Park National Corp. Annual Report 2011

FY2011 Annual Report · Park National Corp.

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T A B L E O F C O N T E N T S

To Our Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Stockholders’ Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Park National Corporation Directors & Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Directors:

Century National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Fairfield National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Farmers and Savings Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

First-Knox National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

The Park National Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Park National Bank of Southwest Ohio & Northern Kentucky Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Richland Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Second National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Security National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

United Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Unity National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Vision Bank – Alabama Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Vision Bank – Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Officers of Corporation & Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Financial Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Management’s Report on Internal Control Over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Financial Statements:

Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Consolidated Statements of Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Consolidated Statements of Changes in Stockholders’ Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

T O O U R S T O C K H O L D E R S

Most readers of this letter have seen our world become increasingly
complex and unpredictable over the past four years. While it may be
illuminating to put into context all that has transpired since March,
2007 when Vision Bank (Vision) joined Park, we wish to simplify
our approach this year. Revisiting details about great recessions,
real estate devaluations, oil spills, etc. is tempting but it is tedious
and wears on our nerves. We are looking through the windshield,
not at the rearview mirror, and we invite you to join us. To that end,
we offer this table summarizing net income for the previous three
years:

Park National Bank (PNB)
Guardian Financial Services
Vision Bank
Parent Company/Other

2011

$106,851
2,721
(22,526)
(4,906)

Park National Corporation (PRK) $ 82,140
23,634
Security Gains – PNB
5,195
Security Gains – Vision Bank
PRK net income excluding gains
63,401
104,666
PRK without Vision

2010

$102,948
2,006
(45,414)
(1,439)

$ 58,101
11,864
—
50,389
103,515

2009

$101,458
1,752
(30,110)
1,092

$ 74,192
7,340
—
69,421
104,302

What you see on the table is our history. Our future will be the
rows titled PNB, Guardian and Parent Company/Other, summarized
in the row “PRK without Vision”. You see that in the past three years,
these entities together have produced an average $104.2 million in
net income. Subtracting the after-tax impact of security gains still
yields an average net income of $94.9 million per year.

In short, if one wants to know how we may fare in the future
(we certainly do, and suspect you might as well), look to PNB
and Guardian Financial Services Company (GFSC). They have hit
the proverbial cover off the ball ...and we have every reason to
expect they will continue this excellent performance.

We cannot overemphasize the success of our 11 banking affiliates
of PNB and GFSC. Their sustained performance is the reason we
have been able to maintain our dividend during challenging times.
We are in the distinct minority of bank holding companies able
to remain profitable and sustain our dividend at historic levels.
The Ohio-based affiliates are not and never were broken; in fact,
they continue to perform at remarkable levels compared to
virtually any measure.

On March 9, 2007, we completed the purchase of the Alabama
and Florida operations of Vision. On November 16, 2011 we
announced the sale of substantially all of the performing assets
of Vision to Home Bancshares, Inc. and their affiliate, Centennial
Bank. The sale was concluded on February 16, 2012. There are
ample public filings of events surrounding our ownership of
Vision if a reader is interested in learning more of the history
of that chapter of our company.

As stated earlier, we prefer to look forward.

We thank four Park commercial lenders stationed in Alabama and
Florida: Brett Baumeister and Frank Wagner in Alabama and Scott
Robertson and Bryan Campolo in Florida. Steve Klein, from Park’s
accounting department in Newark, also worked nearly full time at
Vision over most of 2011. Their presence in Alabama and Florida
saved us countless dollars and headaches. We intend to return all
five back to Ohio this year as soon as practical.

We also thank Brady Burt, Park’s Chief Accounting Officer, for
leading our efforts over the 90-day period that culminated in the
Vision sale. Brady did a terrific job working through a myriad of
details to allow the sale to occur on a very timely basis.

2010 and 2011 results
The restatement of net income for 2010 and the first three quarters
of 2011 was, from our perspective, a timing difference. The net
income for 2010 and each of the first three quarters of 2011
changed due to the restatement, but the cumulative net income
for the two years was unchanged.

The result of the restatement was a reduction to 2010 net income of
$16.1 million, or $1.06 per diluted common share, all affecting the
fourth quarter of 2010. The reduction of 2010 net income is fully
offset by an identical increase to net income during 2011.

We previously announced net income for the year ended December
31, 2010 of $74.2 million, or $4.51 per diluted common share.
The restated net income for 2010 was $58.1 million.

Park’s net income was $82.1 million for the year ended December
31, 2011, including the $16.1 million added to 2011 as a result of
the restatement. Net income per diluted common share for 2011
was $4.95, compared to $3.45 per diluted common share for the
restated year 2010.

Troubled Asset Relief Program (TARP)
We plan to repay the funds received under TARP as soon as
practical in 2012. The sooner, the better. We know shareholders
agree.

Service quality and measuring results
We have a relentless focus on delivering superior customer service
to meet current customer needs and attract new customers.

Last year, we implemented an organization-wide program
we labeled “Service Excellence”. Service Excellence is our
way of helping each of our associates understand better service
techniques, attitudes, behaviors and the value of providing
superior customer service.

T O O U R S T O C K H O L D E R S

We developed and now embrace 15 service standards. Every
day, our associates convene for an exercise, called “Service 360”,
to discuss one of the standards. For 6 minutes each morning we
discuss the identical standard company-wide. Each associate in
every office and in every department participates in the same
6-minute session to help us improve how we serve our customers,
our communities and each other.

Last year we completed our Disaster Recovery Site and upgraded
our Newark data center. We began a complete overhaul to our
Automated Teller Machine fleet, replacing or upgrading 143 ATMs
throughout our network. And we conducted a comprehensive
review of our core technology system to determine the most
appropriate platform to serve our customer and associate needs
in the future.

Service Excellence is working. For a number of years we’ve asked
a simple survey question ...“Would you recommend this company
to a friend or colleague?” We measure the results following the
formula developed by Fred Reichheld in his book The Ultimate
Question. Answers to the simple question produce a metric
known as the “Net Promoter Score”.

All affiliates used this survey method last year. We are pleased with
the results. Each affiliate improved its Net Promoter Scores during
2011. Moreover, their scores compare very favorably with the best
companies identified by Mr. Reichheld.

We choose to grow our Ohio-based affiliates the old fashioned
way...by hard work and quality service that cultivates customer
loyalty. Even in stagnant markets, we gain quality relationships
from our competition.

Guardian Finance
Previously we mentioned Guardian Financial Services Company.
Begun with a single office in 1999 and an initial capital investment
of $300,000, GFSC has grown to include 6 offices and over $47
million in loans. GFSC generated $2.7 million of net income in
2011, an incredible return on our investment.

We attribute the extraordinary results to understanding this
specialty finance niche but more importantly, to the leadership
and associates of GFSC.

Earl Osborne, Chairman and CEO of GFSC, joined Park in 1999,
not long after he and his family sold the former Modern Finance
Company. Earl impressed us early on with his knowledge, integrity
and moral compass. He has fit into the Park organization over
the past 13 years as if he had been here forever. He brought Matt
Marsh, the president of GFSC, into Guardian at an early stage and
both of them have done terrific work building a team of associates
who extend unique financial services to sectors within our
economy not typically served by the banking industry. We are
grateful for their consistent and outstanding performance.

Technology
Our long-term success requires a sustained and thoughtful
investment in technology.

Our technology agenda in 2012 includes:

(cid:129) Undertake electronic delivery enhancements that benefit

our customers

(cid:129) Implement enhancements to our core operating system
(cid:129) Upgrade the data network connecting our 135 offices in

Ohio and northern Kentucky

(cid:129) Complete the ATM replacements and upgrades

We are especially pleased to have a full suite of technology
options available for our customers who prefer to use electronic
methods to conduct banking rather than rely exclusively on our
conventional office facilities.

2010 and 2011 marked significant milestones as we dramatically
increased our investment in technology to better prepare us for
the future. We continue to reap the benefits of size and scale which,
coupled with better technology at more affordable pricing, allows
us to compete effectively with the largest financial institutions.

Leadership changes
We have more leadership changes to report than has been typical
over the years.

Jim Cullers, a director of our affiliate First-Knox National Bank in
Mt. Vernon, concluded it is time to step down as a director of Park.
Jim served as a holding company board member since 1997 when
First-Knox joined our family of community banks.

Bill Phillips, with nearly five decades of service with our Century
National Bank affiliate headquartered in Zanesville, Ohio, stepped
down as Chairman of the Century Board, retaining the title as
Chairman of Century’s Executive Committee. Bill served as director
of Park since Century joined us in 1990. He concluded, very
recently, like Jim Cullers, that it is time to step down as a Park
director.

We will miss Jim and Bill’s counsel and support. They are icons
in their respective communities and have added immeasurable
value to Park during their time on our board. We wish them the
very best.

T O O U R S T O C K H O L D E R S

Another retirement we want to recognize affected our small corner
of the Park world. Brenda Kutan, Assistant Vice President of PNB,
stepped down in December after more than 44 years of service to
PNB. She first joined PNB in our Hebron office and filled a number
of roles prior to being recruited by Bill McConnell to become his
assistant some 35 years ago. When Bill handed over the reins to
Dan in 1999, Brenda watched closely to be sure Dan kept the
bank out of trouble. She did what she could!

Brenda was the epitome of an executive assistant. She did a
superb job helping both of us, in ways too countless to list. She
also served as the secretary to the boards of directors for both PNB
and Park National Corporation. Each time we’ve seen Brenda since
retirement, she is smiling! We add this is the first year in a few
decades Brenda has not proofread this letter prior to publication.
We miss her, but enjoy working with Brenda’s successors in
executive administration, Leda Rutledge and Renae Buchanan.
Thanks for the decades of service and great memories, Brenda!

Conclusion
For those who have had the patience to read this, we are grateful.
We are thankful for the support we received from shareholders
and customers alike as we have tried to work through some
difficult and unprecedented challenges during the past few years.
We remain highly optimistic about the future. We will succeed
because we have focused associates delivering the best financial
services to be found, anywhere.

We invite your input, value your loyalty, and are eager to serve
prospects that you direct our way. We promise, as always, to do
all we can to make you proud of your ownership of Park.

C. Daniel DeLawder
Chairman

David L. Trautman
President

Tom Lyall assumed Bill’s former position as Chairman of the
Century board and Tom continues as Chief Executive Officer (CEO)
of Century. Pat Nash was named the new President of Century. We
appreciate Bill and Tom’s effective leadership of Century over the
past several decades, and welcome Pat to the top leadership rank.

Gordy Yance, formerly the Chairman, President and CEO of affiliate
First-Knox National Bank, retired in mid-2011. Gordy continues
as Chairman of the First-Knox board, in a non-executive role, and
Vickie Sant was named Gordy’s successor as the President and CEO
of First-Knox. We congratulate Gordy on a long and distinguished
career, and welcome Vickie into her new leadership role.

We note with sadness the passing of Bill Stroud, former CEO of
First-Knox. Bill was an outstanding community banker and a friend
to all who knew him. He took great pride in the development of
both Gordy and Vickie.

Jim Lingenfelter completed 2011 as President and CEO of our
affiliate in Ashland County, Farmers & Savings Bank. Ken Gosche
was named the President and CEO effective January 1, 2012. We
congratulate Ken formally, and wish Jim and his wife Elise the
very best. Jim has our heartfelt appreciation for his leadership
and dedication to the Loudonville community over many years.

We physically moved two presidents in 2011 to similar positions
within our Ohio affiliate system.

Dave Gooch moved from the President of our Richland Bank in
Mansfield to assume the identical role with Park National Bank of
Southwest Ohio and Northern Kentucky (PSW), headquartered in
Milford, Ohio. He made an immediate impact with his leadership
at PSW and we look forward to growth and success under Dave’s
direction.

Dave was replaced in Mansfield by John Brown, formerly the
President of our Unity National Division in Piqua, Ohio. John
enjoyed a very successful tenure as the president of Unity. Richland
Bank is another excellent example of local community banking at
its best, and we are confident that John will effectively lead the
continued success at Richland.

As this is written, we’re seeking a leader for Unity National Bank.
We are fortunate that Jeff Darding, Executive Vice President of
Security Bank & Trust Company in Springfield, Ohio stepped up
to assume interim leadership of Unity until we name a permanent
replacement.

These several changes are unusual for Park. We believe the key
to our long-term success is attracting and retaining the best and
brightest we can find. We are delighted with the leadership in place
at our affiliate banks, and continue to be impressed by and grateful
for their untiring efforts.

F I N A N C I A L H I G H L I G H T S

(In thousands, except per share data)

2011

(Restated)
2010

Earnings:

Total interest income

Total interest expense

Net interest income

Net income available to common shareholders (x)

Per Share:

Net income per common share – basic (x)

Net income per common share – diluted (x)

Cash dividends declared

Common book value (end of period)

At Year-End:
Total assets

Deposits

Loans

Investment securities

Total borrowings

Total stockholders’ equity

Ratios:

Return on average common equity (x)

Return on average assets (x)

Efficiency ratio

$ 331,880

$ 345,517

58,646

273,234

76,284

4.95

3.76

41.82

$6,972,245

4,465,114

4,317,099

1,708,473

1,162,026

742,364

11.81%

1.06%

55.18%

71,473

274,044

52,294

3.45

3.76

41.07

$7,282,261

5,095,420

4,732,685

2,039,791

1,375,652

729,708

8.05%

0.74%

55.18%

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

shareholders is calculated as net income less preferred stock dividends and accretion, associated with the
preferred stock issued to the U.S. Treasury under the TARP Capital Purchase Program.

Percent
Change

–3.95%

–17.95%

–0.30%

45.88%

43.48%

—

1.83%

–4.26%

–12.37%

–8.78%

–16.24%

–15.53%

1.73%

—

S T O C K H O L D E R S ’

I N F O R M A T I O N

STOCK LISTING:

NYSE Amex Symbol – PRK
CUSIP #700658107

GENERAL STOCKHOLDER INQUIRIES:

Park National Corporation
David L. Trautman, Secretary
50 North Third Street
Post Office Box 3500
Newark, Ohio 43058-3500
740/349-3927

DIVIDEND REINVESTMENT PLAN:

The Corporation offers a plan whereby participating stockholders can purchase additional
shares of Park National Corporation common stock through automatic reinvestment of their
regular quarterly cash dividends. All commissions and fees connected with the purchase and
safekeeping of the shares are paid by the Corporation. Details of the plan and an enrollment
card can be obtained by contacting the Corporation’s Stock Transfer Agent and Registrar as
indicated below.

DIRECT DEPOSIT OF DIVIDENDS:

The Corporation’s stockholders may have their dividend payments directly deposited into
their checking, savings or money market account. This direct deposit of dividends is free for
all stock holders. If you have any questions or need an enrollment form, please contact the
Corporation’s Stock Transfer Agent and Registrar as indicated below.

STOCK TRANSFER AGENT AND REGISTRAR:

The Park National Bank Shareholder Services
located at First-Knox National Bank,
Division of The Park National Bank
Post Office Box 1270
One South Main Street
Mount Vernon, Ohio 43050-1270
740/399-5208, 800/837-5266 Ext. 5208
shareholderservices@firstknox.com

FORM 10-K:

All forms filed by the Corporation with the SEC (including our Form 10-K for 2011) are
available on our website by clicking on the “Documents/SEC Filings” section of the “Investor
Relations” page. These forms may also be obtained, without charge, by contacting the
Secretary as indicated above.

INTERNET ADDRESS:

www.parknationalcorp.com

E-MAIL:

David L. Trautman
dtrautman@parknationalbank.com

PARKNATIONAL

C O R P O R A T I O N

Total Banking Offices: 140
Total ATMs: 158
Total Financial Service Centers: 147
Asset Size: $7 Billion
Headquarters: Newark, Ohio
NYSE Amex: PRK
Website: ParkNationalCorp.com

Maureen H. Buchwald
Owner, Glen Hill
Orchards, LLC

James J. Cullers
Sole Proprietor,
Mediation and
Arbitration Services

C. Daniel DeLawder
Chairman

Harry O. Egger
Vice Chairman

F.W. Englefield, IV
President,
Englefield, Inc.

Stephen J. Kambeitz
President and CFO,
RC Olmstead

John W. Kozak
Chief Financial Officer

William T. McConnell
Chairman of the
Executive Committee

Timothy S. McLain
Vice President,
McLain, Hill, Rugg &
Associates, Inc.

John J. O’Neill
Chairman,
Southgate Corporation

William A. Phillips
Chairman of the
Executive Committee,
Century National Bank

Rick R. Taylor
President,
Jay Industries, Inc.

David L. Trautman
President

Sarah R. Wallace
Chairman of the
Board, First Federal
Savings and Loan
Association of Newark

Lee Zazworsky
President, Mid State
Systems, Inc.

7Offices: 16 ATMs: 14
Website: CenturyNationalBank.com
Phone: 740.454.2521 or 800.321.7061
Facebook: /CenturyNationalBank
Chairman and CEO: Thomas M. Lyall
President: Patrick L. Nash
Counties Served: Athens, Coshocton,
Hocking, Muskingum, Perry, Tuscarawas

Main Office - Zanesville
14 South Fifth Street
Post Office Box 1515
Zanesville, Ohio 43702-1515

Athens*
898 East State Street
Athens, Ohio 45701-2115

Coshocton*
100 Downtowner Plaza
Coshocton, Ohio 43812-1921

New Lexington*
206 North Main Street
New Lexington, Ohio 43764-1263

Newcomerstown*
220 East State Street
Newcomerstown, Ohio 43832

Zanesville - Consumer Lending
and Collections Center
33 South Fifth Street
Zanesville, Ohio 43701

Dresden*
91 West Dave Longaberger Avenue
Dresden, Ohio 43821-9726

Zanesville - East*
1705 East Pike
Zanesville, Ohio 43701-6601

Logan*
61 North Market Street
Logan, Ohio 43138

Zanesville - Kroger*
3387 Maple Avenue
Zanesville, Ohio 43701

New Concord*
1 West Main Street
New Concord, Ohio 43762-1218

Zanesville - Lending Center*
505 Market Street
Zanesville, Ohio 43701

Zanesville - North*
1201 Brandywine Boulevard
Zanesville, Ohio 43701-1086

Zanesville - North Military*
990 Military Road
Zanesville, Ohio 43701

Zanesville - South*
2127 Maysville Avenue
Zanesville, Ohio 43701-5748

Zanesville - South Maysville*
2810 Maysville Pike
Zanesville, Ohio 43701

*Includes Automated Teller Machine

Top Row: Michael L. Bennett - The Longaberger Company; Ronald A. Bucci - Stoneware Properties and General Graphics Promotional
Products, LLC; Ward D. Coffman, III - Coffman Law Offices; Robert D. Goodrich, II - Retired, Wendy’s Management Group, Inc.;
Patrick L. Hennessey - P&D Transportation, Inc.; Robert D. Kessler - Kessler Sign Company; Henry C. Littick, II - Southeastern Ohio
Broadcasting Systems, Inc.; Thomas M. Lyall - Chairman and CEO

Bottom Row: Timothy S. McLain, CPA - McLain, Hill, Rugg and Associates, Inc.; Patrick L. Nash - President; Don R. Parkhill - Jacobs,
Vanaman Agency, Inc.; William A. Phillips - Chairman of the Executive Committee; James L. Shipley - Miller-Lynn Insurance Service and
Smith-Brogan Insurance Agency; Thomas L. Sieber - Retired, Hospital Administrator; Dr. Anne C. Steele - Muskingum University;
Dr. Robert J. Thompson - Neurological Associates of Southeastern Ohio, Inc.

8FAIRFIELD
NATIONAL
BANK

DIVISION OF THE PARK NATIONAL BANK

Offices: 11 ATMs: 16
Website: FairfieldNationalBank.com
Phone: 740.653.7242
Facebook: /FairfieldNationalBank
President: Stephen G. Wells
Counties Served: Fairfield, Franklin

Main Office - Lancaster
143 West Main Street
Post Office Box 607
Lancaster, Ohio 43130-0607

Main Office Drive-Thru*
150 West Wheeling Street
Lancaster, Ohio 43130-3707

Baltimore*
1301 West Market Street
Baltimore, Ohio 43105-1044

Lancaster - Meijer*
2900 Columbus-Lancaster Road
Post Office Box 607
Lancaster, Ohio 43130-0607

Lancaster - Memorial Drive*
1280 North Memorial Drive
Lancaster, Ohio 43130

Lancaster - West Fair*
1001 West Fair Avenue
Lancaster, Ohio 43130

Canal Winchester - Kroger*
6095 Gender Road
Canal Winchester, Ohio 43110

Pickerington - Central - Kroger*
1045 Hill Road North
Pickerington, Ohio 43147

Lancaster - East Main*
1001 East Main Street
Lancaster, Ohio 43130

Pickerington - North - Kroger**
7833 Refugee Road NW
Pickerington, Ohio 43147

Lancaster - East Main Street - Kroger*
1141 East Main Street
Post Office Box 607
Lancaster, Ohio 43130-0607

Reynoldsburg - Slate Ridge*
1988 Baltimore-Reynoldsburg Road
(Route 256)
Reynoldsburg, Ohio 43068

Off-Site ATM Locations
Lancaster - Fairfield Medical Center (2)
401 North Ewing Street

Lancaster - Ohio University - Lancaster
1570 Granville Pike

Lancaster - River View Surgery Center
2401 North Columbus Street

*Includes Automated Teller Machine
**Includes Automated Teller Machine
Drive-up and Inside

Charles P. Bird, Ph.D. - Retired, Ohio University; Leonard F. Gorsuch - Fairfield Homes, Inc.; Eleanor V. Hood - The Lancaster Festival;
Jonathan W. Nusbaum, M.D. - Retired, Surgeon; S. Alan Risch - Risch Drug Stores, Inc.; Mina H. Ubbing - Fairfield Medical Center;
Paul Van Camp - P.V.C. Limited; Stephen G. Wells - President

9Offices: 3 ATMs: 4
Website: FarmersandSavings.com
Phone: 419.994.4115
Facebook: /FarmersandSavings
President: James S. Lingenfelter
County Served: Ashland

Main Office - Loudonville*
120 North Water Street
Post Office Box 179
Loudonville, Ohio 44842-0179

Ashland*
1161 East Main Street
Ashland, Ohio 44805-2831

Perrysville*
112 North Bridge Street
Post Office Box 156
Perrysville, Ohio 44864-0156

Off-Site ATM Location
Loudonville - Stake’s Short Stop
3052 State Route 3

*Includes Automated Teller Machine

Patricia A. Byerly - Retired, Byerly-Lindsey Funeral Home; Timothy R. Cowen - Cowen Truck Line, Inc.; James S. Lingenfelter - President;
Roger E. Stitzlein - Loudonville Farmers Equity; Chris D. Tuttle - Amish Oak Furniture Company, Inc.; Gordon E. Yance - Chairman of the
Board, First-Knox National Bank

10Offices: 11 ATMs: 18
Website: FirstKnox.com
Phone: 740.399.5500
Facebook: /FirstKnoxNationalBank
President: Vickie A. Sant
Counties Served: Holmes, Knox,
Morrow, Southern Richland

Main Office - Mount Vernon
One South Main Street
Post Office Box 1270
Mount Vernon, Ohio 43050-1270

Bellville*
154 Main Street
Bellville, Ohio 44813-1237

Centerburg*
35 West Main Street
Post Office Box F
Centerburg, Ohio 43011-0870

Danville*
4 South Market Street
Post Office Box 29
Danville, Ohio 43014-0029

Fredericktown*
137 North Main Street
Fredericktown, Ohio 43019-1109

Millersburg*
225 North Clay Street
Millersburg, Ohio 44654-1101

Millersburg - Walmart*
1640 South Washington Street
Millersburg, Ohio 44654-8901

Mount Gilead
17 West High Street
Mount Gilead, Ohio 43338-1212

Mount Gilead - Edison*
504 West High Street
Mount Gilead, Ohio 43338-1296

Mount Vernon - Blackjack Road*
8641 Blackjack Road
Mount Vernon, Ohio 43050-9485

Mount Vernon - Coshocton Avenue*
810 Coshocton Avenue
Mount Vernon, Ohio 43050-1922

Mount Vernon - Operations Center
105 West Vine Street
Post Office Box 1270
Mount Vernon, Ohio 43050-1270

Off-Site ATM Locations
Fredericktown - Fast Freddies
89 South Main Street

Gambier - Kenyon College Bookstore
106 Gaskin Avenue

Howard - Apple Valley
21973 Coshocton Road

Mount Gilead - Morrow County Hospital
651 West Marion Road

Mount Vernon - Colonial City Lanes
110 Mount Vernon Avenue

Mount Vernon - COTC - Ariel Hall
236 South Main Street

Mount Vernon - Knox Community Hospital
1330 Coshocton Road

Mount Vernon - Mount Vernon
Nazarene University
800 Martinsburg Road

Mount Vernon
11 West Vine Street

*Includes Automated Teller Machine

Top Row: Maureen H. Buchwald - Glen Hill Orchards, LLC; James J. Cullers - Mediation and Arbitration Services; Ronald J. Hawk -
Danville Feed and Supply, Inc.; William B. Levering - Levering Management, Inc.; Daniel L. Mathie - Critchfield, Critchfield &
Johnston, Ltd.

Bottom Row: Noel C. Parrish - NOE, Inc.; Mark R. Ramser - Ohio Cumberland Gas Co.; Vickie A. Sant - President; R. Daniel Snyder -
Retired Director, Snyder Funeral Homes, Inc.; Roger E. Stitzlein - Loudonville Farmers Equity; Gordon E. Yance - Chairman,
Retired President

11PARK

NATIONAL BANK

Main Office - Newark*
50 North Third Street
Post Office Box 3500
Newark, Ohio 43058-3500

Columbus
140 East Town Street, Suite 1400
Columbus, Ohio 43215

Gahanna - Kroger*
1365 Stoneridge Drive
Gahanna, Ohio 43230

Granville*
119 East Broadway
Granville, Ohio 43023

Heath - Southgate*
567 Hebron Road
Heath, Ohio 43056

Heath - 30th Street*
800 South 30th Street
Heath, Ohio 43056

Hebron*
103 East Main Street
Post Office Box 268
Hebron, Ohio 43025-0268

Johnstown*
60 West Coshocton Street
Post Office Box 446
Johnstown, Ohio 43031-0446

Offices: 18 ATMs: 23
Website: ParkNationalBank.com
Phone: 740.349.8451 or 888.545.4PNB
Facebook: /ParkNationalBank
Chairman: C. Daniel DeLawder
President: David L. Trautman
Counties Served: Franklin, Licking

Utica*
33 South Main Street
Post Office Box 486
Utica, Ohio 43080-0486

Worthington*
7140 North High Street
Worthington, Ohio 43085

Operations Centers
21 South First Street
and 22 South First Street
Newark, Ohio 43055

Off-Site ATM Locations
Granville - Denison University
Slayter Hall

Granville - Kendal at Granville
2158 Columbus Road

Hebron - Kroger
600 East Main Street

Newark - Licking Memorial Hospital
1320 West Main Street

Newark - OSU-N/COTC
1179 University Drive

Reynoldsburg - Kroger
6962 East Main Street

Kirkersville
177 East Main Street
Post Office Box 38
Kirkersville, Ohio 43033-0038

Newark - Deo Drive - Kroger*
245 Deo Drive, Suite A
Post Office Box 3500
Newark, Ohio 43058-3500

Newark - Dugway*
1495 Granville Road
Newark, Ohio 43055

Newark - Eastland*
1008 East Main Street
Newark, Ohio 43055

Newark - McMillen*
1633 West Main Street
Newark, Ohio 43055

Newark - 21st Street*
990 North 21st Street
Newark, Ohio 43055

Pataskala - Kroger**
350 East Broad Street
Pataskala, Ohio 43062

Reynoldsburg - Kroger*
8460 Main Street
Reynoldsburg, Ohio 43068

*Includes Automated Teller Machine **Includes Automated Teller Machine Drive-up and Inside

Top Row: Donna M. Alvarado - AGUILA International; C. Daniel DeLawder - Chairman; F.W. Englefield, IV - Englefield, Inc.;
Stephen J. Kambietz - RC Olmstead; John W. Kozak - Chief Financial Officer; William T. McConnell - Chairman of the Executive
Committee

Bottom Row: Dr. Charles Noble, Sr. - Retired, Shiloh Missionary Baptist Church; John J. O’Neill - Southgate Corporation;
Robert E. O’Neill - Southgate Corporation; J. Gilbert Reese - Director Emeritus; David L. Trautman - President; Sarah R. Wallace -
First Federal Savings and Loan Association of Newark; Lee Zazworsky - Mid State Systems, Inc.

12Offices: 9 ATMs: 8
Website: BankWithPark.com
Phone: 513.576.0600 or 888.474.PARK
Facebook: /BankWithPark
President: David J. Gooch
Counties Served: Butler, Clermont,
Hamilton, Boone (KY)

West Chester*
8366 Princeton-Glendale Road
Post Office Box 1130
West Chester, Ohio 45071

*Includes Automated Teller Machine

Main Office - Eastgate*
4550 Eastgate Boulevard
Cincinnati, Ohio 45245

Amelia - Main Street*
5 West Main Street
Amelia, Ohio 45102

Amelia - Ohio Pike*
1187 Ohio Pike
Amelia, Ohio 45102

Anderson*
1075 Nimitzview Drive
Cincinnati, Ohio 45230

Florence
600 Meijer Drive, Suite 303
Florence, Kentucky 41042

Milford*
25 Main Street
Milford, Ohio 45150

New Richmond*
100 Western Avenue
New Richmond, Ohio 45157

Owensville*
5100 State Route 132
Owensville, Ohio 45160

Nicholas L. Berning - Retired, Berning Financial Consulting; Thomas J. Button - The Park National Bank; Daniel L. Earley -
Retired President, Chairman; David J. Gooch. - President; Martin J. Grunder, Jr. - Grunder Landscaping Co.; Richard W. Holmes -
Retired, PricewaterhouseCoopers LLP; Larry H. Maxey - Synchronic Business Solutions

*Includes Automated Teller Machine **Includes Automated Teller Machine Drive-up and Inside

13Offices: 12 ATMs: 12
Website: RichlandBank.com
Phone: 419.525.8700
Facebook: /RichlandBank
President: John A. Brown
County Served: Richland

Mansfield - Lexington Avenue - Kroger*
1500 Lexington Avenue
Mansfield, Ohio 44907

Ontario*
325 North Lexington-Springmill Road
Ontario, Ohio 44906-1218

Mansfield - Madison - Kroger*
1060 Ashland Road
Mansfield, Ohio 44905-8797

Shelby - Mansfield Avenue*
155 Mansfield Avenue
Shelby, Ohio 44875-1832

Mansfield - Marion Avenue*
50 Marion Avenue
Mansfield, Ohio 44903-2302

Mansfield - Springmill*
889 North Trimble Road
Mansfield, Ohio 44906-2009

Mansfield - West Park*
1255 Park Avenue West
Mansfield, Ohio 44906-2810

*Includes Automated Teller Machine

Main Office - Mansfield*
3 North Main Street
Post Office Box 355
Mansfield, Ohio 44901-0355

Butler*
85 Main Street
Butler, Ohio 44822-9618

Lexington*
276 East Main Street
Lexington, Ohio 44904-1300

Mansfield - Ashland Road*
797 Ashland Road
Mansfield, Ohio 44905-2075

Mansfield - Cook Road*
460 West Cook Road
Mansfield, Ohio 44907-2395

Top Row: Ronald L. Adams - Retired, DAI Emulsions, Inc.; Mark Breitinger - Milark Industries; John A. Brown - President;
Michael L. Chambers - J&B Acoustical

Bottom Row: Benjamin A. Goldman - Retired, Superior Building Services; Timothy J. Lehman - Chairman of the Board;
Grant E. Milliron - Milliron Industries; Shirley Monica - S.S.M. Inc.; Linda H. Smith - Ashwood LLC; Rick R. Taylor - Jay Industries, Inc.

