohio-based operations were $4.0 million, or an annualized 0.40% of average loans for the first quarter of 2011, compared to $4.5 million, or an annualized 0.46% of average loans for the first quarter of 2010.
The following table provides additional information related to Park’s allowance for loan losses, including information related to specific reserves and general reserves, at March 31, 2011 and December 31, 2010.

Park National Corporation – Allowance for Loan & Lease Losses (ALLL) |
(in thousands) |  | March 31, 2011 |  |  | December 31, 2010 |
Total ALLL |  | $ | 126,859 |  |  | $ | 121,397 |
Specific reserves |  |  | 47,287 |  |  |  | 43,459 |
General reserves |  | $ | 79,572 |  |  | $ | 77,938 |
Total loans |  | $ | 4,750,975 |  |  | $ | 4,732,685 |
Impaired commercial loans |  |  | 238,959 |  |  |  | 250,933 |
Non-impaired loans |  | $ | 4,512,016 |  |  | $ | 4,481,752 |
Total ALLL to total loan ratio |  |  | 2.67 | % |  |  | 2.57 | %
General reserves as a % of non-impaired loans |  |  | 1.76 | % |  |  | 1.74 | %

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The following table compares Park National Corporation’s nonperforming assets at March 31, 2011, December 31, 2010 and March 31, 2010.

Park National Corporation - Nonperforming Assets |
(in thousands) |  | March 31, 2011 |  |  | December 31, 2010 |  |  | March 31, 2010 |
Nonaccrual loans |  | $ | 278,819 |  |  | $ | 289,268 |  |  | $ | 230,498 |
Renegotiated loans |  |  | 260 |  |  |  | - |  |  |  | 60 |
Loans past due 90 days or more |  |  | 2,228 |  |  |  | 3,590 |  |  |  | 11,853 |
Total nonperforming loans |  | $ | 281,307 |  |  | $ | 292,858 |  |  | $ | 242,411 |
Other Real Estate Owned – Park National Bank |  |  | 9,788 |  |  |  | 8,385 |  |  |  | 10,802 |
Other Real Estate Owned – S E Property Holdings |  |  | 13,004 |  |  |  | - |  |  |  | - |
Other Real Estate Owned – Vision Bank |  |  | 24,341 |  |  |  | 35,940 |  |  |  | 35,052 |
Total nonperforming assets |  | $ | 328,440 |  |  | $ | 337,183 |  |  | $ | 288,265 |
Percentage of nonperforming loans to total loans |  |  | 5.92 | % |  |  | 6.19 | % |  |  | 5.27 | %
Percentage of nonperforming assets to total loans |  |  | 6.91 | % |  |  | 7.12 | % |  |  | 6.27 | %
Percentage of nonperforming assets to total assets |  |  | 4.48 | % |  |  | 4.62 | % |  |  | 4.02 | %

During the first quarter of 2011, Park formed a limited liability company, organized under the laws of the state of Ohio, called SE Property Holdings, LLC (“SE Property Holdings”), as a direct subsidiary of Park. The purpose of SE Property Holdings is to purchase other real estate owned (“OREO”) from Vision Bank and continue to market such property for sale. As of March 31, 2011, approximately $13 million of OREO was held by SE Property Holdings, which had been purchased from Vision Bank (at the current fair market value) during the quarter. Management expects that the remaining OREO held by Vision Bank as of March 31, 2011, of $24.3 million, will be purchased by SE Property Holdings (at the then current fair market value) during the second quarter of 2011. Management plans to continue marketing the properties held by SE Property Holdings and sell such properties in an efficient manner.
Vision Bank’s nonperforming assets at March 31, 2011, December 31, 2010 and March 31, 2010, were as follows:

Vision Bank - Nonperforming Assets |
(in thousands) |  | March 31, 2011 |  |  | December 31, 2010 |  |  | March 31, 2010 |
Nonaccrual loans |  | $ | 163,343 |  |  | $ | 171,453 |  |  | $ | 145,012 |
Renegotiated loans |  |  | - |  |  |  | - |  |  |  | - |
Loans past due 90 days or more |  |  | - |  |  |  | 364 |  |  |  | 9,052 |
Total nonperforming loans |  | $ | 163,343 |  |  | $ | 171,817 |  |  | $ | 154,064 |
Other Real Estate Owned |  |  | 24,341 |  |  |  | 35,940 |  |  |  | 35,052 |
Total nonperforming assets |  | $ | 187,684 |  |  | $ | 207,757 |  |  | $ | 189,116 |
Percentage of nonperforming loans to total loans |  |  | 26.06 | % |  |  | 26.82 | % |  |  | 22.84 | %
Percentage of nonperforming assets to total loans |  |  | 29.95 | % |  |  | 32.43 | % |  |  | 28.04 | %
Percentage of nonperforming assets to total assets |  |  | 23.40 | % |  |  | 25.71 | % |  |  | 21.45 | %

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Nonperforming assets for Park, excluding Vision Bank at March 31, 2011, December 31, 2010 and March 31, 2010, are included in the following table:

Park, excluding Vision Bank - Nonperforming Assets |
(in thousands) |  | March 31, 2011 |  |  | December 31, 2010 |  |  | March 31, 2010 |
Nonaccrual loans |  | $ | 115,476 |  |  | $ | 117,815 |  |  | $ | 85,486 |
Renegotiated loans |  |  | 260 |  |  |  | - |  |  |  | 60 |
Loans past due 90 days or more |  |  | 2,228 |  |  |  | 3,226 |  |  |  | 2,801 |
Total nonperforming loans |  | $ | 117,964 |  |  | $ | 121,041 |  |  | $ | 88,347 |
Other Real Estate Owned – Park National Bank |  |  | 9,788 |  |  |  | 8,385 |  |  |  | 10,802 |
Other Real Estate Owned – SE Property Holdings |  |  | 13,004 |  |  |  | - |  |  |  | - |
Total nonperforming assets |  | $ | 140,756 |  |  | $ | 129,426 |  |  | $ | 99,149 |
Percentage of nonperforming loans to total loans |  |  | 2.86 | % |  |  | 2.96 | % |  |  | 2.25 | %
Percentage of nonperforming assets to total loans |  |  | 3.41 | % |  |  | 3.16 | % |  |  | 2.53 | %
Percentage of nonperforming assets to total assets |  |  | 2.15 | % |  |  | 1.99 | % |  |  | 1.58 | %

Park’s allowance for loan losses includes an allocation for loans specifically identified as impaired under U.S. GAAP. At March 31, 2011, loans considered to be impaired consisted substantially of commercial loans graded as “doubtful” and placed on nonaccrual status. As a result of significant losses within Vision Bank’s CL&D loan portfolio over the past three years, management continues to believe it is necessary to segregate this portion of the portfolio for both impaired credits, as well as those accruing CL&D loans at March 31, 2011. Cumulative charge-offs within Vision Bank’s impaired CL&D loan portfolio at March 31, 2011 was $30.5 million. Additionally, at March 31, 2011, management had established a specific reserve of $25.5 million related to those CL&D loans at Vision Bank that were deemed to be impaired. The aggregate of cumulative prior charge-offs on impaired Vision Bank CL&D loans, along with the specific reserves at March 31, 2011, totaled $56.0 million. The following table summarizes the CL&D loan portfolio at Vision Bank:

Vision Bank CL&D Loan Portfolio |
(in thousands) - end of each respective period |  | March 31, 2011 |  |  | Dec. 31, 2010 |  |  | Dec. 31, 2009 |  |  | Dec. 31, 2008 |
CL&D loans |  | $ | 161,140 |  |  | $ | 170,989 |  |  | $ | 218,263 |  |  | $ | 251,443 |
Performing CL&D loans |  |  | 79,080 |  |  |  | 84,498 |  |  |  | 132,380 |  |  |  | 191,712 |
Impaired CL&D loans |  | $ | 82,060 |  |  | $ | 86,491 |  |  | $ | 85,883 |  |  | $ | 59,731 |
Specific reserve on impaired CL&D loans |  |  | 25,543 |  |  |  | 23,585 |  |  |  | 21,802 |  |  |  | 3,134 |
Cumulative charge-offs on impaired CL&D loans |  |  | 30,538 |  |  |  | 28,652 |  |  |  | 24,931 |  |  |  | 18,839 |
Specific reserves plus cumulative charge-offs |  | $ | 56,081 |  |  | $ | 52,237 |  |  | $ | 46,733 |  |  | $ | 21,973 |
Specific reserves plus cumulative charge-offs as a percentage of impaired CL&D loans plus cumulative charge-offs |  |  | 49.8 | % |  |  | 45.4 | % |  |  | 42.2 | % |  |  | 28.0 | %

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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.
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. As previously discussed, management believes it is appropriate to segregate the Vision Bank CL&D loans from other commercial loans that are still accruing. The Vision CL&D loans that are still accruing at March 31, 2011 totaled $79.1 million compared to $84.5 million at December 31, 2010. Park’s loss experience, defined as charge-offs plus changes in specific reserves, on CL&D loans for the 36 months ended December 31, 2010 was an annual rate of 12.55%. Management has allocated an allowance for loan losses to the $79.1 million of accruing CL&D loans based on this historical loss experience, judgmentally increased to cover approximately 1.25 years of probable incurred losses, for a total reserve of $12.2 million or 15.4%. Further, we have allocated 15.4% to the $79.1 million of CL&D loans, regardless of the current loan grade, as this portion of the loan portfolio has experienced significant declines in collateral values, and thus if management determines that borrowers are unable to pay in accordance with the contractual terms of the loan agreement, significant specific reserves have typically been necessary. Park’s 36-month loss experience through the year ended December 31, 2010, defined as charge-offs plus changes in specific reserves, within the remaining commercial loan portfolio (excluding Vision Bank’s CL&D loans) was 1.14% of the principal balance of these loans. Park’s management believes it is appropriate to cover approximately 1.5 years worth of probable incurred losses within the other accruing commercial loan portfolio, thus the total reserve for loan losses is $43.8 million or 1.77% of the outstanding principal balance of other accruing commercial loans at March 31, 2011. The overall reserve of 1.77% for other accruing commercial loans breaks down as follows: pass-rated commercial loans are reserved at 1.06%; special mention commercial loans are reserved at 4.03%; and substandard commercial loans are reserved at 15.67%.
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 36 months ended December 31, 2010, judgmentally increased to cover approximately 1.5 years of probable incurred losses.
The judgmental increases discussed above incorporate management’s evaluation of the impact of environmental qualitative factors which pose additional risks and assign 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; and 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.
Management provided guidance in Park’s 2010 Annual Report (page 40) that the loan loss provision for 2011 would be approximately $47 million to $57 million. The actual results for the loan loss provision in the first three months of 2011 were consistent with management’s guidance, at $13.5 million. Park’s most recent projection continues to indicate that the loan loss provision for 2011 will be $47 to $57 million. However, if Park experiences a significant increase in nonperforming loans, there is a risk that management’s projected loan loss provision could be higher.
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Total Other Income
Total other income exclusive of securities gains decreased by $3.5 million or 21.2% to $13.2 million for the quarter ended March 31, 2011, compared to $16.7 million for the first quarter of 2010.
The following table is a summary of the changes in the components of total other income.

