Park National Corp. Annual Report 2012

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FY2012 Annual Report · Park National Corp.

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PARKNATIO NAL

C O R P O R A T I O N

2012

ANNUAL REPORT

Lucas

Fulton

Ottawa

Williams

Defiance

Henry

Wood

Sandusky

Erie

Lorain

Cuyahoga

Lake

Geauga

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Trumbull

Paulding

Putnam

Hancock

Seneca

Huron

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Allen

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Mercer

Auglaize

Hardin

Marion

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Medina

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Wayne

Stark

Columbiana

Delaware

Knox

Coshocton

Darke

Logan

Shelby

Miami

Champaign

Union

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Franklin

Licking

Clark
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Belmont

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Monroe

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Preble

Butler

Clinton

Ross

Greene

Fayette

Fairfield Perry

Morgan

Hocking

Washington

Vinton

Athens

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Highland

Pike

Meigs

Brown

Adams

Scioto

Gallia

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Kentucky

Century National Bank

Fairfield National Bank

Farmers Bank

First-Knox National Bank

The Park National Bank

Park National Bank

Southwest Ohio & Northern Kentucky

Richland Bank

Second National Bank

Security National Bank

United Bank

Unity National Bank

Scope Aircraft Finance

Guardian Finance Company

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

To Our Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Shareholders’ Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Park National Corporation Directors & Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Directors:

Century National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Fairfield National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Farmers and Savings Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

First-Knox National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

The Park National Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Park National Bank of Southwest Ohio & Northern Kentucky Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Richland Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Second National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Security National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

United Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Unity National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Officers of Corporation & Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Management’s Report on Internal Control Over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Financial Statements:

Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Consolidated Statements of Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Consolidated Statements of Changes in Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

T O O U R S H A R E H O L D E R S

We began 2012 with high hopes (cautious optimism would be
a safer description of our outlook one year ago) and an internal,
page-long summary of what we intended to accomplish during the
year. In retrospect, there were only a couple of “lay ups” or “slam
dunks.” It would be easier to write a glowing letter to shareholders
if we set easier objectives to accomplish. But neither you nor we
wish to take the easy path...it’s typically crowded anyway.

Among our objectives, we did NOT earn our targeted net income
for the year.

Net Income and Park’s relative performance...
We targeted $83 million in net income for 2012, excluding the gain
on the sale of the Vision Bank business. We did not achieve the target.
Net income was $78.6 million, or $4.88 per diluted common share.
For the 2011 year, Park National Corporation (Park) reported net
income of $82.1 million, or $4.95 per diluted common share, so
2012 net income per diluted common share decreased 1.4% from
2011.

We did, however, earn net income sufficient to sustain our common
stock dividend to our shareholders. We completed the sale of the
Vision Bank business on substantially the terms announced on
November 16, 2011. We also repurchased the preferred shares and
common share warrant issued to the U.S. Treasury under the Troubled
Asset Relief Program (TARP) and exited the Capital Purchase Program
without raising additional common equity during 2012. All of these
are notable accomplishments.

We periodically reflect on Park’s total return for our shareholders.
Ownership of bank common stock has been out of favor over the past
five years, perhaps the most challenging as any five year period since
the Great Depression of the 1930s.

150

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12/31/07

12/31/08

12/31/09

12/31/10

12/31/11

12/31/12

PERIOD ENDING

Index

12/31/07

12/31/08

12/31/09

12/31/10

12/31/11

12/31/12

Park National Corporation

NYSE MKT Composite

NASDAQ Bank

SNL Bank and Thrift Index

100.00

117.71

102.87

59.55

78.46

57.51

80.74

65.67

56.74

134.82

101.40

74.97

63.34

128.58

107.78

67.10

49.25

135.08

114.90

79.64

66.14

In spite of the challenges we have reported to you during this
timeframe, the previous performance graph and corresponding
table reveal that Park National Corporation, in terms of total return,
has outperformed three other comparable bank indices over the
period. You will find the identical graph and table in “Management’s
Discussion and Analysis” in this Annual Report, accompanied with
far more detail on our performance in 2012.

Other topics addressed during 2012 are described below.

The sale of the Vision Bank business...
Plenty has been said and written about the challenges we experienced
as a result of the purchase of Vision Bank in early 2007. You may tire
of reading about our Vision Bank challenges and we think we can
safely say, the end seems to be in sight. Please stay with us as we
offer additional information we think you may find helpful.

The initial thrill of buying Vision Bank was matched by the relief from
the sale of the business on February 16, 2012. We remember the day
as a giant step forward to accelerate the resolution of the problems
resulting from the 2007 purchase.

The sale helped position us to repay the TARP funds in April, 2012. As
a result, beginning in 2013 we save $5.0 million per year in preferred
share dividend payments and eliminated another layer of regulatory
oversight. Both are worthy reasons justifying the repayment.

The TARP funds provided meaningful capital that supported our ability
to continue lending money in our communities and to rest more easily
as we struggled to satisfactorily conclude the challenges associated
with Vision Bank. We were delighted to repurchase the preferred
shares and the related warrant as repaying the TARP funds signaled
an answer to the seemingly open-ended question about our need for
capital to support our ongoing operations. We were very pleased to
exit the program, but grateful for the flexibility and security the TARP
funds provided.

We met some fine people associated with Vision Bank. We thank them
for their efforts to help us minimize the losses we experienced. And we
extend our gratitude to a number of key professionals outside the Park
family for their assistance over the past few years.

We especially want to thank a long list of Park associates for their
leadership, focus and determination that allowed us to limit the
challenges at Vision Bank from overshadowing the successes within
the Park organization otherwise. We engaged associates from our
accounting area, internal audit, technology and information services,
human resources, trust, internal loan review, loan administration and
operations for assistance as we worked through the sale and continue
to reduce our exposure to troubled assets. It’s been a team effort.

At the top of our list of Park associates to thank is Tom Button, our
chief credit officer. Tom led the asset quality improvement charge
and continues to navigate choppy waters as we resolve troubled
assets, while simultaneously providing the strong and insightful
leadership we need in lending.