14Offices: 8 ATMs: 6
Website: SecondNational.com
Phone: 937.548.2122
Facebook: /SecondNationalBank
President: John E. Swallow
Counties Served: Darke, Mercer

Greenville - Walmart*
1501 Wagner Avenue
Greenville, Ohio 45331

Versailles*
101 West Main Street
Versailles, Ohio 45

*Includes Automated Teller Machine

Main Office - Greenville
499 South Broadway
Post Office Box 130
Greenville, Ohio 45331-0130

Arcanum*
603 North Main Street
Arcanum, Ohio 45304

Ft. Recovery*
117 North Wayne Street
Ft. Recovery, Ohio 45846

Greenville - North*
1302 Wagner Avenue
Greenville, Ohio 45331

Greenville - South
Located inside the Brethren
Retirement Community
750 Chestnut Street
Greenville, Ohio 45331

Greenville - Third and Walnut*
175 East Third Street
Greenville, Ohio 45331

Tyeis Baker-Baumann - Rebsco, Inc.; Wayne G. Deschambeau - Wayne HealthCare; Neil J. Diller - Cooper Farms, Inc.; Jeffrey E. Hittle -
Hittle Buick GMC, Inc.; Wesley M. Jetter - Ft. Recovery Industries; Marvin J. Stammen - Retired President, Second National Bank;
John E. Swallow - President

15Main Office - Springfield*
40 South Limestone Street
Springfield, Ohio 45502

Beavercreek - Lending Center
1427 Research Park Drive
Beavercreek, Ohio 45432

Enon*
3680 Marion Drive
Enon, Ohio 45323

Jamestown*
82 West Washington Street
Jamestown, Ohio 45335

Jeffersonville*
2 South Main Street
Jeffersonville, Ohio 43128

Mechanicsburg*
2 South Main Street
Mechanicsburg, Ohio 43044

Medway*
130 West Main Street
Medway, Ohio 45341

New Carlisle*
201 North Main Street
New Carlisle, Ohio 45344

New Carlisle - Park Layne*
2035 South Dayton-Lakeview Road
New Carlisle, Ohio 45344

North Lewisburg*
8 West Maple Street
North Lewisburg, Ohio 43060

Plain City
105 West Main Street
Plain City, Ohio 43064

South Charleston*
102 South Chillicothe Street
South Charleston, Ohio 45368

Springboro*
720 Gardner Road
Springboro, Ohio 45066

Springfield - Derr Road - Kroger*
2989 Derr Road
Springfield, Ohio 45503

Springfield - East Main*
2730 East Main Street
Springfield, Ohio 45503

Springfield - North Limestone*
1756 North Limestone Street
Springfield, Ohio 45503

Springfield - Northridge*
1600 Moorefield Road
Springfield, Ohio 45503

Springfield - Western*
920 West Main Street
Springfield, Ohio 45504

Urbana*
1 Monument Square
Urbana, Ohio 43078

Urbana - Scioto Street*
828 Scioto Street
Urbana, Ohio 43078

Offices: 22 ATMs: 28
Website: SecurityNationalBank.com
Phone: 937.324.6800
Facebook: /SECNationalBank
President: William C. Fralick
Counties Served: Champaign, Clark,
Fayette, Greene, Madison, Warren

Xenia Downtown*
161 East Main Street
Xenia, Ohio 45385

Xenia Plaza*
82 North Allison Avenue
Xenia, Ohio 45385

Off-Site ATM Locations
Plain City - Shell
440 South Jefferson Avenue

Springfield
2051 North Bechtle Avenue

Springfield - Clark State
Community College
570 East Leffel Lane

Springfield - Regional Medical Center
222 West North Street

Springfield - Wittenberg University -
Student Center
738 Woodlawn Avenue

Springfield - Wittenberg University -
HPER Center
250 Bill Edwards Drive

Urbana - Champaign County
Community Center
1512 South US Highway 68

Yellow Springs - Young’s Jersey Dairy
6880 Springfield-Xenia Road

*Includes Automated Teller Machine

Top Row: R. Andrew Bell - Brower Insurance Agency, LLC; Rick D. Cole - Colepak, Inc.; Harry O. Egger - Chairman, Retired President;
William C. Fralick - President

Bottom Row: Larry E. Kaffenbarger - Kaffenbarger Truck Equipment Company; Thomas P. Loftis - Midland Properties, Inc.;
Scott D. Michael - Michael Farms, Inc.; Dr. Karen E. Rafinski - Clark State Community College; Chester L. Walthall - Heat-Treating, Inc.;
Robert A. Warren - Hauck Bros., Inc.

16Offices: 7 ATMs: 8
Website: UnitedBankOhio.com
Phone: 419.562.3040
Facebook: /UnitedBankOhio
President: Donald R. Stone
Counties Served: Crawford, Marion

Prospect*
105 North Main Street
Prospect, Ohio 43342

Off-Site ATM Location
Bucyrus - East Pointe Shopping Center
211 Stetzer Road South

*Includes Automated Teller Machine

Main Office - Bucyrus*
401 South Sandusky Avenue
Post Office Box 568
Bucyrus, Ohio 44820

Caledonia*
140 East Marion Street
Caledonia, Ohio 43314

Crestline*
245 North Seltzer Street
Post Office Box 186
Crestline, Ohio 44827-0186

Galion*
8 Public Square
Galion, Ohio 44833

Marion - Barks Road*
129 Barks Road East
Marion, Ohio 43302

Marion - Walmart Super Center*
1546 Marion-Mt. Gilead Road
Marion, Ohio 43302

Lois J. Fisher - Lois J. Fisher & Assoc.; Michele McElligott - CPA; Kenneth A. Parr, Jr. - Parr Insurance Agency, Inc.; Douglas M. Schilling -
Schilling Graphics, Inc.; Donald R. Stone - President; Douglas Wilson - Owner, Doug’s Toggery and Realtor, Craig A. Miley Realty &
Auction, Ltd.

17Offices: 6 ATMs: 6
Website: UnityNationalBk.com
Phone: 937.615.1042
Facebook: /UnityNationalBank
President: James A. Carr
County Served: Miami

Troy - Walmart*
1801 West Main Street
Troy, Ohio 45373

Off-Site ATM Location
Troy - Upper Valley Medical Center
3130 North Dixie Highway

*Includes Automated Teller Machine

Main Office - Piqua*
215 North Wayne Street
Piqua, Ohio 45356

Administrative Office - Piqua
212 North Main Street
Post Office Box 913
Piqua, Ohio 45356

Piqua - Sunset*
1603 Covington Avenue
Piqua, Ohio 45356

Piqua - Walmart*
1300 East Ash Street
Piqua, Ohio 45356

Tipp City*
1176 West Main Street
Tipp City, Ohio 45371

Troy
1314 West Main Street
Troy, Ohio 45373

Dr. Richard N. Adams - Representative of Ohio General Assembly; Tamara Baird-Ganley - Baird Funeral Home; Michael C. Bardo -
Hartzell Industries, Inc.; James A. Carr - President; Thomas E. Dysinger - Dysinger & Associates, LLC; Dr. Douglas D. Hulme -
Oakview Veterinary Hospital; Timothy Johnston - Self-employed Consultant; W. Samuel Robinson - Murray, Wells, Wendeln &
Robinson CPAs, Inc.

18Offices: 8 ATMs: 7
Website: VisionBank.net
Phone: 251.967.4212
Facebook: /VisionBank
Chairman: Joey W. Ginn
President: Diane Anderson
County Served: Baldwin

Point Clear*
17008 Scenic Highway 98
Post Office Box 1347
Point Clear, Alabama 36564

Robertsdale
22245-3A Highway 59
Post Office Box 606
Robertsdale, Alabama 36567

*Includes Automated Teller Machine

Main Office - Gulf Shores*
2201 West First Street
Post Office Box 4649
Gulf Shores, Alabama 36547

Daphne*
28720 US Highway 98
Post Office Box 1144
Daphne, Alabama 36526

Elberta*
24989 State Street
Post Office Box 337
Elberta, Alabama 36530

Fairhope*
218 North Greeno Road
Post Office Box 1786
Fairhope, Alabama 36533

Foley*
501 South McKenzie Street
Foley, Alabama 36535

Orange Beach*
25051 Canal Road
Post Office Box 919
Orange Beach, Alabama 36561

Top Row: Gordon Barnhill - Barnhill Land & Real Estate; Brett Baumeister - Vision Bank; C. Daniel DeLawder - Park National
Corporation; Charles J. Ebert, III - Ebert Insurance Agency; Joey W. Ginn - Chairman

Bottom Row: Kevin Leeser, CPA - O’Sullivan Creel, LLP; Henry N. Lyda, III - Retired, University of Alabama; Robert S. McKean - Retired
President, Vision Bank Alabama; Christopher S. McManus D.M.D. - Baldwin County Endodontics, PC; Katharine A. Monroe - Wells
Fargo Advisors; James R. Owen, Jr. - Gulf Shores Title Co., Inc.; Clark J. Stewart - Stewart Broadcasting, Inc.

19Offices: 9 ATMs: 8
Website: VisionBank.net
Phone: 805.522.4000
Facebook: /VisionBank
Chairman: Joey W. Ginn
President: John D. Whitlock
Counties Served: Bay, Gulf, Okaloosa,
Santa Rosa, Walton

Main Office - Panama City*
2200 Stanford Road
Panama City, Florida 32405

Panama City Beach - Edgewater*
559 Richard Jackson Boulevard
Panama City Beach, Florida 32407

Wewahitchka*
125 North Highway 71
Wewahitchka, Florida 32465

Destin
1021 Highway 98 East, Suite A
Destin, Florida 32541

Port St. Joe*
529 Cecil G Costin, Sr. Boulevard
Port St. Joe, Florida 32456

Navarre*
8524 Navarre Parkway
Navarre, Florida 32566

St. Joe Beach*
8134 West Highway 98
Port St. Joe Beach, Florida 32456

Panama City Beach*
16901 Panama City Beach Parkway
Panama City Beach, Florida 32413

Santa Rosa Beach*
1598 South County Highway 393, Suite 106
Santa Rosa Beach, Florida 32459

*Includes Automated Teller Machine

Top Row: Dr. James D. Campbell, Sr. - James D. Campbell, D.D.S., M.S.; William A. Cathey - Cathey’s Hardware; C. Daniel DeLawder -
Park National Corporation; Joey W. Ginn - Chairman; Patrick Koehnemann - Koehnemann Construction, Inc.; Lana Jane Lewis-Brent -
Paul Brent Designer, Inc.

Bottom Row: Robert S. McKean - Retired President, Vision Bank Alabama; Jimmy Patronis, Jr. - Captain Anderson’s Restaurant;
Jack B. Prescott - Retired, Smurfitt-Stone Container; John S. Robbins - Vision Bank; Jerry F. Sowell, Jr., CPA - Segers, Sowell, Stewart,
Johnson & Brill, PA; Dr. James Strohmenger - Bay Radiology Associates; Kim Styles-DiBacco - Styles Designs

20Officer Listing

Park National Corporation

John W. Kozak
Chief Financial Officer

David L. Trautman
President

William T. McConnell
Chairman of the Executive Committee

Bruce D. Kolopajlo
Vice President

Susan A. Lasure
Assistant Vice President

Century National Bank
Molly J. Allen
Administrative Officer

Mark A. Longstreth
Vice President

Jared M. Lepi
Assistant Vice President

Amber M. Gibson
Administrative Officer

James R. Merry
Vice President

Rebecca R. Porteus
Vice President

Jody D. Spencer
Vice President and
Trust Officer

Karen D. Lowe
Assistant Vice President

Noelle K. Jarrett
Administrative Officer

Rebecca A. Palmerton
Assistant Vice President

Sandra D. Jones
Administrative Officer

Terri L. Sidwell
Assistant Vice President

Paula L. Meadows
Administrative Officer

Cynthia J. Snider
Assistant Vice President

Saundra W. Pritchard
Administrative Officer

C. Daniel DeLawder
Chairman

Harry O. Egger
Vice Chairman

William A. Phillips
Chairman of the
Executive Committee

Thomas M. Lyall
Chairman and CEO

Patrick L. Nash
President

James C. Blythe
Senior Vice President

Barbara A. Gibbs
Senior Vice President

Michael F. Whiteman
Senior Vice President

Thomas N. Sulens
Vice President

Brian E. Hall
Vice President

Janice A. Hutchison
Vice President

Jeffrey C. Jordan
Vice President

Brian G. Kaufman
Vice President

Stephen G. Wells
President

Timothy D. Hall
Senior Vice President

Richard E. Baker, II
Vice President

Daniel R. Bates
Vice President

Linda M. Harris
Vice President

Joseph P. Allen
Assistant Vice President

Katherine M. Barclay
Assistant Vice President
and Trust Officer

Ann M. Gildow
Assistant Vice President

Theresa M. Gilligan
Assistant Vice President

Stephen A. Haren
Banking Officer

Diana F. McCloy
Banking Officer

Jodi C. Pagath
Banking Officer

Amy M. Pinson
Banking Officer

Jesse M. Rollins
Banking Officer

Emila S. Smith
Administrative Officer

Beth A. Stillwell
Administrative Officer

Susan L. Summers
Administrative Officer

Deloris A. Tom
Administrative Officer

Elaine L. White
Administrative Officer

Laura F. Tussing
Vice President and
Trust Officer

Fairfield National Bank
Tara L. Craaybeek
Banking Officer

Mareion A. Royster
Assistant Vice President
and Trust Officer

Molly S. Bates
Assistant Vice President

Sandra S. Uhl
Assistant Vice President

Sabrena L. McClure
Assistant Vice President

Linda B. Boch
Banking Officer

Trudy M. Reeb
Assistant Vice President

Grace R. Cline
Banking Officer

Scott A. Reed
Assistant Vice President

Janet K. Cochenour
Banking Officer

Melissa J. McMullen
Banking Officer

Michael D. Mitchell
Banking Officer

Cynthia A. Moore
Banking Officer

Kim I. Sheldon
Banking Officer

21Officer Listing

Fairfield National Bank (continued)

Tina L. Taley
Banking Officer

Heather N. Wiley
Banking Officer

Donna K. Bruce
Administrative Officer

Sean P. Murnane
Administrative Officer

Loretta J. Swyers
Administrative Officer

Andrew J. Connell
Administrative Officer

Jason A. Saul
Administrative Officer

Jamey L. Binkley
Administrative Officer

Daniel J. Fawcett
Administrative Officer

Allison G. Spangler
Administrative Officer

Farmers and Savings Bank

James S. Lingenfelter
President

Hal D. Sheaffer
Vice President

Barbara J. Young
Assistant Vice President

Kenneth G. Gosche
Senior Vice President

Wayne D. Young
Vice President

Todd A. Geren
Banking Officer

Sharon E. Blubaugh
Vice President

Gregory A. Henley
Assistant Vice President

Brian R. Hinkle
Banking Officer

Michael C. Bandy
Administrative Officer
and Trust Officer

Ronald D. Flowers
Administrative Officer

First-Knox National Bank

Gordon E. Yance
Chairman of the Board

Barbara A. Barry
Assistant Vice President

James S. Meyer
Banking Officer

Vickie A. Sant
President

Deborah S. Dove
Assistant Vice President

Sherry L. Snyder
Banking Officer

James W. Hobson
Assistant Vice President

Rea D. Wirt
Banking Officer

David E. Humphrey
Administrative Officer

Erin C. Kelty
Administrative Officer

Jeffrey A. Kinney
Administrative Officer

Cheri L. Butcher
Senior Vice President
and Trust Officer

Julie A. Leonard
Senior Vice President

Mark P. Leonard
Senior Vice President

W. Douglas Leonard
Senior Vice President

Jesse L. Marlow
Senior Vice President

Robert E. Boss
Vice President

Cynthia L. Higgs
Vice President

Jerry D. Simon
Vice President

Todd P. Vermilya
Vice President

Debra E. Holiday
Assistant Vice President

Dusty C. Au
Administrative Officer

Carol A. Lewis
Administrative Officer

R. Edward Kline
Assistant Vice President

Nicholas R. Blanchard
Administrative Officer

Mary A. Loyd
Administrative Officer

Joan M. Stout
Assistant Vice President

Robert T. Brooke
Administrative Officer

Nicole L. Mack
Administrative Officer

Mark D. Blanchard
Banking Officer

Deborah J. Daniels
Administrative Officer

Paulina S. McQuigg
Administrative Officer

Heather A. Brayshaw
Banking Officer

Lance E. Dill
Administrative Officer

Phyllis D. Colopy
Banking Officer

Rachelle E. Dallas
Banking Officer

Wendi M. Fowler
Banking Officer and
Trust Officer

Todd M. Hawkins
Administrative Officer

Monica L. Hiller
Administrative Officer

Kassandra L. Hoeflich
Administrative Officer

22Officer Listing

Earl W. Osborne
Chairman

Tracy L. Morgan
Banking Officer

Valerie J. Morgan
Administrative Officer

April D. Storie
Administrative Officer

Matthew R. Marsh
President

Charles L. Harris
Administrative Officer

Mary E. Parsell
Administrative Officer

Guardian Finance Company

The Park National Bank

C. Daniel DeLawder
Chairman

David L. Trautman
President

William T. McConnell
Chairman of the
Executive Committee

Thomas J. Button
Senior Vice President

Thomas M. Cummiskey
Senior Vice President
and Trust Officer

Lynn B. Fawcett
Senior Vice President

John W. Kozak
Senior Vice President and
Chief Financial Officer

Timothy J. Lehman
Senior Vice President

Laura B. Lewis
Senior Vice President

Cheryl L. Snyder
Senior Vice President

Jeffrey A. Wilson
Senior Vice President
and Auditor

William R. Wilson
Senior Vice President

Linda K. Ampadu
Vice President

Alice M. Browning
Vice President

Brady T. Burt
Vice President and
Chief Accounting Officer

James M. Buskirk
Vice President and
Trust Officer

Peter G. Cassanos
Vice President

Cynthia H. Crane
Vice President

Kathleen O. Crowley
Vice President and
Auditor

Joan L. Franks
Vice President

John S. Gard
Vice President and
Trust Officer

Jeffrey C. Gluntz
Vice President

Scott C. Green
Vice President

Damon P. Howarth
Vice President and
Trust Officer

Daniel L. Hunt
Vice President

Steven J. Klein
Vice President

Teresa M. Kroll
Vice President and
Trust Officer

Carl H. Mayer
Vice President

Lydia E. Miller
Vice President

Matthew R. Miller
Vice President

Terry C. Myers
Vice President and
Trust Officer

Jason L. Painley
Vice President and
Chief Risk Officer

Gregory M. Rhoads
Vice President

Karen K. Rice
Vice President

David J. Rohde
Vice President

David F. Romes
Vice President

Ralph H. Root III
Vice President

Alan C. Rothweiler
Vice President

Christine S. Schneider
Vice President

Michael R. Shannon
Vice President

Robert G. Springer
Vice President

Robin L. Stein
Vice President

Julie L. Strohacker
Vice President and
Trust Officer

Sandra S. Travis
Vice President

Erin E. Tschanen
Vice President

Daniel H. Turben
Vice President

Paul E. Turner
Vice President

Stanley A. Uchida
Vice President

John B. Uible
Vice President and
Trust Officer

Brian S. Urquhart
Vice President

Monte J. VanDeusen
Vice President

Bradden E. Waltz
Vice President

Barbara A. Wilson
Vice President

Christa D. Wright
Vice President

Renee L. Baker
Assistant Vice President

Brent A. Barnes
Assistant Vice President
and Auditor

Gail A. Blizzard
Assistant Vice President

Sharon L. Bolen
Assistant Vice President

Rebecca A. Brownfield
Assistant Vice President

Beverly A. Clark
Assistant Vice President
and Trust Officer

Amber L. Cummins
Assistant Vice President
and Trust Officer

April R. Dusthimer
Assistant Vice President

23Officer Listing

The Park National Bank (continued)

Kelly A. Edds
Assistant Vice President

Brian E. Smith
Assistant Vice President

Teresa A. Hennessy
Banking Officer

Aaron T. Dunifon
Administrative Officer

Amanda K. Evans
Assistant Vice President

Melinda S. Smith
Assistant Vice President

Cynthia R. Hollis
Banking Officer

Catherine J. Evans
Assistant Vice President

Maryann Thornton
Assistant Vice President

Alice M. Keefe
Banking Officer

Teresa K. Faris
Administrative Officer

Bradley B. Feightner, Jr.
Administrative Officer

Jill S. Evans
Assistant Vice President

Angie D. Treadway
Assistant Vice President

Kimberly G. McDonough
Banking Officer

Brenda M. Frakes
Assistant Vice President

Berkley C. Tuggle, Jr.
Assistant Vice President

Diane M. Oberfield
Banking Officer

Scott A. VanHorn
Assistant Vice President

Sherri L. Pembrook
Banking Officer

David W. Hardy
Assistant Vice President
and Trust Officer

Louise A. Harvey
Assistant Vice President

Carol S. Whetstone
Assistant Vice President
and Trust Officer

Chris R. Hiner
Assistant Vice President

Rose M. Wilson
Assistant Vice President

Vernon W. Kennedy
Assistant Vice President

Craig M. Larson
Assistant Vice President

Candy J. Lehman
Assistant Vice President and
Trust Officer

Bethany B. Lewis
Assistant Vice President

Kelly M. Maloney
Assistant Vice President

Julia E. McCormack
Assistant Vice President

Michael D. McDonald
Assistant Vice President

Ronald C. McLeish
Assistant Vice President

Ryan E. Mills
Assistant Vice President

Jennifer L. Morehead
Assistant Vice President

Cynthia A. Neely
Assistant Vice President

J. Bradley Zellar
Assistant Vice President
and Trust Officer

Kathy L. Allen
Banking Officer

Eric M. Baker
Banking Officer

Thomas E. Ballard
Banking Officer

Dixie C. Brown
Banking Officer

Danielle A.M. Burns
Banking Officer

Jacqueline L. Davis
Banking Officer

Lori L. Drake
Banking Officer
and Assistant Auditor

Brian J. Elder
Banking Officer

Kathryn S. Firestone
Banking Officer

Kristie L. Green
Trust Officer

Jerrod F. Gambs
Administrative Officer

Bradley D. Gard
Administrative Officer

Tammy L. Gast
Administrative Officer

Tracy A. Grimm
Administrative Officer

Ellen P. Hempleman
Administrative Officer

Candy L. Holbrook
Administrative Officer

Asher D. Hunter
Administrative Officer

Amber L. Keirns
Administrative Officer

Cynthia L. Kissel
Administrative Officer

Andrew H. Knoesel
Administrative Officer

Natasha D. McKee
Administrative Officer

Angela J. Muncie
Administrative Officer

Leda J. Rutledge
Banking Officer

Charles F. Schultz
Banking Officer

Lisa E. Stranger
Banking Officer

Lori B. Tabler
Banking Officer

Jenny L. Ward
Banking Officer

D. Bradley Wilkins
Banking Officer

David B. Armstrong
Administrative Officer

Michelle L. Arnold
Administrative Officer

Larry M. Bailey
Administrative Officer

Stephen E. Buchanan
Administrative Officer

Kathy K. Myers
Administrative Officer

Patricia S. Carr
Administrative Officer

Brad G. Chance
Administrative Officer

Nathan T. Cook
Administrative Officer

Shawna L. Corder
Administrative Officer

Rodger D. Orr
Administrative Officer

Jeffrey A. Pillow
Administrative Officer

Mark D. Ridenbaugh
Administrative Officer

Rhonda L. Rodgers
Administrative Officer

24Officer Listing

Ruth Y. Sawyer
Administrative Officer

Jennifer L. Shanaberg
Administrative Officer

The Park National Bank (continued)
Ronda M. Welsh
Administrative Officer

Judy L. Young
Administrative Officer

Alice M. Schlaegel
Administrative Officer

Jessica L. Schorger
Administrative Officer

Michelle M. Tipton
Administrative Officer

Barry H. Winters
Administrative Officer

Ginger R. Varner
Administrative Officer

Park National Bank of Southwest Ohio & Northern Kentucky

David J. Gooch
President

Ginger L. Vining
Vice President

David C. Brooks
Assistant Vice President

Christopher M. Young
Banking Officer

Edward L. Brady
Senior Vice President

Joseph A. Wagner
Vice President

Kim J. Cunningham
Assistant Vice President

Matthew D. Colwell
Administrative Officer

Jennifer K. Fischer
Senior Vice President

Adam T. Stypula
Senior Vice President

Jason D. Hughes
Vice President

John R. Nienaber
Vice President

John F. Winkler II
Vice President and
Trust Officer

Peggy A. Beckett
Assistant Vice President

Jay F. Berliner
Assistant Vice President

Sam J. DeBonis
Assistant Vice President

Michelle M. Sandlin
Administrative Officer

James E. Hyson
Assistant Vice President

Jason O. Verhoff
Administrative Officer

Louis J. Prabell
Assistant Vice President

Cyndy H. Wright
Administrative Officer

John A. Brown
President

Jimmy D. Burton
Assistant Vice President

Beth K. Malaska
Banking Officer

Donald R. Harris Jr.
Senior Vice President

Edward E. Duffey
Assistant Vice President

Michael D. Volz
Senior Vice President

Susan A. Fanello
Assistant Vice President

Charla A. Irvin
Vice President and
Trust Officer

Michael A. Jefferson
Vice President

Rebecca J. Toomey
Vice President

Edward F. Adams
Assistant Vice President

Edward A. Brauchler
Assistant Vice President

Barbara A. Miller
Assistant Vice President

Jeffrey A. Parton
Assistant Vice President

Sheryl L. Smith
Assistant Vice President

Linda M. Whited
Assistant Vice President

John Q. Cleland
Banking Officer

Robert N. Kent Jr.
President

Charles W. Sauter
Vice President

J. Stephen McDonald
Banking Officer and
Trust Officer

Alexander M. Rocks
Banking Officer

Barbara L. Schopp
Banking Officer

Andrew C. Waldruff
Banking Officer

Carol L. Davis
Administrative Officer

Jessica L. Gribbon
Administrative Officer

Richland Bank

Clayton J. Herold
Administrative Officer

Janis L. Hoover
Administrative Officer

Kristie L. Massa
Administrative Officer

Elizabeth A. Myers
Administrative Officer

Jennifer A. Schneeg
Administrative Officer

Kathleen A. Spidel
Administrative Officer

Deborah A. Sweet
Administrative Officer

Scope Aircraft Finance

25Officer Listing

Second National Bank

John E. Swallow
President

Eric J. McKee
Vice President

Joy D. Greer
Assistant Vice President

Michael R. Henry
Banking Officer

Steven C. Badgett
Executive Vice President

Gene A. Rismiller
Vice President

Vicki L. Neff
Assistant Vice President

Harvey B. Hole, III
Banking Officer

C. Russell Badgett
Vice President

Daniel G. Schmitz
Vice President

Cynthia J. Riffle
Assistant Vice President

Gregory P. Schwartz
Banking Officer

Marie A. Boas
Vice President

D. Todd Durham
Vice President and
Trust Officer

Thomas J. Lawson
Vice President

Kimberly A. Baker
Assistant Vice President

Alexa J. Roth
Assistant Vice President

Antonia T. Baker
Administrative Officer

Gerald O. Beatty
Assistant Vice President

Shane D. Stonebraker
Assistant Vice President

Zachary L. Newbauer
Administrative Officer

Debby J. Folkerth
Assistant Vice President

Brian A. Wagner
Assistant Vice President

Deborah A. Smith
Administrative Officer

Security National Bank

William C. Fralick
President

James E. Leathley
Vice President

Jeffrey A. Darding
Executive Vice President

Thomas C. Ruetenik
Vice President

Thomas A. Goodfellow
Senior Vice President

David A. Snyder
Vice President

Andrew J. Irick
Senior Vice President

Michael B. Warnecke
Vice President

Catherine L. Hill
Assistant Vice President
and Trust Officer

R. Kathy Johnson
Assistant Vice President

Thomas B. Keehner
Assistant Vice President

Rick L. McCain
Assistant Vice President

Andrew S. Peyton
Assistant Vice President

Patrick K. Rastatter
Assistant Vice President

Mark B. Robertson
Assistant Vice President

Tamara L. Augustine
Trust Officer

Teresa L. Belliveau
Banking Officer

Margaret A. Horstman
Administrative Officer

Joanna S. Jaques
Administrative Officer

Mark D. Klingler
Administrative Officer

Sarah E. Lemon
Administrative Officer

Rita A. Riley
Administrative Officer

Jeffrey S. Williams
Administrative Officer

Sharon K. Boysel
Assistant Vice President

Jill A. Brewer
Assistant Vice President

Rachel M. Brewer
Assistant Vice President
and Trust Officer

Margaret A. Chapman
Assistant Vice President

Gary J. Seitz
Assistant Vice President

Mary M. Demaree
Assistant Vice President

Darlene S. Williams
Assistant Vice President

Steven B. Duelley
Assistant Vice President

Terri L. Wyatt
Assistant Vice President and
Trust Officer

Timothy L. Bunnell
Vice President

Connie P. Craig
Vice President

Margaret L. Foley
Vice President and
Trust Officer

Mary L. Goddard
Vice President and
Trust Officer

James A. Kreckman
Vice President and
Trust Officer

26Donald R. Stone
President

Matthew E. Bickert
Assistant Vice President

Anne S. Cole
Senior Vice President

James W. Chapman
Assistant Vice President

Scott E. Bennett
Vice President

Floyd J. Farmer
Assistant Vice President

Officer Listing

United Bank

Richard D. Hancock
Assistant Vice President
and Trust Officer

Kriste A. Slagle
Banking Officer

James A. DeSimone
Administrative Officer

Jennifer J. Kuns
Banking Officer

David J. Lauthers
Banking Officer

Unity National Bank

James A. Carr
President

G. Dwayne Cooper
Vice President

Nathan E. Counts
Vice President

Dean F. Brewer
Assistant Vice President

Lisa L. Feeser
Banking Officer

Brock A. Heath
Administrative Officer

Carol L. Van Culin
Assistant Vice President

Kyle M. Cooper
Administrative Officer

Jonathan A. Waldo
Administrative Officer

Vicki L. Burke
Trust Officer

Douglas R. Eakin
Administrative Officer

Joey W. Ginn
Chairman

Patricia H. Campbell
Vice President

Elizabeth O. Stone
Vice President

Vision Bank - Alabama
Alodia A. Wimpee
Assistant Vice President

Diane C. Anderson
President

D. Rick Conway
Vice President

Tracie A. Sweat
Vice President

Michelle B. Baldwin
Banking Officer

Brett A. Baumeister
Executive Vice President

Robin B. Fly
Vice President

Frank W. Wagner II
Vice President

Alana Kirchoff
Banking Officer

Christie G. Barkley
Senior Vice President

Bernard A. Fogarty
Vice President

Rhonda L. Willis
Vice President

Alisha N. Mason
Auditor and Banking Officer

Karen J. Harmon
Senior Vice President

Gregory G. Gontarski
Vice President

Deborah D. Ard
Assistant Vice President

Mary Alice Neyhart
Banking Officer

George L. Hawthorne
Senior Vice President

Michelle L. Kinne
Vice President

Lauren S. Dango
Assistant Vice President

Cynthia M. Paul
Banking Officer

Lyndsay P. Job
Senior Vice President

Geneie S. Scheer
Vice President

Janet J. Ellis
Assistant Vice President

Paige S. Shoemaker
Banking Officer

James E. Kirkland
Senior Vice President

Doug J. Sizemore
Vice President

Holly L. Floyd
Assistant Vice President

Alina M. Smith
Banking Officer

Debra M. Schmidt
Senior Vice President

Judy R. Smith
Vice President

Patricia R. Burrell
Vice President

Mark S. Stejskal
Vice President

Joshua C. Mims
Assistant Vice President

Wendy V. Stacks
Assistant Vice President

27Officer Listing

Vision Bank - Florida

Joey W. Ginn
Chairman

John D. Whitlock
President

Gregory K. Barron
Vice President

Jeremy S. Bennett
Vice President

Jerry D. Gaskin
Executive Vice President

Bryan Campolo
Vice President

Leslie L. Welsch
Vice President

Johanna L. White
Vice President

Jennifer J. Woods
Vice President

Amber M. Golden
Banking Officer

Terri B. Little
Banking Officer

Katie L. McPartland
Banking Officer

Carolyn M. Husband
Executive Vice President

Joan A. Cleckley
Vice President

Catharine E. Augustine
Assistant Vice President

Diane E. Floyd
Senior Vice President

Debbie H. Driskell
Vice President

Karen P. Fontaine
Assistant Vice President

Anita M. Mayer
Senior Vice President

Jim L. Hood
Vice President

Chelly E. Picone
Assistant Vice President

John S. Robbins
Senior Vice President

Terri A. Hugghins
Vice President

Donald S. Summers
Assistant Vice President

Scott R. Robertson
Senior Vice President

Laura V. Murphree
Vice President

Debbie C. Thompson
Assistant Vice President

Owen W. Ayers
Vice President

Cindy L. Stephens
Vice President

Linda Jo Chumney
Banking Officer

28F I N A N C I A L R E V I E W

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

RESTATEMENT OF FINANCIAL STATEMENTS
In a Current Report on Form 8-K filed on January 31, 2012 (the “January 31,
2012 Form 8-K”), Park announced that on January 27, 2012, management
determined that (i) Park’s previously issued audited consolidated financial
statements incorporated by reference in Park’s Annual Report on Form 10-K

for the year ended December 31, 2010, filed on February 28, 2011, and
(ii) Park’s unaudited condensed consolidated financial statements included
in Park’s Quarterly Reports on Form 10-Q for the quarterly periods ended
March 31, 2011, June 30, 2011, and September 30, 2011 should be restated.