(in thousands) |  | Three months ended March 31, |
|  | 2011 |  |  | 2010 |  |  | Change |
Income from fiduciary activities |  | $ | 3,722 |  |  | $ | 3,422 |  |  | $ | 300 |
Service charges on deposits |  |  | 4,245 |  |  |  | 4,746 |  |  |  | (501 | )
Other service income |  |  | 2,301 |  |  |  | 2,982 |  |  |  | (681 | )
Checkcard fee income |  |  | 2,976 |  |  |  | 2,444 |  |  |  | 532 |
Bank owned life insurance income |  |  | 1,229 |  |  |  | 1,216 |  |  |  | 13 |
ATM fees |  |  | 654 |  |  |  | 765 |  |  |  | (111 | )
OREO devaluations |  |  | (4,394 | ) |  |  | (1,145 | ) |  |  | (3,249 | )
Other |  |  | 2,438 |  |  |  | 2,280 |  |  |  | 158 |
Total other income |  | $ | 13,171 |  |  | $ | 16,710 |  |  | $ | (3,539 | )

Income from fiduciary activities, which represents revenue earned from Park’s trust activities, increased by $300,000, or 8.8%, to $3.7 million for the three months ended March 31, 2011, compared to $3.4 million for the same period in 2010. Fiduciary fees are generally charged based on the market value of customer accounts. The market value for assets under management at March 31, 2011, has increased by approximately 10.5% compared to March 31, 2010.
Service charges on deposits decreased by $501,000, or 10.6%, to $4.2 million for the three month period ended March 31, 2011, compared to $4.7 million for the same period in 2010. This decrease was primarily attributable to a decline in non-sufficient funds (“NSF”) and overdraft charges during the first quarter of 2011.
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 $681,000, or 22.8%, to $2.3 million for the three months ended March 31, 2011, compared to $3.0 million for the same period in 2010. This decrease was due to a decline in the volume of fixed-rate residential mortgage loans that Park originated and sold into the secondary market in the first quarter of 2011 compared to the same period in 2010.
Checkcard fee income, which is generated from debit card transactions increased $532,000, or 21.8%, to $3.0 million for the three months ended March 31, 2011, compared to $2.4 million for the same period in 2010. This increase is attributable to continued increases in the volume of debit card transactions.
OREO devaluations increased by $3.2 million to $4.4 million for the three months ended March 31, 2011, compared to $1.1 million for the same period in 2010. The increase was largely due to devaluations of other real estate owned at Vision Bank of approximately $4.3 million through the first three months of 2011, compared to $1.0 million in devaluations for the same period in 2010. Management does not believe the devaluations for the first quarter of 2011 to be representative of the remaining three quarters of 2011, based on management’s decision to accelerate the appraisal dates for much of the OREO property at Vision Bank, in order to expedite the transfer of OREO to SE Property Holdings, LLC.
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The following table breaks out the change in total other income between Park’s Ohio-based operations and Vision Bank.

|  | Three months ended March 31, 2011 |
(In thousands) |  | Ohio-based operations |  |  | Vision Bank |  |  | Total |
Income from fiduciary activities |  | $ | 298 |  |  | $ | 2 |  |  | $ | 300 |
Service charges on deposits |  |  | (358 | ) |  |  | (143 | ) |  |  | (501 | )
Non-yield loan fee income |  |  | (690 | ) |  |  | 9 |  |  |  | (681 | )
Checkcard fee income |  |  | 330 |  |  |  | 202 |  |  |  | 532 |
Bank owned life insurance income |  |  | 18 |  |  |  | (5 | ) |  |  | 13 |
ATM fees |  |  | 14 |  |  |  | (125 | ) |  |  | (111 | )
OREO devaluations |  |  | 26 |  |  |  | (3,275 | ) |  |  | (3,249 | )
Other |  |  | 151 |  |  |  | 7 |  |  |  | 158 |
Total |  | $ | (211 | ) |  | $ | (3,328 | ) |  | $ | (3,539 | )