T O O U R S H A R E H O L D E R S

Our agenda for 2013 includes a continued focus on liquidating the
pile of troubled assets we retained following the sale of the Vision
Bank business. We are happy to report the pile has been reduced
dramatically. Nonperforming assets associated with the former Vision
Bank, at October 31, 2011 (the month end immediately prior to the
announcement of the agreement to sell the Vision Bank business)
were $156.9 million and have been reduced to just under $90.4
million at year end 2012. We’ve made great progress. More work
clearly remains to be done. We assure you it will be done.

The Vision Bank story is in its final chapter and we are moving
forward.

The Park National Bank (PNB) story...
Our favorite story continues with several more chapters of success.
Below is a comparison of Park and PNB over the previous three
years. It is instructive to pay particular attention to “Security Gains”
in previous years compared to 2012, and the “Gain on sale of the
Vision Bank business” in 2012:

(In thousands)

2012

2011

2010

The Park National Bank (PNB)

$ 87,106

$106,851

$102,948

Guardian Financial Services Company

Vision Bank/SEPH

Parent Company/Other

3,550

(12,221)

195

2,721

(25,837)

(1,595)

2,006

(45,414)

(1,439)

Park National Corporation (Park)

$ 78,630

$ 82,140

$ 58,101

Security gains – PNB

PNB, excluding security gains

Security gains – Vision Bank

Gain on sale of the Vision Bank business

Park net income, excluding gains

—

87,106

—

22,167

64,221

23,634

91,489

5,195

—

63,401

11,864

95,236

—

50,389

Excluding the gain on sale of the Vision Bank business in 2012 and
the security gains in the two previous years, 2012 net income for Park
compares favorably with 2011 and 2010.

PNB’s net income has declined in each of the three years ended
December 31, 2012. While no excuse, persistently low interest rates
have compressed all banks’ net interest margins...and we are no
exception. By the important measure of Return on Average Assets,
PNB continues to outperform its peers as the following table discloses:

2012
PNB Peers %

2011
PNB Peers

2010
PNB Peers

Return on

average assets

1.33 1.02 78%

1.66

0.87

87%

1.66

0.49

92%

“Peers” is defined as all FDIC-insured banks in the United States with
assets greater than $3 billion. “%” refers to the percentile ranking of
PNB compared to these peers.

Our returns in 2011 and 2010 were favorably influenced by gains from
the sale of securities; our performance for 2012 relative to peers
excludes gains from the sale of securities. PNB Return on Average
Assets for 2012 was in the upper quartile compared to our peers,
slightly less than the upper quintile, our personal annual objective.

Gathering deposits...
Our Ohio-based community bank divisions continued a fine record
of increasing deposits last year. Deposits at year end 2012 increased
by just over $200 million, or 4.4% compared to year end 2011. Our
strategy continues to be “the bank of choice” in the primary markets
served by our community bank divisions. It seems to be working.
Total deposits and repurchase agreements increased by $206 million
last year over December 31, 2011. We remain convinced that Service
Excellence, the program we announced last year, continues to play
a meaningful role in our success in gaining and keeping customers
and clients.

Lending in our markets...
From year end 2011 to year end 2012 our Ohio-based bank divisions
increased outstanding loan balances by 4.7%. Our target for 2012 was
to increase loans by 1.0% to 3.0%. Loans increased by $197 million
at year end 2012 compared to year end 2011, nearly keeping pace
with the increase in deposits and repurchase agreements identified
above. As we have stated time and again, we have plenty of funds to
lend.

By far the strongest growth category was in loans to individuals to
finance 1–4 family residences. We completed our second full year
of originating and retaining on our bank divisions’ balance sheets
a majority of loans with terms with final maturities of 15 years or
less. We originated more refinance home loans and home purchase
mortgages in 2012 than any year but one in our history.

We are delighted to make home loans...they are the cornerstone of
our consumer banking relationships and the credit quality of home
loans is generally superior to other types of loans. Our bank divisions
do marvelous work helping customers and prospects with the right
combination of loan alternatives and a myriad of other banking
services.

Making a home loan may seem easy on the surface, but we assure
you the reams of paper required to comply with federal regulations
(increasing every year, by the way), the application process, the
deliberation and dialogue between our lenders and customers,
the underwriting process, the loan approval, processing and closing,
followed by the post-closing loan administration, takes a small army
of professionals doing their work correctly. Every day. Every loan. It
is difficult to exaggerate the individual and collective efforts required
to successfully manage the tedious and laborious process of making
a home loan.

We are exceptionally proud of all of our associates and never more
proud than after witnessing the results of 2012. We take nothing for
granted and equally value the work of our loan processing/servicing
centers within our community bank divisions. We were pleased to
be able to recruit Julie Leonard from our First-Knox National Bank
Division in Mt. Vernon to oversee the critical real estate lending
operations functions in the latter part of 2012.

T O O U R S H A R E H O L D E R S

As the modest economic recovery continued in 2012, we enjoyed a
5.8% increase in consumer loan balances. This category of lending
mirrored the increased level of auto sales in the markets we serve.
Some banks tend to be cyclical in their automobile finance programs
but consistency has been a hallmark of PNB for decades. While some
competitors exit this type of lending periodically, we continue offering
loans on automobiles, pick-up trucks, boats and recreational vehicles
(and even motorcycles on occasion!). Consistency and predictability
are rewarded as evidenced by the continued growth in loan balances
within our bank divisions.

Finally, our commercial real estate, other commercial, financial
and agricultural loan balances increased year to year by 3.4%. As
a community bank, we believe it is critical, and we very much desire,
to lend money to all segments of our communities. We were pleased
to take advantage of opportunities to increase our commercial lending
last year. We are further encouraged that in the early part of 2013,
it appears business and commercial loan demand has increased.

Commercial lending leads to other services we offer, including
corporate treasury, cash management, electronic deposit gathering
and employee benefit plan administration. Said another way, we have
a competitive and comprehensive suite of business and commercial
services for the markets served by our banks, whether the focus is
on deposits, lending or otherwise. This robust selection of services is
delivered by bankers who we believe are unparalleled in their fields.

Investing excess deposits...
We identified challenges with low interest rates earlier. With interest
rates throughout 2012 at or near record lows, it continues to be a
great time to borrow money! As attractive as borrowing has been
because of low costs, low interest rates put significant pressure on
Park’s investment portfolio revenue. Designed to first and fully meet
liquidity needs of our customers and our bank divisions, we also
expect to earn a reasonable rate of return on our investments.