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

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

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

Table 1 – Restatement Impact on Income Statement
For the year ended December 31, 2010

As Amended in
the Form 10-K/A

As Originally
Filed

Table 2 – Restatement Impact on Income Statement
For the nine months ended September 30, 2011

As Amended in
the Form 10-Q/A

As Originally
Filed

(In thousands)

Net interest income
Provision for loan losses
Fee income
Security gains
Operating expenses

Income before taxes

Income taxes

Net income

(In thousands)

Net interest income
Provision for loan losses
Fee income
Security gains
Operating expenses

Income before taxes

Income taxes

Net income

$274,044
87,080
63,016
11,864
187,107

$ 74,737

16,636

$ 58,101

$206,955
43,054
48,195
25,462
138,952

$ 98,606

27,076

$ 71,530

$ 74,217

$(16,116)

$274,044
64,902
65,632
11,864
187,107

$ 99,531

25,314

$206,955
55,925
43,334
25,462
138,952

$ 80,874

20,870

Change

$ —
22,178
(2,616)
—
—

$(24,794)

(8,678)

Change

$ —
(12,871)
4,861
—
—

$ 17,732

6,206

$ 60,004

$ 11,526

F I N A N C I A L R E V I E W

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

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

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

Table 5 – PNB – Summary Income Statement
For the years ended December 31,

(In thousands)

Net interest income
Provision for loan losses
Fee income
Security gains
Operating expenses

Income before taxes
Federal income taxes
Net income

Balances at December 31,
(in thousands)

Assets
Loans
Deposits

2011

2010

2009

$ 236,282
30,220
67,348
23,634
146,235

150,809
43,958
$ 106,851

$ 237,281
23,474
68,648
11,864
144,051

150,268
47,320
$ 102,948

$ 236,107
22,339
75,430
7,340
148,048

148,490
47,032
$ 101,458

2011

2010

2009

$6,281,747
4,172,424
4,611,646

$6,495,558
4,074,775
4,622,693

$6,182,257
3,950,599
4,670,113

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

Table 3 – Restatement Impact on Balance Sheet
at December 31, 2010

(In thousands)

As Amended in
the Form 10-K/A

As Originally
Filed

Allowance for loan losses
Net loans
Other real estate owned
Other assets
Total assets
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity

$ 143,575
4,589,110
41,709
148,852
7,282,261
406,342
729,708
7,282,261

$ 121,397
4,611,288
44,325
140,174
7,298,377
422,458
745,824
7,298,377

Table 4 – Restatement Impact on Balance Sheet
at September 30, 2011

(In thousands)

As Amended in
the Form 10-Q/A

As Originally
Filed

Allowance for loan losses
Net loans
Other real estate owned
Other assets
Total assets
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity

$ 107,310
4,573,265
46,911
163,973
7,095,098
430,121
755,053
7,095,098

$ 100,248
4,580,327
46,911
161,501
7,099,688
434,711
759,643
7,099,688

Change

$ 22,178
(22,178)
(2,616)
8,678
(16,116)
(16,116)
(16,116)
(16,116)

Change

$ 7,062
(7,062)
—
2,472
(4,590)
(4,590)
(4,590)
(4,590)

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

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

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

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

F I N A N C I A L R E V I E W

Table 6 – Vision Bank – Summary Income Statement
For the years ended December 31,

Table 8 – Parent Company – Summary Income Statement
For the years ended December 31,

(In thousands)

Net interest income
Provision for loan losses
Fee income
Security gains
Operating expenses

Loss before taxes

State income taxes

Federal income taxes

Net loss

Balances at December 31,
(in thousands)

Assets
Assets held for sale
Loans
Deposits
Liabilities held for sale

2011

$ 27,078
31,052
1,422
5,195
31,379

(28,736)

6,088

(12,298)

$ (22,526)

2011

$650,935
382,462
492,927
532,630
536,186

(Restated)
2010

$ 27,867
61,407
(6,024)
—
31,623

(71,187)

(1,161)

(24,612)

$ (45,414)

(Restated)
2010

$791,945
—
640,580
633,432
—

2009

$ 25,634
44,430
(2,047)
—
28,091

(48,934)

(2,461)

(16,363)

$ (30,110)

2009

$897,981
—
677,018
688,900
—

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

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

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

Table 7 – GFSC – Summary Income Statement
For the years ended December 31,

(In thousands)

Net interest income
Provision for loan losses
Fee income
Security gains
Operating expenses

Income before taxes

Federal income taxes

Net income

Balances at December 31,
(in thousands)

Assets
Loans
Deposits

2011

$ 8,693
2,000
—
—
2,506

4,187

1,466

2010

$ 7,611
2,199
2
—
2,326

3,088

1,082

2009

$ 7,010
2,052
3
—
2,264

2,697

945

$ 2,721

$ 2,006

$ 1,752

2011

$46,682
47,111
8,013

2010

$43,209
43,714
7,062

2009

$38,606
38,550
5,100

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

(In thousands)

Net interest income
Provision for loan losses
Fee income
Security gains
Operating expenses

Loss before taxes

Federal income taxes

Net income (loss)

2011

$ 1,180
—
(2,689)
—
8,196

$(9,705)

(4,799)

$(4,906)

2010

$ 1,285
—
389
—
9,106

$(7,432)

(5,993)

$(1,439)

2009

$ 4,740
—
464
—
10,322

$ (5,118)

(6,210)

$ 1,092

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

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

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

Table 9 – Park – Summary Income Statement
For the years ended December 31,

(In thousands)

Net interest income
Provision for loan losses
Fee income
Security gains
Operating expenses

Income before taxes

State income taxes

Federal income taxes

Net income

Balances at December 31,
(in thousands)

Assets
Loans
Assets held for sale (1)
Deposits
Liabilities held for sale (2)

2011

$ 273,234
63,272
66,081
28,829
188,317

116,555

6,088

28,327

(Restated)
2010

$ 274,044
87,080
63,016
11,864
187,107

74,737

(1,161)

17,797

2009

$ 273,491
68,821
73,850
7,340
188,725

97,135

(2,461)

25,404

82,140

58,101

$ 74,192

2011

2010

2009

$6,972,245
4,317,099
382,462
4,465,114
536,186

$7,282,261
4,732,685
—
5,095,420
—

$7,040,329
4,640,432
—
5,188,052
—

(1) The assets held for sale represent the loans and other assets at Vision Bank that will be sold in

the first quarter of 2012.

(2) The liabilities held for sale represent the deposits and other liabilities at Vision Bank that will be

sold in the first quarter of 2012.

F I N A N C I A L R E V I E W

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

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

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

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

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

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

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

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

$100 million. The Warrant has a ten-year term. All of the proceeds from the
sale of the Series A Preferred Shares and the Warrant by Park to the U.S.
Treasury under the CPP qualify as Tier 1 capital for regulatory purposes.

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

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

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

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

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

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

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

Park believes the determination of the allowance for loan losses involves
a higher degree of judgment and complexity than its other significant account-
ing policies. The allowance for loan losses is calculated with the objective of
maintaining a reserve level believed by management to be sufficient to absorb

F I N A N C I A L R E V I E W

probable incurred credit losses in the loan portfolio. Management’s determi -
nation 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, includ-
ing expected default probabilities, the loss given default, the amounts and
timing of expected future cash flows on impaired loans, and estimated losses
on consumer loans and residential mortgage loans based on historical loss
experience and current economic conditions. All of these factors may be
susceptible to significant change. To the extent that actual results differ from
management estimates, additional loan loss provisions may be required that
would adversely impact earnings for future periods. (Refer to the “Credit
Experience – Provision for Loan Losses” section within this Financial Review
for additional discussion.)
Other real estate owned (“OREO”), property acquired through foreclosure,
is recorded at estimated fair value less anticipated selling costs (net realizable
value). If the net realizable value is below the carrying value of the loan on
the date of transfer, the difference is charged to the allowance for loan losses.
Subsequent declines in value, OREO devaluations, are reported as adjustments
to the carrying amount of OREO and are expensed within other income. Gains
or losses not previously recognized, resulting from the sale of OREO, are
recognized in other income on the date of sale. At December 31, 2011,
OREO totaled $42.3 million, representing a 1.4% increase compared
to $41.7 million at December 31, 2010.
Effective January 1, 2008, management implemented the fair value hierarchy,
which has the objective of maximizing the use of observable market inputs.
The related accounting guidance also requires enhanced disclosures regarding
the inputs used to calculate fair value. These inputs are classified as Level 1, 2,
and 3. Level 3 inputs are those with significant unobservable inputs that reflect
a company’s own assumptions about the market for a particular instrument.
Some of the inputs could be based on internal models and cash flow analysis.
At December 31, 2011, financial assets valued using Level 3 inputs for Park
had an aggregate fair value of approximately $130.8 million. This was 13.5%
of the total amount of assets measured at fair value as of the end of the year.
The fair value of impaired loans was approximately $87.8 million (or 67.1%)
of the total amount of Level 3 inputs. Additionally, there were $83.4 million of
loans that were impaired and carried at cost, as fair value exceeded book value
for each individual credit. The large majority of Park’s financial assets valued
using Level 2 inputs consist of available-for-sale (“AFS”) securities. The fair
value of these AFS securities is obtained largely by the use of matrix pricing,
which is a mathematical technique widely used in the financial services industry
to value debt securities without relying exclusively on quoted market prices for
the specific securities but rather by relying on the securities’ relationship to
other benchmark quoted securities.
Management believes that the accounting for goodwill and other intangible
assets also involves a higher degree of judgment than most other significant
accounting policies. GAAP establishes standards for the amortization of
acquired intangible assets and the impairment assessment of goodwill.
Goodwill arising from business combinations represents the value attributable
to unidentifiable intangible assets in the business acquired. Park’s goodwill
relates to the value inherent in the banking industry and that value is dependent
upon the ability of Park’s banking subsidiaries to provide quality, cost-effective
banking services in a competitive marketplace. The goodwill value is supported
by revenue that is in part driven by the volume of business transacted.
A decrease in earnings resulting from a decline in the customer base, the
inability to deliver cost-effective services over sustained periods or significant
credit problems can lead to impairment of goodwill that could adversely impact
earnings in future periods. GAAP requires an annual evaluation of goodwill for
impairment, or more frequently if events or changes in circumstances indicate
that the asset might be impaired. The fair value of the goodwill, which resides
on the books of Park’s subsidiary banks, is estimated by reviewing the past
and projected operating results for the Park subsidiary banks, deposit and
loan totals for the Park subsidiary banks and banking industry comparable
information. Park recognized a goodwill impairment charge of $55.0 million

in the third quarter of 2008 to eliminate the remaining goodwill balance
pertaining to Vision Bank. At December 31, 2011, on a consolidated basis,
Park had core deposit intangibles of $2.5 million subject to amortization
and $72.3 million of goodwill, which was not subject to periodic amortization.
The core deposit intangibles recorded on the balance sheet of PNB totaled
$893,000 and the core deposit intangibles at Vision Bank were $1.6 million.
The goodwill asset of $72.3 million is carried on the balance sheet of PNB.

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

Park’s subsidiaries compete for deposits and loans with other banks,
savings associations, credit unions and other types of financial institutions.
At December 31, 2011, Park and its Ohio-based banking divisions operated
123 banking offices and a network of 143 automated teller machines in 28
Ohio counties and one county in northern Kentucky. Vision Bank operated
17 banking offices and a network of 15 automated teller machines in Baldwin
County, Alabama and in five counties in the panhandle of Florida.

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

Table 10 – Park National Corporation Affiliate Financial Data

2011

(Restated)
2010

2009

Average
Assets

Net
Income

Average
Assets

Net
Income

Average
Assets

Net
Income

$2,092,084 $25,563 $1,973,443 $25,903

$1,798,814 $26,991

795,305

16,242

770,319

14,603

825,481

14,316

709,569

15,093

642,343

14,374

633,260

12,411

685,813

11,233

647,798

9,860

650,488

11,387

501,541

10,044

519,102

9,754

563,776

9,954

465,178

10,236

459,050

9,695

484,849

9,368

425,170

7,977

385,534

7,570

371,079

6,926

(In thousands)

Park National Bank:
Park National
Division

Security National
Division

First-Knox National
Division

Century National
Division

Richland Trust
Division

Fairfield National
Division

Second National
Division

Park National SW &
N KY Division

United Bank Division

233,212

4,211

381,739

722

405,889

243,909

2,590

4,344

416,502

242,166

1,841

4,300

Unity National
Division

Farmers & Savings
Division

Vision Bank

Parent Company,

including consolidating
entries

207,703

3,389

185,003

2,918

182,373

2,251

100,577

2,141

103,121

1,337

107,437

1,713

743,344 (22,526)

859,447

(45,414)

904,897 (30,110)

(135,065)

(2,185)

(152,297)

567

(145,591)

2,844

Consolidated
Totals

$7,206,170 $82,140 $7,042,661 $58,101

$7,035,531 $74,192

F I N A N C I A L R E V I E W

SOURCE OF FUNDS
Deposits: Park’s major source of funds is deposits from individuals,
businesses and local government entities. These deposits consist of
noninterest bearing and interest bearing deposits.
Average total deposits were $5,192 million in 2011, compared to $5,182
million in 2010 and $5,051 million in 2009.
On Park’s balance sheet, total deposits were $4,465 million at December 31,
2011, compared to $5,095 million at December 31, 2010. This represents a
decrease in total deposits of $630 million or 12.4% in 2011. The reason for
the balance sheet showing a large decrease in deposits is due to the pending
sale of Vision Bank. The deposits for Vision Bank of $533 million at year-end
2011 are included on Park’s balance sheet in the category of liabilities held for
sale. At December 31, 2010, total deposits for Vision Bank were $633 million.
The deposits for Park’s Ohio-based subsidiaries increased by $3 million
in 2011. Additionally, the brokered time deposits of $110 million on Park’s
balance sheet at December 31, 2010, matured in 2011 and were not renewed.
The brokered time deposits were with PNB at year-end 2010.

Table 11 – Year-End Deposits

December 31,
(In thousands)

Noninterest bearing checking
Interest bearing transaction

accounts

Savings
Brokered time deposits
All other time deposits
Other

2011

2010

$ 995,733

$ 937,719

1,037,385
931,527
—
1,499,105
1,364

1,283,158
899,288
110,065
1,863,838
1,352

Change

$ 58,014

(245,773)
32,239
(110,065)
(364,734)
13

Total

$4,465,114

$5,095,420

$(630,306)

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

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

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

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

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

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

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

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

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

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

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

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

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

Sale of Common Stock: Park sold an aggregate of 509,184 common shares,
out of treasury shares, during 2010. Of the 509,184 common shares sold in
2010, 437,200 common shares were issued upon the exercise of warrants

F I N A N C I A L R E V I E W

associated with the capital raise that closed on October 30, 2009. As part of
the capital raise that closed on December 10, 2010, Park sold 71,984 common
shares and issued warrants for the purchase of 71,984 shares of common
stock. The warrants issued as part of the December 10, 2010 transaction had
an exercise price of $76.41 per share. Warrants covering the purchase of an
aggregate of 35,992 common shares expired on June 10, 2011 and warrants
covering the purchase of the other 35,992 common shares expired on
December 10, 2011.
In total for 2010, Park sold 509,184 common shares and warrants covering
71,984 common shares at a weighted average price per share of $67.99 for
gross proceeds of $34.6 million. Net of selling expenses and professional fees,
Park raised $33.5 million of common equity from capital raising activities in
2010.
During 2009, Park sold 904,072 common shares and warrants covering
500,000 common shares at a weighted average price per share of $61.20 for
gross proceeds of $55.3 million. Net of selling expenses and professional fees,
Park raised $53.5 million of common equity from capital raising activities in
2009.
Stockholders’ Equity: Tangible stockholders’ equity (stockholders’ equity
less goodwill and other intangible assets) to tangible assets (total assets less
goodwill and other intangible assets) was 9.68% at December 31, 2011 com-
pared to 9.04% at December 31, 2010 and 9.13% at December 31, 2009.
The ratio of tangible stockholders’ equity to tangible assets for each of the past
three years includes the issuance of $100 million of Park Series A Preferred
Shares to the U.S. Treasury on December 23, 2008. Excluding the balance of
Series A Preferred Shares, the ratio of tangible common stockholders’ equity
to tangible assets was 8.25% at December 31, 2011, 7.69% at December 31,
2010 and 7.75% at December 31, 2009.
In accordance with GAAP, Park reflects any unrealized holding gain or loss
on AFS securities, net of income taxes, as accumulated other comprehensive
income (loss) which is part of Park’s stockholders’ equity. The unrealized
holding gain on AFS securities, net of income taxes, was $12.7 million at year-
end 2011, compared to $15.1 million at year-end 2010 and $30.1 million at
year-end 2009. The decrease in the amount of unrealized holding gains on
AFS securities, net of income taxes, at year-end 2010 and year-end 2011 was
primarily due to the sale of AFS securities in 2010 and 2011 for gains. Park
sold AFS securities with an amortized cost value of $373 million in 2010 for
a gain of $11.9 million and sold AFS securities with an amortized cost value
of $557 million in 2011 for a gain of $27.7 million. The large gain from the
sale of securities in 2011 was possible due to the sharp decline in long-term
interest rates during the year.
In accordance with GAAP, Park adjusts accumulated other comprehensive
income (loss) to recognize the net actuarial gain or loss reflected in the
accounting for Park’s Pension Plan. See Note 13 of the Notes to Consolidated
Financial Statements for information on the accounting for Park’s Pension Plan.
Pertaining to the Pension Plan, Park recognized a net comprehensive loss of
$5.0 million in 2011, a net comprehensive loss of $2.4 million in 2010 and
a net comprehensive gain of $6.3 million in 2009. The comprehensive loss
in 2011 and 2010 was due to changes in actuarial assumptions, specifically
a decrease in the discount rate. This actuarial loss more than offset the positive
investment returns and contributions to the Pension Plan in 2010 and 2011.
The comprehensive gain in 2009 was due to positive investment returns and
contributions to the Pension Plan. At year-end 2011, the balance in accumu-
lated other comprehensive income/(loss) pertaining to the Pension Plan was
$(20.9) million, compared to $(15.9) million at December 31, 2010 and
$(13.5) million at December 31, 2009.
Park also recognized net comprehensive income/(loss) of $0.5 million,
$(0.1) million and $0.3 million for the years ended December 31, 2011,
2010 and 2009, respectively, due to the mark-to-market of the $25 million
cash flow hedge. See Note 19 of the Notes to Consolidated Financial Statements
for information on the accounting for Park’s derivative instruments.

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

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

In 2009, year-end loan balances increased by $149 million or 3.3%. At Vision
Bank, year-end loan balances decreased by $13 million or 1.9% during 2009.
Park’s Ohio-based subsidiaries increased loans by $162 million or 4.3%
during 2009.
A year ago, management projected that year-end loan balances would
increase by 1% to 3% in 2011. The actual change in year-end loan balances
was a decrease of 8.8% due to the pending sale of Vision Bank. As discussed
previously, year-end loan balances for Park’s Ohio-based subsidiaries increased
by 2.5% in 2011. Management expects that loan growth in 2012 will be in the
1% to 3% range.
Year-end residential real estate loans were $1,629 million, $1,692 million
and $1,555 million in 2011, 2010 and 2009, respectively. Residential real estate
loans decreased by $63.6 million or 3.8% in 2011, due to the pending sale of
Vision Bank. The residential real estate loans that will be included in the sale
of Vision Bank in the first quarter of 2012 totaled $153.6 million at December
31, 2011, and were included in assets held for sale. Without the pending sale
of Vision Bank, residential real estate loans would have increased by $90
million or 7.3% in 2011. Residential real estate loans increased by $137 million
or 8.8% in 2010 and decreased by $5 million or 0.3% in 2009. The increase
of $137 million in 2010 was primarily due to management’s decision to retain
15-year fixed-rate residential mortgage loans that were previously sold in the
secondary market. The balance of loans for this new product was $176 million
at December 31, 2010, with a weighted average interest rate of 3.82%. This 15-
year, fixed-rate product increased by $153 million to $329 million at December
31, 2011, and has a weighted average interest rate of 3.79%. Management
expects an increase in residential real estate loans in 2012 of 3% to 5%.
The long-term fixed-rate residential mortgage loans that Park originates are
generally sold in the secondary market and Park typically retains servicing
on these loans. As mentioned above, during 2010, Park began to retain on its
balance sheet 15-year fixed-rate residential mortgage loans. The balance of
sold fixed-rate residential mortgage loans was $1,347 million at year-end 2011,
compared to $1,471 million at year-end 2010 and $1,518 million at year-end
2009. The decrease in Park’s sold residential mortgage loan portfolio of $171
million in the last two years was due to the retention of the 15-year fixed-rate
residential mortgage loan product. The increase in the 15-year fixed-rate resi-
dential mortgage loan product during 2010 and 2011, of $329 million, was
$158 million more than the decrease in the long-term fixed-rate residential

F I N A N C I A L R E V I E W

mortgage sold servicing portfolio. Management is pleased with this perform-
ance as the 15-year fixed-rate mortgage loans retained on the balance sheet
would have been sold prior to 2010 and included in the servicing portfolio.
Year-end consumer loans were $617 million, $667 million and $704 million in
2011, 2010 and 2009, respectively. Consumer loans decreased by $50 million
or 7.6% in 2011 and decreased by $37 million or 5.3% in 2010. The consumer
loans that will be included in the pending sale of Vision Bank were only $4
million at December 31, 2011. The decrease in consumer loans in both 2011
and 2010 was primarily due to a decline in automobile loans originated in
Ohio, as competition for automobile loans increased in 2010 and 2011.
Consumer loans increased by $61 million or 9.5% in 2009. The increase
in consumer loans in 2009 was primarily due to an increase in automobile
loans originated through automobile dealers in Ohio. Management expects
that consumer loans will decrease by 1% to 2% in 2012.
On a combined basis, year-end commercial, financial and agricultural loans,
real estate construction loans and commercial real estate loans totaled $2,070
million, $2,371 million and $2,377 million at year-end 2011, 2010 and 2009,
respectively. These combined loan totals decreased by $301 million or 12.7%
in 2011. This decrease was primarily due to the pending sale of Vision Bank
as $211 million of these combined loan totals are classified as assets held for
sale on Park’s balance sheet at December 31, 2011. These combined loan totals
declined by $6 million or 0.3% in 2010 and increased by $93 million or 4.1%
in 2009. Management expects that commercial, financial and agricultural loans,
real estate construction loans and commercial real estate loans will grow by 1%
to 3% in 2012.

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

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

Table 12 – Loans by Type

December 31,
(In thousands)

Commercial, financial
and agricultural

Real estate –
construction
Real estate –
residential
Real estate –
commercial

Consumer
Leases

2011

2010

2009

2008

2007

$ 743,797

$ 737,902

$ 751,277

$ 714,296

$ 613,282

217,546

406,480

495,518

533,788

536,389

1,628,618

1,692,209

1,555,390

1,560,198

1,481,174

1,108,574
616,505
2,059

1,226,616
666,871
2,607

1,130,672
704,430
3,145

1,035,725
643,507
3,823

993,101
593,388
6,800

Total loans

$4,317,099

$4,732,685

$4,640,432

$4,491,337

$4,224,134

Table 13 – Selected Loan Maturity Distribution

December 31, 2011
(In thousands)

Commercial, financial and

agricultural

Real estate – construction
Real estate – commercial

One Year
or Less (1)

$315,077
130,995
145,748

Over One
Through
Five Years

$268,998
28,260
200,627

Over
Five
Years

Total

$159,722
58,291
762,199

$ 743,797
217,546
1,108,574

Total

$591,820

$497,885

$980,212

$2,069,917

Total of these selected loans due

after one year with:
Fixed interest rate
Floating interest rate

$ 529,119
$ 948,978

(1) Nonaccrual loans of $121.4 million are included within the one year or less classification

above.

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

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

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

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

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

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

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

F I N A N C I A L R E V I E W

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

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

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

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

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

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

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

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

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

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

Table 14 – Investment Securities

December 31,
(In thousands)

Obligations of U.S. Treasury and other
U.S. Government sponsored entities

2011

2010

2009

$ 371,657

$ 273,313

$ 347,595

Obligations of states and political subdivisions

4,652

14,211

20,123

U.S. Government asset-backed securities

1,262,527

1,681,815

1,425,361

Federal Home Loan Bank stock

Federal Reserve Bank stock

Equities

Total

Investments by category as a percentage

of total investment securities
Obligations of U.S. Treasury and other
U.S. Government sponsored entities

Obligations of states and political subdivisions

U.S. Government asset-backed securities

Federal Home Loan Bank stock

Federal Reserve Bank stock

Equities

Total

60,728

61,823

62,044

6,876

2,033

6,876

1,753

6,875

1,562

$1,708,473

$2,039,791

$1,863,560

21.8%

0.3%

73.9%

3.5%

0.4%

0.1%

13.4%

0.7%

82.5%

3.0%

0.3%

0.1%

18.6%

1.1%

76.5%

3.3%

0.4%

0.1%

100.0%

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

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

F I N A N C I A L R E V I E W

Table 15 – Distribution of Assets, Liabilities and Stockholders’ Equity

December 31,
(In thousands)

ASSETS
Interest earning assets:

Loans (1) (2)

Taxable investment securities

Tax-exempt investment securities (3)

Money market instruments

Total interest earning assets

Noninterest earning assets:
Allowance for loan losses

Cash and due from banks

Premises and equipment, net

Other assets

TOTAL

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest bearing liabilities:
Transaction accounts

Savings deposits

Time deposits

Total interest bearing deposits

Short-term borrowings
Long-term debt (4)

Total interest bearing liabilities

Noninterest bearing liabilities:

Demand deposits

Other

Total noninterest bearing liabilities

Stockholders’ equity

TOTAL

Daily
Average

2011

Interest

Average
Rate

Daily
Average

2010

Interest

Average
Rate

Daily
Average

2009

Interest

Average
Rate

$4,713,511

$264,192

1,840,842

68,873

8,038

78,593

575

178

6,640,984

333,818

5.60%

3.74%

7.15%

0.23%

5.03%

$4,642,478

$269,306

1,729,511

16,845

93,009

76,838

1,220

200

6,481,843

347,564

5.80%

4.44%

7.24%

0.22%

5.36%

$4,594,436

$276,893

1,847,706

29,597

52,658

90,558

2,205

116

6,524,397

369,772

6.03%

4.90%

7.45%

0.22%

5.67%

(128,512)

124,649

69,507

499,543

$7,206,171

$1,430,492

$ 2,686

1,126

23,842

27,654

823
30,169

58,646

946,406

1,816,506

4,193,404

297,537
881,921

5,372,862

999,085

90,351

1,089,436

743,873

$7,206,171

0.19%

0.12%

1.31%

0.66%

0.28%
3.42%

1.09%

(119,639)

116,961

69,839

493,746

$7,042,750

$1,354,392

$ 4,450

1,303

36,212

41,965

1,181
28,327

71,473

891,021

2,029,088

4,274,501

300,939
725,356

5,300,796

907,514

87,885

995,399

746,555

$7,042,750

0.33%

0.15%

1.78%

0.98%

0.39%
3.91%

1.35%

(103,683)

110,227

67,944

436,646

$7,035,531

$1,229,553

$ 7,889

2,926

53,805

64,620

3,209
26,370

94,199

805,783

2,197,055

4,232,391

419,733
780,435

5,432,559

818,243

109,415

927,658

675,314

$7,035,531

0.64%

0.36%

2.45%

1.53%

0.76%
3.38%

1.73%

3.94%
4.22%

Net interest earnings
Net interest spread
Net yield on interest earning assets (net interest margin)

$275,172

$276,091

$275,573

3.94%
4.14%

4.01%
4.26%

(1) Loan income includes loan related fee income of $2,381 in 2011, $238 in 2010 and $1,669 in 2009. Loan income also includes the effects of taxable equivalent adjustments using a 35% tax rate in 2011,

2010 and 2009. The taxable equivalent adjustment was $1,734 in 2011, $1,614 in 2010 and $1,294 in 2009.

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

(3)

Interest income on tax-exempt investment securities includes the effects of taxable equivalent adjustments using a 35% tax rate in 2011, 2010 and 2009. The taxable equivalent adjustments were $204 in
2011, $434 in 2010 and $788 in 2009.

(4)

Includes subordinated debenture and subordinated notes.

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

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

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

Table 16 – Quarterly Net Interest Margin

(In thousands)

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

2011

Average Interest
Earning Assets

$6,722,136

6,745,790

6,610,953

6,487,958

Net Interest
Income

$ 69,313

70,022

67,620

66,279

$6,640,984

$273,234

Tax Equivalent
Net Interest Margin

4.21%

4.19%

4.09%

4.08%

4.14%

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

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

F I N A N C I A L R E V I E W

Table 17 – Volume/Rate Variance Analysis

Change from 2010 to 2011
Total
Rate
Volume

Change from 2009 to 2010
Total
Rate
Volume

(In thousands)

Increase (decrease) in:
Interest income:

Total loans

$ 3,988 $ (9,102) $ (5,114)

$ 2,915 $(10,502) $ (7,587)

Taxable investments
Tax-exempt investments
Money market
instruments

Total interest
income

Interest expense:

Transaction accounts
Savings accounts
Time deposits
Short-term borrowings
Long-term debt

Total interest
expense

4,711
(631)

(12,676)
(14)

(7,965)
(645)

(5,560)
(925)

(8,160)
(60)

(13,720)
(985)

(31)

(22)

—

8,037

(21,783)

(13,746)

(3,486)

(18,722)

(22,208)

$ 237 $ (2,001) $ (1,764)
(177)
(12,370)
(358)
1,842

(262)
(8,856)
(344)
(3,821)

85
(3,514)
(14)
5,663

$ 725 $ (4,164) $ (3,439)
(1,623)
(1,893)
(17,593)
(13,749)
(2,028)
(1,282)
1,957
3,917

270
(3,844)
(746)
(1,960)

2,457

(15,284)

(12,827)

(5,555)

(17,171)

(22,726)

Net variance

$ 5,580 $ (6,499) $

(919)

$ 2,069 $ (1,551) $

518

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

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

Table 18 – Other Income

Year Ended December 31
(In thousands)

2011

(Restated)
2010

2009

Income from fiduciary activities

$14,965

$13,874

$12,468

Service charges on deposits

Net gains on sales of securities

Other service income

Checkcard fee income

Bank owned life insurance income

ATM fees

OREO devaluations

Other

18,307

28,829

10,606

12,496

5,089

2,703

(8,219)

10,134

19,717

11,864

13,816

11,177

4,978

2,951

(13,206)

9,709

21,985

7,340

18,767

9,339

5,050

3,082

(6,818)

9,977

Total other income

$94,910

$74,880

$81,190

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

Service charges on deposit accounts decreased by $1.4 million or 7.2% to
$18.3 million in 2011 and decreased by $2.3 million or 10.3% to $19.7 million
in 2010. The decrease in service charge income in 2011 was primarily due to
a decrease in fee income from overdraft charges and other non-sufficient funds
(NSF) charges. Park’s customers did not use our courtesy overdraft program as

frequently in 2011 and, as a result, this fee income decreased by $1.3 million
or 8.7% in 2011 compared to 2010. Management expects that revenue from
service charges on deposits in 2012 will be within a range of $16 million to
$18 million.