Management provided guidance in Park’s 2010 Annual Report (page 39) that total other income would be approximately $63 million to $67 million for 2011. Management’s most recent projection estimates that total other income, excluding gains from the sale of securities, will be between $60 million and $64 million. The reduction in the latest projection as compared to the projection in the 2010 Annual Report is primarily a result of larger devaluations in respect of other real estate owned.
Gain on Sale of Securities
For the three months ended March 31, 2011, Park sold approximately $105 million of U.S. Government sponsored entity mortgage-backed securities for a pre-tax gain of $6.6 million. For the three months ended March 31, 2010, Park sold $201 million of U.S. Government sponsored entity mortgage backed securities, which resulted in a pre-tax gain of $8.3 million. In addition, $75 million of U.S. Government sponsored entity callable securities were sold during the first quarter of 2010 at their book value.
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Total Other Expense
The following table is a summary of the changes in the components of total other expense.

|  | Three months ended March 31, |  |
(in thousands) |  | 2011 |  |  | 2010 |  |  | Change
Salaries and employee benefits |  | $ | 25,064 |  |  | $ | 25,171 |  |  | $ | (107 | )
Occupancy expense |  |  | 3,000 |  |  |  | 3,117 |  |  |  | (117 | )
Furniture and equipment expense |  |  | 2,657 |  |  |  | 2,632 |  |  |  | 25 |
Data processing fees |  |  | 1,253 |  |  |  | 1,593 |  |  |  | (340 | )
Professional fees and services |  |  | 4,874 |  |  |  | 4,856 |  |  |  | 18 |
Amortization of intangibles |  |  | 669 |  |  |  | 936 |  |  |  | (267 | )
Marketing |  |  | 623 |  |  |  | 902 |  |  |  | (279 | )
Insurance |  |  | 2,269 |  |  |  | 2,198 |  |  |  | 71 |
Communication |  |  | 1,556 |  |  |  | 1,769 |  |  |  | (213 | )
State taxes |  |  | 457 |  |  |  | 845 |  |  |  | (388 | )
Other |  |  | 3,924 |  |  |  | 3,871 |  |  |  | 53 |
Total other expense |  | $ | 46,346 |  |  | $ | 47,890 |  |  | $ | (1,544 | )

Other expenses have decreased by $1.5 million for the three months ended March 31, 2011 compared to the same period in 2010. This decrease was primarily due to declines in salaries and employee benefits ($107,000), occupancy expense ($117,000), data processing expenses ($340,000), marketing expense ($279,000) and communications expense ($213,000), which is the result of management’s continued efforts to reduce expenses and increase efficiency. Additionally, amortization of intangibles declined by $267,000, as certain intangibles related to Park’s Ohio acquisitions are now fully amortized.
The following table breaks out the change in total other expense between Park’s Ohio-based operations and Vision Bank.

|  | Three months ended March 31, 2011 |
(in thousands) |  | Ohio-based operations |  |  | Vision Bank |  |  | Total |
Salaries and employee benefits |  | $ | (75 | ) |  | $ | (32 | ) |  | $ | (107 | )
Occupancy expense |  |  | (89 | ) |  |  | (28 | ) |  |  | (117 | )
Furniture and equipment expense |  |  | 103 |  |  |  | (78 | ) |  |  | 25 |
Data processing fees |  |  | (216 | ) |  |  | (124 | ) |  |  | (340 | )
Professional fees and services |  |  | 166 |  |  |  | (148 | ) |  |  | 18 |
Amortization of intangibles |  |  | (268 | ) |  |  | 1 |  |  |  | (267 | )
Marketing |  |  | (263 | ) |  |  | (16 | ) |  |  | (279 | )
Insurance |  |  | 150 |  |  |  | (79 | ) |  |  | 71 |
Communication |  |  | (200 | ) |  |  | (13 | ) |  |  | (213 | )
State taxes |  |  | (390 | ) |  |  | 2 |  |  |  | (388 | )
Other |  |  | (33 | ) |  |  | 86 |  |  |  | 53 |
Total other expense |  | $ | (1,115 | ) |  | $ | (429 | ) |  | $ | (1,544 | )