It is ironic that when loan demand is slack, we tend to have surplus
funds to invest. Such periods also typically coincide with periods
when interest rates are low, as we’ve experienced in the past few years.
During these times it is tempting to chase yield, assume unacceptable
credit risk and irrationally extend maturities of our investments.
Doing any of the above entails risk we try to minimize.

We are fortunate to have Paul Turner managing our bank investment
portfolio. Paul is a senior vice president of PNB and is ably assisted
by PNB vice president April Dusthimer. Paul and April are constantly
evaluating investment alternatives that will serve our two-fold purpose:
managing liquidity and generating income. We are fortunate to have
their talent.

Our Trust and Investment Departments...
We are proud of the trust departments of our bank divisions. Total
assets under management or in safekeeping were, in the aggregate,
more than $3.5 billion at year end 2012, an all time high. Helping
clients manage wealth, settling and administering estates, managing
employee benefit and retirement plans for companies and individuals

and offering professional consultation and investment advice has
distinguished our bank divisions in each of the markets we serve.
Our trust officers provide a level of distinction for our bank divisions
that is uncommon. Continued asset growth is the best example we
can provide that the strategy is effective.

Park Technology...
We currently have just under $7 million in various technology
related projects underway. These projects follow several others
initiated since 2010 that, in aggregate, represent a total investment
of over $20 million. Projects to date have been completed under
budget and generally within the time frames expected.

We have updated all of our ATMs, installed our own Disaster
Recovery site, and upgraded our main frame hardware, our
operating systems and our work stations, among many other
projects. As 2013 progresses, we anxiously await the successful
conclusion of the replacement (read that as modernization) of
our voice and data communications systems as well as significantly
enhancing our Mobile Banking Solution by mid-year. We are excited
about having contemporary and highly competitive technology we
can offer through each of our affiliates.

This work is being led by Tim Lehman. Late last year we asked Tim to
assume additional responsibilities and were pleased that he embraced
the challenge. Specifically, Tim has been named chief operating officer
in addition to being a senior vice president of PNB. He is a superb
community banker and is providing additional leadership we need.

Internal Audit and PNB Administration...
Jeff Wilson has headed up our internal audit team for nearly nine
years. Last year we identified the need to add leadership talent to the
administrative area of our organization, and we tapped Jeff for the job.
We told him he could not advance until he and the audit committee of
the board identified a successor for his current position!

We are pleased that Adrienne Brokaw has joined Park as our
next chief internal auditor. Adrienne brings a wealth of talent and
experience to the position, most recently serving as a partner for one
of the big four public accounting firms in Columbus, Ohio. She will
join a fine department of audit professionals within Park; we are eager
for her to apply her skills here. Her arrival will unleash Jeff to help our
leadership team with important administrative responsibilities. Jeff’s
formal title in the new position is chief administrative officer in
addition to being a senior vice president of PNB.

Our Accounting Function...
In December we announced that our former chief financial officer,
John Kozak, decided to accelerate his retirement by a few months.
We wished John well and thanked him for more than three decades
of service.

Brady Burt has been our chief accounting officer since he joined PNB
in April, 2007. Brady was previously identified as John’s successor. We
activated the plan and Brady quickly and professionally assumed his
new responsibilities as chief financial officer.

T O O U R S H A R E H O L D E R S

We also announced the elevation of Matt Miller to chief accounting
officer, Brady’s former position. This too had been planned in
connection with John’s retirement, and we appreciate even more
today, in hindsight, the need for succession planning.

Brady and Matt brought considerable experience and talent to the
Park organization, and we enjoy working with them. They work
hard, have fun, and are effective leaders.

They are fully engaged and along with their entire team, we have no
reservations about their ability to see that Park continues with its fine
record of timely, accurate accounting and critically, providing the very
best advice and counsel to management and our board. Both Brady
and Matt fit within the Park culture as if they have been with us their
entire careers.

Three new directors being proposed...
Corporate governance is an important responsibility for all boards
of directors. During 2012 our Nominating and Corporate Governance
committee of our board of directors met on multiple occasions to
review, discuss and deliberate on the structure of our board that
would serve the interests of Park and our shareholders. They
concluded, and management quickly concurred, to ask three current
directors of The Park National Bank, Ms. Donna M. Alvarado, Rev. Dr.
Charles W. Noble, Sr. and Mr. Robert E. O’Neill to join the Park board,
subject to shareholder approval at the annual meeting in April 2013.
You will find biographical information on each individual in the proxy
statement for our annual meeting. We urge you to support these
recommendations.

In closing...
To bring this long letter to conclusion, we’ve previously identified
how pleased we are with Guardian Financial Services Company
(GFSC), our consumer finance subsidiary. GFSC finished 2012 in

record style, reaching new highs in loan balances and net income.
We want to especially salute Earl Osborne, who founded our GFSC
subsidiary from scratch in 1999. Earl completed his 14th full year
of service with Park last year, and recommended that his president,
Matt Marsh, assume the role as the chief executive officer of GFSC,
allowing Earl to reduce his workload and responsibilities. We thank
Earl for his dedication and superior leadership, and we congratulate
Matt on his new responsibility!

We remain grateful as ever for the support of our shareholders. As
we began this letter, the banking industry has been out of favor these
past several years, and we look forward to when our collection of
community bank divisions and GFSC are better recognized for our
consistent, superior performance over long periods of time. Cycles
come and go, and we’re ready for the recent one to end.

We remain highly optimistic. As Bill McConnell taught us years ago,
with talented associates, strong capital and generating superior net
income, future possibilities are endless! You can help us realize our
potential by referring prospects to us. We won’t let you down.