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

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

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

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

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

F I N A N C I A L R E V I E W

Table 19 – Gain on Sale of Securities

(In thousands)

Fourth quarter
Third quarter
Second quarter
First quarter

Total

Amortized
Cost

$ 70,848
212,799
191,037
106,470

$581,154

Book
Yield

4.39%
2.60%
5.25%
5.03%

4.13%

Sales
Proceeds

$ 74,215
216,264
206,399
113,105

$609,983

Yield to
Buyer

2.17%
2.03%
1.92%
2.13%

2.03%

Gain

$ 3,367
3,465
15,362
6,635

$28,829

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

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

Table 20 – Other Expense

Year Ended December 31,
(In thousands)

Salaries and employee benefits
Data processing fees
Fees and service charges
Net occupancy expense of bank premises
Amortization of intangibles
Furniture and equipment expense
Insurance
Marketing
Postage and telephone
Other

Total other expense

Full time equivalent employees

2011

$102,068
4,965
21,119
11,295
3,534
10,773
6,821
2,967
6,060
18,715

$188,317

1,920

2010

$98,315
5,728
19,972
11,510
3,422
10,435
8,983
3,656
6,648
18,438

$187,107

1,969

2009

$101,225
5,674
15,935
11,552
3,746
9,734
12,072
3,775
6,903
18,109

$188,725

2,024

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

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

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

The subcategory “other” expense includes expenses for supplies, travel,
charitable contributions, amortization of low income housing tax investments,
state taxes, expenses pertaining to other real estate owned and other miscella-
neous expenses. The subcategory other expense increased by $276,000 or
1.5% to $18.7 million in 2011 and increased by $329,000 or 1.8% to $18.4
million in 2010.
A year ago, Park’s management projected that total other expense would be
approximately $183 million to $187 million in 2011. The actual expense for the
year of $188.3 million was $1.3 million or 0.7% higher than the upper end of
management’s estimate. Management expects that total other expense for 2012
will be approximately $170 million to $175 million.
Income Taxes: Federal income tax expense was $28.3 million in 2011,
compared to $17.8 million in 2010 and $25.4 million in 2009. Federal
income tax expense as a percentage of income before taxes, adjusted for
the state income tax expense or benefit, was 25.6% in 2011, compared to
23.4% in 2010 and to 25.5% in 2009. A lower federal effective tax rate than
the statutory rate of 35% is primarily due to tax-exempt interest income from
state and municipal investments and loans, low income housing tax credits
and income from bank owned life insurance. For the year ending December
31, 2012, management expects the effective federal income tax rate will be
between 26% and 28%.
State income tax expense was $6.1 million in 2011, compared to state income
tax benefits of $1.2 million in 2010 and $2.5 million in 2009. All of the state
income tax expense or benefit pertains to Vision Bank, as Park and its Ohio-
based subsidiaries do not pay state income tax to the state of Ohio, but pay
franchise tax based on year-end equity. The franchise tax expense is included
in “state taxes” as part of total other expense on Park’s Consolidated Statements
of Income.
Park recognized $6.1 million in state tax expense during 2011, which was
the charge necessary to write-off the previously reported state operating loss
carryforward asset and other state deferred tax assets at Vision Bank. Prior
to the execution of the Purchase Agreement with Centennial, management of
Park believed that a merger of Vision Bank into The Park National Bank (the
national bank subsidiary of Park) would enable Park to fully utilize the state
net operating loss carryforward asset recorded at Vision Bank. The structure
of the transactions contemplated by the Purchase Agreement will not allow
either the buyer or the seller to benefit from the previously recorded net
operating loss carryforward asset at Vision Bank to offset future taxable income;
therefore, this asset was written-off by Vision Bank at December 31, 2011.
State income tax expense was a credit in 2010 and 2009 as a result of losses
at Vision Bank in those years. Park performed an analysis in those years to
determine if a valuation allowance against deferred tax assets was required
in accordance with GAAP. Vision Bank is subject to state income tax in Alabama
and Florida. In 2010, a state tax benefit of $1.16 million was recorded by Vision
Bank, consisting of a gross benefit of $3.46 million and a valuation allowance
of $2.30 million ($1.5 million net of the federal income tax benefit).

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

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

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

F I N A N C I A L R E V I E W

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

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

Table 21 – General Reserve Trends – Park National Corporation

Year Ended December 31,
(In thousands)

Allowance for loan losses, end of period

Specific reserves

General reserves

Total loans

Impaired commercial loans

Non-impaired loans

Allowance for loan losses as a percentage

of period end loans

General reserves as a percentage

of non-impaired loans

2011

68,444

15,935

2010

2009

$ 143,575

$ 116,717

66,904

36,721

52,509

$ 76,671

79,996

$4,317,099

$4,732,685

$4,640,432

187,074

250,933

201,143

$4,130,025

$4,481,752

$4,439,289

1.59%

3.03%

2.52%

1.27%

1.71%

1.80%

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

Table 22 – General Reserve Trends – Vision Bank

Year Ended December 31,
(In thousands)

Retained Portfolio
2011

2010

2009

Allowance for loan losses, end of period

$ 10,739

$ 68,937

$ 44,087

Specific reserves

General reserves

Total loans

Impaired commercial loans

Non-impaired loans

Allowance for loan losses as a percentage

of period end loans

General reserves as a percentage

of non-impaired loans

8,889

1,850

53,928

29,225

$ 15,009

$ 14,862

$123,883

$640,580

$677,018

91,965

160,239

139,310

$ 31,918

$480,341

$537,708

8.67%

10.76%

6.51%

5.80%

3.12%

2.76%

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

Table 23 – General Reserve Trends – Park’s Ohio-Based Subsidiaries

Year Ended December 31,
(In thousands)

Allowance for loan losses, end of period

Specific reserves

General reserves

Total loans

Impaired commercial loans

Non-impaired loans

Allowance for loan losses as a percentage

of period end loans

General reserves as a percentage

of non-impaired loans

2011

57,705

7,046

50,659

2010

74,638

12,976

61,662

2009

72,630

7,496

65,134

$4,193,216

$4,092,105

$3,963,414

95,109

90,694

61,833

$4,098,107

$4,001,411

$3,901,581

1.38%

1.82%

1.83%

1.24%

1.54%

1.67%

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

Table 24 – New Nonaccrual Loan Information

Year Ended December 31,
(In thousands)

2011

2010

2009

Nonaccrual loans, beginning of period

$289,268

$233,544

$159,512

New nonaccrual loans – Ohio-based

subsidiaries

New nonaccrual loans – Vision Bank

Resolved nonaccrual loans

78,316

45,842

85,081

90,094

218,320

119,451

57,641

126,540

110,149

Nonaccrual loans, end of period

$195,106

$289,268

$233,544

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

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

F I N A N C I A L R E V I E W

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

Table 25 – Summary of Loan Loss Experience

(In thousands)

2011

2010

2009

2008

2007

Average loans

(net of unearned
interest)

Allowance for
loan losses:

$4,713,511 $4,642,478 $4,594,436 $4,354,520 $4,011,307

Beginning balance

143,575

116,717

100,088

87,102

70,500

Charge-offs:

Commercial, financial
and agricultural

Real estate –
construction

Real estate –
residential

Real estate –
commercial

Consumer
Leases

18,350

8,484

10,047

2,953

4,170

64,166

23,308

21,956

34,052

7,899

20,691

18,401

11,765

12,600

5,785

23,063
7,612
—

7,748
8,373
—

5,662
9,583
9

4,126
9,181
4

1,899
8,020
3

Total charge-offs $ 133,882 $ 66,314 $

59,022 $ 62,916 $

27,776

Recoveries:

Commercial, financial
and agricultural

Real estate –

construction

Real estate –
residential
Real estate –
commercial

Consumer

Leases

1,402 $

1,237 $

1,010 $

861 $

1,011

1,463

813

1,322

137

1,719

1,429

1,723

1,128

1,825

2,385

850

1,763

—

771

2,001

451

2,807

180

718

560

3,035

Total recoveries

8,798 $

6,092 $

6,830 $

5,415 $

5,568

Net charge-offs $ 125,084 $ 60,222 $

52,192 $ 57,501 $

22,208

Provision charged
to earnings

Transfer of loans
at fair value

Allowance for loan
losses acquired
(transferred) related
to Vision Bank

63,272

87,080

68,821

70,487

29,476

(219)

—

(13,100)

—

9,334

Ending balance

68,444 $ 143,575 $ 116,717 $ 100,088 $

87,102

Ratio of net charge-offs

to average loans

Ratio of allowance for
loan losses to end of
year loans, net of
unearned interest

2.65%

1.30%

1.14%

1.32%

0.55%

1.59%

3.03%

2.52%

2.23%

2.06%

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

Table 26 – Allocation of Allowance for Loan Losses

December 31,

2011

2010

2009

2008

2007

Percent of
Loans Per
(In thousands) Allowance Category Allowance Category Allowance Category Allowance Category

Percent of
Loans Per

Percent of
Loans Per
Allowance Category

Commercial,
financial
and
agricultural
Real estate –
construction
Real estate –
residential
Real estate –
commercial

Consumer
Leases

$16,950

17.23% $ 11,555

15.59% $ 14,725

16.19% $ 14,286

15.90% $14,557

14.52%

15,539

5.04%

70,462

8.59%

47,521

10.68%

24,794

11.88%

20,007

12.70%

14,433

37.72%

30,259

35.75%

19,753

33.51%

22,077

34.74%

15,997

35.06%

15,692
5,830

25.68%
14.28%
— 0.05%

24,369
6,925
5

25.92%
14.09%
0.06%

23,970
10,713
35

24.37%
15.18%
0.07%

15,498
23,391
42

23.06%
14.33%
0.09%

15,989
20,477
75

23.51%
14.05%
0.16%

Total

$68,444 100.00% $143,575 100.00% $116,717 100.00% $100,088 100.00% $87,102 100.00%

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

Nonperforming Assets: Nonperforming loans include: 1) loans whose
interest is accounted for on a nonaccrual basis; 2) renegotiated loans on
accrual status; and 3) loans which are contractually past due 90 days or
more as to principal or interest payments but whose interest continues to
accrue. Prior to Park’s adoption of ASU 2011-02, Park classified all troubled
debt restructurings (TDRs) as nonaccrual loans. With the adoption of ASU
2011-02, management determined it was appropriate to return certain TDRs
to accrual status. Specifically, if the restructured note has been current for
a period of at least six months, and management expects the borrower will
remain current throughout the renegotiated contract, the loan may be returned
to accrual status. At December 31, 2011, management deemed it appropriate to
return $28.6 million TDRs to accrual status, while the remaining $92.1 million
of TDRs are on nonaccrual status. At December 31, 2010, there were $80.7
million of troubled debt restructurings included in nonaccrual loan totals.
Other real estate owned results from taking possession of property used
as collateral for a defaulted loan.

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

Table 27 – Park – Nonperforming Assets

December 31,
(In thousands)

Nonaccrual loans
Renegotiated loans
Loans past due 90 days

or more

Total nonperforming

loans

Other real estate owned –
Park National Bank

Other real estate owned –

Vision Bank

Other real estate owned –

SE, LLC

Total nonperforming

assets

Percentage of

nonperforming loans
to loans
Percentage of

nonperforming assets
to loans
Percentage of

nonperforming assets
to total assets

2011

2010

2009

2008

2007

$195,106
28,607

$289,268
—

$233,544
142

$159,512
2,845

$101,128
2,804

3,489

3,590

14,773

5,421

4,545

227,202

292,858

248,459

167,778

108,477

13,240

8,385

6,037

6,149

6,369

—

33,324

35,203

19,699

7,074

29,032

—

$269,474

$334,567

$289,699

$193,626

$121,920

5.26%

6.19%

5.35%

3.74%

2.57%

6.24%

7.07%

6.24%

4.31%

2.89%

3.86%

4.59%

4.11%

2.74%

1.88%

F I N A N C I A L R E V I E W

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

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

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

Table 28 – Vision Bank – Nonperforming Assets

December 31,
(In thousands)

2011

2010

2009

2008

2007

Nonaccrual loans
Renegotiated loans
Loans past due 90 days or more

$ 98,993
2,265
122

$171,453
—
364

$148,347
—
11,277

$ 91,206
2,845
644

Total nonperforming loans

101,380

171,817

159,624

Other real estate owned

—

33,324

35,203

94,695

19,699

$63,015
—
457

63,472

7,074

Total nonperforming assets

$101,380

$205,141

$194,827

$114,394

$70,546

Percentage of

nonperforming loans
to loans
Percentage of

nonperforming assets
to loans
Percentage of

nonperforming assets
to total assets

81.84%

26.82%

23.58%

13.71%

9.93%

81.84%

32.02%

28.78%

16.57%

11.04%

37.40%

25.90%

21.70%

12.47%

8.24%

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

Table 29 – Park Excluding Vision Bank – Nonperforming Assets

December 31,
(In thousands)

Nonaccrual loans
Renegotiated loans
Loans past due 90 days

or more

Total nonperforming

loans

Other real estate owned –
Park National Bank

Other real estate owned –

SE, LLC

Total nonperforming

assets

Percentage of

nonperforming loans
to loans
Percentage of

nonperforming assets
to loans
Percentage of

nonperforming assets
to total assets

2011

2010

2009

2008

2007

$ 96,113
26,342

$117,815
—

$85,197
142

$68,306
—

$38,113
2,804

3,367

3,226

3,496

4,777

4,088

125,822

121,041

88,835

73,083

45,005

13,240

8,385

6,037

6,149

6,369

29,032

—

$168,094

$129,426

$94,872

$79,232

$51,374

3.00%

2.96%

2.24%

1.92%

1.26%

4.01%

3.16%

2.39%

2.08%

1.43%

2.64%

1.99%

1.54%

1.29%

0.91%

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

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

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

When determining the quarterly loan loss provision, Park reviews the grades
of commercial loans. These loans are graded from 1 to 8. A grade of 1 indicates
little or no credit risk and a grade of 8 is considered a loss. Commercial loans
with grades of 1 to 4 (pass-rated) are considered to be of acceptable credit
risk. Commercial loans graded a 5 (special mention) are considered to be
watch list credits and a higher loan loss reserve percentage is allocated to these
loans. Commercial loans graded 6 (substandard), also considered watch list
credits, are considered to represent higher credit risk and, as a result, a higher
loan loss reserve percentage is allocated to these loans. Generally, commercial
loans that are graded a 6 are considered for partial charge-off. Commercial
loans that are graded a 7 (doubtful) are shown as nonperforming and Park
generally charges these loans down to their fair value by taking a partial charge-
off or recording a specific reserve. Any commercial loan graded an 8 (loss) is
completely charged-off.

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

A significant portion of Park’s allowance for loan losses is allocated to commer-
cial loans classified as “special mention” or “substandard.” “Special mention”
loans are loans that have potential weaknesses that may result in loss exposure
to Park. “Substandard” loans are those that exhibit a well defined weakness,
jeopardizing repayment of the loan, resulting in a higher probability that Park
will suffer a loss on the loan unless the weakness is corrected. Park’s annual-
ized 36-month loss experience, defined as charge-offs plus changes in specific
reserves, within the commercial loan portfolio has been 0.71% of the principal
balance of these loans. This annualized 36-month loss experience excludes
Vision Bank loans, as the majority of the Vision Bank performing loan portfolio
will be acquired by Centennial Bank. The allowance for loan losses related to
performing commercial loans was $37.9 million or 1.69% of the outstanding
principal balance of other accruing commercial loans at December 31, 2011.

F I N A N C I A L R E V I E W

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

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

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

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

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

The overall reserve of 1.69% for other accruing commercial loans breaks down
as follows: pass-rated commercial loans are reserved at 1.36%; special mention
commercial loans are reserved at 5.20%; and substandard commercial loans
are reserved at 14.90%. The reserve levels for pass-rated, special mention
and substandard commercial loans in excess of the annualized 36-month
loss experience of 0.71% are due to the following factors which management
reviews on a quarterly or annual basis:

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

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

■ Environmental Loss Factor: Management has identified certain

macroeconomic factors that trend in accordance with losses in Park’s
commercial loan portfolio. These macroeconomic factors are reviewed
quarterly and adjustments to the environmental loss factor impacting
each segment in the performing commercial loan portfolio correlates
to changes in the macroeconomic environment.

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

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

F I N A N C I A L R E V I E W

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

Table 30 – Interest Rate Sensitivity

(In thousands)

Interest earning

assets:
Investment

securities (1)
Money market
instruments

Loans (1)
Loans held
for sale

Total interest
earning
assets

Interest bearing
liabilities:
Interest bearing
transaction
accounts (2)

Savings

accounts (2)
Time deposits
Other

0-3
Months

3-12
Months

1-3
Years

3-5
Years

Over 5
Years

Total

$ 373,909 $ 644,127 $ 403,371 $ 128,725 $ 158,341 $1,708,473

19,716
1,163,853

—
1,363,241

—
1,395,881

—
263,830

—
130,294

19,716
4,317,099

369,044

—

— 369,044

1,926,522

2,007,368

1,799,252

392,555

288,635

6,414,332

568,504

— 468,881

—

— 1,037,385

203,610
344,381
1,364

— 727,917
332,885
—

692,923
—

—
127,371
—

— 931,527
1,499,105
1,364

1,545
—

Total deposits 1,117,859

692,923

1,529,683

127,371

1,545

3,469,381

Deposits held
for sale

Short-term

borrowings
Long-term debt
Subordinated
debentures/
notes

$ 452,667 $

— $

— $ 452,667

263,594
—

—
15,500

—
151,000

—
52,000

— 263,594
823,182

604,682

15,000

—

25,000

35,250

—

75,250

Total interest
bearing
liabilities

Interest rate

sensitivity gap
Cumulative rate
sensitivity gap
Cumulative gap as
a percentage of
total interest
earning assets

1,849,120

708,423

1,705,683

214,621

606,227

5,084,074

77,402

1,298,945

93,569

177,934

(317,592) 1,330,258

77,402

1,376,347

1,469,916

1,647,850

1,330,258

1.21%

21.46%

22.92%

25.69%

20.74%

(1)

Investment securities and loans that are subject to prepayment are shown in the table by the
earlier of their re-pricing date or their expected repayment date and not by their contractual
maturity date. Nonaccrual loans of $195.1 million are included within the three to twelve month
maturity.

(2) Management considers interest bearing transaction accounts and savings accounts to be core

deposits and, therefore, not as rate sensitive as other deposit accounts and borrowed money.
Accordingly, only 55% of interest bearing transaction accounts and 22% of savings accounts
are considered to re-price within one year. If all of the interest bearing checking accounts and
savings accounts were considered to re-price within one year, the one year cumulative gap
would change from a positive 21.46% to a positive 2.80%.

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

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

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

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

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

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

F I N A N C I A L R E V I E W

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

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

Table 31 – Contractual Obligations

December 31, 2011

Payments Due In

(In thousands)

Note

Deposits without
stated maturity

Certificates of deposit

Short-term borrowings

Long-term debt

Subordinated debentures/

notes

Operating leases

Purchase obligations

Total contractual
obligations

0–1
Years

1–3
Years

3–5
Years

Over 5
Years

Total

$2,966,009

— $

— $2,966,009

1,035,594

334,594

127,372

1,545

1,499,105

263,594

—

— 263,594

15,569

151,155

127,181

529,277

823,182

—

1,448

1,470

—

— 75,250

75,250

2,014

1,171

—

961

—

5,594

1,470

$4,283,684 $487,763

$255,724 $607,033 $5,634,204

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

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

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

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

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

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

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

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

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

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

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

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

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

F I N A N C I A L R E V I E W

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

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

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

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

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

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

SELECTED FINANCIAL DATA
Table 32 summarizes five-year financial information.

Table 32 – Consolidated Five-Year Selected Financial Data

December 31,
(Dollars in thousands,
except per share data)

Results of operations:

Interest income
Interest expense
Net interest income
Provision for loan

losses

Net interest income
after provision for
loan losses
Net gains on sale
of securities
Noninterest income
Noninterest expense
Net income
Net income available

to common
shareholders
Per common share:

Net income per common

share – basic

Net income per common

share – diluted

Cash dividends declared

Average balances:

Loans
Investment securities
Money market

2011

2010
(Restated)

2009

2008

2007

$ 331,880 $ 345,517 $ 367,690 $ 391,339 $ 401,824
167,147
234,677

135,466
255,873

94,199
273,491

71,473
274,044

58,646
273,234

63,272

87,080

68,821

70,487

29,476

209,962

186,964

204,670

185,386

205,201

28,829
66,081
188,317
82,140

11,864
63,016
187,107
58,101

7,340
73,850
188,725
74,192

1,115
83,719
234,501
13,708

—
71,640
224,164
22,707

76,284

52,294

68,430

13,566

22,707

4.95

4.95
3.76

3.45

3.45
3.76

4.82

4.82
3.76

0.97

0.97
3.77

1.60

1.60
3.73

$4,713,511 $4,642,478 $4,594,436 $4,354,520 $4,011,307
1,596,205
1,877,303
1,848,880

1,801,299

1,746,356

instruments and other

78,593

93,009

52,658

15,502

17,838

Total earning assets 6,640,984

6,481,843

6,524,397

6,171,321

5,625,350

Noninterest bearing

deposits

Interest bearing

deposits

999,085

907,514

818,243

739,993

697,247

4,193,404

4,274,501

4,232,391

3,862,780

3,706,231

Total deposits

5,192,489

5,182,015

5,050,634

4,602,773

4,403,478

Short-term borrowings $ 297,537 $ 300,939 $ 419,733 $ 609,219 $ 494,160
568,575
725,356
Long-term debt
618,758
746,555
Stockholders’ equity
Common stockholders’

835,522
567,965

881,921
743,873

780,435
675,314

equity
Total assets

646,169
7,206,171

649,682
7,042,750

579,224
7,035,531

565,612
6,708,086

618,758
6,169,156

Ratios:

Return on average

assets (x)

Return on average

common equity (x)
Net interest margin (1)
Dividend payout ratio
Average stockholders’
equity to average
total assets
Leverage capital
Tier 1 capital
Risk-based capital

1.06%

0.74%

0.97%

0.20%

0.37%

11.81%
4.14%
70.50%

10.32%
9.81%
14.15%
16.65%

8.05%
4.26%
98.24%

10.60%
9.54%
13.24%
15.71%

11.81%
4.22%
78.27%

2.40%
4.16%
387.79%

3.67%
4.20%
232.35%

9.60%
9.04%
12.45%
14.89%

8.47%
8.36%
11.69%
13.47%

10.03%
7.10%
10.16%
11.97%

(1) Computed on a fully taxable equivalent basis.

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

F I N A N C I A L R E V I E W

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

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

Table 34 – Net Income Available to Common Shareholders
and Related Performance Metrics

December 31,
(Dollars in thousands,
except per share data)

2011

2010
(Restated)

2009

2008

2007

Results of operations:
Net income available

to common
shareholders
excluding
impairment
charge (a)
Per common share:
Net income per

common share
excluding
impairment
charge –
diluted (a)

Ratios:

Return on average
assets excluding
impairment
charge (a)(b)
Return on average
common equity
excluding
impairment
charge (a)(x)

Noninterest expense

excluding
impairment
charge to
net revenue (1)

$76,284

$52,294

$68,430

$68,552

$76,742

4.95

3.45

4.82

4.91

5.40

1.06%

0.74%

0.97%

1.02%

1.24%

11.81%

8.05%

11.81%

12.12%

12.40%

55.18%

54.01%

52.59%

55.21%

(1) Computed on a fully tax equivalent basis.

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

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

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

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

Table 35 – Market and Dividend Information

2011:

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

2010:

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

High

Low

Last
Price

$ 73.64

$ 62.99

$ 66.82

69.59

66.21

65.70

62.14

49.00

49.80

65.86

52.88

65.06

$ 64.70

$ 52.58

$ 62.31

70.25

67.54

74.39

61.50

59.35

62.66

65.04

64.04

72.67

Cash
Dividend
Declared
Per Share

$0.94

0.94

$0.94

0.94

Table 33 – Quarterly Financial Data

(Dollars in thousands,
except per share data)

March 31
(Restated)

Three Months Ended
Sept. 30
June 30
(Restated)
(Restated)

Dec. 31

2011:

Interest income

Interest expense

Net interest income

Provision for loan losses

Gain on sale of securities

Income before
income taxes

Net income

Net income available

to common shareholders

Per common share data:

Net income per common

share – basic (x)

Net income per common
share – diluted (x)

Weighted-average common
stock outstanding – basic

Weighted-average common
stock equivalent – diluted

2010:

Interest income

Interest expense

Net interest income

Provision for loan losses

Gain on sale of securities

Income before
income taxes

Net income

Net income available

to common shareholders

Per common share data:

Net income per common

share – basic (x)

Net income per common
share – diluted (x)

Weighted-average common
stock outstanding – basic

Weighted-average common
stock equivalent – diluted

$84,662

$84,922

$82,065

$80,231

15,349

69,313

14,100

6,635

30,532

22,196

14,900

70,022

12,516

15,362

41,000

28,954

14,445

67,620

16,438

3,465

27,075

20,381

13,952

66,279

20,218

3,367

17,948

10,609

20,732

27,490

18,917

9,145

1.35

1.79

1.23

0.59

15,398,930

15,398,919

15,398,909

15,403,861

15,403,420

15,399,593

15,398,909

15,403,861

$87,202

$87,242

$86,682

19,822

67,380

16,550

8,304

27,954

20,779

18,521

68,721

13,250

3,515

28,632

21,166

17,237

69,445

14,654

—

26,625

19,577

(Restated)
$84,391

15,893

68,498

42,626

(8,474)

(3,421)

19,327

19,715

18,125

(4,873)

1.30

1.19

(0.32)

14,882,774

15,114,846

15,272,720

15,340,427

14,882,774

15,114,846

15,272,720

15,352,600

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

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

F I N A N C I A L R E V I E W

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

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

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

150

125

100

e
u
a
V
x
e
d
n
I

12/31/06

12/31/07

12/31/08

12/31/09

12/31/10

12/31/11

Table 36 – Total Return Performance

PERIOD ENDING

Index

12/31/06

12/31/07

12/31/08

12/31/09

12/31/10

12/31/11

Park National Corporation

NYSE Amex Composite

NASDAQ Bank

SNL Bank and Thrift Index

100.00

68.11

121.19

80.09

76.26

80.17

72.17

62.84

43.85

70.06

97.85

52.60

43.27

91.82

87.57

122.89

130.62

60.04

48.30

53.74

37.56

M A N A G E M E N T ’ S R E P O R T O N

I N T E R N A L C O N T R O L

O V E R F I N A N C I A L R E P O R T I N G

To the Board of Directors and Stockholders
Park National Corporation

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

a.) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions

and dispositions of the assets of the Corporation and its consolidated subsidiaries;

b.) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial

statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures
of the Corporation and its consolidated subsidiaries are being made only in accordance with authorizations of
management and directors of the Corporation; and

c.) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or

disposition of the assets of the Corporation and its consolidated subsidiaries that could have a material effect
on the financial statements.

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

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

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

Based on our assessment under the criteria described in the preceding paragraph, management concluded that the
Corporation maintained effective internal control over financial reporting as of December 31, 2011.