Management provided guidance in Park’s 2010 Annual Report (page 39) that total other expense would be approximately $183 to $187 million for 2011. The amount of total other expense for the first three months of 2011 was consistent with management’s projection. Management’s latest projection for total other expense is unchanged from the guidance in Park’s 2010 Annual Report.
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Income Tax
For the three months ended March 31, 2011, federal income tax expense was $7.9 million and no state income tax benefit was recognized, compared to federal income tax expense of $7.8 million and a state income tax benefit of $0.6 million for the first quarter of 2010.
Vision Bank is subject to state income tax in Alabama and Florida. A state income tax benefit of $578,000 and a valuation allowance for the same amount were recorded during the first quarter of 2011. Management has determined that the likelihood of realizing the full deferred tax asset on state net operating loss carryforwards at Vision Bank fails to meet the “more likely than not” level. The net operating loss carryforward period for the states of Alabama and Florida are 8 years and 20 years, respectively. A merger of Vision Bank into Park National Bank would ensure the future utilization of the state net operating loss carry-forward at Vision Bank. However, management is not certain when a merger of Vision Bank into Park National Bank can take place and as a result has decided not to record the additional state tax benefit of losses at Vision Bank until management has a better understanding of the timing and likelihood of a merger of Vision Bank into Park National Bank. Park and its Ohio-based subsidiaries do not pay state income tax to the state of Ohio, but pay a 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 Condensed Statements of Income.
Federal income tax expense as a percentage of income before taxes was 27.0% for the first quarter of 2011, compared to 27.8% for the same period in 2010. The federal effective income tax rate is lower than the statutory rate of 35% 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.
Management provided guidance in Park’s 2010 Annual Report (page 40) that the federal effective income tax rate for 2011 will be approximately 26% to 28%. Management’s latest projection of the federal effective income tax is consistent with the guidance in the 2010 Annual Report.
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Comparison of Financial Condition
At March 31, 2011 and December 31, 2010
Changes in Financial Condition and Liquidity
Total assets increased by $40 million or 0.5% to $7,338 million at March 31, 2011, compared to $7,298 million at December 31, 2010. This increase in total assets was due to modest increases in total investment securities, loans, and other miscellaneous assets.
Total investment securities increased by $6 million to $2,046 million at March 31, 2011, compared to $2,040 million at December 31, 2010. Loan balances increased by $18 million to $4,751 million at March 31, 2011 compared to $4,733 million at December 31, 2010. The increase in loans during the first three months of 2011 was primarily related to an increase in 15-year, fixed-rate real estate mortgage loans (previously sold into the secondary market) during the quarter, offset by declines in installment loans. At March 31, 2011, there was $227 million of 15-year, fixed-rate mortgage loans compared to $176 million at December 31, 2010.
Total liabilities increased by $40 million during the first quarter of 2011 to $6,593 million at March 31, 2011 from $6,553 million at December 31, 2010. The increase in total liabilities was due to a large increase in total deposits, which was offset by a decline in total borrowings.
Total deposits increased by $220 million or 4.3% during the first quarter of 2011 to $5,315 million at March 31, 2011 from $5,095 million at December 31, 2010. The increase was primarily due to a $202 million increase in time deposits. Brokered CD’s increased approximately $60 million during the first quarter and the remaining increase was due to NOW and money market accounts increasing in the quarter due mostly to the seasonality of deposit gathering in our markets.
Short-term borrowings decreased by $347 million to $317 million at March 31, 2011 from $664 million at December 31, 2010. Conversely, long-term borrowings increased by $150 million to $787 million at March 31, 2011 compared to $637 million at December 31, 2010. The net decrease in borrowings of $197 million was a direct result of the increase in deposits during the quarter.
Other liabilities increased by $19 million to $94 million at March 31, 2011 from $75 million at December 31, 2010. This increase in other liabilities was primarily due to a payable at March 31, 2011 for the purchase of $25 million of investment securities that settled in the month of April.
Total stockholders’ equity decreased by $600,000 to $745.2 million at March 31, 2011, from $745.8 million at December 31, 2010. Retained earnings increased by $5.4 million during the period as a result of: net income of $21.4 million; offset by common stock dividends of $14.5 million, and accretion and dividends on the preferred stock of $1.5 million. Preferred stock increased by $200,000 during the first three months of 2011 as a result of the accretion of the discount on preferred stock. Accumulated other comprehensive income/(loss) decreased by $6.2 million during the first quarter of 2011 to a balance of $(8.1) million at March 31, 2011. The unrealized holding gains in the investment portfolio decreased by $6.4 million, net of taxes, as a result of the mark-to-market at March 31, 2011 and Park also recognized a $133,000 decrease in the unrealized holding loss on the cash flow hedge.
Increases or decreases in the investment securities portfolio, short-term borrowings and long-term debt are greatly dependent upon the growth in loans and deposits. The primary objective of management is to grow loan and deposit totals. To the extent that management is unable to grow loan totals at a desired growth rate, additional investment securities may be acquired. Likewise, both short-term borrowings and long-term debt are utilized to fund the growth in earning assets if the growth in deposits and cash flow from operations are not sufficient to do so.
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Effective liquidity management ensures that the cash flow requirements of depositors and borrowers, as well as the operating cash needs of the Corporation, are met. 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 Corporation’s loan to asset ratio was 64.7% at March 31, 2011, compared to 64.8% at December 31, 2010 and 64.1% at March 31, 2010. Cash and cash equivalents were $134.2 million at March 31, 2011, compared to $133.8 million at December 31, 2010 and $250.1 million at March 31, 2010. Management believes that the present funding sources provide more than adequate liquidity for the Corporation to meet its cash flow needs.
On a monthly basis, Park’s Treasury Department forecasts the financial statements for the next twelve months. The projected liquidity position for the Corporation is reviewed each month to ensure that adequate liquidity is maintained. Management targets that the Corporation would have a minimum of $800 million of funds available to handle liquidity needs on a daily basis. This $800 million liquidity “war chest” consists of currently available additional borrowing capacity from the Federal Home Loan Bank, federal funds sold and unpledged U.S. Government Agency securities.
Capital Resources
Total stockholders’ equity at March 31, 2011 was $745 million, or 10.2% of total assets, compared to $746 million, or 10.2% of total assets, at December 31, 2010 and $721 million, or 10.0% of total assets, at March 31, 2010. Common equity, which is stockholders’ equity excluding the preferred stock, was $648 million at March 31, 2011, or 8.8% of total assets, compared to $649 million, or 8.9% of total assets, at December 31, 2010.
Financial institution regulators have established guidelines for minimum capital ratios for banks, thrifts and bank holding companies. The net unrealized gain or loss on available-for-sale securities is generally 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 9.50% at March 31, 2011 and 9.77% at December 31, 2010. 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 13.60% at March 31, 2011 and 13.52% at December 31, 2010. 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 16.07% at March 31, 2011 and 15.98% at December 31, 2010.
The financial institution subsidiaries of Park each met the well capitalized ratio guidelines at March 31, 2011. The following table indicates the capital ratios for each financial institution subsidiary and Park at March 31, 2011.