C. Daniel DeLawder
Chairman

David L. Trautman
President

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)

2012

2011

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 shareholders’ equity

Ratios:

Return on average common equity (x)

Return on average assets (x)

Efficiency ratio

$ 285,735

$ 331,880

50,420

235,315

75,205

4.88

3.76

42.20

$6,642,803

4,716,032

4,450,322

1,581,751

1,206,076

650,366

11.41%

1.11%

57.07%

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%

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

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

Percent
Change

–13.90%

–14.03%

–13.88%

–1.41%

—

0.91%

–4.73%

5.62%

3.09%

–7.42%

3.79%

–12.39%

—

S H A R E H O L D E R S ’

I N F O R M A T I O N

STOCK LISTING:

NYSE MKT Symbol – PRK
CUSIP #700658107

GENERAL SHAREHOLDER 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 shareholders can purchase additional
Park National Corporation common shares 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 shareholders may have their dividend payments directly deposited into
their checking, savings or money market account. This direct deposit of dividends is free for
all share 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 2012) 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 Financial Service Centers: 130
Total ATMs: 144
Asset Size: $6.6 Billion
Headquarters: Newark, Ohio
NYSE MKT: PRK
Website: ParkNationalCorp.com

Maureen H. Buchwald
Owner, Glen Hill
Orchards, LLC

Brady T. Burt
Chief Financial Officer

C. Daniel DeLawder
Chairman

Harry O. Egger
Vice Chairman

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

Stephen J. Kambeitz
President and CFO,
RC Olmstead

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

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.

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

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

Zanesville - North Military*
990 Military Road
Zanesville, Ohio 43701-1387

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

Zanesville - South Maysville*
2810 Maysville Pike
Zanesville, Ohio 43701-8577

*Includes Automated Teller Machine

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 43832-1451

Zanesville - Consumer Lending
and Collections Center
33 South Fifth Street
Zanesville, Ohio 43701-3510

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 43138-1272

Zanesville - Kroger*
3387 Maple Avenue
Zanesville, Ohio 43701-1338

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

Zanesville - Lending Center*
505 Market Street
Zanesville, Ohio 43701-3610

Top Row: Michael L. Bennett - The Longaberger Company; Ronald A. Bucci - Stoneware Properties and General Graphics Promotional
Products, LLC; Clint W. Cameron - Cameron Drilling; 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.
Middle Row: Thomas M. Lyall - Chairman and CEO ; 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;
Bottom Row: Dr. Robert J. Thompson - Neurological Associates of Southeastern Ohio, Inc.

Offices: 11 ATMs: 15
Website: FairfieldNationalBank.com
Phone: 740.653.7242
Facebook: /FairfieldNationalBank
President: Stephen G. Wells
Counties Served: Fairfield, Franklin

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

Lancaster - Ohio University - Lancaster
1570 Granville Pike

FAIRFIELD
NATIONAL
BANK

DIVISION OF THE PARK NATIONAL BANK

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

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

Top Row: Charles P. Bird, Ph.D. - Retired, Ohio University; Dean DeRolph - Kumler Collision and Automotive; Jennifer Johns Friel -
Midwest Fabricating Company; Leonard F. Gorsuch - Fairfield Homes, Inc.; Eleanor V. Hood - The Lancaster Festival

Bottom Row: James McLain, II - McLain, Hill, Rugg and Associates, Inc.; 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

Offices: 3 ATMs: 4
Website: FarmersandSavings.com
Phone: 419.994.4115
Facebook: /FarmersBank
President: Kenneth G. Gosche
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.; Kenneth G. Gosche - 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

Offices: 10 ATMs: 17
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

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

Howard - Apple Valley
21973 Coshocton Road

Millersburg - BAGS
88 East Jackson Street

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
11 West Vine Street

Gambier - Kenyon College Bookstore
106 Gaskin Avenue

*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

PARK

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; 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.

Offices: 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)

Florence
600 Meijer Drive, Suite 303
Florence, Kentucky 41042

West Chester*
8366 Princeton-Glendale Road
West Chester, Ohio 45069

Milford*
25 Main Street
Milford, Ohio 45150

New Richmond*
100 Western Avenue
New Richmond, Ohio 45157

Owensville*
5100 State Route 132
Owensville, Ohio 45160

*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

Top Row: Nicholas L. Berning - Retired, Berning Financial Consulting; Thomas J. Button - The Park National Bank; Daniel L. Earley -
Retired President, Chairman; David J. Gooch. - President;

Bottom Row: Martin J. Grunder, Jr. - Grunder Landscaping Co.; Richard W. Holmes - Retired, PricewaterhouseCoopers LLP;
Larry H. Maxey - Synchronic Business Solutions; Chris S. Smith - Clermont County Convention & Visitors Bureau

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

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

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

Mansfield - Lexington Avenue - Kroger*
1500 Lexington Avenue
Mansfield, Ohio 44907-2632

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

Off-Site ATM Locations
Mansfield - Ashland University School
of Nursing
1020 South Trimble Road

*Includes Automated Teller Machine

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.

Offices: 9 ATMs: 7
Website: SecondNational.com
Phone: 937.548.2122
Facebook: /SecondNationalBank
President: John E. Swallow
Counties Served: Darke, Mercer

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

Arcanum*
603 North Main Street
Arcanum, Ohio 45304

Celina*
800 North Main Street
Celina, Ohio 45822

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

Greenville - Walmart*
1501 Wagner Avenue
Greenville, Ohio 45331

Versailles*
101 West Main Street
Versailles, Ohio 45

*Includes Automated Teller Machine

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

Main 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; Alicia Hupp - Sweet Manufacturing Company

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.

Offices: 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 - Avita Health System; 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.

Offices: 6 ATMs: 7
Website: UnityNationalBk.com
Phone: 937.615.1042
Facebook: /UnityNationalBank
President: Brett A. Baumeister
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.; Brett A. Baumeister - 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.