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

C. Daniel DeLawder
Chairman and Chief Executive Officer

David L. Trautman
President

John W. Kozak
Chief Financial Officer

February 29, 2012

R E P O R T O F

I N D E P E N D E N T

R E G I S T E R E D P U B L I C A C C O U N T I N G F I R M

To the Board of Directors and Shareholders
Park National Corporation
Newark, Ohio

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

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

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

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

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

Columbus, Ohio
February 29, 2012

C O N S O L I D A T E D B A L A N C E S H E E T S

PARK NATIONAL CORPORATION AND SUBSIDIARIES
at December 31, 2011 and 2010 (In thousands, except share and per share data)

ASSETS

Cash and due from banks

Money market instruments

Cash and cash equivalents

Investment securities:

Securities available-for-sale, at fair value (amortized cost of $801,147 and

$1,274,258 at December 31, 2011 and 2010, respectively)

Securities held-to-maturity, at amortized cost (fair value of $834,574 and

$686,114 at December 31, 2011 and 2010, respectively)

Other investment securities

Total investment securities

Total loans

Allowance for loan losses

Net loans

Other assets:

Bank owned life insurance

Goodwill

Other intangibles

Premises and equipment, net

Accrued interest receivable

Other real estate owned

Mortgage loan servicing rights

Other

Assets held for sale

Total other assets

Total assets

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

2011

$ 137,770

19,716

157,486

820,645

820,224

67,604

1,708,473

4,317,099

(68,444)

4,248,655

154,567

72,334

2,509

53,741

19,697

42,272

9,301

120,748

382,462

857,631

$6,972,245

2010

$ 109,058

24,722

133,780

1,297,522

673,570

68,699

2,039,791

4,732,685

(143,575)

4,589,110

146,450

72,334

6,043

69,567

24,137

41,709

10,488

148,852

—

519,580

$7,282,261

C O N S O L I D A T E D B A L A N C E S H E E T S

(CONTINUED)

PARK NATIONAL CORPORATION AND SUBSIDIARIES
at December 31, 2011 and 2010 (In thousands, except share and per share data)

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits:

Noninterest bearing

Interest bearing

Total deposits

Short-term borrowings

Long-term debt

Subordinated debentures

Total borrowings

Other liabilities:

Accrued interest payable

Other

Liabilities held for sale

Total other liabilities

Total liabilities

COMMITMENTS AND CONTINGENCIES

Stockholders’ equity:

Preferred stock (200,000 shares authorized;

100,000 shares issued with $1,000 per share
liquidation preference)

Common stock, no par value (20,000,000 shares authorized;
16,151,021 shares issued at December 31, 2011 and
16,151,062 issued at December 31, 2010)

Common stock warrants

Accumulated other comprehensive income (loss), net

Retained earnings

Less: Treasury stock (745,109 shares at December 31, 2011 and

752,128 shares at December 31, 2010)

Total stockholders’ equity

2011

$ 995,733

3,469,381

4,465,114

263,594

823,182

75,250

1,162,026

4,916

61,639

536,186

602,741

6,229,881

98,146

301,202

4,297

(8,831)

424,557

(77,007)

742,364

2010

$ 937,719

4,157,701

5,095,420

663,669

636,733

75,250

1,375,652

6,123

75,358

—

81,481

6,552,553

97,290

301,204

4,473

(1,868)

406,342

(77,733)

729,708

Total liabilities and stockholders’ equity

$6,972,245

$7,282,261

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

C O N S O L I D A T E D S T A T E M E N T S O F

I N C O M E

PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 2011, 2010 and 2009 (In thousands, except per share data)

Interest and dividend income:
Interest and fees on loans

Interest and dividends on:

Obligations of U.S. Government, its agencies

and other securities

Obligations of states and political subdivisions

Other interest income

Total interest and dividend income

Interest expense:

Interest on deposits:

Demand and savings deposits

Time deposits

Interest on short-term borrowings

Interest on long-term debt

Total interest expense

Net interest income

Provision for loan losses

Net interest income after provision for loan losses

Other income:

Income from fiduciary activities

Service charges on deposit accounts

Net gains on sales of securities

Other service income

Checkcard fee income

Bank owned life insurance income

ATM fees

OREO devaluations

Other

Total other income

2011

2010

2009

$262,458

$267,692

$275,599

68,873

371

178

331,880

3,812

23,842

823

30,169

58,646

273,234

63,272

209,962

14,965

18,307

28,829

10,606

12,496

5,089

2,703

(8,219)

10,134

$ 94,910

76,839

786

200

345,517

5,753

36,212

1,181

28,327

71,473

274,044

87,080

186,964

13,874

19,717

11,864

13,816

11,177

4,978

2,951

(13,206)

9,709

$ 74,880

90,558

1,417

116

367,690

10,815

53,805

3,209

26,370

94,199

273,491

68,821

204,670

12,468

21,985

7,340

18,767

9,339

5,050

3,082

(6,818)

9,977

$ 81,190

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

C O N S O L I D A T E D S T A T E M E N T S O F

I N C O M E

(CONTINUED)

PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 2011, 2010 and 2009 (In thousands, except per share data)

Other expense:

Salaries and employee benefits

Data processing fees

Professional fees and services

Net occupancy expense of bank premises

Amortization of intangibles

Furniture and equipment expense

Insurance

Marketing

Postage and telephone

State taxes

Other

Total other expense

Income before income taxes

State income taxes (benefit)

Federal income taxes

Net income

Preferred stock dividends and accretion

Income available to common shareholders

Earnings per common share:

Basic

Diluted

2011

2010

2009

$102,068

$ 98,315

$101,225

4,965

21,119

11,295

3,534

10,773

6,821

2,967

6,060

1,544

17,171

188,317

116,555

6,088

28,327

$ 82,140

5,856

$ 76,284

$4.95

5,728

19,972

11,510

3,422

10,435

8,983

3,656

6,648

3,171

15,267

187,107

74,737

(1,161)

17,797

$ 58,101

5,807

$ 52,294

$3.45

5,674

15,935

11,552

3,746

9,734

12,072

3,775

6,903

3,206

14,903

188,725

97,135

(2,461)

25,404

$ 74,192

5,762

$ 68,430

$4.82

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

C O N S O L I D A T E D S T A T E M E N T S O F

C H A N G E S

I N S T O C K H O L D E R S ’

E Q U I T Y

PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 2011, 2010 and 2009 (In thousands, except share and per share data)

Preferred Stock

Common Stock

Shares
Outstanding

Amount

Shares
Outstanding

Amount

Balance, January 1, 2009

100,000

$ 95,721

13,971,727

$305,507

Net income
Other comprehensive income (loss), net of tax:

Change in funded status of pension plan, net of

—

Retained
Earnings

$438,504

74,192

Treasury
Stock

$(207,665)

—

Accumulated
Other
Comprehensive
Income (Loss)

Total

Comprehensive
Income

$ 10,596

$642,663

—

74,192

$ 74,192

income taxes of $3,383
Unrealized net holding gain on
cash flow hedge, net of
income taxes of $159
Unrealized net holding loss on

securities available-for-sale,
net of income taxes of $(815)

Total comprehensive income
Cash dividends, $3.76 per share
Cash payment for fractional shares
in dividend reinvestment plan

Reissuance of common stock
from treasury shares held

Accretion of discount on preferred stock
Common stock warrants issued
Preferred stock dividends
Treasury stock reissued for

director grants

6,283

295

(1,513)

$ 79,257

—

(39)

904,072

—

(2)

—

762

—

1,064

(53,563)

—

(29,299)
(762)

(5,000)

—

81,710

—

7,020

(200)

634

(53,563)

(2)

52,411
—
1,064
(5,000)

434

Balance, December 31, 2009

100,000

$ 96,483

14,882,780

$306,569

$423,872

$(125,321)

$ 15,661

$717,264

Net income
Other comprehensive income (loss), net of tax:

Change in funded status of pension plan, net of

income taxes of $(1,307)
Unrealized net holding loss on
cash flow hedge, net of
income taxes of $(53)
Unrealized net holding loss on

securities available-for-sale,
net of income taxes of $(8,078)

Total comprehensive income
Cash dividends, $3.76 per share
Cash payment for fractional shares
in dividend reinvestment plan

Reissuance of common stock
from treasury shares held

Accretion of discount on preferred stock
Common stock warrants issued
Common stock warrants expired
Preferred stock dividends
Treasury stock reissued for

director grants

—

58,101

—

58,101

$ 58,101

(2,427)

(98)

(15,004)

$ 40,572

—

(50)

509,184

—

807

—

(4)

(898)

176
(166)

(57,076)

—

(12,729)
(807)

166
(5,000)

—

46,954

—

7,020

(185)

634

(57,076)

(4)

33,327
—
176
—
(5,000)

449

Balance, December 31, 2010

100,000

$ 97,290

15,398,934

$305,677

$406,342

$ (77,733)

$ (1,868)

$729,708

Net income
Other comprehensive income (loss), net of tax:

Change in funded status of pension plan, net of

income taxes of $(2,707)
Unrealized net holding gain on
cash flow hedge, net of
income taxes of $276

Unrealized net holding loss on

securities available-for-sale,
net of income taxes of $(1,318)

Total comprehensive income
Cash dividends, $3.76 per share
Cash payment for fractional shares
in dividend reinvestment plan

Accretion of discount on preferred stock
Common stock warrants expired
Preferred stock dividends
Treasury stock reissued for

director grants

—

82,140

—

82,140

$ 82,140

(5,027)

512

(2,448)

$ 75,177

—

(42)

856

—

(2)

(176)

(57,907)

—
(856)
176
(5,000)

—

7,020

(338)

726

(57,907)

(2)
—
—
(5,000)

388

Balance, December 31, 2011

100,000

$ 98,146

15,405,912

$305,499

$424,557

$ (77,007)

$ (8,831)

$742,364

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

C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S

PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 2011, 2010 and 2009 (In thousands)

Operating activities:

Net income
Adjustments to reconcile net income to net cash

provided by operating activities:

Provision for loan losses
Amortization of loan fees and costs, net
Provision for depreciation
Other than temporary impairment on investment securities
Amortization of intangible assets
Amortization/(accretion) of investment securities
Deferred income tax (benefit)
Realized net investment security gains
Compensation expense for issuance of treasury stock to directors
OREO devaluations
Changes in assets and liabilities:
(Increase) in other assets
Increase (decrease) in other liabilities
Cash included in assets held for sale

Net cash provided by operating activities

Investing activities:

Proceeds from sales of available-for-sale securities
Proceeds from sales of held-to-maturity securities
Proceeds from calls and maturities of securities:

Held-to-maturity
Available-for-sale
Purchase of securities:
Held-to-maturity
Available-for-sale

Net decrease (increase) in other investments
Net loan originations, excluding loan sales
Proceeds from sale of loans
Purchases of bank owned life insurance, net
Purchases of premises and equipment, net

Net cash provided by (used in) investing activities

Financing activities:

Net (decrease) increase in deposits
Net (decrease) increase in short-term borrowings
Issuance of treasury stock, net
Proceeds from issuance of subordinated notes
Proceeds from long-term debt
Repayment of long-term debt
Cash dividends paid

Net cash (used in) provided by financing activities

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

2011

2010

2009

$ 82,140

$ 58,101

$ 74,192

63,272
2,871
7,583
—
3,534
490
28,466
(28,829)
388
8,219

(23,811)
(10,826)
(6,766)

126,731

584,573
25,410

454,937
557,552

(625,925)
(641,751)
1,095
(344,979)
269,922
(3,000)
(6,618)

271,216

(97,708)
(400,075)
—
—
203,000
(16,551)
(62,907)

(374,241)

23,706
133,780

87,080
4,179
7,126
23
3,422
(2,413)
(9,603)
(11,864)
449
13,206

(23,752)
180
—

126,134

460,192
—

146,986
2,238,059

(313,642)
(2,719,265)
220
(595,835)
443,369
(4,562)
(7,602)

(352,080)

(92,632)
339,450
33,541
—
—
(17,648)
(62,076)

200,635

(25,311)
159,091

68,821
3,500
7,473
613
3,746
(2,682)
(8,932)
(7,340)
434
6,818

(43,683)
(30,622)
—

72,338

204,304
—

40,105
426,841

(118,667)
(349,895)
(114)
(814,981)
615,072
—
(8,011)

(5,346)

426,302
(334,977)
53,475
35,250
60,100
(261,278)
(58,035)

(79,163)

(12,171)
171,262

Cash and cash equivalents at end of year

$ 157,486

$ 133,780

$ 159,091

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

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in
the preparation of the consolidated financial statements:

Principles of Consolidation
The consolidated financial statements include the accounts of Park
National Corporation and its subsidiaries (“Park”, the “Company” or
the “Corporation”). Material intercompany accounts and transactions
have been eliminated.

Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates. Management has identified the allowance for loan losses, accounting
for Other Real Estate Owned (“OREO”) and accounting for goodwill as
significant estimates.

Reclassifications
Certain prior year amounts have been reclassified to conform with the current
year presentation.

Subsequent Events
Management has evaluated events occurring subsequent to the balance sheet
date through February 29, 2012, determining no events require additional
disclosure in these consolidated financial statements, with the exception of
the subsequent event discussed in Note 27 of these Notes to Consolidated
Financial Statements.

Restrictions on Cash and Due from Banks
The Corporation’s two bank subsidiaries are required to maintain average
reserve balances with the Federal Reserve Bank. The average required reserve
balance was approximately $38.1 million at December 31, 2011 and $37.8
million at December 31, 2010. No other compensating balance arrangements
were in existence at December 31, 2011.

Investment Securities
Investment securities are classified upon acquisition into one of three
categories: held-to-maturity, available-for-sale, or trading (see Note 4
of these Notes to Consolidated Financial Statements).

Held-to-maturity securities are those securities that the Corporation has the
positive intent and ability to hold to maturity and are recorded at amortized
cost. Available-for-sale securities are those securities that would be available to
be sold in the future in response to the Corporation’s liquidity needs, changes
in market interest rates, and asset-liability management strategies, among other
reasons. Available-for-sale securities are reported at fair value, with unrealized
holding gains and losses excluded from earnings but included in other compre-
hensive income, net of applicable taxes. The Corporation did not hold any
trading securities during any period presented.

Available-for-sale and held-to-maturity securities are evaluated quarterly for
potential other-than-temporary impairment. Management considers the facts
related to each security including the nature of the security, the amount and
duration of the loss, the credit quality of the issuer, the expectations for that
security’s performance and whether Park intends to sell, or it is more likely
than not to be required to sell, a security in an unrealized loss position before
recovery of its amortized cost basis. Declines in equity securities that are con-
sidered to be other-than-temporary are recorded as a charge to earnings in the
Consolidated Statements of Income. Declines in debt securities that are consid-
ered to be other-than-temporary are separated into (1) the amount of the total
impairment related to credit loss and (2) the amount of the total impairment
related to all other factors. The amount of the total other-than-temporary
impairment related to the credit loss is recognized in earnings. The amount
of the total impairment related to all other factors is recognized in other
comprehensive income.

Interest income includes amortization of purchase premium or discount.
Premiums and discounts on securities are amortized on the level-yield method
without anticipating prepayments, except for mortgage-backed securities where
prepayments are anticipated.

Gains and losses realized on the sale of investment securities are recorded
on the trade date and determined using the specific identification basis.

Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) Stock
Park’s two separately chartered banks, The Park National Bank (PNB) and
Vision Bank (“VB” or “Vision”), are members of the FHLB. Additionally, PNB
is a member of the FRB. Members are required to own a certain amount of
stock based on their level of borrowings and other factors and may invest
in additional amounts. FHLB and FRB stock are carried at cost, classified
as restricted securities and are carried at their redemption value. Both cash
and stock dividends are reported as income.

Bank Owned Life Insurance
Park has purchased life insurance policies on directors and certain key officers.
Bank owned life insurance is recorded at its cash surrender value (or the
amount that can be realized).

Mortgage Loans Held for Sale
Mortgage loans held for sale are carried at their fair value. Mortgage loans held
for sale were $11.5 million and $8.3 million at December 31, 2011 and 2010,
respectively. These amounts are included in loans on the Consolidated Balance
Sheets.

Mortgage Banking Derivatives
Commitments to fund mortgage loans (interest rate locks) to be sold into the
secondary market and forward commitments for the future delivery of these
mortgage loans are accounted for as free standing derivatives. Fair values of
these mortgage derivatives are estimated based on changes in mortgage interest
rates from the date the interest on the loan is locked. The Company enters into
forward commitments for the future delivery of mortgage loans when interest
rate locks are entered into, in order to hedge the change in interest rates result-
ing from its commitments to fund the loans. Changes in the fair values of these
derivatives are included in net gains on sales of loans.

Loans
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or payoff, are reported at their outstanding principal
balances adjusted for any charge-offs, any deferred fees or costs on originated
loans, and any unamortized premiums or discounts on purchased loans.
Interest income is reported on the interest method and includes amortization
of net deferred loan origination fees and costs over the loan term. Commercial
loans include: (1) commercial, financial and agricultural loans; (2) commer-
cial real estate loans; (3) those commercial loans in the real estate construction
loan segment; and (4) those commercial loans in the residential real estate
loan segment. Consumer loans include: (1) mortgage and installment loans
included in the real estate construction segment; (2) mortgage, home equity
lines of credit (HELOC), and installment loans included in the residential real
estate segment; and (3) all loans included in the consumer segment. Generally,
commercial loans are placed on nonaccrual status at 90 days past due and
consumer and residential mortgage loans are placed on nonaccrual status at
120 days past due. Accrued interest on these loans is considered a loss, unless
the loan is well-secured and in the process of collection. Commercial loans
placed on nonaccrual status are considered impaired (See Note 5 of these
Notes to Consolidated Financial Statements). For loans which are on nonaccrual
status, it is Park’s policy to reverse interest previously accrued on the loans
against interest income. Interest on such loans is thereafter recorded on a
cash basis and is included in earnings only when cash is actually received.
Park’s charge-off policy for commercial loans requires management to
establish a specific reserve or record a charge-off as soon as it is apparent
that the borrower is troubled and there is, or likely will be, a collateral
shortfall related to the estimated value of the collateral securing the loan.

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

The Company’s charge-off policy for consumer loans is dependent on the class
of the loan. Residential mortgage loans and HELOC are typically charged down
to the value of the collateral, less estimated selling costs at 180 days past due.
The charge-off policy for other consumer loans, primarily installment loans,
requires a monthly review of delinquent loans and a complete charge-off for
any account that reaches 120 days past due.

The delinquency status of a loan is based on contractual terms and not on how
recently payments have been received. Loans are removed from nonaccrual
status when loan payments have been received to cure the delinquency status
and the loan is deemed to be well-secured by management.

A description of each segment of the loan portfolio, along with the risk
characteristics of each segment, is included below:

Commercial, financial and agricultural: Commercial, financial and
agricultural loans are made for a wide variety of general corporate purposes,
including financing for commercial and industrial businesses, financing for
equipment, inventories and accounts receivable, acquisition financing and
commercial leasing. The term of each commercial loan varies by its purpose.
Repayment terms are structured such that commercial loans will be repaid
within the economic useful life of the underlying asset. The commercial loan
portfolio includes loans to a wide variety of corporations and businesses across
many industrial classifications in (i) the 28 Ohio counties and one Kentucky
county where Park National Bank operates and (ii) the five Florida counties
and one Alabama county where Vision Bank operates. The primary industries
represented by these customers include manufacturing, retail trade, health
care and other services.

Commercial real estate: Commercial real estate loans (“CRE loans”)
include mortgage loans to developers and owners of commercial real estate.
The lending policy for CRE loans is designed to address the unique risk
attributes of CRE lending. The collateral for these CRE loans is the underlying
commercial real estate. Each subsidiary bank generally requires that the CRE
loan amount be no more than 85% of the purchase price or the appraised
value of the commercial real estate securing the CRE loan, whichever is less.
CRE loans made for each subsidiary bank’s portfolio generally have a variable
interest rate. A CRE loan may be made with a fixed interest rate for a term
generally not exceeding five years.

Construction real estate: The Company defines construction loans as both
commercial construction loans and residential construction loans where the
loan proceeds are used exclusively for the improvement of real estate as to
which the Company holds a mortgage. Construction loans may be in the form
of a permanent loan or short-term construction loan, depending on the needs
of the individual borrower. Generally, the permanent construction loans have a
variable interest rate although a permanent construction loan may be made with
a fixed interest rate for a term generally not exceeding five years. Short-term
construction loans are made with variable interest rates. Construction financing
is generally considered to involve a higher degree of risk of loss than long-term
financing on improved, occupied real estate. Risk of loss on a construction loan
depends largely upon the accuracy of the initial estimate of the property’s value
at completion of construction and the estimated cost (including interest) of
construction. If the estimate of construction cost proves to be inaccurate, the
subsidiary bank making the loan may be required to advance funds beyond the
amount originally committed to permit completion of the project. If the estimate
of value proves inaccurate, the subsidiary bank may be confronted, at or prior
to the maturity of the loan, with a project having a value insufficient to assure
full repayment, should the borrower default. In the event a default on a con-
struction loan occurs and foreclosure follows, the subsidiary bank must take
control of the project and attempt either to arrange for completion of construc-
tion or to dispose of the unfinished project. Additional risk exists with respect
to loans made to developers who do not have a buyer for the property, as the
developer may lack funds to pay the loan if the property is not sold upon
completion. Park’s subsidiary banks attempt to reduce such risks on loans
to developers by requiring personal guarantees and reviewing current personal

financial statements and tax returns as well as other projects undertaken by
the developer.
Residential real estate: The Company defines residential real estate loans
as first mortgages on individuals’ primary residence or second mortgages of
individuals’ primary residence in the form of home equity lines of credit or
installment loans. Credit approval for residential real estate loans requires
demonstration of sufficient income to repay the principal and interest and the
real estate taxes and insurance, stability of employment, an established credit
record and an appropriately appraised value of the real estate securing the
loan. Each subsidiary bank generally requires that the residential real estate
loan amount be no more than 80% of the purchase price or the appraised value
of the real estate securing the loan, whichever is less, unless private mortgage
insurance is obtained by the borrower. Loans made for each subsidiary bank’s
portfolio in this lending category are generally adjustable rate, fully amortized
mortgages. The rates used are generally fully-indexed rates. Park generally does
not price residential loans using low introductory “teaser” rates. Home equity
lines of credit are generally made as second mortgages by Park’s subsidiary
banks. The maximum amount of a home equity line of credit is generally
limited to 85% of the appraised value of the property less the balance of
the first mortgage.
Consumer: The Company originates direct and indirect consumer loans,
primarily automobile loans and home equity based credit cards to customers
and prospective customers in its primary market areas. Credit approval for
consumer loans requires income sufficient to repay principal and interest due,
stability of employment, an established credit record and sufficient collateral for
secured loans. Consumer loans typically have shorter terms and lower balances
with higher yields as compared to real estate mortgage loans, but generally
carry higher risks of default. Consumer loan collections are dependent on the
borrower’s continuing financial stability, and thus are more likely to be affected
by adverse personal circumstances.

Allowance for Loan Losses
The allowance for loan losses is that amount believed adequate to absorb
probable incurred credit losses in the loan portfolio based on management’s
evaluation of various factors. The determination of the allowance requires
significant estimates, including the timing and amounts of expected cash flows
on impaired loans, consideration of current economic conditions, and his -
torical loss experience pertaining to pools of homogeneous loans, all of which
may be susceptible to change. The allowance is increased through a provision
for loan losses that is charged to earnings based on management’s quarterly
evaluation of the factors previously mentioned and is reduced by charge-offs,
net of recoveries.

The allowance for loan losses includes both (1) an estimate of loss based
on historical loss experience within both commercial and consumer loan
categories with similar characteristics (“statistical allocation”) and (2) an
estimate of loss based on an impairment analysis of each commercial loan
that is considered to be impaired (“specific allocation”).

In calculating the allowance for loan losses, management believes it is
appropriate to utilize historical loss rates that are comparable to the current
period being analyzed. For the historical loss factor at December 31, 2011, the
Company utilized an annual loss rate (“historical loss experience”), calculated
based on an average of the net charge-offs and the annual change in specific
reserves for impaired commercial loans, experienced during 2009, 2010 and
2011 within the individual segments of the commercial and consumer loan
categories. Management believes the 36-month historical loss experience
methodology is appropriate in the current economic environment, as it
captures loss rates that are comparable to the current period being analyzed.
The loss factor applied to Park’s consumer portfolio is based on the historical
loss experience over the past 36 months, plus an additional judgmental reserve,
increasing the total allowance for loan loss coverage in the consumer portfolio
to approximately 1.38 years of historical loss. The loss factor applied to Park’s
commercial portfolio is based on the historical loss experience over the past

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

36 months, plus additional reserves for consideration of (1) a loss emergence
period factor, (2) a loss migration factor and (3) a judgmental or environ -
mental loss factor. These additional reserves increase the total allowance for
loan loss coverage in the commercial portfolio to approximately 2.8 years
of historical loss. Park’s commercial loans are individually risk graded. If
loan downgrades occur, the probability of default increases, and accordingly
management allocates a higher percentage reserve to those accruing commer-
cial loans graded special mention and substandard.

U.S. generally accepted accounting principles (“GAAP”) require a specific
allocation to be established as a component of the allowance for loan losses
for certain loans when it is probable that all amounts due pursuant to the con-
tractual terms of the loans will not be collected, and the recorded investment
in the loans exceeds their measure of impairment. Management considers the
following related to commercial loans when determining if a loan should be
considered impaired: (1) current debt service coverage levels of the borrowing
entity; (2) payment history over the most recent 12-month period; (3) other
signs of deterioration in the borrower’s financial situation, such as changes
in beacon scores; and (4) consideration of the current collateral supporting
the loan. The recorded investment is the carrying balance of the loan, plus the
accrued interest receivable, both as of the end of the year. Impairment is meas-
ured using either the present value of expected future cash flows based upon
the initial effective interest rate on the loan, the observable market price of the
loan or the fair value of the collateral, if the loan is collateral dependent.

Income Recognition
Income earned by the Corporation and its subsidiaries is recognized on
the accrual basis of accounting, except for nonaccrual loans as previously
discussed, and late charges on loans which are recognized as income when
they are collected.

Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is generally provided on the straight-line method
over the estimated useful lives of the related assets. Leasehold improvements
are amortized over the shorter of the remaining lease period or the estimated
useful lives of the improvements. Upon the sale or other disposal of an asset,
the cost and related accumulated depreciation are removed from the accounts
and the resulting gain or loss is recognized. Maintenance and repairs are
charged to expense as incurred while renewals and improvements that extend
the useful life of an asset are capitalized. Premises and equipment is evaluated
for impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable.

The range of depreciable lives over which premises and equipment are being
depreciated are:

Buildings
Equipment, furniture and fixtures
Leasehold improvements

5 to 50 Years
3 to 20 Years
1 to 10 Years

Buildings that are currently placed in service are depreciated over 30 years.
Equipment, furniture and fixtures that are currently placed in service are
depreciated over 3 to 12 years. Leasehold improvements are depreciated
over the lives of the related leases which range from 1 to 10 years.

Other Real Estate Owned (OREO)
OREO is recorded at fair value less anticipated selling costs (net realizable
value) and consists of property acquired through foreclosure and real estate
held for sale. If the net realizable value is below the carrying value of the loan
at the date of transfer, the difference is charged to the allowance for loan
losses. Subsequent declines in the value of real estate are classified as OREO
devaluations, are reported as adjustments to the carrying amount of OREO
and are expensed within “other income”. In certain circumstances where
management believes the devaluation may not be permanent in nature, Park
utilizes a valuation allowance to record OREO devaluations, which is also
expensed through “other income”. Costs relating to development and
improvement of such properties are capitalized (not in excess of fair value
less estimated costs to sell) and costs relating to holding the properties are
charged to expense.

Mortgage Loan Servicing Rights
When Park sells mortgage loans with servicing rights retained, servicing rights
are recorded at an amount not to exceed fair value, with the income statement
effect recorded in gains on sale of loans. Capitalized servicing rights are amor-
tized in proportion to and over the period of estimated future servicing income
of the underlying loan.

Mortgage servicing rights are assessed for impairment periodically, based
on fair value, with any impairment recognized through a valuation allowance.
The fair value of mortgage servicing rights is determined by discounting esti-
mated future cash flows from the servicing assets, using market discount rates
and expected future prepayment rates. In order to calculate fair value, the
sold loan portfolio is stratified into homogeneous pools of like categories.
(See Note 20 of these Notes to Consolidated Financial Statements.)

Fees received for servicing mortgage loans owned by investors are based on a
percentage of the outstanding monthly principal balance of such loans and are
included in income as loan payments are received. The cost of servicing loans
is charged to expense as incurred.

Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price over net identifiable
tangible and intangible assets acquired in a purchase business combination.
Other intangible assets represent purchased assets that have no physical prop-
erty but represent some future economic benefit to their owner and are capable
of being sold or exchanged on their own or in combination with a related asset
or liability.

Goodwill and indefinite-lived intangible assets are not amortized to expense,
but are subject to impairment tests annually, or more frequently if events or
changes in circumstances indicate that the asset might be impaired. Intangible
assets with definitive useful lives (such as core deposit intangibles) are
amortized to expense over their estimated useful lives.

Management considers several factors when performing the annual impairment
tests on goodwill. The factors considered include the operating results for the
particular Park segment for the past year and the operating results budgeted for
the current year (including multi-year projections), the purchase prices being
paid for financial institutions in the markets served by the Park segment, the
deposit and loan totals of the Park segment and the economic conditions in
the markets served by the Park segment.

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

The following table reflects the activity in goodwill and other intangible assets
for the years 2011, 2010 and 2009.

(In thousands)

December 31, 2008

Amortization

December 31, 2009

Amortization

December 31, 2010
Amortization

December 31, 2011

Goodwill

$ 72,334

Core Deposit
Intangibles

Total

$13,211

$ 85,545

—

(3,746)

$ 72,334

$ 9,465

$ 81,799

—

$ 72,334
—

$ 72,334

(3,422)

$ 6,043
(3,534)

$ 2,509

(3,422)

$ 78,377
(3,534)

$ 74,843

GAAP requires a company to perform an impairment test on goodwill annually,
or more frequently if events or changes in circumstances indicate that the asset
might be impaired, by comparing the fair value of such goodwill to its recorded
or carrying amount. If the carrying amount of the goodwill exceeds the fair
value, an impairment charge must be recorded in an amount equal to the
excess.

Park typically evaluates goodwill for impairment on April 1 of each year, with
financial data as of March 31. Based on the analysis performed as of April 1,
2011, the Company determined that goodwill for Park’s Ohio-based bank
(The Park National Bank) was not impaired.

Goodwill and other intangible assets (as shown on the Consolidated Balance
Sheets) totaled $74.8 million at December 31, 2011, $78.4 million at
December 31, 2010 and $81.8 million at December 31, 2009.

The core deposit intangibles are being amortized to expense principally
on the straight-line method, over periods ranging from six to ten years.
The amortization period for the core deposit intangibles related to Vision
Bank was accelerated due to the pending acquisition of Vision Bank branches
by Centennial Bank. (See Note 3 of these Notes to Consolidated Financial
Statements for details on the Vision Bank branch sale.) Core deposit intangible
amortization expense was $3.5 million in 2011, $3.4 million in 2010 and $3.7
million in 2009.

The accumulated amortization of core deposit intangibles was $19.6 million as
of December 31, 2011 and $16.1 million at December 31, 2010. The expected
core deposit intangible amortization expense for each of the next five years is
as follows:

(In thousands)

2012
2013
2014
2015
2016

Total

$2,172
337
—
—
—

$2,509

Consolidated Statement of Cash Flows
Cash and cash equivalents include cash and cash items, amounts due from
banks and money market instruments. Generally, money market instruments
are purchased and sold for one-day periods.

Net cash provided by operating activities reflects cash payments as follows:

December 31,
(In thousands)

2011

2010

2009

Interest paid on deposits and other borrowings
Income taxes paid

$59,552
17,700

$74,680
24,600

$96,204
30,660

Non-cash items:
The cash flow statement for the year ended December 31, 2011 was prepared
with the assets and liabilities held for sale (refer to Note 3) included within
each of their respective categories (loans, fixed assets, other assets, deposits
and other liabilities).

Non-cash items included in cash provided by operating activities:

December 31,
(In thousands)

Transfers to OREO

2011

2010

2009

$36,209

$35,507

$35,902

Loss Contingencies and Guarantees
Loss contingencies, including claims and legal actions arising in the ordinary
course of business, are recorded as liabilities when the likelihood of loss is
probable and an amount or range of loss can be reasonably estimated.

Income Taxes
The Corporation accounts for income taxes using the asset and liability
approach. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse. To the extent that Park does
not consider it more likely than not that a deferred tax asset will be recovered,
a valuation allowance is recorded. All positive and negative evidence is reviewed
when determining how much of a valuation allowance is recognized on a quar-
terly basis. A valuation allowance, if needed, reduces deferred tax assets to the
amount expected to be realized.

An uncertain tax position is recognized as a benefit only if it is “more-likely-
than-not” that the tax position would be sustained in a tax examination being
presumed to occur. The benefit recognized for a tax position that meets the
“more-likely-than-not” criteria is measured based on the largest benefit that
is more than 50 percent likely to be realized, taking into consideration the
amounts and probabilities of the outcome upon settlement. For tax positions
not meeting the “more-likely-than-not” test, no tax benefit is recorded. Park
recognizes any interest and penalties related to income tax matters in income
tax expense.

Preferred Stock
On December 23, 2008, Park issued $100 million of Senior Preferred Shares
to the U.S. Department of Treasury (the “Treasury”) under the Capital Purchase
Program (CPP), consisting of 100,000 shares, each with a liquidation prefer-
ence of $1,000 per share. In addition, on December 23, 2008, Park issued a
warrant to the Treasury to purchase 227,376 common shares. These preferred
shares and related warrant are considered permanent equity for accounting
purposes. GAAP requires management to allocate the proceeds from the
issuance of the preferred stock between the preferred stock and related
warrant. The terms of the preferred shares require management to pay a
cumulative dividend at the rate of 5 percent per annum until February 14,
2014 and 9 percent thereafter. Management determined that the 5 percent
dividend rate is below market value; therefore, the fair value of the preferred
shares would be less than the $100 million in proceeds. Management deter-
mined that a reasonable market discount rate is 12 percent for the fair value of
preferred shares. Management used the Black-Scholes model for calculating the
fair value of the warrant (and related common shares). The allocation between
the preferred shares and warrant at December 23, 2008, the date of issuance,
was $95.7 million and $4.3 million, respectively. The discount on the preferred
shares of $4.3 million is being accreted through retained earnings over a 60
month period.

Treasury Stock
The purchase of Park’s common stock is recorded at cost. At the date of
retirement or subsequent reissuance, the treasury stock account is reduced
by the weighted average cost of the common shares retired or reissued.

Comprehensive Income
Comprehensive income consists of net income and other comprehensive
income (loss). Other comprehensive income (loss) includes unrealized gains
and losses on securities available for sale, changes in the funded status of the
Company’s Defined Benefit Pension Plan, and the unrealized net holding gains
and losses on the cash flow hedge, which are also recognized as separate
components of equity.

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

Stock Based Compensation
Compensation cost is recognized for stock options and stock awards issued
to employees and directors, based on the fair value of these awards at the date
of grant. A Black-Scholes model is utilized to estimate the fair value of stock
options, while the market price of Park’s common stock at the date of grant
is used for stock awards. Compensation cost is recognized over the required
service period, generally defined as the vesting period. Park did not grant any
stock options during 2011, 2010 or 2009. No stock options vested in 2011,
2010 or 2009. Park granted 7,020 shares of common stock to its directors
in each of 2011, 2010 and 2009, respectively.

Derivative Instruments
At the inception of a derivative contract, the Company designates the derivative
as one of three types based on the Company’s intentions and belief as to likely
effectiveness as a hedge. These three types are: (1) a hedge of the fair value of
a recognized asset or liability or of an unrecognized firm commitment (“fair
value hedge”); (2) a hedge of a forecasted transaction or the variability of cash
flows to be received or paid related to a recognized asset or liability (“cash flow
hedge”); or (3) an instrument with no hedging designation (“stand-alone
derivative”). For a fair value hedge, the gain or loss on the derivative, as well
as the offsetting loss or gain on the hedged item, are recognized in current
earnings as fair values change. For a cash flow hedge, the gain or loss on the
derivative is reported in other comprehensive income and is reclassified into
earnings in the same periods during which the hedged transaction affects earn-
ings. For both types of hedges, changes in the fair value of derivatives that are
not highly effective in hedging the changes in fair value or expected cash flows
of the hedged item are recognized immediately in current earnings. Changes
in the fair value of derivatives that do not qualify for hedge accounting are
reported currently in earnings, as noninterest income.