|  | Leverage |  |  | Tier 1 Risk Based |  |  | Total Risk-Based |
The Park National Bank |  |  | 6.45 | % |  |  | 9.44 | % |  |  | 11.38 | %
Vision Bank |  |  | 14.42 | % |  |  | 19.44 | % |  |  | 20.78 | %
Park National Corporation |  |  | 9.50 | % |  |  | 13.60 | % |  |  | 16.07 | %
Minimum capital ratio |  |  | 4.00 | % |  |  | 4.00 | % |  |  | 8.00 | %
Well capitalized ratio |  |  | 5.00 | % |  |  | 6.00 | % |  |  | 10.00 | %

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Contractual Obligations and Commitments
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. See page 44 of Park’s 2010 Annual Report (Table 24) for disclosure concerning contractual obligations and commitments at December 31, 2010. There were no significant changes in contractual obligations and commitments during the first three months of 2011.
Financial Instruments with Off-Balance Sheet Risk
Park’s subsidiary banks are parties to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of their respective customers. These financial instruments include loan commitments and standby letters of credit. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated financial statements.
The exposure to credit loss (for the subsidiary banks of Park) in the event of nonperformance by the other party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amount of those instruments. Park and each of its subsidiary banks use the same credit policies in making commitments and conditional obligations as they do for on-balance sheet instruments. Since many of the loan commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan commitments to customers.
The total amounts of off-balance sheet financial instruments with credit risk were as follows:

(in thousands) |  | March 31, 2011 |  |  | December 31, 2010 |
Loan commitments |  | $ | 746,623 |  |  | $ | 716,598 |
Standby letters of credit |  | $ | 22,840 |  |  | $ | 24,462 |

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management reviews interest rate sensitivity on a bi-monthly basis by modeling the consolidated financial statements under various interest rate scenarios. The primary reason for these efforts is to guard Park from adverse impacts of unforeseen changes in interest rates. Management continues to believe that further changes in interest rates will have a small impact on net income, consistent with the disclosure on pages 43 and 44 of Park’s 2010 Annual Report.
On page 43 (Table 23) of Park’s 2010 Annual Report, management reported that Park’s twelve month cumulative rate sensitivity gap was a positive (assets exceeding liabilities) $647.8 million or 9.53% of interest earning assets at December 31, 2010. At March 31, 2011, Park’s twelve month cumulative rate sensitivity gap was a positive (assets exceeding liabilities) $499.6 million or 7.34% of interest earning assets.
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. 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.
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On page 44 of Park’s 2010 Annual Report, management reported that 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. At March 31, 2011, the earnings simulation model projected that net income would decrease by 0.5% using a rising interest rate scenario and would not change in a declining interest rate scenario. At March 31, 2011, management continues to believe that gradual changes in interest rates (50 basis points per quarter for a total of 200 basis points per year) will have a small impact on net income.
ITEM 4 – CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
With the participation of the Chairman of the Board and Chief Executive Officer (the principal executive officer) and the Chief Financial Officer (the principal financial officer) of Park, Park’s management has evaluated the effectiveness of Park’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the quarterly period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, Park’s Chairman of the Board and Chief Executive Officer and Park’s Chief Financial Officer have concluded that:

· | information required to be disclosed by Park in this Quarterly Report on Form 10-Q and other reports that Park files or submits under the Exchange Act would be accumulated and communicated to Park’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure;

· | information required to be disclosed by Park in this Quarterly Report on Form 10-Q and the other reports that Park files or submits under the Exchange Act would be recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and

· | Park’s disclosure controls and procedures were effective as of the end of the quarterly period covered by this Quarterly Report on Form 10-Q.