Officer Listing

William T. McConnell
Chairman of the Executive Committee

Harry O. Egger
Vice Chairman

Brady T. Burt
Chief Financial Officer

C. Daniel DeLawder
Chairman

David L. Trautman
President

Park National Corporation

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

Joseph P. Allen
Vice President

Derek A. Boothe
Vice President

Theresa M. Gilligan
Vice President

Brian E. Hall
Vice President

Janice A. Hutchison
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

Jeffrey C. Jordan
Vice President

Brian G. Kaufman
Vice President

Susan A. Lasure
Assistant Vice President

Century National Bank
Amber M. Gibson
Administrative Officer

Karen D. Lowe
Assistant Vice President

Noelle K. Jarrett
Administrative Officer

Bruce D. Kolopajlo
Vice President

Jodi C. Pagath
Assistant Vice President

Sandra D. Jones
Administrative Officer

Mark A. Longstreth
Vice President

Rebecca A. Palmerton
Assistant Vice President

Paula L. Meadows
Administrative Officer

James R. Merry
Vice President

Rebecca R. Porteus
Vice President

Jody D. Spencer
Vice President and
Trust Officer

Thomas N. Sulens
Vice President

Katherine M. Barclay
Assistant Vice President
and Trust Officer

Ann M. Gildow
Assistant Vice President

Terri L. Sidwell
Assistant Vice President

Saundra W. Pritchard
Administrative Officer

Cynthia J. Snider
Assistant Vice President

Emila S. Smith
Administrative Officer

Stephen A. Haren
Banking Officer

Diana F. McCloy
Banking Officer

Amy M. Pinson
Banking Officer

Beth A. Stillwell
Administrative Officer

Susan L. Summers
Administrative Officer

Deloris A. Tom
Administrative Officer

Molly J. Allen
Administrative Officer

Elaine L. White
Administrative Officer

Alaina J. Ankrum
Administrative Officer

Fairfield National Bank

Laura F. Tussing
Vice President and
Trust Officer

Molly S. Bates
Assistant Vice President

Trudy M. Reeb
Assistant Vice President

Scott A. Reed
Assistant Vice President

Jamey L. Binkley
Banking Officer

Grace R. Cline
Banking Officer

Melissa J. McMullen
Banking Officer

Janet K. Cochenour
Banking Officer

Michael D. Mitchell
Banking Officer

Andrew J. Connell
Banking Officer

Tara L. Craaybeek
Banking Officer

Daniel J. Fawcett
Banking Officer

Cynthia A. Moore
Banking Officer

Jason A. Saul
Banking Officer

Kim I. Sheldon
Banking Officer

Officer Listing

Fairfield National Bank (continued)

Allison G. Spangler
Banking Officer

Heather N. Wiley
Banking Officer

EJ Gurile, III
Administrative Officer

Tiffany J. Ruckman
Administrative Officer

Tina L. Taley
Banking Officer

Vincent E. Carpico
Administrative Officer

Sean P. Murnane
Administrative Officer

Jessica L. Seipel
Administrative Officer

Farmers and Savings Bank

Kenneth G. Gosche
President

George T. Keffalas
Vice President

Brian R. Hinkle
Assistant Vice President

Todd A. Geren
Banking Officer

Sharon E. Blubaugh
Vice President

Gregory A. Henley
Assistant Vice President

Barbara J. Young
Assistant Vice President

Michael C. Bandy
Administrative Officer
and Trust Officer

First-Knox National Bank

Gordon E. Yance
Chairman

Vickie A. Sant
President

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

Joan M. Stout
Vice President

Todd P. Vermilya
Vice President

Nicholas R. Blanchard
Banking Officer

Monica L. Hiller
Administrative Officer

Barbara A. Barry
Assistant Vice President

Heather A. Brayshaw
Banking Officer

Kassandra L. Hoeflich
Administrative Officer

Mark D. Blanchard
Assistant Vice President

Lance E. Dill
Banking Officer

Phyllis D. Colopy
Assistant Vice President

Rachelle E. Dallas
Assistant Vice President

Deborah S. Dove
Assistant Vice President

James W. Hobson
Assistant Vice President

Debra E. Holiday
Assistant Vice President

R. Edward Kline
Assistant Vice President

James S. Meyer
Assistant Vice President

Dusty C. Au
Banking Officer

Wendi M. Fowler
Banking Officer and
Trust Officer

David E. Humphrey
Banking Officer

Sherry L. Snyder
Banking Officer

Nicole S. Au
Administrative Officer

Robert T. Brooke
Administrative Officer

Deborah J. Daniels
Administrative Officer

Krystal E. Drye
Administrative Officer

Todd M. Hawkins
Administrative Officer

Cynthia K. Hogle
Administrative Officer

Erin C. Kelty
Administrative Officer

Jeffrey A. Kinney
Administrative Officer

Darrell E. Lee
Administrative Officer

Mary A. Loyd
Administrative Officer

Nicole L. Mack
Administrative Officer

Paulina S. McQuigg
Administrative Officer

Tiffany D. Stefano
Administrative Officer

Officer 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

William T. McConnell
Chairman of the
Executive Committee

C. Daniel DeLawder
Chairman

David L. Trautman
President

Brady T. Burt
Senior Vice President and
Chief Financial Officer

Thomas J. Button
Senior Vice President

Thomas M. Cummiskey
Senior Vice President
and Trust Officer

Lynn B. Fawcett
Senior Vice President

Timothy J. Lehman
Senior Vice President

Laura B. Lewis
Senior Vice President

Matthew R. Miller
Senior Vice President

Cheryl L. Snyder
Senior Vice President

Paul E. Turner
Senior Vice President

Jeffrey A. Wilson
Senior Vice President

William R. Wilson
Senior Vice President

Linda K. Ampadu
Vice President

Alice M. Browning
Vice President

James M. Buskirk
Vice President and
Trust Officer

Bryan M. Campolo
Vice President

Peter G. Cassanos
Vice President

Cynthia H. Crane
Vice President

Kelly M. Maloney
Vice President

Carl H. Mayer
Vice President

Lydia E. Miller
Vice President

Terry C. Myers
Vice President and
Trust Officer

Kathleen O. Crowley
Vice President

Jason L. Painley
Vice President

April R. Dusthimer
Vice President

Gregory M. Rhoads
Vice President

Kelly A. Edds
Vice President

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

William P. Kleven
Vice President

Teresa M. Kroll
Vice President and
Trust Officer

Karen K. Rice
Vice President

Scott R. Robertson
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

Berkley C. Tuggle, Jr.
Vice President

Daniel H. Turben
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

Eric M. Baker
Assistant Vice President

Renee L. Baker
Assistant Vice President

Brent A. Barnes
Assistant Vice President

Gail A. Blizzard
Assistant Vice President

Officer Listing

The Park National Bank (continued)