The Company formally documents the relationship between derivatives and
hedged items, as well as the risk-management objective and the strategy for
undertaking hedge transactions at the inception of the hedging relationship.
This documentation includes linking fair value or cash flow hedges to specific
assets and liabilities on the Consolidated Balance Sheet or to specific firm
commitments or forecasted transactions. The Company also formally assesses,
both at the hedge’s inception and on an ongoing basis, whether the derivative
instruments that are used are highly effective in offsetting changes in fair values
or cash flows of the hedged items. The Company discontinues hedge accounting
when it determines that the derivative is no longer effective in offsetting changes
in the fair value or cash flows of the hedged item, the derivative is settled or
terminates, a hedged forecasted transaction is no longer probable, a hedged
firm commitment is no longer firm, or treatment of the derivative as a hedge
is no longer appropriate or intended.

When hedge accounting is discontinued, subsequent changes in fair value of
the derivative are recorded as noninterest income. When a fair value hedge is
discontinued, the hedged asset or liability is no longer adjusted for changes in
fair value and the existing basis adjustment is amortized or accreted over the
remaining life of the asset or liability. When a cash flow hedge is discontinued
but the hedged cash flows or forecasted transactions are still expected to
occur, gains or losses that were accumulated in other comprehensive income
are amortized into earnings over the same periods in which the hedged
transactions will affect earnings.

Fair Value Measurement
Fair values of financial instruments are estimated using relevant market
information and other assumptions, as more fully disclosed in Note 21 of
these Notes to Consolidated Financial Statements. Fair value estimates involve
uncertainties and matters of significant judgment regarding interest rates,
credit risk, prepayments, and other factors, especially in the absence of broad
markets for particular items. Changes in assumptions or in market conditions
could significantly affect the estimates.

Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over
the assets has been relinquished. Control over transferred assets is deemed
to be surrendered when the assets have been isolated from the Company, the
transferee obtains the right (free of conditions that constrain it from taking
advantage of that right) to pledge or exchange the transferred assets, and
the Company does not maintain effective control over the transferred assets
through an agreement to repurchase them before their maturity.

Retirement Plans
Pension expense is the net of service and interest cost, return on plan assets
and amortization of gains and losses not immediately recognized. Employee
401(k) plan expense is the amount of matching contributions. Deferred
compensation and supplemental retirement plan expense allocates the
benefits over years of service.

Earnings Per Common Share
Basic earnings per common share is net income available to common
stockholders divided by the weighted average number of common shares
outstanding during the period. Diluted earnings per common share includes
the dilutive effect of additional potential common shares issuable under stock
options, warrants and convertible securities. Earnings and dividends per
common share are restated for any stock splits and stock dividends through
the date of issuance of the consolidated financial statements.

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 non -
recurring fair value measurements for Level 2 and 3. The new disclosures
and clarifications of existing disclosures for Accounting Standard Codification
(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 were effective for fiscal years beginning after
December 15, 2010, and for interim periods within those fiscal years. The
adoption of ASC 820 on January 1, 2011 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 were required
for interim and annual periods ending after December 15, 2010, although the
disclosures of reporting period activity were required for interim and annual
periods beginning after December 15, 2010. The adoption of the new guidance
on January 1, 2011 impacted interim and annual disclosures included in the
Company’s consolidated financial statements.

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

No. 2011-01 – Receivables (Topic 310) Deferral of the Effective
Date of Disclosures about Troubled Debt Restructurings in Update
No. 2010-20: 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 eval -
uating 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 was 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. Disclosure requirements were effective for the first interim and annual
period beginning on or after June 15, 2011. The adoption of the new guidance
effective July 1, 2011 resulted in an increase in the number of modifications and
restructuring deemed to be TDRs and impacted interim and annual disclosures
included in the Company’s consolidated financial statements.

No. 2011-04 – Fair Value Measurement (Topic 820) Amendments
to Achieve Common Fair Value Measurement and Disclosure
Requirement in U.S. GAAP and IFRSs: In May 2011, FASB issued
Accounting Standards Update 2011-04, Amendments to Achieve Common
Fair Value Measurement and Disclosure Requirement in U.S. GAAP and
IFRSs (ASU 2011-04). The new guidance in this ASU results in common fair
value measurement and disclosure requirements in U.S. GAAP and IFRSs.
Certain amendments clarify the FASBs intent about the application of existing
fair value measurement requirements. Other amendments change a particular
principle or requirement for measuring fair value or for disclosing information
about fair value measurements. These amendments also enhance disclosure
requirements surrounding fair value measurement. Most significantly, an entity
will be required to disclose additional information regarding Level 3 fair value
measurements including quantitative information about unobservable inputs
used, a description of the valuation processes used by the entity, and a qualita-
tive discussion about the sensitivity of the measurements. The new guidance is
effective for interim and annual periods beginning on or after December 15,
2011. Management is currently working through the guidance to determine
the impact, if any, to the consolidated financial statements.

No. 2011-05 – Presentation of Comprehensive Income: In June
2011, FASB issued Accounting Standards Update 2011-05, Presentation of
Comprehensive Income (ASU 2011-05). The ASU eliminates the option to
report other comprehensive income and its components in the statement of
changes in equity. An entity can elect to present the components of net income
and the components of other comprehensive income either in a single continu-
ous statement of comprehensive income or in two separate but consecutive
statements. The ASU does not change the items that must be reported in other

comprehensive income, when an item of other comprehensive income must
be reclassified to net income, or how earnings per share is calculated or
presented. The new guidance is effective for fiscal years, and interim periods
within those years, beginning after December 15, 2011 and must be applied
retrospectively. The adoption of the new guidance will impact the presentation
of the consolidated financial statements.

No. 2011-08 – Intangibles – Goodwill and Other: In September 2011,
FASB issued Accounting Standards Update 2011-08, Intangibles – Goodwill
and Other (ASU 2011-08). The ASU allows an entity to first assess qualitative
factors to determine whether the existence of events or circumstances leads to
a determination that it is more likely than not that the fair value of a reporting
unit is less than its carrying amount. The new guidance is effective for annual
and interim goodwill impairment tests performed for fiscal years beginning
after December 15, 2011. Management does not expect the adoption of this
guidance will have an impact on the consolidated financial statements.

2. ORGANIZATION
Park National Corporation is a multi-bank holding company headquartered in
Newark, Ohio. Through its banking subsidiaries, PNB and VB, Park is engaged
in a general commercial banking and trust business, primarily in Ohio, Baldwin
County, Alabama and the panhandle of Florida. A wholly-owned subsidiary of
Park, Guardian Financial Services Company (GFSC) began operating in May
1999. GFSC is a consumer finance company located in Central Ohio. PNB
operates through eleven banking divisions with the Park National Division
headquartered in Newark, Ohio, the Fairfield National Division headquartered
in Lancaster, Ohio, The Park National Bank of Southwest Ohio & Northern
Kentucky Division headquartered in Cincinnati, Ohio, the First-Knox National
Division headquartered in Mount Vernon, Ohio, the Farmers and Savings
Division headquartered in Loudonville, Ohio, the Security National Division
headquartered in Springfield, Ohio, the Unity National Division headquartered
in Piqua, Ohio, the Richland Bank Division headquartered in Mansfield, Ohio,
the Century National Division headquartered in Zanesville, Ohio, the United
Bank Division headquartered in Bucyrus, Ohio and the Second National
Division headquartered in Greenville, Ohio. VB, through February 16, 2012,
operated through two banking divisions with the Vision Bank Florida Division
headquartered in Panama City, Florida and the Vision Bank Alabama Division
headquartered in Gulf Shores, Alabama. All of the Ohio-based banking divisions
provide the following principal services: the acceptance of deposits for demand,
savings and time accounts; commercial, industrial, consumer and real estate
lending, including installment loans, credit cards, home equity lines of credit,
commercial leasing; trust services; cash management; safe deposit operations;
electronic funds transfers and a variety of additional banking-related services.
VB, with its two banking divisions, through February 16, 2012, provided the
services mentioned above, with the exception of commercial leasing. See Note
23 of these Notes to Consolidated Financial Statements for financial information
on the Corporation’s operating segments.

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

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

of Vision’s performing loans. The assets purchased and liabilities assumed by
Centennial, classified on Park’s consolidated balance sheet as held for sale at
December 31, 2011, include the following:

December 31 (In thousands)

Assets held for sale

Cash and due from banks
Loans
Allowance for loan losses

Net loans

Fixed assets
Other assets

Total assets held for sale

Liabilities held for sale

Deposits
Other liabilities

Total liabilities held for sale

2011

$ 6,766
369,044
(13,100)

355,944

14,861
4,891

$382,462

$532,598
3,588

$536,186

The assets and liabilities held for sale were evaluated for impairment as
of December 31, 2011. Park determined there was no impairment and,
accordingly, the assets and liabilities held for sale were carried at their
historical cost, net of any previously established valuation allowance.
Vision will retain all of the non-performing loans and certain performing
loans under the terms of the Purchase Agreement. As of December 31, 2011,
the carrying balance of nonperforming loans totaled approximately $101
million and the carrying balance of performing loans totaled approximately
$23 million. Prior to the transfer to assets held for sale, Vision Bank’s
allowance for loan losses totaled $23.8 million at December 31, 2011. Upon
the transfer, $13.1 million was transferred out of the allowance for loan losses
with the related loans that moved to assets held for sale. Management expects
that the remaining loans at Vision Bank will be charged down by the remaining
balance of the allowance for loan losses of $10.7 million prior to transfer to
SE Property Holdings, LLC (“SE, LLC”). Vision Bank will be merged with and
into SE, LLC, the non-banking subsidiary of Park’s Parent Company, promptly
following the closing of the transaction with Centennial.

4. INVESTMENT SECURITIES
The amortized cost and fair value of investment securities are shown in the
following table. Management performs a quarterly evaluation of investment
securities for any other-than-temporary impairment.
During 2011, there were no investment securities deemed to be other-than-
temporarily impaired. During 2010, Park recognized an other-than-temporary
impairment charge of $23,000, related to an equity investment in a financial
institution, which is recorded in “other expenses” within the Consolidated
Statements of Income. Since this was an equity security, no amounts were
recognized in other comprehensive income at the time of the impairment
recognition.
Investment securities at December 31, 2011 were as follows:

Gross

Unrealized Unrealized

Amortized
Cost

Holding
Gains

Holding
Losses

Estimated
Fair Value

$ 370,043

$ 1,614

$ —

$371,657

2,616

—

—
32

2,660

444,295
2,033

$ 801,147

$19,530

$ 32

$820,645

(In thousands)

2011:

Securities Available-for-Sale

Obligations of U.S. Treasury and

other U.S. Government
sponsored entities
Obligations of states and
political subdivisions
U.S. Government sponsored

Total

2011:

Securities Held-to-Maturity
Obligations of states and
political subdivisions
U.S. Government sponsored

entities’ asset-backed securities

Other equity securities

427,300
1,188

16,995
877

entities’ asset-backed securities

818,232

14,377

Total

$ 820,224

$14,382

1,992

$ —

$ 32

$ 1,997

832,577

$834,574

Park’s U.S. Government sponsored entity asset-backed securities consisted of
15-year mortgage-backed securities and collateralized mortgage obligations
(CMOs). At December 31, 2011, the amortized cost of Park’s available-for-sale
(AFS) and held-to-maturity mortgage-backed securities was $427.3 million and
$0.1 million, respectively. At December 31, 2011, the amortized cost of Park’s
held-to-maturity CMOs was $818.2 million. There were no AFS CMOs at
December 31, 2011.

Other investment securities (as shown on the Consolidated Balance Sheets)
consist of stock investments in the Federal Home Loan Bank and the Federal
Reserve Bank. These restricted stock investments are carried at their redemp-
tion value. Park owned $60.7 million of Federal Home Loan Bank stock and
$6.9 million of Federal Reserve Bank stock at December 31, 2011. Park owned
$61.8 million of Federal Home Loan Bank stock and $6.9 million of Federal
Reserve Bank stock at December 31, 2010.

Management does not believe any individual unrealized loss as of December
31, 2011 or December 31, 2010, represents other-than-temporary impairment.
The unrealized losses on debt securities are primarily the result of interest rate
changes. These conditions will not prohibit Park from receiving its contractual
principal and interest payments on these debt securities. The fair value of
these debt securities is expected to recover as payments are received on these
securities and they approach maturity. 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 in net income in the period the
other-than-temporary impairment is identified.

The following table provides detail on investment securities with unrealized
losses aggregated by investment category and length of time the individual
securities had been in a continuous loss position at December 31, 2011:

Less than 12 Months

12 Months or Longer

Total

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

(In thousands)

2011:

Securities
Available-for-Sale

Other equity securities

$—

$32

2011:

Securities
Held-to-Maturity

U.S. Government

sponsored entities’
asset-backed
securities

$—

$38,775

$32

$38,775

$32

Investment securities at December 31, 2010 were as follows:

(In thousands)

2010:

Securities Available-for-Sale

Obligations of U.S. Treasury and

other U.S. Government
sponsored entities
Obligations of states and
political subdivisions
U.S. Government sponsored

Gross

Unrealized Unrealized

Amortized
Cost

Holding
Gains

Holding
Losses

Estimated
Fair Value

$ 272,301

$ 2,968

$ 1,956

$ 273,313

10,815

281

11,044

entities’ asset-backed securities

990,204

30,633

9,425

1,011,412

Other equity securities

938

858

1,753

Total

2010:

Securities Held-to-Maturity
Obligations of states and
political subdivisions
U.S. Government sponsored

$1,274,258

$34,740

$11,476

$1,297,522

3,167

$ — $

3,174

entities’ asset-backed securities

670,403

17,157

4,620

682,940

Total

$ 673,570

$17,164

$ 4,620

$ 686,114

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

Less than 12 Months

12 Months or Longer

Total

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

(In thousands)

2010:

Securities
Available-for-Sale

Obligations of U.S.

Treasury and other
U.S. Government
sponsored entities $ 74,379

$ 1,956

$ —

$—

$ 74,379

$ 1,956

1,459

—

1,459

Obligations of
states and
political
subdivisions

U.S. Government

sponsored entities’
asset-backed
securities

418,156

9,425

Other equity securities

Total

$494,068

$11,462

$221

—

221

—

$14

418,156

9,425

295

$494,289

$11,476

2010:

Securities
Held-to-Maturity

U.S. Government

sponsored entities’
asset-backed
securities

$297,584

$ 4,620

$ —

$—

$297,584

$ 4,620

The amortized cost and estimated fair value of investments in debt securities at
December 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)

Securities Available-for-Sale
U.S. Treasury and sponsored entities’ notes:

Due within one year

Total

Obligations of states and
political subdivisions:
Due within one year

Due one through five years

Total

U.S. Government sponsored entities’

asset-backed securities:

Total

Securities Held-to-Maturity
Obligations of states and
political subdivisions:
Due within one year

Total

U.S. Government sponsored entities’

asset-backed securities:

Amortized
Cost

Estimated
Fair Value

$370,043

$ 2,121

495

$ 2,616

$371,657

2,133

527

2,660

$427,300

$444,295

$ 1,992

1,997

Total

$818,232

$832,577

Approximately $269.1 million 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 of 9 to 10 years, but are shown in the table at
their expected call date. The remaining $100.9 million of securities in this
category are U.S. Government sponsored entities discount notes that mature
within 60 days.

Investment securities having a book value of $1,548 million and $1,481 million
at December 31, 2011 and 2010, respectively, were pledged to collateralize
government and trust department deposits in accordance with federal and state
requirements, to secure repurchase agreements sold and as collateral for
Federal Home Loan Bank (FHLB) advance borrowings.

At December 31, 2011, $813 million was pledged for government and trust
department deposits, $669 million was pledged to secure repurchase agree-
ments and $66 million was pledged as collateral for FHLB advance borrowings.
At December 31, 2010, $736 million was pledged for government and trust
department deposits, $668 million was pledged to secure repurchase agree-
ments and $77 million was pledged as collateral for FHLB advance borrowings.

At December 31, 2011, there were no holdings of securities of any one issuer,
other than the U.S. Government and its agencies, in an amount greater than
10% of shareholders’ equity.

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

During the first quarter of 2011, Park sold $105.4 million of U.S. Government
sponsored entity mortgage-backed securities for a pre-tax gain of $6.6 million.
Park also sold $1.0 million of municipal securities for no gain or loss. During
the second quarter of 2011, Park sold $191.0 million of U.S. Government
sponsored entity mortgage-backed securities for a pre-tax gain of $15.4 million.
During the third quarter of 2011, Park sold $212.8 million of U.S. Government
sponsored entity mortgage-backed securities for a pre-tax gain of $3.5 million.

Late in the fourth quarter of 2011, in preparation for the sale of Vision,
Park sold $45.7 million of U.S. Government sponsored entity mortgage-
backed securities (available-for-sale securities) and $24.3 million of U.S.
Government sponsored entity CMOs (held-to-maturity securities) held by
Vision for a pre-tax gain of $3.4 million. Park also sold $0.9 million of
municipal securities held by Vision for a pre-tax gain of $15,000. The
proceeds from the sale of the Vision securities were used to purchase
U.S. Agency discount notes that mature during the first quarter of 2012.

During 2010, Park received proceeds from the sale of investment securities
of $460.2 million, realizing a pre-tax gain of $11.9 million. During 2009,
Park sold $204.3 million of U.S. Government sponsored entity mortgage-
backed securities, realizing a pre-tax gain of $7.3 million. No gross losses
were realized in 2011, 2010 or 2009.

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

(In thousands)

2011:

Commercial, financial and agricultural*
Commercial real estate*
Construction real estate:
Vision commercial land
and development*
Remaining commercial
Mortgage
Installment

Residential real estate:

Commercial
Mortgage
HELOC
Installment

Consumer
Leases

Total loans

Loan
Balance

$ 743,797
1,108,574

31,603
156,053
20,039
9,851

395,824
953,758
227,682
51,354
616,505
2,059

Accrued
Interest
Receivable

$ 3,121
4,235

31
394
64
61

1,105
1,522
942
236
2,930
43

Recorded
Investment

$ 746,918
1,112,809

31,634
156,447
20,103
9,912

396,929
955,280
228,624
51,590
619,435
2,102

$4,317,099

$14,684

$4,331,783

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

(In thousands)

2010:

Commercial, financial and agricultural*
Commercial real estate*
Construction real estate:
Vision commercial land
and development*
Remaining commercial
Mortgage
Installment

Residential real estate:

Commercial
Mortgage
HELOC
Installment

Consumer
Leases

Total loans

Loan
Balance

$ 737,902
1,226,616

171,334
195,693
26,326
13,127

464,903
906,648
260,463
60,195
666,871
2,607

Accrued
Interest
Receivable

$ 2,886
4,804

Recorded
Investment

$ 740,788
1,231,420

282
622
95
54

1,403
2,789
1,014
255
3,245
56

171,616
196,315
26,421
13,181

466,306
909,437
261,477
60,450
670,116
2,663

$4,732,685

$17,505

$4,750,190

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

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

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

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

(In thousands)

Loans

Accruing

Nonaccrual Restructured

Loans Past Due
90 Days
or More
and Accruing

Total
Nonperforming
Loans

2011:

Commercial, financial
and agricultural

Commercial real estate
Construction real estate:
Vision commercial land
and development
Remaining commercial
Mortgage
Installment

Residential real estate:

Commercial
Mortgage
HELOC
Installment

Consumer
Leases

Total loans

2010:

Commercial, financial
and agricultural

Commercial real estate
Construction real estate:
Vision commercial land
and development
Remaining commercial
Mortgage
Installment

Residential real estate:

Commercial
Mortgage
HELOC
Installment

Consumer
Leases

Total loans

$ 37,797
43,704

$ 2,848
8,274

$ —
—

$ 40,645
51,978

25,761
14,021
66
30

43,461
25,201
1,412
1,777
1,876
—

—
11,891
—
—

815
4,757
—
98
—
—

—
—
—
—

—
2,610
—
58
893
—

25,761
25,912
66
30

44,276
32,568
1,412
1,933
2,769
—

$195,106

$28,683

$3,561

$227,350

$ 19,276
57,941

$ —
—

$ —
20

$ 19,276
57,961

87,424
27,080
354
417

60,227
32,479
964
1,195
1,911
—

—
—
—
—

—
—
—
—
—
—

—
—
—
13

—
2,175
149
277
1,059
—

87,424
27,080
354
430

60,227
34,654
1,113
1,472
2,970
—

$289,268

$ —

$3,693

$292,961

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

(In thousands)

2011:

Commercial, financial and agricultural
Commercial real estate
Construction real estate:
Vision commercial land
and development
Remaining commercial
Mortgage
Installment

Residential real estate:

Commercial
Mortgage
HELOC
Installment

Consumer
Leases

Total loans

2010:

Commercial, financial and agricultural
Commercial real estate
Construction real estate:
Vision commercial land
and development
Remaining commercial
Mortgage
Installment

Residential real estate:

Commercial
Mortgage
HELOC
Installment

Consumer
Leases

Total loans

Nonaccrual
and Accruing
Restructured
Loans

Loans
Individually
Evaluated for
Impairment

Loans
Collectively
Evaluated for
Impairment

$ 40,645
51,978

$ 40,621
51,978

24
—

25,761
25,912
66
30

44,276
29,958
1,412
1,875
1,876
—

24,328
25,912
—
—

44,276
—
—
—
20
—

1,433
—
66
30

—
29,958
1,412
1,875
1,856
—

$223,789

$187,135

$36,654

$ 19,276
57,941

$ 19,205
57,930

71
11

87,424
27,080
354
417

60,227
32,479
964
1,195
1,911
—

86,491
27,080
—
—

60,227
—
—
—
—
—

933
—
354
417

—
32,479
964
1,195
1,911
—

$289,268

$250,933

$38,335

All of the loans individually evaluated for impairment were evaluated using the
fair value of the collateral or present value of expected future cash flows as the
measurement method.

The following table presents loans individually evaluated for impairment by
class of loans as of December 31, 2011 and December 31, 2010.

(In thousands)

2011:

With no related allowance recorded

Commercial, financial
and agricultural

Commercial real estate
Construction real estate:
Vision commercial land
and development
Remaining commercial

Residential real estate:

Commercial
Consumer

With an allowance recorded

Commercial, financial
and agricultural

Commercial real estate
Construction real estate:
Vision commercial land
and development
Remaining commercial

Residential real estate:

Commercial
Consumer

Total

Unpaid
Principal
Balance

Recorded
Investment

Allowance for
Loan Losses
Allocated

$ 23,164
58,242

$ 18,098
41,506

$ —
—

54,032
33,319

49,341
—

23,719
12,183

20,775
9,711

6,402
20

17,786
18,372

38,686
—

22,523
10,472

6,542
7,540

5,590
20

—
—

5,819
4,431

1,540
1,874

2,271
—

$290,908

$187,135

$15,935

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

Unpaid
Principal
Balance

Recorded
Investment

Allowance for
Loan Losses
Allocated

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

(In thousands)

2010:

With no related allowance recorded

Commercial, financial
and agricultural

Commercial real estate
Construction real estate:
Vision commercial land
and development
Remaining commercial

Residential real estate:

Commercial
Consumer

With an allowance recorded

Commercial, financial
and agricultural

Commercial real estate
Construction real estate:
Vision commercial land
and development
Remaining commercial

Residential real estate:

Commercial
Consumer

Total

$ 9,347
21,526

$ 8,891
17,170

$ —
—

11,206
12,305

46,344
—

11,801
44,789

103,937
23,563

19,716
—

7,847
11,743

43,031
—

10,314
40,760

78,644
15,337

17,196
—

$304,534

$250,933

—
—

3,028
12,652

39,887
5,425

5,912
—

$66,904

Management’s general practice is to proactively charge down loans
individually evaluated for impairment to the fair value of the underlying
collateral. At December 31, 2011 and December 31, 2010, there were
$83.7 million and $12.0 million, respectively, in partial charge-offs on loans
individually evaluated for impairment with no related allowance recorded and
$20.1 million and $41.6 million, respectively, of partial charge-offs on loans
individually evaluated for impairment that also had a specific reserve allocated.

The allowance for loan losses included specific reserves related to loans
individually evaluated for impairment at December 31, 2011 and 2010,
of $15.9 million and $66.9 million, respectively, related to loans with
a recorded investment of $52.7 million and $162.3 million.

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

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

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

(In thousands)

Recorded
Investment
as of
December 31, 2011

Commercial, financial and agricultural
Commercial real estate
Construction real estate:
Vision commercial land
and development
Remaining commercial

Residential real estate:

Commercial
Consumer

Total

$ 40,621
51,978

24,328
25,912

44,276
20

Average
Recorded
Investment

$ 23,518
49,927

Interest
Income
Recognized

$ 209
829

58,792
29,152

52,640
16

—
339

214
1

$187,135

$214,045

$1,592

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

Past Due
Nonaccrual
Loans and Loans
Past Due 90
Days or More
and Accruing

Accruing
Loans
Past Due
30–89 Days

Total
Past Due

Total
Current

Total
Recorded
Investment

$ 3,106
2,632

$11,308
21,798

$ 14,414 $ 732,504 $ 746,918
1,112,809
1,088,379

24,430

—
99
76
421

1,545
15,879
1,015
1,549
11,195
—

19,235
7,839
—
8

10,097
20,614
436
1,136
2,192
—

19,235
7,938
76
429

11,642
36,493
1,451
2,685
13,387
—

12,399
148,509
20,027
9,483

385,287
918,787
227,173
48,905
606,048
2,102

31,634
156,447
20,103
9,912

396,929
955,280
228,624
51,590
619,435
2,102

(In thousands)

December 31, 2011:

Commercial, financial
and agricultural

Commercial real estate
Construction real estate:
Vision commercial land
and development
Remaining commercial
Mortgage
Installment

Residential real estate:

Commercial
Mortgage
HELOC
Installment

Consumer
Leases

Total loans

$37,517

$94,663

$132,180 $4,199,603 $4,331,783

December 31, 2010:

Commercial, financial
and agricultural

Commercial real estate
Construction real estate:
Vision commercial land
and development
Remaining commercial
Mortgage
Installment

Residential real estate:

Commercial
Mortgage
HELOC
Installment

Consumer
Leases

$ 2,247
9,521

$ 15,622
53,269

$ 17,869 $ 722,919 $ 740,788
1,231,420
1,168,630

62,790

2,406
141
479
235

3,281
17,460
1,396
1,018
11,204
5

65,130
19,687
148
399

26,845
24,422
667
892
2,465
—

67,536
19,828
627
634

30,126
41,882
2,063
1,910
13,669
5

104,080
176,487
25,794
12,547

436,180
867,555
259,414
58,540
656,447
2,658

171,616
196,315
26,421
13,181

466,306
909,437
261,477
60,450
670,116
2,663

Total loans

$49,393

$209,546

$258,939 $4,491,251 $4,750,190

Credit Quality Indicators
Management utilizes past due information as a credit quality indicator across
the loan portfolio. The past due information is the primary credit quality
indicator within the following classes of loans: (1) mortgage loans and
installment loans in the construction real estate segment; (2) mortgage
loans, HELOC and installment loans in the residential real estate segment;
and (3) consumer loans. The primary credit indicator for commercial loans
is based on an internal grading system that grades all commercial loans from
1 to 8. Credit grades are continuously monitored by the respective loan officer
and adjustments are made when appropriate. A grade of 1 indicates little or
no credit risk and a grade of 8 is considered a loss. Commercial loans with
grades of 1 to 4 (pass-rated) are considered to be of acceptable credit risk.
Commercial loans graded a 5 (special mention) are considered to be watch
list credits and a higher loan loss reserve percentage is allocated to these loans.
Loans classified as special mention have potential weaknesses that deserve
management’s close attention. If left uncorrected, these potential weaknesses
may result in deterioration of the repayment prospects for the loan or of the
institution’s credit position at some future date. Commercial loans graded 6
(substandard), also considered watch list credits, are considered to represent
higher credit risk and, as a result, a higher loan loss reserve percentage is
allocated to these loans. Loans classified as substandard loans are inadequately
protected by the current sound worth and paying capacity of the obligor or of
the collateral pledged, if any. Loans so classified have a well defined weakness
or weaknesses that jeopardize the liquidation of the debt. They are character-
ized 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)

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

Specifically, if the restructured note has been current for a period of at
least six months and management expects the borrower will remain current
throughout the renegotiated contract, the loan may be returned to accrual
status. At December 31, 2011 and December 31, 2010, $79.9 million and
$50.3 million of the nonaccrual TDRs were current. Management will continue
to review the renegotiated loans and may determine it appropriate to move
certain of the loans back to accrual status in the future. At December 31, 2011
and December 31, 2010, Park had commitments to lend $4.0 million and
$434,000, respectively, of additional funds to borrowers whose terms had
been modified in a TDR.

The specific reserve related to TDRs at December 31, 2011 and December
31, 2010 was $9.1 million and $9.4 million, respectively. Modifications made
in 2011 were largely the result of renewals, extending the maturity date of the
loan, at terms consistent with the original note. These modifications were
deemed to be TDRs primarily due to Park’s conclusion that the borrower
would likely not have qualified for similar terms through another lender.
Many of the modifications deemed to be TDRs were previously identified
as impaired loans, and thus were evaluated for impairment under ASC 310.
An immaterial amount of additional specific reserves were recorded during
the period ending December 31, 2011 as a result of TDRs identified in the
2011 year.

The terms of certain other loans were modified during the period ended
December 31, 2011 that did not meet the definition of a troubled debt
restructuring. Modified substandard commercial loans which did not meet
the definition of a TDR have a total recorded investment as of December
31, 2011 of $13.6 million. The modification of these loans involved either
a modification of the terms of a loan to borrowers who were not experiencing
financial difficulties or resulted in a delay in a payment that was considered to
be insignificant. Modified consumer loans which did not meet the definition
of a TDR have a total recorded investment as of December 31, 2011 of $19.6
million. Many of these loans were modified as a lower cost option than a full
refinancing to borrowers who were not experiencing financial difficulties.

The following table details the number of contracts modified as TDRs
during the 12 months ended December 31, 2011 as well as the period end
recorded investment of these contracts. The recorded investment pre- and post-
modification is generally the same, as historically Park has not forgiven debt.

(In thousands)

December 31, 2011:

Commercial, financial and agricultural
Commercial real estate
Construction real estate:
Vision commercial land
and development
Remaining commercial
Mortgage
Installment

Residential real estate:

Commercial
Mortgage
HELOC
Installment

Consumer
Leases

Total loans

Number of
Contracts

Recorded
Investment

56
23

12
24
1
—

30
37
2
7
1
—

193

$24,100
7,163

4,268
18,602
66
—

29,595
5,925
56
221
18
—

$90,014

are shown as nonaccrual and Park generally charges these loans down to their
fair value by taking a partial charge-off or recording a specific reserve. Loans
classified as doubtful have all the weaknesses inherent in those classified as
substandard with the added characteristic that the weaknesses make collection
or liquidation in full, on the basis of currently existing facts, conditions and
values, highly questionable and improbable. Any commercial loan graded
an 8 (loss) is completely charged-off.