Changes in Internal Control Over Financial Reporting
There were no changes in Park’s internal control over financial reporting (as defined in Rule 13a – 15(f) under the Exchange Act) that occurred during Park’s fiscal quarter ended March 31, 2011, that have materially affected, or are reasonably likely to materially affect, Park’s internal control over financial reporting.
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PARK NATIONAL CORPORATION
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
There are no pending legal proceedings to which Park or any of its subsidiaries is a party or to which any of their property is subject, except for routine legal proceedings to which Park’s subsidiary banks are parties incidental to their respective banking businesses. Park considers none of those proceedings to be material.
Item 1A. Risk Factors
There are certain risks and uncertainties in our business that could cause our actual results to differ materially from those anticipated. In “ITEM 1A. RISK FACTORS” of Part I of Park’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (the “2010 Form 10-K”), we included a detailed discussion of our risk factors. The following information updates certain of our risk factors and should be read in conjunction with the risk factors disclosed in the 2010 Form 10-K. These risk factors should be read carefully in connection with evaluating our business and in connection with the forward-looking statements contained in this Quarterly Report on Form 10-Q. Any of the risks described below or in the 2010 Form 10-K could materially adversely affect our business, financial condition or future results and the actual outcome of matters as to which forward-looking statements are made. These are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Changes in economic and political conditions could adversely affect our earnings, as our borrowers’ ability to repay loans and the value of the collateral securing our loans decline.
Our success depends, to a certain extent, upon economic and political conditions, local and national, as well as governmental fiscal and monetary policies. Conditions such as inflation, recession, unemployment, changes in interest rates, money supply and other factors beyond our control may adversely affect our asset quality, deposit levels and loan demand and, therefore, our earnings and our capital. Because we have a significant amount of real estate loans, additional decreases in real estate values could adversely affect the value of property used as collateral and our ability to sell the collateral upon foreclosure. Adverse changes in the economy may also have a negative effect on the ability of our borrowers to make timely repayments of their loans, which would have an adverse impact on our earnings and cash flows. The substantial majority of the loans made by our subsidiaries are to individuals and businesses in Ohio or in Gulf Coast communities in Alabama and the Florida panhandle. Consequently, a significant decline in the economy in Ohio or in Gulf Coast communities in Alabama or the panhandle of Florida could have a materially adverse effect on our financial condition and results of operations.
As disclosed earlier within this Form 10-Q, we continue to experience difficult credit conditions in the Alabama and Florida markets in which we operate. For the three month period ended March 31 2011, Vision Bank has experienced $4.0 million in net loan charge-offs, or an annualized 2.53% of average loans. For the first three months of 2010, net loan charge-offs for Vision Bank were $9.1 million, or an annualized 5.40% of average loans. The loan loss provision for Vision Bank was $8.0 million for the three months ended March 31, 2011. Park’s nonperforming loans, defined as loans that are 90 days past due, nonaccrual and renegotiated loans, were $281.3 million or 5.92% of total loans at March 31, 2011, $292.9 million or 6.19% of loans at December 31, 2010 and $242.4 million or 5.27% of total loans at March 31, 2010. At March 31, 2011, Vision Bank had non-performing loans of $163.3 million or 26.06% of total loans, compared to $171.8 million or 26.82% of total loans at December 31, 2010 and $154.1 million or 22.84% of total loans at March 31, 2010. While we continue to generate net earnings on a consolidated basis, Vision Bank continues to generate net losses and may generate net losses in the future. For the three months ended March 31, 2011, Vision Bank had a net loss of $7.7 million and Park contributed capital of $9.0 million to Vision Bank. Given the current economic environment in Vision Bank’s market, Park’s management has agreed to maintain the leverage ratio at Vision Bank at 12% and to maintain the total risk-based capital ratio at Vision Bank at 16%. It remains uncertain when the negative credit trends at Vision Bank will reverse. As a result, Park’s future earnings continue to be susceptible to further declining credit conditions in the markets in which we operate.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

| (a.) | Not applicable

| (b.) | Not applicable

| (c.) | No purchases of Park’s common shares were made by or on behalf of Park or any “affiliated purchaser” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended, during the three months ended March 31, 2011. The following table provides information concerning changes in the maximum number of common shares that may be purchased under Park’s previously announced repurchase programs as a result of the forfeiture of previously outstanding incentive stock options:

Period |  | Total number of common shares purchased |  |  | Average price paid per common share |  |  | Total number of common shares purchased as part of publicly announced plans or programs |  |  | Maximum number of common shares that may yet be purchased under the plans or programs (1) |
January 1 through January 31, 2011 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,047,232 |
February 1 through February 28, 2011 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,047,232 |
March 1 through March 31, 2011 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,047,231 |
Total |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,047,231 |

| (1) | The number shown represents, as of the end of each period, the maximum number of common shares that may yet be purchased as part of Park’s publicly announced stock repurchase authorization to fund the Park National Corporation 2005 Incentive Stock Option Plan.

The Park National Corporation 2005 Incentive Stock Option Plan (the “2005 Plan”) was adopted by the Board of Directors of Park on January 18, 2005 and was approved by the Park shareholders at the Annual Meeting of Shareholders on April 18, 2005. Under the 2005 Plan, 1,500,000 common shares are authorized for delivery upon the exercise of incentive stock options granted under the 2005 Plan. All of the common shares delivered upon the exercise of incentive stock options granted under the 2005 Plan are to be treasury shares. As of March 31, 2011, incentive stock options covering 75,895 common shares were outstanding and 1,424,105 common shares were available for future grants.
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With 452,769 common shares held as treasury shares for purposes of the 2005 Plan at March 31, 2011, an additional 1,047,231 common shares remained authorized for repurchase for purposes of funding the 2005 Plan.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. [Reserved]
Item 5. Other Information
(a), (b) Not applicable.
Item 6. Exhibits