Sharon L. Bolen
Assistant Vice President

Jennifer L. Morehead
Assistant Vice President

Andrew J. Fackler
Banking Officer

Larry M. Bailey
Administrative Officer

Rebecca A. Brownfield
Assistant Vice President

Cynthia A. Neely
Assistant Vice President

Kathryn S. Firestone
Banking Officer

Stephen E. Buchanan
Administrative Officer

Beverly A. Clark
Assistant Vice President
and Trust Officer

Amber L. Cummins
Assistant Vice President
and Trust Officer

Lori L. Drake
Assistant Vice President

Amanda K. Evans
Assistant Vice President

Catherine J. Evans
Assistant Vice President

Jill S. Evans
Assistant Vice President

Brenda M. Frakes
Assistant Vice President

David W. Hardy
Assistant Vice President
and Trust Officer

Louise A. Harvey
Assistant Vice President

Chris R. Hiner
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

Julia E. McCormack
Assistant Vice President

Ronald C. McLeish
Assistant Vice President

Mareion A. Royster
Assistant Vice President

Megan C. Gadke
Trust Officer

Brian E. Smith
Assistant Vice President

Jerrod F. Gambs
Banking Officer

Melinda S. Smith
Assistant Vice President

Lisa E. Stranger
Assistant Vice President

Angie D. Treadway
Assistant Vice President

Tammy L. Gast
Banking Officer

Kristie L. Green
Trust Officer

Scott A. VanHorn
Assistant Vice President

Cynthia R. Hollis
Banking Officer

Jenny L. Ward
Assistant Vice President

Dixie C. Hoskinson
Banking Officer

Alice M. Keefe
Banking Officer

Patricia S. Carr
Administrative Officer

Brad G. Chance
Administrative Officer

Erica L. Chance
Administrative Officer

Johanna M. Clay
Administrative Officer

Nathan T. Cook
Administrative Officer

Jennifer G. Corbitt
Administrative Officer

Shawna L. Corder
Administrative Officer

Teresa A. Hennessy
Banking Officer

Beth A. Cook
Administrative Officer

Carol S. Whetstone
Assistant Vice President
and Trust Officer

D. Bradley Wilkins
Assistant Vice President

Rose M. Wilson
Assistant Vice President

J. Bradley Zellar
Assistant Vice President
and Trust Officer

Kathy L. Allen
Banking Officer

Michelle L. Arnold
Banking Officer

Thomas E. Ballard
Banking Officer

Danielle A.M. Burns
Banking Officer

Jacqueline L. Davis
Banking Officer

Brian J. Elder
Banking Officer

Kimberly G. McDonough
Banking Officer

Scott D. Dorn
Administrative Officer

Diane M. Oberfield
Banking Officer

Sherri L. Pembrook
Banking Officer

Leda J. Rutledge
Banking Officer

Charles F. Schultz
Banking Officer

Michael D. Dudgeon
Administrative Officer

Aaron T. Dunifon
Administrative Officer

Teresa K. Faris
Administrative Officer

Jennifer S. Favand
Administrative Officer

Jennifer L. Shanaberg
Banking Officer

Bradley B. Feightner, Jr.
Administrative Officer

Lori B. Tabler
Banking Officer

Corey S. Alton
Administrative Officer

Lindsay M. Alton
Administrative Officer

David B. Armstrong
Administrative Officer

Bradley D. Gard
Administrative Officer

Tracy A. Grimm
Administrative Officer

Ellen P. Hempleman
Administrative Officer

Candy L. Holbrook
Administrative Officer

Officer Listing

Asher D. Hunter
Administrative Officer

Aaron B. Mueller
Administrative Officer

The Park National Bank (continued)
Mark D. Ridenbaugh
Administrative Officer

Ginger R. Varner
Administrative Officer

Amber L. Keirns
Administrative Officer

Angela J. Muncie
Administrative Officer

Rhonda L. Rodgers
Administrative Officer

Ronda M. Welsh
Administrative Officer

Lisa A. Keller
Administrative Officer

Kathy K. Myers
Administrative Officer

Ruth Y. Sawyer
Administrative Officer

Barry H. Winters
Administrative Officer

Cynthia L. Kissel
Administrative Officer

Andrew H. Knoesel
Administrative Officer

Natasha D. McKee
Administrative Officer

Rodger D. Orr
Administrative Officer

Alice M. Schlaegel
Administrative Officer

Jeffrey A. Pillow
Administrative Officer

Lacie M. Priest
Administrative Officer

Jessica L. Schorger
Administrative Officer

Michelle M. Tipton
Administrative Officer

Park National Bank of Southwest Ohio & Northern Kentucky

David J. Gooch
President

John R. Nienaber
Vice President

Sam J. DeBonis
Assistant Vice President

James P. Beck
Administrative Officer

Edward L. Brady
Senior Vice President

Ginger L. Vining
Vice President

James E. Hyson
Assistant Vice President

Steven M. Ernst
Administrative Officer

Jennifer K. Fischer
Senior Vice President

Joseph A. Wagner
Vice President

Louis J. Prabell
Assistant Vice President

Michael W. Miller
Administrative Officer

Adam T. Stypula
Senior Vice President

Jay F. Berliner
Vice President

Jason D. Hughes
Vice President

Timothy A. Kemper
Vice President

John F. Winkler II
Vice President and
Trust Officer

David C. Brooks
Assistant Vice President

Kim J. Cunningham
Assistant Vice President

Christopher M. Young
Assistant Vice President

April Prather
Administrative Officer

Matthew D. Colwell
Banking Officer

Michelle M. Sandlin
Administrative Officer

Cyndy H. Wright
Banking Officer

Jason O. Verhoff
Administrative Officer

Jana M. Beal
Administrative Officer

Richland Bank

John A. Brown
President

Rebecca J. Toomey
Vice President

Susan A. Fanello
Assistant Vice President

Linda M. Whited
Assistant Vice President

Frank W. Wagner II
Executive Vice President

Edward F. Adams
Assistant Vice President

Barbara A. Miller
Assistant Vice President

John Q. Cleland
Banking Officer

Donald R. Harris Jr.
Senior Vice President

Edward A. Brauchler
Assistant Vice President

Jeffrey A. Parton
Assistant Vice President

Beth K. Malaska
Banking Officer

Charla A. Irvin
Vice President and
Trust Officer

Michael A. Jefferson
Vice President

Jimmy D. Burton
Assistant Vice President

Alexander M. Rocks
Assistant Vice President

Elizabeth A. Myers
Trust Officer

Edward E. Duffey
Assistant Vice President

Sheryl L. Smith
Assistant Vice President

Barbara L. Schopp-Miller
Banking Officer

Officer Listing

Richland Bank (continued)