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

(In thousands)

5 Rated

6 Rated

Nonaccrual

Pass
Rated

Recorded
Investment

December 31, 2011:

Commercial, financial
and agricultural

Commercial real estate
Construction real estate:
Vision commercial land
and development
Remaining commercial

Residential real estate:

Commercial

Leases

Total commercial

loans

December 31, 2010:

Commercial, financial
and agricultural

Commercial real estate
Construction real estate:
Vision commercial land
and development
Remaining commercial

Residential real estate:

Commercial

Leases

Total commercial

loans

$ 11,785
37,445

$ 7,628
10,460

$ 40,645
51,978

$ 686,860
1,012,926

$ 746,918
1,112,809

3,102
6,982

17,120
—

—
8,311

3,785
—

25,761
25,912

44,276
—

2,771
115,242

331,748
2,102

31,634
156,447

396,929
2,102

$ 76,434

$ 30,184

$188,572

$2,151,649

$2,446,839

$ 26,322
57,394

$ 11,447
26,992

$ 19,276
57,941

$ 683,743
1,089,093

$ 740,788
1,231,420

10,220
14,021

29,206
—

7,941
39,062

18,117
—

87,424
27,080

60,227
—

66,031
116,152

358,756
2,663

171,616
196,315

466,306
2,663

$137,163

$103,559

$251,948

$2,316,438

$2,809,108

Troubled Debt Restructuring (TDRs)
Management classifies loans as TDRs when a borrower is experiencing financial
difficulties and Park has granted a concession. In order to determine whether
a borrower is experiencing financial difficulty, an evaluation is performed of the
probability that the borrower will be in payment default on any of its debt in the
foreseeable future without the modification. This evaluation is performed under
the Company’s internal underwriting policy. Management’s policy is to modify
loans by extending the term or by granting a temporary or permanent contrac-
tual interest rate below the market rate, not by forgiving debt. Certain loans
which were modified during the period ending December 31, 2011 did not
meet the definition of a TDR as the modification was a delay in a payment that
was considered to be insignificant. Management considers a forbearance period
of up to three months or a delay in payment of up to 30 days to be insignificant.
TDRs may be classified as accruing if the borrower has been current for a
period of at least six months with respect to loan payments and management
expects that the borrower will be able to continue to make payments in accor-
dance with the terms of the restructured note. Management reviews all accruing
TDRs quarterly to ensure payments continue to be made in accordance with the
modified terms.

At December 31, 2011 and December 31, 2010, there were $100.4 million
and $80.7 million, respectively, of TDRs included in nonaccrual loan totals.
As of December 31, 2011, there were $28.7 million of TDRs included in
accruing loan totals. None of the TDRs as of December 31, 2010 were
accruing. Prior to management’s adoption of ASU 2011-02, Park classified
all TDRs as nonaccrual loans. With the adoption of ASU 2011-02, management
determined it was appropriate to return certain TDRs to accrual status.

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

The following table presents the recorded investment in financing receivables
which were modified as troubled debt restructurings within the previous 12
months and for which there was a payment default during the 12 month period
ended December 31, 2011. For this table, a loan is considered to be in default
when it becomes 30 days contractually past due under modified terms. The
additional allowance for loan loss resulting from the defaults on TDR loans
was immaterial.

(In thousands)

December 31, 2011:

Commercial, financial and agricultural
Commercial real estate
Construction real estate:
Vision commercial land
and development
Remaining commercial
Mortgage
Installment

Residential real estate:

Commercial
Mortgage
HELOC
Installment

Consumer
Leases

Total loans

Number of
Contracts

Recorded
Investment

19
5

5
4
1
—

10
7
1
2
—
—

$ 3,878
2,353

3,406
1,277
66
—

20,195
1,193
50
44
—
—

$32,462

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

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

6. 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 these Notes to Consolidated
Financial Statements.

The activity in the allowance for loan losses for the 12 months ended December
31, 2011, December 31, 2010 and December 31, 2009 is summarized in the
following tables.

(In thousands)

Average loans

Allowance for loan losses:

Beginning balance

Charge-offs:

Commercial, financial and agricultural
Commercial real estate
Construction real estate
Residential real estate
Consumer
Lease financing

Total charge-offs

Recoveries:

Commercial, financial and agricultural
Commercial real estate
Construction real estate
Residential real estate
Consumer
Lease financing

Total recoveries

Net charge-offs
Provision for loan losses

Ending balance

Ratio of net charge-offs to average loans
Ratio of allowance for loan losses to

end of period loans

2010

$4,642,478

2009

$4,594,436

$ 116,717

$ 100,088

8,484
7,748
23,308
18,401
8,373
—

66,314

1,237
850
813
1,429
1,763
—

6,092
60,222
87,080
$ 143,575

1.30%

3.03%

10,047
5,662
21,956
11,765
9,583
9

59,022

1,010
771
1,322
1,723
2,001
3

6,830
52,192
68,821
$ 116,717

1.14%

2.52%

Year ended December 31, 2011
(In thousands)

Allowance for credit losses:

Beginning balance

Transfer of loans at fair value

Transfer of allowance to held for sale (1)

Charge-offs

Recoveries

Net charge-offs

Provision

Ending balance

Commercial,
Financial and
Agricultural

$11,555

1,184

18,350

1,402

$16,948

23,529

$16,950

Commercial
Real Estate

Construction
Real Estate

Residential
Real Estate

Consumer

Leases

Total

$24,369

150

4,327

23,063

1,825

$21,238

16,885

$15,539

$70,462

1,998

64,166

1,463

$62,703

8,735

$14,433

$30,259

5,450

20,691

1,719

$18,972

9,859

$15,692

$6,925

—

141

7,612

2,385

$5,227

4,273

$5,830

$ 5

$143,575

—

$ (4)

(9)

$ —

219

13,100

133,882

8,798

$125,084

63,272

$ 68,444

(1) Transfer of allowance to held for sale was allocated on a pro-rata basis based on the outstanding balance of the loans held for sale.

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

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

(In thousands)

December 31, 2011

Allowance for loan losses:

Ending allowance balance attributed to loans

Individually evaluated for impairment

Collectively evaluated for impairment

Total ending allowance balance

Loan balance:

Loans individually evaluated for impairment

Loans collectively evaluated for impairment

Total ending loan balance

Allowance for loan losses as a percentage of

loan balance:

Loans individually evaluated for impairment

Loans collectively evaluated for impairment

Total ending loan balance

Recorded investment:

Loans individually evaluated for impairment

Loans collectively evaluated for impairment

Total ending loan balance

December 31, 2010

Allowance for loan losses:

Ending allowance balance attributed to loans

Individually evaluated for impairment

Collectively evaluated for impairment

Total ending allowance balance

Loan balance:

Loans individually evaluated for impairment

Loans collectively evaluated for impairment

Total ending loan balance

Allowance for loan losses as a percentage of

loan balance:

Loans individually evaluated for impairment

Loans collectively evaluated for impairment

Total ending loan balance

Recorded investment:

Loans individually evaluated for impairment

Loans collectively evaluated for impairment

Total ending loan balance

Commercial,
Financial and
Agricultural

Commercial
Real Estate

Construction
Real Estate

Residential
Real Estate

Consumer

Leases

Total

$ 5,819

11,131

$ 16,950

$ 40,621

703,176

$743,797

14.33%

1.58%

2.28%

$ 40,621

706,297

$746,918

$ 3,028

8,527

$ 11,555

$ 19,205

718,697

$737,902

15.77%

1.19%

1.57%

$ 19,205

721,583

$740,788

4,431

11,108

15,539

51,978

1,056,596

$1,108,574

8.52%

1.05%

1.40%

51,978

1,060,831

$1,112,809

$ 12,652

11,717

$ 24,369

$ 57,930

1,168,686

$1,226,616

21.84%

1.00%

1.99%

$ 57,930

1,173,490

$1,231,420

$ 3,414

11,019

$ 14,433

$ 50,240

167,306

$217,546

6.80%

6.59%

6.63%

$ 50,240

167,856

$218,096

$ 45,312

25,150

$ 70,462

$113,571

292,909

$406,480

39.90%

8.59%

17.33%

$113,571

293,962

$407,533

2,271

13,421

15,692

44,276

1,584,342

$1,628,618

5.13%

0.85%

0.96%

44,276

1,588,147

$1,632,423

5,912

24,347

30,259

60,227

1,631,982

$1,692,209

9.82%

1.49%

1.79%

60,227

1,637,443

$1,697,670

—

5,830

$ 5,830

616,485

$616,505

—

0.95%

619,415

$619,435

—

6,925

$ 6,925

—

666,871

$666,871

—

1.04%

—

670,116

$670,116

$ —

—

$ —

2,059

$2,059

—

$ —

2,102

$2,102

15,935

52,509

68,444

$ 187,135

4,129,964

$4,317,099

8.52%

1.27%

1.59%

$ 187,135

4,144,648

$4,331,783

$ —

66,904

$ —

2,607

$2,607

—

0.19%

$ —

2,663

$2,663

76,671

$ 143,575

$ 250,933

4,481,752

$4,732,685

26.66%

1.71%

3.03%

$ 250,933

4,499,257

$4,750,190

Loans collectively evaluated for impairment above include all performing loans
at December 31, 2011 and 2010, as well as nonperforming loans internally
classified as consumer loans. Nonperforming consumer loans are not typically
evaluated for impairment, but receive a portion of the statistical allocation of
the allowance for loan losses. Loans individually evaluated for impairment
above include all impaired loans internally classified as commercial loans
at December 31, 2011 and 2010, which are evaluated for impairment in
accordance with GAAP (see Note 1 of these Notes to Consolidated Financial
Statements).

7. PREMISES AND EQUIPMENT
The major categories of premises and equipment and accumulated
depreciation are summarized as follows:

December 31 (In thousands)

Land

Buildings

Equipment, furniture and fixtures

Leasehold improvements

Total

Less accumulated depreciation

Premises and equipment, net

2011

2010

$ 18,151

$ 23,827

69,690

59,037

4,283

78,185

61,086

6,031

$151,161

$169,129

(97,420)

(99,562)

$ 53,741

$ 69,567

Depreciation expense amounted to $7.6 million, $7.1 million and $7.5 million
for the years ended December 31, 2011, 2010 and 2009, respectively.

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

The Corporation leases certain premises and equipment accounted for as
operating leases. The following is a schedule of the future minimum rental
payments required for the next five years under such leases with initial terms
in excess of one year:

(In thousands)

2012

2013

2014

2015

2016

Thereafter

Total

$1,448

1,104

910

714

457

961

$5,594

9. SHORT-TERM BORROWINGS
Short-term borrowings were as follows:

December 31 (In thousands)

2011

2010

Securities sold under agreements to repurchase

and federal funds purchased

Federal Home Loan Bank advances

Total short-term borrowings

$240,594

23,000

$263,594

$279,669

384,000

$663,669

The outstanding balances for all short-term borrowings as of December 31,
2011 and 2010 and the weighted-average interest rates as of and paid during
each of the years then ended were as follows:

Included in the operating lease schedule above is $101,000 of future rental
payments associated with Vision operating leases covering future rental
payments through February 29, 2012. Operating lease payments subsequent
to February 29, 2012 have not been considered as the branch offices of Vision
are to be acquired by Centennial in the first quarter of 2012.

Rent expense for Park was $2.4 million, $2.6 million and $2.8 million,
for the years ended December 31, 2011, 2010 and 2009, respectively.
Rent expense for Vision Bank was $687,000, $732,000 and $775,000
for the years ended December 31, 2011, 2010 and 2009, respectively.

8. DEPOSITS
At December 31, 2011 and 2010, noninterest bearing and interest bearing
deposits were as follows:

(In thousands)

2011:

Ending balance
Highest month-end balance
Average daily balance
Weighted-average interest rate:

As of year-end
Paid during the year

2010:

Ending balance
Highest month-end balance
Average daily balance
Weighted-average interest rate:

As of year-end
Paid during the year

Repurchase
Agreements
and Federal
Funds
Purchased

Federal
Home Loan
Bank
Advances

Demand
Notes
Due U.S.
Treasury
and Other

$240,594
265,412
246,145

0.29%
0.30%

$279,669
295,467
269,260

0.32%
0.39%

$ 23,000
232,000
51,392

0.40%
0.18%

$384,000
384,000
31,679

0.19%
0.39%

$ —
—
—

—
—

$ —
—
—

—
—

December 31 (In thousands)

Noninterest bearing

Interest bearing

Total

2011

$ 995,733

3,469,381

$4,465,114

2010

$ 937,719

4,157,701

$5,095,420

At December 31, 2011 and 2010, Federal Home Loan Bank (FHLB)
advances were collateralized by investment securities owned by the
Corporation’s subsidiary banks and by various loans pledged under
a blanket agreement by the Corporation’s subsidiary banks.

See Note 4 of these Notes to Consolidated Financial Statements for the amount
of investment securities that are pledged. At December 31, 2011 and 2010,
$2,231 million and $2,071 million, respectively, of commercial real estate
and residential mortgage loans were pledged under a blanket agreement
to the FHLB by Park’s subsidiary banks.

Note 4 states that $669 million and $668 million of securities were
pledged to secure repurchase agreements as of December 31, 2011 and
2010, respectively. Park’s repurchase agreements in short-term borrowings
consist of customer accounts and securities which are pledged on an individual
security basis. Park’s repurchase agreements with a third-party financial institu-
tion are classified in long-term debt. See Note 10 of these Notes to Consolidated
Financial Statements.

At December 31, 2011, the maturities of time deposits were as follows:

(In thousands)

2012

2013

2014

2015

2016

After 5 years

Total

$1,035,594

236,549

98,045

66,353

61,019

1,545

$1,499,105

At December 31, 2011, Park had approximately $20.2 million of deposits
received from executive officers, directors, and their related interests.
Of the $20.2 million at December 31, 2011, Vision had approximately
$3.2 million of deposits received from executive officers, directors, and
their related interests, which are included within liabilities held for sale.

Maturities of time deposits over $100,000 as of December 31, 2011 were:

December 31 (In thousands)

3 months or less

Over 3 months through 6 months

Over 6 months through 12 months

Over 12 months

Total

$ 171,090

122,481

186,793

158,581

$ 638,945

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

10. LONG-TERM DEBT
Long-term debt is listed below:

December 31

(In thousands)

2011

2010

Outstanding
Balance

Average
Rate

Outstanding
Balance

Average
Rate

Total Federal Home Loan Bank advances

by year of maturity:

2011
2012
2013
2014
2015
2016
Thereafter

Total

—
15,500
75,500
75,500
51,000
1,000
303,314

$521,814

Total broker repurchase agreements

by year of maturity:

2016
Thereafter

Total

$ 75,000
225,000

$300,000

Other borrowings by year of maturity:

2011
2012
2013
2014
2015
2016
Thereafter

Total

Total combined long-term debt

by year of maturity:

2011
2012
2013
2014
2015
2016
Thereafter

Total

—
69
74
81
87
94
963

$ 1,368

—
15,569
75,574
75,581
51,087
76,094
529,277

$823,182

—
2.09%
1.11%
1.61%
2.00%
2.05%
3.02%

2.41%

4.05%
4.03%

4.04%

—
7.97%
7.97%
7.97%
7.97%
7.97%
7.97%

7.97%

—
2.12%
1.11%
1.62%
2.01%
4.03%
3.46%

3.01%

$ 16,460
15,500
500
500
—
—
302,342

$335,302

$ 75,000
225,000

$300,000

63
69
74
81
87
94
963

$ 1,431

$ 16,523
15,569
574
581
87
75,094
528,305

$636,733

1.99%
2.09%
4.03%
4.23%
—
—
3.02%

2.93%

4.05%
4.03%

4.04%

7.97%
7.97%
7.97%
7.97%
7.97%
7.97%
7.97%

7.97%

2.01%
2.12%
4.54%
4.75%
7.97%
4.05%
3.46%

3.46%

Other borrowings consist of a capital lease obligation of $1.4 million,
pertaining to an arrangement that was part of the acquisition of Vision
on March 9, 2007 and its associated minimum lease payments. This capital
lease is scheduled to be assumed by Centennial Bank, in connection with
their acquisition of Vision’s branches, in the first quarter of 2012.

Park had approximately $529.3 million of long-term debt at December 31,
2011 with a contractual maturity longer than five years. However, approximately
$525 million of this debt is callable by the issuer in 2012.

At December 31, 2011 and 2010, Federal Home Loan Bank (FHLB) advances
were collateralized by investment securities owned by the Corporation’s sub-
sidiary banks and by various loans pledged under a blanket agreement by the
Corporation’s subsidiary banks.

See Note 4 of these Notes to Consolidated Financial Statements for the
amount of investment securities that are pledged. See Note 9 of these Notes
to Consolidated Financial Statements for the amount of commercial real estate
and residential mortgage loans that are pledged to the FHLB.

11. SUBORDINATED DEBENTURES/NOTES
As part of the acquisition of Vision on March 9, 2007, Park became the
successor to Vision under (i) the Amended and Restated Trust Agreement
of Vision Bancshares Trust I (the “Trust”), dated as of December 5, 2005,
(ii) the Junior Subordinated Indenture, dated as of December 5, 2005, and
(iii) the Guarantee Agreement, also dated as of December 5, 2005.

On December 1, 2005, Vision formed a wholly-owned Delaware statutory
business trust, Vision Bancshares Trust I (“Trust I”), which issued $15.0
million of the Trust’s floating rate preferred securities (the “Trust Preferred
Securities”) to institutional investors. These Trust Preferred Securities qualify
as Tier I capital under Federal Reserve Board guidelines. All of the common
securities of Trust I are owned by Park. The proceeds from the issuance of the
common securities and the Trust Preferred Securities were used by Trust I to
purchase $15.5 million of junior subordinated notes, which carry a floating rate
based on a three-month LIBOR plus 148 basis points. The debentures represent
the sole asset of Trust I. The Trust Preferred Securities accrue and pay distribu-
tions at a floating rate of three-month LIBOR plus 148 basis points per annum.
The Trust Preferred Securities are mandatorily redeemable upon maturity of the
notes in December 2035, or upon earlier redemption as provided in the notes.
Park has the right to redeem the notes purchased by Trust I in whole or in part,
on or after December 30, 2010. As specified in the indenture, if the notes are
redeemed prior to maturity, the redemption price will be the principal amount,
plus any unpaid accrued interest.

In accordance with GAAP, Trust I is not consolidated with Park’s financial
statements, but rather the subordinated notes are reflected as a liability.

On December 28, 2007, one of Park’s wholly-owned subsidiary banks, The
Park National Bank (“PNB”), entered into a Subordinated Debenture Purchase
Agreement with USB Capital Funding Corp. Under the terms of the Purchase
Agreement, USB Capital Funding Corp. purchased from PNB a Subordinated
Debenture dated December 28, 2007, in the principal amount of $25 million,
which matures on December 29, 2017. The Subordinated Debenture is
intended to qualify as Tier 2 capital under the applicable regulations of the
Office of the Comptroller of the Currency of the United States of America (the
“OCC”). The Subordinated Debenture accrues and pays interest at a floating
rate of three-month LIBOR plus 200 basis points. The Subordinated Debenture
may not be prepaid in any amount prior to December 28, 2012; however,
subsequent to that date, PNB may prepay, without penalty, all or a portion
of the principal amount outstanding in a minimum amount of $5 million
or any larger multiple of $5 million. The three-month LIBOR rate was 0.58%
at December 31, 2011. On January 2, 2008, Park entered into an interest rate
swap trans action, which was designated as a cash flow hedge against the vari-
ability of cash flows related to the Subordinated Debenture of $25 million
(see Note 19 of these Notes to Consolidated Financial Statements).

On December 23, 2009, Park entered into a Note Purchase Agreement, dated
December 23, 2009, with 38 purchasers (the “Purchasers”). Under the terms
of the Note Purchase Agreement, the Purchasers purchased from Park an
aggregate principal amount of $35.25 million of 10% Subordinated Notes
due December 23, 2019 (the “Notes”). The Notes are intended to qualify as
Tier 2 capital under applicable rules and regulations of the Federal Reserve
Board. The Notes may not be prepaid in any amount prior to December 23,
2014; however, subsequent to that date, Park may prepay, without penalty, all
or a portion of the principal amount outstanding. Of the $35.25 million in
Notes, $14.05 million were purchased by related parties.

12. 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 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. All of the
common shares delivered upon the exercise of incentive stock options granted
under the 2005 Plan are to be treasury shares. At December 31, 2011,
1,425,980 common shares were available for future grants under the 2005
Plan. Under the terms of the 2005 Plan, incentive stock options may be granted
at a price not less than the fair market value at the date of the grant, and for an
option term of up to five years. No additional incentive stock options may be
granted under the 2005 Plan after January 17, 2015.

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

The fair value of each incentive stock option granted is estimated on the
date of grant using a closed form option valuation (Black-Scholes) model.
Expected volatilities are based on historical volatilities of Park’s common
stock. The Corporation uses historical data to estimate option exercise
behavior. The expected term of incentive stock options granted is based
on historical data and represents the period of time that options granted
are expected to be outstanding, which takes into account that the options
are not transferable. The risk-free interest rate for the expected term of the
incentive stock options is based on the U.S. Treasury yield curve in effect
at the time of the grant.

The activity in the 2005 Plan is listed in the following table for 2011:

January 1, 2011

Granted
Exercised
Forfeited/Expired

December 31, 2011

Number

78,075
—
—
4,055

74,020

Exercisable at year end
Weighted-average remaining contractual life
Aggregate intrinsic value

Weighted Average
Exercise Price per Share

$ 74.96
—
—
74.96

$ 74.96

74,020
0.94 years
0

There were no options granted or exercised in 2011, 2010 or 2009.
Additionally, no expense was recognized for 2011, 2010 or 2009.

13. BENEFIT PLANS
The Corporation has a noncontributory Defined Benefit Pension Plan (the
“Pension Plan”) covering substantially all of the employees of the Corporation
and its subsidiaries. The Pension Plan provides benefits based on an employee’s
years of service and compensation.

The Corporation’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. Management contributed $2 million in September 2010, which was
deductible on the 2010 tax return and was reflected in deferred tax liabilities
at December 31, 2010. In January 2011, management contributed $14 million,
of which $12.4 million was deductible on the 2010 tax return and $1.6 million
on the 2011 tax return. In January 2012, management contributed $15.9
million, of which $14.3 million was deductible on the 2011 tax return and
$1.6 million on the 2012 tax return. The entire $14.3 million deductible
on the 2011 tax return is reflected as part of deferred taxes at December 31,
2011. See Note 14 of these Notes to Consolidated Financial Statements. Park
does not expect to make any additional contributions to the Pension Plan
in 2012.

Using an accrual measurement date of December 31, 2011 and 2010, plan
assets and benefit obligation activity for the Pension Plan are listed below:

(In thousands)

Change in fair value of plan assets

2011

2010

Fair value at beginning of measurement period

$85,464

$75,815

Actual return on plan assets

Company contributions

Benefits paid

1,813

14,000

(4,696)

11,296

2,000

(3,647)

Fair value at end of measurement period

$96,581

$85,464

Change in benefit obligation

Projected benefit obligation at beginning of

measurement period

Service cost

Interest cost

Actuarial loss

Benefits paid

Projected benefit obligation at the

end of measurement period

Funded status at end of year

(assets less benefit obligation)

$74,164

$60,342

4,557

3,967

3,515

(4,696)

3,671

3,583

10,215

(3,647)

$81,507

$74,164

$15,074

$11,300

The asset allocation for the Pension Plan as of the measurement date, by asset
category, was as follows:

Asset Category

Target Allocation

Equity securities
Fixed income and cash equivalents

50% – 100%
remaining balance

Total

—

2011

80%
20%

100%

2010

86%
14%

100%

Percentage of Plan Assets

The investment policy, as established by the Retirement Plan Committee, is
to invest assets according to the target allocation stated above. Assets will be
reallocated periodically based on the investment strategy of the Retirement
Plan Committee. The investment policy is reviewed periodically.

The expected long-term rate of return on plan assets was 7.75% in 2011
and 2010. This return was based on the expected return of each of the asset
categories, weighted based on the median of the target allocation for each class.

The accumulated benefit obligation for the Pension Plan was $71.4 million
and $63.5 million at December 31, 2011 and 2010, respectively.

On November 17, 2009, the Park Pension Plan completed the purchase
of 115,800 common shares of Park for $7.0 million or $60.45 per share.
At December 31, 2011 and 2010, the fair value of the 115,800 common
shares held by the Pension Plan was $7.5 million, or $65.06 per share
and $8.4 million, or $72.67 per share, respectively.

The weighted average assumptions used to determine benefit obligations
at December 31, 2011 and December 31, 2010 were as follows:

Discount rate
Rate of compensation increase

2011

5.18%
3.00%

2010

5.50%
3.00%

The estimated future pension benefit payments reflecting expected future
service for the next ten years are shown below in thousands:

2012
2013
2014
2015
2016
2017 – 2021

Total

$ 5,535
4,999
5,543
6,259
6,284
37,823

$66,443

The following table shows ending balances of accumulated other
comprehensive income (loss) at December 31, 2011 and 2010.

(In thousands)

Prior service cost
Net actuarial loss

Total

Deferred taxes

2011

$
(74)
(32,163)

(32,237)

11,283

2010

$ (93)
(24,410)

(24,503)

8,576

Accumulated other comprehensive loss

$(20,954)

$(15,927)

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

Using an actuarial measurement date of December 31 for 2011, 2010 and
2009, components of net periodic benefit cost and other amounts recognized
in other comprehensive income (loss) were as follows:

(In thousands)

2011

2010

2009

Components of net periodic benefit cost and

other amounts recognized in other
comprehensive income (loss)
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Recognized net actuarial loss

Net periodic benefit cost

Change to net actuarial (loss)/gain

for the period

Amortization of prior service cost
Amortization of net loss

Total recognized in other

comprehensive (loss)/income

Total recognized in net benefit cost

$ (4,557)
(3,967)
7,543
(19)
(1,411)

$ (2,411)

$ (9,164)
19
1,411

$(3,671)
(3,583)
5,867
(22)
(1,079)

$(2,488)

$(4,835)
22
1,079

$ (3,813)
(3,432)
4,487
(34)
(2,041)

$ (4,833)

$ 7,591
34
2,041

(7,734)

(3,734)

9,666

and other comprehensive (loss)/income $(10,145)

$(6,222)

$ 4,833

The estimated prior service costs for the Pension Plan that will be amortized
from accumulated other comprehensive income into net periodic benefit cost
over the next fiscal year is $20,000. The estimated net actuarial (loss) expected
to be recognized in the next fiscal year is $(2.0) million.

The weighted average assumptions used to determine net periodic benefit cost
for the years ended December 31, 2011 and 2010 are listed below:

Discount rate
Rate of compensation increase
Expected long-term return on plan assets

2011

5.50%
3.00%
7.75%

2010

6.00%
3.00%
7.75%

Management believes the 7.75% expected long-term rate of return is an
appropriate assumption given historical performance of the S&P 500 Index,
which management believes is a good indicator of future performance of
Pension Plan assets.

The Pension Plan maintains cash in a Park National Bank savings account.
The Pension Plan cash balance was $2.1 million at December 31, 2011.

GAAP defines fair value as the price that would be received by Park for an
asset or paid by Park to transfer a liability (an exit price) in an orderly trans -
action between market participants on the measurement date, using the most
advantageous market for the asset or liability. The fair values of equity securi-
ties, consisting of mutual fund investments and common stock held by the
Pension Plan and the fixed income and cash equivalents, are determined by
obtaining quoted prices on nationally recognized securities exchanges (Level
1 inputs). The market value of Pension Plan assets at December 31, 2011 was
$96.6 million. At December 31, 2011, $83.2 million of equity investments in
the Pension Plan were categorized as Level 1 inputs; $13.4 million of plan
investments in corporate and U.S. Government sponsored entity bonds were
categorized as Level 2 inputs, as fair value is based on quoted market prices
of comparable instruments; and no investments were categorized as Level 3
inputs. The market value of Pension Plan assets was $85.5 million at December
31, 2010. At December 31, 2010, $73.5 million of investments in the Pension
Plan were categorized as Level 1 inputs; $12.0 million were categorized as
Level 2; and no investments were categorized as Level 3.

The Corporation has a voluntary salary deferral plan covering substantially all
of the employees of the Corporation and its subsidiaries. Eligible employees
may contribute a portion of their compensation subject to a maximum statutory
limitation. The Corporation provides a matching contribution established
annually by the Corporation. Contribution expense for the Corporation was
$1.1 million, $1.0 million, and $1.5 million for 2011, 2010 and 2009,
respectively.

The Corporation has a Supplemental Executive Retirement Plan (SERP)
covering certain key officers of the Corporation and its subsidiaries with
defined pension benefits in excess of limits imposed by federal tax law. At
December 31, 2011 and 2010, the accrued benefit cost for the SERP totaled
$7.2 million. The expense for the Corporation was $0.6 million for 2011
and $0.5 million for both 2010 and 2009.

14. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant compo-
nents of the Corporation’s deferred tax assets and liabilities are as follows:

December 31 (in thousands)

Deferred tax assets:

Allowance for loan losses
Accumulated other comprehensive loss –

interest rate swap

Accumulated other comprehensive loss –

pension plan
Intangible assets
Deferred compensation
OREO devaluations
State net operating loss carryforwards
Loans held for sale fair value adjustment
Tax credit carryforwards
Other
Valuation allowance

2011

2010

$23,956

$52,418

296

572

11,283
1,523
3,733
6,364
—
4,585
1,269
5,220
—

8,576
2,156
4,123
7,171
2,812
—
—
4,988
(1,491)

Total deferred tax assets

$58,229

$81,325

Deferred tax liabilities:

Accumulated other comprehensive

income – unrealized gains on securities

Deferred investment income
Pension plan
Mortgage servicing rights
Purchase accounting adjustments
Other

Total deferred tax liabilities

Net deferred tax assets

$ 6,824
10,199
21,567
3,255
943
2,006

$44,794

$13,435

$ 8,142
10,199
16,835
3,671
2,150
2,176

$43,173

$38,152

Park performs an analysis to determine if a valuation allowance against
deferred tax assets is required in accordance with GAAP. Vision Bank is subject
to state income tax in Alabama and Florida. During 2011, Park recognized
$6.10 million in state tax expense which was the charge necessary to write-off
the previously reported state operating loss carryforward asset and other state
deferred tax assets at Vision Bank. Prior to the execution of the Purchase
Agreement with Centennial, management of Park believed that a merger of
Vision Bank into The Park National Bank (the national bank subsidiary of Park)
would enable Park to fully utilize the state net operating loss carryforward asset
recorded at Vision Bank. The structure of the transactions contemplated by the
Purchase Agreement will not allow either the buyer or the seller to benefit from
the previously recorded net operating loss carryforward asset at Vision Bank
to offset future taxable income; therefore, this asset was written-off by Vision
Bank at December 31, 2011. In 2010, a state tax benefit of $1.16 million was
recorded by Vision Bank, consisting of a gross benefit of $3.45 million and
a valuation allowance of $2.29 million. In the schedule of deferred taxes, the
valuation allowance is shown net of the federal tax benefit of $803,000.

Management has determined that it is not required to establish a valuation
allowance against remaining deferred tax assets in accordance with GAAP
since it is more likely than not that the deferred tax assets will be fully utilized
in future periods.

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

The components of the provision for federal and state income taxes are shown
below:

December 31 (in thousands)

2011

2010

2009

Currently payable

Federal
State

Deferred
Federal
State

Valuation allowance

Federal
State

Total

$ 5,949
—

$26,130
109

$32,148
(273)

22,378
8,382

—
(2,294)

(8,333)
(3,564)

—
2,294

(6,745)
(2,187)

—
—

$34,415

$16,636

$22,943

The following is a reconciliation of income tax expense to the amount
computed at the statutory rate of 35% for the years ended December 31,
2011, 2010 and 2009.

December 31

Statutory federal corporate tax rate
Changes in rates resulting from:

Tax-exempt interest income, net of

disallowed interest

Bank owned life insurance
Tax credits (low income housing)
State income tax expense, net of

federal benefit

Valuation allowance, net of

federal benefit

Other

Effective tax rate

2011

35.0%

(1.0)%
(1.5)%
(5.2)%

4.7%

(1.3)%
(1.2)%

29.5%

2010

35.0%

(1.7)%
(2.3)%
(6.7)%

2009

35.0%

(1.3)%
(1.8)%
(4.8)%

(3.0)%

(1.6)%

2.0%
(1.0)%

22.3%

—
(1.9)%

23.6%

Park and its Ohio-based subsidiaries do not pay state income tax to the state
of Ohio, but pay a franchise tax based on their year-end equity. The franchise
tax expense is included in the state tax expense and is shown in “state taxes”
on Park’s Consolidated Statements of Income. Vision Bank is subject to state
income tax, in the states of Alabama and Florida. State income tax expense/
(benefit) for Vision Bank is included in “income taxes” on Park’s Consolidated
Statements of Income. Vision Bank’s 2011 state income tax expense was $6.10
million.