3.1(a) |  | Articles of Incorporation of Park National Corporation as filed with the Ohio Secretary of State on March 24, 1992 (Incorporated herein by reference to Exhibit 3(a) to Park National Corporation’s Form 8-B, filed on May 20, 1992 (File No. 0-18772) (“Park’s Form 8-B”))
3.1(b) |  | Certificate of Amendment to the Articles of Incorporation of Park National Corporation as filed with the Ohio Secretary of State on May 6, 1993 (Incorporated herein by reference to Exhibit 3(b) to Park National Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (File No. 0-18772))
3.1(c) |  | Certificate of Amendment to the Articles of Incorporation of Park National Corporation as filed with the Ohio Secretary of State on April 16, 1996 (Incorporated herein by reference to Exhibit 3(a) to Park National Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1996 (File No. 1-13006))
3.1(d) |  | Certificate of Amendment by Shareholders to the Articles of Incorporation of Park National Corporation as filed with the Ohio Secretary of State on April 22, 1997 (Incorporated herein by reference to Exhibit 3(a)(1) to Park National Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997 (File No. 1-13006) (“Park’s June 30, 1997 Form 10-Q”))
3.1(e) |  | Certificate of Amendment by Shareholders or Members as filed with the Secretary of State of the State of Ohio on December 18, 2008 in order to evidence the adoption by the shareholders of Park National Corporation on December 18, 2008 of an amendment to Article FOURTH of Park National Corporation’s Articles of Incorporation to authorize Park National Corporation to issue up to 200,000 preferred shares, without par value (Incorporated herein by reference to Exhibit 3.1 to Park National Corporation’s Current Report on Form 8-K dated and filed December 19, 2008 (File No. 1-13006))

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3.1(f) |  | Certificate of Amendment by Directors or Incorporators to Articles as filed with the Secretary of State of the State of Ohio on December 19, 2008, evidencing adoption of amendment by Board of Directors of Park National Corporation to Article FOURTH of Articles of Incorporation to establish express terms of Fixed Rate Cumulative Perpetual Preferred Shares, Series A, each without par value, of Park National Corporation (Incorporated herein by reference to Exhibit 3.1 to Park National Corporation’s Current Report on Form 8-K dated and filed December 23, 2008 (File No. 1-13006))
3.1(g) |  | Certificate of Amendment by Shareholders or Members filed with the Secretary of State of the State of Ohio on April 18, 2011 in order to evidence the adoption by Park National Corporation’s shareholders of an amendment to Article SIXTH of Park National Corporation’s Articles of Incorporation in order to provide that shareholders do not have preemptive rights (Incorporated herein by reference to Exhibit 3.1 to Park National Corporation’s Current Report on Form 8-K dated and filed April 19, 2011 (File No. 1-13006))
3.1(h) |  | Articles of Incorporation of Park National Corporation (reflecting amendments through April 18, 2011) [for SEC reporting compliance purposes only – not filed with Ohio Secretary of State] (filed herewith)
3.2(a) |  | Regulations of Park National Corporation (Incorporated herein by reference to Exhibit 3(b) to Park’s Form 8-B)
3.2(b) |  | Certified Resolution regarding Adoption of Amendment to Subsection 2.02(A) of the Regulations of Park National Corporation by Shareholders on April 21, 1997 (Incorporated herein by reference to Exhibit 3(b)(1) to Park’s June 30, 1997 Form 10-Q)
3.2(c) |  | Certificate Regarding Adoption of Amendments to Sections 1.04 and 1.11 of Park National Corporation’s Regulations by the Shareholders on April 17, 2006 (Incorporated herein by reference to Exhibit 3.1 to Park National Corporation’s Current Report on Form 8-K dated and filed on April 18, 2006 (File No. 1-13006))
3.2(d) |  | Certificate Regarding Adoption by the Shareholders of Park National Corporation on April 21, 2008 of Amendment to Regulations to Add New Section 5.10 to Article Five (Incorporated herein by reference to Exhibit 3.2(d) to Park National Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008 (File No. 1-13006) (“Park’s March 31, 2008 Form 10-Q”))
3.2(e) |  | Regulations of Park National Corporation (reflecting amendments through April 21, 2008) [For purposes of SEC reporting compliance only] (Incorporated herein by reference to Exhibit 3.2(e) to Park’s March 31, 2008 Form 10-Q)
12 |  | Computation of Ratios of Earnings to Fixed Charges and of Earnings to Fixed Charges and Preferred Share Dividends (filed herewith)
31.1 |  | Rule 13a – 14(a) / 15d – 14(a) Certifications (Principal Executive Officer) (filed herewith)
31.2 |  | Rule 13a – 14(a) / 15d – 14(a) Certifications (Principal Financial Officer) (filed herewith)
32.1 |  | Section 1350 Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (Principal Executive Officer) (furnished herewith)

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32.2 |  | Section 1350 Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (Principal Financial Officer) (furnished herewith)
101 |  | The following materials from Park National Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011, formatted in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Condensed Balance Sheets as of March 31, 2011 (unaudited) and December 31, 2010; (ii) the Consolidated Condensed Statements of Income for the three months ended March 31, 2011 and 2010 (unaudited); (iii) the Consolidated Condensed Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2011 and 2010 (unaudited); (iv) the Consolidated Condensed Statements of Cash Flows for the three months ended March 31, 2011 and 2010 (unaudited); and (v) the Notes to Unaudited Consolidated Condensed Financial Statements tagged as blocks of text (furnished herewith)* * Pursuant to Rule 406T of SEC Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are furnished and not deemed filed or part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those Sections.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

| PARK NATIONAL CORPORATION
DATE: May 4, 2011 | /s/ C. Daniel DeLawder
| C. Daniel DeLawder
| Chairman of the Board and Chief Executive Officer

DATE: May 4, 2011 | /s/ John W. Kozak
| John W. Kozak
| Chief Financial Officer

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