Carol L. Davis
Administrative Officer

Clayton J. Herold
Administrative Officer

Kristie L. Massa
Administrative Officer

Kathleen A. Spidel
Administrative Officer

Jessica L. Gribbon
Administrative Officer

Janis L. Hoover
Administrative Officer

Jennifer A. Schneeg
Administrative Officer

Deborah A. Sweet
Administrative Officer

Scope Aircraft Finance

Robert N. Kent Jr.
President

Charles W. Sauter
Vice President

Linda M. Staubach
Banking Officer

Second National Bank

John E. Swallow
President

Eric J. McKee
Vice President

Debby J. Folkerth
Assistant Vice President

Harvey B. Hole, III
Banking Officer

Steven C. Badgett
Executive Vice President

Daniel G. Schmitz
Vice President

Joy D. Greer
Assistant Vice President

Zachary L. Newbauer
Banking Officer

C. Russell Badgett
Vice President

Brian A. Wagner
Vice President

Vicki L. Neff
Assistant Vice President

Stephen C. Schulte
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

Cynthia J. Riffle
Assistant Vice President

Gregory P. Schwartz
Banking Officer

Gerald O. Beatty
Assistant Vice President

Shane D. Stonebraker
Assistant Vice President

Antonia T. Baker
Administrative Officer

Alexa J. Clark
Assistant Vice President

Michael R. Henry
Banking Officer

Melanie A. Smith
Administrative Officer

Security National Bank

William C. Fralick
President

Jeffrey A. Darding
Executive Vice President

Thomas A. Goodfellow
Senior Vice President

Andrew J. Irick
Senior Vice President

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

James E. Leathley
Vice President

Thomas C. Ruetenik
Vice President

David A. Snyder
Vice President

Michael B. Warnecke
Vice President

Jill A. Brewer
Assistant Vice President

Thomas B. Keehner
Assistant Vice President

Rachel M. Brewer
Assistant Vice President
and Trust Officer

Margaret A. Chapman
Assistant Vice President

Mary M. Demaree
Assistant Vice President

Steven B. Duelley
Assistant Vice President

Catherine L. Hill
Assistant Vice President
and Trust Officer

Andrew S. Peyton
Assistant Vice President

Patrick K. Rastatter
Assistant Vice President

Mark B. Robertson
Assistant Vice President

Gary J. Seitz
Assistant Vice President

Darlene S. Williams
Assistant Vice President

Terri L. Wyatt
Assistant Vice President and
Trust Officer

Sharon K. Boysel
Assistant Vice President

R. Kathy Johnson
Assistant Vice President

Officer Listing

Security National Bank (continued)

Teresa L. Belliveau
Banking Officer

Joanna S. Jaques
Administrative Officer

Mark D. Klingler
Administrative Officer

Rita A. Riley
Administrative Officer

Margaret A. Horstman
Administrative Officer

Benjamin L. Kitchen
Administrative Officer

Sarah E. Lemon
Administrative Officer

Jeffrey S. Williams
Administrative Officer

Donald R. Stone
President

Matthew E. Bickert
Assistant Vice President

Jennifer J. Kuns
Banking Officer

Kriste A. Slagle
Banking Officer

Anne S. Cole
Senior Vice President

James W. Chapman
Assistant Vice President

David J. Lauthers
Banking Officer

James A. DeSimone
Administrative Officer

Scott E. Bennett
Vice President

Floyd J. Farmer
Assistant Vice President

J. Stephen McDonald
Banking Officer and
Trust Officer

United Bank

Brett A. Baumeister
President

Dean F. Brewer
Assistant Vice President

Mary E. Clevenger
Banking Officer

Lisa L. Feeser
Assistant Vice President

Douglas R. Eakin
Banking Officer

Unity National Bank

Melinda M. Curtis
Administrative Officer

Brock A. Heath
Administrative Officer

Carol L. Van Culin
Assistant Vice President

Kenneth S. Magoteaux
Banking Officer

M. David Holbrook
Administrative Officer

Vicki L. Burke
Trust Officer

Kyle M. Cooper
Administrative Officer

G. Dwayne Cooper
Vice President

Nathan E. Counts
Vice President

John E. Frigge
Vice President

M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S

Management’s discussion and analysis presents 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 under-
standing 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; general economic and financial market conditions, and
weakening in the economy, specifically the real estate market and the credit
market, 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; changes in unemployment; asset/liability
repricing risks and liquidity risks; our liquidity requirements could be
adversely affected by changes to regulations governing bank capital and liquidity
standards as well as by changes in our assets and liabilities; competitive factors
among financial services organizations increase significantly, including product
and pricing pressures and our ability to attract, develop and retain qualified
bank professionals; the nature, timing and effect of changes in banking
regulations or other regulatory or legislative requirements affecting the
respective businesses of Park and its subsidiaries, including changes in laws
and regulations concerning taxes, accounting, banking, securities and other
aspects of the financial services industry, specifically the Dodd-Frank Wall
Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”),
as well as future regulations which will be adopted by the relevant regulatory
agencies, including the Consumer Financial Protection Bureau, to implement
the Dodd-Frank Act’s provisions, the Budget Control Act of 2012 and the
American Taxpayer Relief Act of 2012; the effect of changes in accounting
policies and practices, as may be adopted by the Financial Accounting
Standards Board, the SEC, the Public Company Accounting Oversight Board
and other regulatory agencies, and the accuracy of our assumptions and
estimates used to prepare our financial statements; the effect of fiscal and
governmental policies of the United States federal government; 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 the banking industry as detailed from time to time in Park’s
reports filed with the Securities and Exchange Commission 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, 2012. 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 state-
ment was made, or reflect the occurrence of unanticipated events, except to
the extent required by law.

SALE OF VISION BANK BUSINESS
On February 16, 2012, Park completed the purchase and assumption trans -
action between Park, Home BancShares, Inc. (“Home”) and their respective
subsidiary banks. Home subsidiary, Centennial Bank (“Centennial”), purchased
certain assets and liabilities of Vision Bank (“Vision”) for a purchase price of
$27.9 million. Centennial purchased performing loans with an unpaid principal
balance of $355.8 million, assumed ownership or operation of all 17 Vision
office locations, and assumed deposit liabilities of $522.9 million. Certain
other miscellaneous assets and liabilities were also purchased by Centennial.
The remaining assets and liabilities were retained by Vision. As a result of
the transaction, Park recorded a pre-tax gain of $22.2 million (after actual
expenses directly related to the transaction) and agreed to allow Centennial
to “put back” up to $7.5 million aggregate principal amount of loans, which
were originally included within the loans sold in the transaction. Refer to the
“Other expense” section for additional discussion of the loan put.