Unrecognized Tax Benefits
The following is a reconciliation of the beginning and ending amount of
unrecognized tax benefits.

(In thousands)

January 1 Balance

Additions based on tax

positions related to the
current year

Additions for tax positions

of prior years

Reductions for tax positions

of prior years
Reductions due to

statute of limitations

December 31 Balance

2011

$477

(3)

(60)

$485

2010

$595

(131)

(63)

$477

2009

$783

—

(189)

(63)

$595

The amount of unrecognized tax benefits that, if recognized, would favorably
affect the effective income tax rate in the future periods at December 31, 2011,
2010 and 2009 was $378,000, $370,000 and $504,000, respectively. Park does
not expect the total amount of unrecognized tax benefits to significantly increase
or decrease during the next year.

The (income)/expense related to interest and penalties recorded in the
Consolidated Statements of Income for the years ended December 31, 2011,
2010 and 2009 was $2,500, $(10,500) and $(18,000), respectively. The
amount accrued for interest and penalties at December 31, 2011, 2010
and 2009 was $63,000, $60,500 and $71,000, respectively.

Park and its subsidiaries are subject to U.S. federal income tax. Some of Park’s
subsidiaries are subject to state income tax in the following states: Alabama,
Florida, California and Kentucky. Park is no longer subject to examination by
federal or state taxing authorities for the tax year 2007 and the years prior.

The 2007 and 2008 federal income tax returns of Park National Corporation
were recently under examination by the Internal Revenue Service. Additionally,
the 2009 State of Ohio franchise tax return was recently under examination.
The IRS examination closed in the first quarter of 2012 with no adjustments.
The Ohio examination closed in 2011 with no material adjustments.

15. OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) components and related taxes are shown
in the following table for the years ended December 31, 2011, 2010 and 2009.

Year ended December 31
(In thousands)

Before-Tax
Amount

Tax
Effect

Net-of-Tax
Amount

2011:

Unrealized gains on available-for-sale

securities

Reclassification adjustment for gains

realized in net income

Unrealized net holding gain on

cash flow hedge

Changes in pension plan assets and
benefit obligations recognized in
other comprehensive income

$ 25,063

8,772

$ 16,291

(28,829)

(10,090)

(18,739)

788

276

512

(7,734)

(2,707)

(5,027)

Other comprehensive loss

$(10,712)

$ (3,749)

$ (6,963)

2010:

Unrealized losses on available-for-sale

securities

Reclassification adjustment for gains

realized in net income

Unrealized net holding loss on

cash flow hedge

Changes in pension plan assets and
benefit obligations recognized in
other comprehensive income

$(11,218)

$ (3,926)

$ (7,292)

(11,864)

(4,152)

(7,712)

(151)

(53)

(98)

(3,734)

(1,307)

(2,427)

Other comprehensive loss

$(26,967)

$ (9,438)

$ (17,529)

2009:

Unrealized gains on available-for-sale

securities

Reclassification adjustment for gains

realized in net income

Unrealized net holding gain on

cash flow hedge

Changes in pension plan assets and
benefit obligations recognized in
other comprehensive income

5,012

1,754

3,258

(7,340)

(2,569)

(4,771)

454

159

295

9,666

3,383

6,283

Other comprehensive income

7,792

2,727

5,065

The ending balance of each component of accumulated other comprehensive
income (loss) was as follows as of December 31:

(In thousands)

Pension benefit adjustments
Unrealized net holding loss on cash flow hedge
Unrealized net holding gains on AFS securities

Total accumulated other

comprehensive income (loss)

2011

$(20,954)
(550)
12,673

2010

$(15,927)
(1,062)
15,121

$ (8,831)

$ (1,868)

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

16. EARNINGS PER COMMON SHARE
GAAP requires the reporting of basic and diluted earnings per common
share. Basic earnings per common share excludes any dilutive effects of
options, warrants and convertible securities.

The following table sets forth the computation of basic and diluted earnings
per common share:

Year ended December 31
(in thousands, except per share data)

2011

2010

2009

$76,284

$52,294

$68,430

The Corporation’s exposure to credit loss 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.
The Corporation uses the same credit policies in making commitments and
conditional obligations as it does 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:

15,400,155

15,152,692

14,206,335

1,291

3,043

—

December 31 (in thousands)

Loan commitments

Standby letters of credit

2011

$809,140

18,772

2010

$716,598

24,462

Numerator:

Net income available to
common shareholders

Denominator:

Basic earnings per common share:

Weighted-average shares

Effect of dilutive securities – stock options

and warrants

Diluted earnings per common share:
Adjusted weighted-average shares
and assumed conversions

Earnings per common share:

Basic earnings per common share
Diluted earnings per common share

15,401,446

15,155,735

14,206,335

$4.95
$4.95

$3.45
$3.45

$4.82
$4.82

As of December 31, 2011 and 2010, options to purchase 74,020 and
78,075 common shares, respectively, were outstanding under Park’s 2005
Plan. A warrant to purchase 227,376 common shares was outstanding at
both December 31, 2011 and 2010 as a result of Park’s participation in the
CPP. In addition, warrants to purchase an aggregate of 71,984 common shares
were outstanding at December 31, 2010 as a result of the issuance of common
stock and warrants which closed on December 10, 2010 (the “December 2010
Warrants”). The December 2010 Warrants expired in 2011, with no warrants
being exercised.

The common shares represented by the options and the warrants for the twelve
months ended December 31, 2011 and 2010, totaling a weighted average of
126,292 and 382,445, 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 issued under the CPP was not included in the twelve
month weighted average of 126,292 for 2011 or 382,445 for 2010, as the
dilutive effect of this warrant was 1,291 and 3,043 shares of common stock
for the twelve month periods ended December 31, 2011 and December
31, 2010, respectively. The exercise price of the CPP warrant to purchase
227,376 common shares is $65.97.

17. DIVIDEND RESTRICTIONS
Bank regulators limit the amount of dividends a subsidiary bank can declare
in any calendar year without obtaining prior approval. At December 31, 2011,
approximately $51.3 million of the total stockholders’ equity of PNB was avail-
able for the payment of dividends to the Corporation, without approval by the
applicable regulatory authorities. Vision Bank is currently not permitted to
pay dividends to the Corporation.

18. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF
CREDIT RISK

The Corporation is party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its 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 loan commitments are generally for variable rates of interest.

The Corporation grants retail, commercial and commercial real estate loans
to customers primarily located in Ohio, Baldwin County, Alabama and the pan-
handle of Florida. The Corporation evaluates each customer’s creditworthiness
on a case-by-case basis. The amount of collateral obtained, if deemed necessary
by the Corporation upon extension of credit, is based on management’s credit
evaluation of the customer. Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment, and income-producing
commercial properties.

Although the Corporation has a diversified loan portfolio, a substantial
portion of the borrowers’ ability to honor their contracts is dependent upon
the economic conditions in each borrower’s geographic location and industry.

19. 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 Balance Sheets at fair
value. The accounting for changes in the fair value of derivatives depends on
the intended use of the derivatives 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 trans -
actions, are considered cash flow hedges.

For derivatives designated as cash flow hedges, the effective portion of changes
in the fair value of the derivatives 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
PNB 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.

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

At December 31, 2011 and 2010, the interest rate swap’s fair value of $(0.8)
million and $(1.6) million, respectively, was included in other liabilities. No
hedge ineffectiveness on the cash flow hedge was recognized during the twelve
months ended December 31, 2011 or 2010. At December 31, 2011, the vari-
able rate on the $25 million subordinated note was 2.58% (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).

For the twelve months ended December 31, 2011 and 2010, the change in the
fair value of the interest rate swap reported in other comprehensive income
was a gain of $512,000 (net of taxes of $276,000) and a loss of $98,000
(net of taxes of $53,000), respectively. 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 December 31, 2011 and 2010, 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 December 31, 2011 and December 31, 2010, Park had mortgage loan
interest rate lock commitments (IRLCs) outstanding of approximately $17.2
million and $14.5 million, respectively. Park has specific forward contracts to
sell each of these loans to a third party investor. These loan commitments rep-
resent derivative instruments, which are required to be carried at fair value.
The derivative instruments used are not designed as hedges under GAAP.
The fair value of the derivative instruments was approximately $251,000 at
December 31, 2011 and $166,000 at December 31, 2010. The fair value of
the derivative instruments is included within loans held for sale and the corre-
sponding 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 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 December 31, 2011 and
December 31, 2010, the fair value of the swap liability of $700,000 and
$60,000, respectively, is an estimate of the exposure based upon probability-
weighted potential Visa litigation losses.

20. LOAN SERVICING
Park serviced sold mortgage loans of $1,349 million at December 31, 2011
compared to $1,471 million at December 31, 2010, and $1,518 million at
December 31, 2009. At December 31, 2011, $25 million of the sold mortgage
loans were sold with recourse compared to $36 million at December 31, 2010.
Management closely monitors the delinquency rates on the mortgage loans sold
with recourse. At December 31, 2011, management determined that no liability
was deemed necessary for these loans.

Park capitalized $1.7 million in mortgage servicing rights in 2011, $3.1 million
in 2010 and $5.5 million in 2009. Park’s amortization of mortgage servicing
rights was $2.6 million in 2011, $3.2 million in 2010 and $4.0 million in 2009.
The amortization of mortgage loan servicing rights is included within “Other
service income”. Generally, mortgage servicing rights are capitalized and amor-
tized on an individual sold loan basis. When a sold mortgage loan is paid off,
the related mortgage servicing rights are fully amortized.

Activity for mortgage servicing rights and the related valuation allowance
follows:

December 31 (In thousands)

Mortgage servicing rights:

Carrying amount, net, beginning of year
Additions
Amortization
Change in valuation allowance

Carrying amount, net, end of year

Valuation allowance:
Beginning of year
Additions expensed

End of year

2011

2010

$10,488
1,659
(2,573)
(273)

$ 9,301

748
273

$ 1,021

$10,780
3,062
(3,180)
(174)

$10,488

574
174

748

21. FAIR VALUES
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” used 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.

Assets and Liabilities Measured on a Recurring Basis
The following table presents financial assets and liabilities measured on
a recurring basis:

Fair Value Measurements at December 31, 2011 Using:

(In thousands)

Level 1

Level 2

Level 3

Balance at
12/31/11

$ —

$371,657

$ —

$371,657

—

2,660

—

2,660

ASSETS

Investment Securities
Obligations of U.S.
Treasury and
other U.S.
Government
sponsored
entities

Obligations of states

and political
subdivisions
U.S. Government

sponsored entities’
asset-backed
securities
Equity securities
Mortgage loans
held for sale
Mortgage IRLCs

LIABILITIES

—
1,270

—
—

444,295
—

11,535
251

Interest rate swap
Fair value swap

$ —
—

846
—

—
$763

—
—

$ —
700

444,295
2,033

11,535
251

846
700

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

Balance at
12/31/10

The table below is a reconciliation of the beginning and ending balances of the
Level 3 inputs for the years ended December 31, 2011 and 2010, for financial
instruments measured on a recurring basis and classified as Level 3:

Level 3 Fair Value Measurements

(in thousands)

Obligations
of States and
Political
Subdivisions

Equity
Securities

Fair Value
Swap

$ —

$ 273,313

$ —

$ 273,313

Balance at December 31, 2010

$2,598

$745

$ (60)

Total gains/(losses)

Included in earnings – realized
Included in earnings – unrealized
Included in other comprehensive income
Purchases, sales, issuances and settlements,

other, net

Re-evaluation of fair value swap

Balance at December 31, 2011

Balance at December 31, 2009

Total gains/(losses)

Included in earnings – realized
Included in earnings – unrealized
Included in other comprehensive income
Purchases, sales, issuances and settlements,

other, net
Settlements
Transfers in and/or out of Level 3

Balance at December 31, 2010

—
(128)
—

(2,470)
—

$ —

$2,751

—
—
(43)

(110)
—
—

$2,598

—
—
18

—
—

$763

$ —

—
—
—

—
—
745

$745

—
—
—

—
(640)

(700)

$(500)

—
—
—

—
440
—

$ (60)

The fair value for several equity securities with a fair value of $745,000 as of
December 31, 2010 was transferred out of Level 1 and into Level 3 because of
a lack of observable market data for these investments. The Company’s policy
is to recognize transfers as of the end of the reporting period. As a result, the
fair value for these equity securities was transferred on December 31, 2010.

Assets and Liabilities Measured on a Nonrecurring Basis
The following table presents financial assets and liabilities measured at fair
value on a nonrecurring basis:

Fair Value Measurements at December 31, 2011 Using:

(In thousands)

Level 1

Level 2

Level 3

Balance at
12/31/11

Impaired loans:

Commercial, financial
and agricultural

Commercial real estate
Construction real estate:
Vision commercial land
and development

—
Remaining commercial —
—

Residential real estate

$ —
—

$19,931
24,859

—
—
—

21,228
8,860
12,935

Total impaired loans

$ —

$87,813

Mortgage servicing

rights

Other real estate owned

—
—

5,815
—

—
42,272

5,815
42,272

Fair Value Measurements at December 31, 2010 Using:

(In thousands)

Level 1

Level 2

Level 3

ASSETS

Investment Securities
Obligations of U.S.
Treasury and
other U.S.
Government
sponsored
entities

Obligations of states

and political
subdivisions
U.S. Government

sponsored entities’
asset-backed
securities
Equity securities

Mortgage loans
held for sale
Mortgage IRLCs

LIABILITIES

—

8,446

2,598

11,044

—
1,008

—
—

1,011,412
—

8,340
166

1,634
—

—
745

—
—

$ —
60

1,011,412
1,753

8,340
166

1,634
60

Interest rate swap
Fair value swap

$ —
—

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

Investment Securities: Fair values for investment securities are based on
quoted market prices, where available. If quoted market prices are not avail-
able, 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 respec-
tive 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.

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.

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

Fair Value Measurements at December 31, 2010 Using:

(In thousands)

Level 1

Level 2

Level 3

Balance at
12/31/10

Impaired loans:

Commercial, financial
and agricultural

Commercial real estate
Construction real estate:
Vision commercial land
and development

—
Remaining commercial —
—

Residential real estate

$ —
—

$ 8,276
32,229

—
—
—

42,274
10,465
16,399

Total impaired loans

$ —

$109,643

Mortgage servicing

rights

Other real estate owned

—
—

3,813
—

—
41,709

3,813
41,709

Impaired loans, which are usually measured for impairment using the
fair value of collateral, had a book value of $187.1 million at December 31,
2011, after partial charge-offs of $103.8 million. In addition, these loans had
a specific valuation allowance of $15.9 million. Of the $187.1 million impaired
loan portfolio, loans with a book value of $103.7 million were carried at their
fair value of $87.8 million, as a result of the aforementioned charge-offs and
specific valuation allowance. The remaining $83.4 million of impaired loans
were carried at cost, as the fair value of the underlying collateral or present
value of expected future cash flows on these loans exceeded the book value
for each individual credit. At December 31, 2010, impaired loans had a book
value of $250.9 million. Of these, loans with a book value of $176.5 million
were carried at their fair value of $109.6 million, as a result of partial charge-
offs of $53.6 million and a specific valuation allowance of $66.9 million. The
remaining $74.4 million of impaired loans at December 31, 2010 were carried
at cost.

Mortgage servicing rights (MSRs), which are carried at the lower of cost or fair
value, were recorded at $9.3 million at December 31, 2011. Of the $9.3 million
MSR carrying balance at December 31, 2011, $5.8 million was recorded at fair
value and included a valuation allowance of $1.0 million. The remaining $3.5
million was recorded at cost, as the fair value exceeded the cost at December
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 vales where possible to ascertain
the reasonableness of the valuation in relation to current market expectations
for similar products. Accordingly, MSRs are classified in Level 2. At December
31, 2010, of the $10.5 million MSR carrying balance, $3.8 million were
recorded at fair value and included a valuation allowance of $748,000.

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 December 31, 2011 and 2010, the estimated
fair value of OREO, less estimated selling costs amounted to $42.3 million and
$41.7 million, respectively. The financial impact of OREO valuation adjustments
for the year ended December 31, 2011 was $8.2 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 money market instruments: The carrying amounts reported
in the Consolidated Balance Sheets for cash and short-term instruments
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 were 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/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.

The fair value of financial instruments at December 31, 2011 and December 31,
2010, was as follows:

December 31,
(In thousands)

Financial assets:

Cash and money market

instruments

Investment securities
Accrued interest
receivable
Mortgage loans
held for sale

Impaired loans carried

at fair value

Other loans

Loans
receivable, net

Assets held for sale
Financial liabilities:

Noninterest bearing

checking

Interest bearing

transaction accounts

Savings
Time deposits
Other

2011

2010

Carrying
Value

Fair
Value

Carrying
Value

Fair
Value

$ 157,486
1,640,869

$ 157,486
1,655,219

$ 133,780
1,971,092

$ 133,780
1,983,636

19,697

11,535

19,697

24,137

11,535

8,340

87,813
4,149,307

87,813
4,167,224

109,643
4,471,127

109,643
4,490,855

$4,248,655

$4,266,572

$4,589,110

$4,608,838

382,462

—

$ 995,733

$ 937,719

1,037,385
931,526
1,499,105
1,365

1,037,385
931,526
1,506,075
1,365

1,283,159
899,288
1,973,903
1,351

1,283,159
899,288
1,990,163
1,351

Total deposits

$4,465,114

$4,472,084

$5,095,420

$5,111,680

Short-term borrowings
Long-term debt
Subordinated debentures/

notes

Accrued interest payable
Liabilities held for sale

Derivative financial
instruments:
Interest rate swap
Fair value swap

$ 263,594
823,182

$ 263,594
915,274

$ 663,669
636,733

$ 663,669
699,080

75,250
4,916
536,186

68,601
4,916
536,991

75,250
6,123
—

63,099
6,123
—

846
700

1,634
60

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

22. CAPITAL RATIOS
At December 31, 2011 and 2010, the Corporation and each of its two separately
chartered banks had Tier 1, total risk-based capital and leverage ratios which
were well above both the required minimum levels of 4.00%, 8.00% and
4.00%, respectively, and the well-capitalized levels of 6.00%, 10.00% and
5.00%, respectively.

The following table indicates the capital ratios for Park and each subsidiary
at December 31, 2011 and December 31, 2010.

Failure to meet the minimum requirements above could cause the Federal
Reserve Board to take action. Park’s bank subsidiaries are also subject to
these capital requirements by their primary regulators. As of December 31,
2011 and 2010, Park and its banking subsidiaries were well-capitalized and
met all capital requirements to which each was subject. There are no conditions
or events since the most recent regulatory report filings, by PNB or Vision Bank
(“VB”) that management believes have changed the risk categories for either
of the two banks.

2011

Total
Risk-
Based

Tier 1
Risk-
Based

Leverage

2010

Total
Risk-
Based

Park National Bank

9.52% 11.46% 6.58%

9.43% 11.38%

Vision Bank

Park

23.42% 24.72% 15.89%

11.75% 13.12%

14.15% 16.65% 9.81%

13.24% 15.71%

Leverage

6.68%

9.12%

9.54%

The following table reflects various measures of capital for Park and each of PNB and VB:

(In thousands)

Actual Amount

Ratio

To Be Adequately Capitalized
Ratio
Amount

To Be Well Capitalized

Amount

Ratio

At December 31, 2011:
Total risk-based capital

(to risk-weighted assets)

PNB
VB (1)
Park

Tier 1 risk-based capital

(to risk-weighted assets)

PNB
VB
Park
Leverage ratio

(to average total assets)

PNB
VB (1)
Park

At December 31, 2010:
Total risk-based capital

(to risk-weighted assets)

PNB
VB (Restated) (1)(2)
Park (Restated)
Tier 1 risk-based capital

(to risk-weighted assets)

PNB
VB (Restated)
Park (Restated)

Leverage ratio

(to average total assets)

PNB
VB (Restated) (1)(2)
Park (Restated)

$498,367
115,637
812,286

$413,870
109,566
690,419

$495,668
80,305
786,214

$410,879
71,897
662,390

11.46%
24.72%
16.65%

9.52%
23.42%
14.15%

6.58%
15.89%
9.81%

11.38%
13.12%
15.71%

9.43%
11.75%
13.24%

6.68%
9.12%
9.54%

$347,972
37,427
390,270

$173,986
18,714
195,135

$251,691
27,588
281,506

$348,452
48,966
400,307

$174,226
24,483
200,154

$246,084
31,520
277,817

8.00%
8.00%
8.00%

4.00%
4.00%
4.00%

8.00%
8.00%
8.00%

4.00%
4.00%
4.00%

$434,965
46,784
487,837

$260,979
28,071
292,702

$314,614
34,485
351,882

$435,565
61,208
500,384

$261,339
36,725
300,230

$307,605
39,400
347,271

10.00%
10.00%
10.00%

6.00%
6.00%
6.00%

5.00%
5.00%
5.00%

10.00%
10.00%
10.00%

6.00%
6.00%
6.00%

5.00%
5.00%
5.00%

(1) Park management had agreed to maintain Vision Bank’s total risk-based capital at 16.00% and the leverage ratio at 12.00%.

(2) As a result of the financial statement restatement for the year ended December 31, 2010, Vision Bank’s December 31, 2010 total risk-based capital ratio declined from 19.55%

to 13.12% and its leverage ratio declined from 14.05% to 9.12%.

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

23. 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) and
Vision Bank (headquartered in Panama City, Florida). Guardian Financial
Services Company is a consumer finance company and is excluded from PNB
for segment reporting purposes. GFSC is included within the presentation of
“All Other” in the segment reporting tables that follow. GAAP requires manage-
ment 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’s two operating segments are in line with GAAP
as there are: (i) 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 year ended December 31, 2011 (In thousands)
PNB
$ 236,282
30,220
90,982
146,235

Net interest income
Provision for loan losses
Other income (loss)
Other expense

VB
$ 27,078
31,052
6,617
31,379

All Other
$ 9,874
2,000
(2,689)
10,703

Income (loss) before taxes
Income taxes (benefit)
Net income (loss)

150,809
43,958
$ 106,851

Balances at December 31, 2011:
Assets
Assets held for sale (1)
Loans
Deposits
Liabilities held for sale (2)

$6,281,747
—
4,172,424
4,611,646
—

(28,736)
(6,210)
$ (22,526)

$650,935
382,462
123,883
32
536,186

(5,518)
(3,333)
$ (2,185)

$ 39,563
—
20,792
(146,564)
—

Operating results for the year ended December 31, 2010 (In thousands)

Net interest income
Provision for loan losses
Other income (loss)
Other expense

Income (loss) before taxes
Income taxes (benefit)

PNB
$ 237,281
23,474
80,512
144,051

150,268
47,320

VB
$ 27,867
61,407
(6,024)
31,623

(71,187)
(25,773)

All Other
$ 8,896
2,199
392
11,433

(4,344)
(4,911)

Net income (loss)

$ 102,948

$ (45,414)

$ 567

Total
$ 273,234
63,272
94,910
188,317

116,555
34,415
82,140

$6,972,245
382,462
4,317,099
4,465,114
536,186

Total
$ 274,044
87,080
74,880
187,107

74,737
16,636

$58,101

Balances at December 31, 2010:
Assets
Loans
Deposits

$6,495,558
4,074,775
4,622,693

$791,945
640,580
633,432

$ (5,242)
17,330
(160,705)

$7,282,261
4,732,685
5,095,420

Operating results for the year ended December 31, 2009 (In thousands)

Net interest income
Provision for loan losses
Other income (loss)
Other expense

Income (loss) before taxes
Income taxes (benefit)

PNB

$ 236,107
22,339
82,770
148,048

148,490
47,032

$ 25,634
44,430
(2,047)
28,091

(48,934)
(18,824)

All Other

$ 11,750
2,052
467
12,586

(2,421)
(5,265)

Total

$ 273,491
68,821
81,190
188,725

97,135
22,943

Net income (loss)

$ 101,458

$ (30,110)

$ 2,844

74,192

Balances at December 31, 2009:
Assets
Loans
Deposits

$6,182,257
3,950,599
4,670,113

$897,981
677,018
688,900

$ (39,909)
12,815
$(170,961)

$7,040,329
4,640,432
5,188,052

(1) The assets held for sale represent the loans and other assets at Vision Bank that will

be sold in the first quarter of 2012.

The following is a reconciliation of financial information for the reportable
segments to the Corporation’s consolidated totals:

(In thousands)

2011:

Totals for reportable

segments

Elimination of

Net Interest Depreciation

Income

Expense

Other
Expense

Income
Taxes

Assets

Deposits

$263,360

$7,562 $170,052 $37,748 $6,932,682 $4,611,678

intersegment items

—

Parent Co. and GFSC

totals – not eliminated

9,874

—

(57,286)

(146,564)

10,682

(3,333)

96,849

—

Totals

2010:

Totals for reportable

segments

Elimination of

$273,234

$7,583 $180,734 $34,415 $6,972,245 $4,465,114

$265,148

$7,109 $168,565 $21,547 $7,287,503 $5,256,125

intersegment items

—

Parent Co. and GFSC

totals – not eliminated

8,896

—

(77,876)

(160,705)

11,416

(4,911)

72,634

—

Totals

2009:

Totals for reportable

segments

Elimination of

$274,044

$7,126 $179,981 $16,636 $7,282,261 $5,095,420

$261,741

$7,451 $168,688 $28,208 $7,080,238 $5,359,013

intersegment items

—

Parent Co. and GFSC

totals – not eliminated 11,750

—

— (114,214)

(170,961)

12,564

(5,265)

74,305

—

Totals

$273,491

$7,473 $181,252 $22,943 $7,040,329 $5,188,052

24. PARENT COMPANY STATEMENTS
The Parent Company statements should be read in conjunction with the
consolidated financial statements and the information set forth below.

Investments in subsidiaries are accounted for using the equity method of
accounting.

The effective tax rate for the Parent Company is substantially less than the
statutory rate due principally to tax-exempt dividends from subsidiaries.

Cash represents noninterest bearing deposits with a bank subsidiary.

Net cash provided by operating activities reflects cash payments (received
from subsidiaries) for income taxes of $4.21 million, $5.97 million and
$5.22 million in 2011, 2010 and 2009, respectively.

At December 31, 2011 and 2010, stockholders’ equity reflected in the Parent
Company balance sheet includes $146.6 million and $143 million, respectively,
of undistributed earnings of the Corporation’s subsidiaries which are restricted
from transfer as dividends to the Corporation.

Balance Sheets
December 31, 2011 and 2010

(In thousands)

Assets:
Cash

Investment in subsidiaries

Debentures receivable from subsidiary banks

Other investments

Other assets

Total assets

Liabilities:

Dividends payable
Subordinated notes
Other liabilities

Total liabilities

2011

$140,607

602,270

5,000

2,280

90,438

$840,595

—
50,250
47,981

98,231

742,364

2010

$160,011

601,201

5,000

1,451

69,845

$837,508

—
50,250
57,550

107,800

729,708

$837,508

(2) The liabilities held for sale represent the deposits and other liabilities at Vision Bank

Total stockholders’ equity

that will be sold in the first quarter of 2012.

Total liabilities and stockholders’ equity

$840,595

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

Statements of Income
for the years ended December 31, 2011, 2010 and 2009

2011

2010

2009

(In thousands)

Income:

Dividends from subsidiaries

$105,000

$ 80,000

$75,000

Interest and dividends

Other

Total income

Expense:

Other, net

Total expense

Income before federal taxes and
equity in undistributed losses
of subsidiaries

Federal income tax benefit

Income before equity in
undistributed losses
of subsidiaries

Equity in undistributed losses

of subsidiaries

Net income

4,669

(2,653)

107,016

11,721

95,295

4,799

4,789

411

85,200

12,632

72,568

5,993

4,715

489

80,204

10,322

69,882

6,210

100,094

78,561

76,092

(17,954)

(20,460)

$ 82,140

$ 58,101

(1,900)

$74,192

Statements of Cash Flows
for the years ended December 31, 2011, 2010 and 2009

(In thousands)

Operating activities:

Net income

2011

2010

2009

$ 82,140

$ 58,101

$ 74,192

Adjustments to reconcile net income to

net cash provided by operating activities:

Undistributed losses of subsidiaries
Other than temporary impairment charge,

investments

(Increase) decrease in other assets

(Decrease) increase in other liabilities

Net cash provided by
operating activities

Investing activities:

Purchase of investment securities
Capital contribution to subsidiary
Repayment of debentures receivable

from subsidiaries

Net cash used in

investing activities

Financing activities:
Cash dividends paid
Proceeds from issuance of

common stock and warrants

Proceeds from issuance of
subordinated notes

Cash payment for fractional shares

Proceeds from issuance of

preferred stock

Net cash (used in) provided by

financing activities

(Decrease) increase in cash

Cash at beginning of year

17,954

20,460

1,900

(560)

(20,204)

(9,575)

7,321

(3,763)

140

(18,420)

24,178

69,755

82,142

81,990

(250)
(26,000)

—
(52,000)

(113)
(37,000)

—

2,500

—

(26,250)

(49,500)

(37,113)

(62,907)

(62,076)

(58,035)

33,541

53,475

—

—
(2)

—

—
(4)

—

(62,909)

(19,404)

160,011

(28,539)

4,103

155,908

35,250
(2)

—

30,688

75,565

80,343

Cash at end of year

$140,607

$160,011

$155,908

25. PARTICIPATION IN THE U.S. TREASURY CAPITAL

PURCHASE PROGRAM

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 year
ended December 31, 2011, Park recognized a charge to retained earnings
of $5.9 million representing the preferred stock dividend and accretion of the
discount on the preferred stock, associated with its 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 United States 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 com-
pensation 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.

26. SALE OF COMMON SHARES AND ISSUANCE

OF COMMON STOCK WARRANTS

There were no sales of common shares or issuance of common stock warrants
during 2011. Outstanding as of December 31, 2010 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 had
an exercise price of $76.41. The Series A Common Share Warrants issued in
December 2010 were not exercised and expired on June 10, 2011. The Series
B Common Share Warrants issued in December 2010 were not exercised and
expired on December 10, 2011.

27. SUBSEQUENT EVENT – VISION BANK CLOSING
On February 16, 2012, Park and its wholly-owned subsidiary, Vision Bank,
a Florida state-chartered bank, completed their sale of substantially all of the
performing loans, operating assets and liabilities associated with Vision Bank
to Centennial Bank (“Centennial”), an Arkansas state-chartered bank which is
a wholly-owned subsidiary of Home BancShares, Inc., an Arkansas Corporation
(“Home”), as contemplated by the previously announced Purchase and
Assumption Agreement by and between Park, Vision, Home and Centennial,
dated as of November 16, 2011, as amended by the First Amendment to
Purchase and Assumption Agreement, dated as of January 25, 2012 (the
“Agreement”).

In accordance with the Agreement, on the closing date, Vision sold approxi-
mately $354 million in performing loans, approximately $520 million of
deposits, fixed assets of approximately $12.5 million and other miscellaneous
assets and liabilities for a purchase price of $27.9 million. Subsequent to the
transactions contemplated by the Agreement, Vision was left with approximately
$22 million of performing loans (including mortgage loans held for sale)
and non-performing loans with a fair value of $88 million. Park will record
a pre-tax gain, net of expenses directly related to the sale, of approximately
$22 million, resulting from the transactions contemplated by the Agreement.

Promptly following the closing of the transactions contemplated by the
Agreement, Vision surrendered its Florida banking charter to the Florida
Office of Financial Regulation (the “OFR”) and became a non-bank Florida
corporation (the “Florida Corporation”). The Florida Corporation merged
with and into a wholly-owned, non-bank subsidiary of Park, SE Property
Holdings, LLC (“SE, LLC”), with SE, LLC being the surviving entity.