OVERVIEW
Net income for 2012 was $78.6 million, compared to $82.1 million in 2011 and
$58.1 million in 2010. Diluted earnings per common share were $4.88, $4.95
and $3.45 for 2012, 2011 and 2010, respectively.

Net income for 2012 included the gain from the sale of the Vision business of
$22.2 million ($14.4 million after-tax). Results for 2011 and 2010 included
gains of $28.8 million ($18.7 million after-tax) and $11.9 million ($7.7 million
after-tax), respectively, from the sale of investment securities. Excluding the
gain from the sale of the Vision business and gains from the sale of securities,
net income for 2012, 2011 and 2010, respectively, would have been $64.2
million, $63.4 million, and $50.4 million.

The table below reflects the net income (loss) by segment for each of the fiscal
years ended December 31, 2012, 2011 and 2010. Park’s segments include The
Park National Bank (“PNB”), Guardian Financial Services Company (“GFSC”),
SE Property Holdings, LLC (“SEPH”) and “All Other” which primarily consists
of Park as the “Parent Company.” For 2011 and 2010, the table includes the
net loss at Vision, also considered an operating segment until the sale of the
Vision business.

Table 1 – Net Income (Loss) by Segment

(In thousands)

PNB
GFSC
Park Parent Company

Ohio-based operations

Vision Bank
SEPH

Total Park

2012

$87,106
3,550
195

$90,851
—
(12,221)
$78,630

2011

2010

$106,851
2,721
(1,595)

$107,977
(22,526)
(3,311)
$ 82,140

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

$103,515
(45,414)
—
$ 58,101

The “Park Parent Company” above excludes the results for SEPH, an entity
which is winding down commensurate with its primary objective of problem
asset disposition. Management considers the “Ohio-based operations” results
to reflect the business of Park and its subsidiaries going forward. The discus-
sion below provides additional information regarding Park’s operating
segments.

M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S

The table below provides financial results for SEPH for the years ended
December 31, 2012 and 2011. The results for fiscal year 2012 include the
results for Vision through February 16, 2012, the date that Vision was merged
with and into SEPH. Also included below are the financial results for Vision for
the years ended December 31, 2011 and 2010.

Table 4 – SEPH/Vision – Summary Income Statement
For the years ended December 31,

(In thousands)

Net interest income
Provision for loan losses
Fee income
Security gains
Gain on sale of Vision business
Total other expense

Loss before

income tax benefit
Income tax benefit

Net loss

Net loss excluding
security gains

Balances at December 31,

(In thousands)

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

SEPH
2012

(341)
17,882
(736)
—
22,167
22,032

$ (18,824)
(6,603)

$ (12,221)

SEPH
2011

(974)
—
(3,039)
—
—
1,082

$ (5,095)
(1,784)

$ (3,311)

Vision
2011

$ 27,078
31,052
1,422
5,195
—
31,379

$ (28,736)
(6,210)

$ (22,526)

Vision
2010

$ 27,867
61,407
(6,024)
—
—
31,623

$ (71,187)
(25,773)

$ (45,414)

$ (12,221)

$ (3,311)

$ (25,903)

$ (45,414)

SEPH
2012

$104,428
—
59,178
—
—

SEPH
2011

$34,989
—
—
—
—

Vision
2011

$650,935
382,462
123,883
32
536,186

Vision
2010

$791,945
—
640,580
633,432
—

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

first quarter of 2012.

(2) The liabilities held for sale represent the deposits and other liabilities at Vision that were sold

in the first quarter of 2012.

SEPH’s assets primarily include performing and nonperforming loans, as well
as OREO assets, that were not sold to Centennial as part of the sale of the Vision
business on February 16, 2012. Net loss for SEPH was $12.2 million for the
year ended December 31, 2012, compared to a net loss for the combined
SEPH/Vision of $29.2 million, excluding the after-tax impact of security
gains, for fiscal year 2011. The primary drivers of income/loss for SEPH
are (1) charge-offs on loans retained following the sale of the Vision business
which result in a dollar for dollar provision for loan loss, (2) recoveries on
loans previously charged off, (3) gain/loss on the sale of OREO properties,
(4) OREO devaluation adjustments based on appraisals received annually and
(5) the expense of working down the portfolio of loans and OREO, including
legal and third-party workout specialist costs.

The table below reflects the results for Park’s Parent Company for the fiscal
years ended December 31, 2012, 2011 and 2010.

Table 5 – Park Parent Company – Summary Income Statement
For the years ended December 31,

(In thousands)

Net interest income
Provision for loan losses
Fee income
Total other expense

Loss before income tax benefit
Federal income tax benefit

Net income (loss)

2012

$ 4,742
—
233
6,585

$(1,610)
(1,805)

195

2011

$ 2,155
—
350
7,115

$(4,610)
(3,015)

$(1,595)

2010

$ 1,285
—
390
9,107

$(7,432)
(5,993)

$(1,439)

Tables 2 through 6 show the components of net income for 2012, 2011
and 2010 for Park National Corporation and its wholly owned subsidiaries.
The subsidiaries that will be reviewed in the tables are PNB, SEPH (including
Vision through February 16, 2012), GFSC and Parent Company for Park
(excludes SEPH results). We have also included some summary information
on the balance sheet.

Table 2 – 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

Net income excluding security gains

Balances at December 31,

(In thousands)

Assets
Loans
Deposits

2012

2011

2010

$ 221,758
16,678
70,739
—
156,516

$ 119,303
32,197

87,106

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

$ 150,809
43,958

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

$ 150,268
47,320

$ 106,851

$ 102,948

91,489

95,236

2012

2011

2010

$6,502,579
4,369,173
4,814,107

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

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

Excluding the after-tax impact of security gains in 2011 and 2010, PNB’s net
income was $91.5 million and $95.2 million, respectively, compared to $87.1
million in 2012. The $4.4 million decrease in net income in 2012, compared
to net income excluding the after-tax impact of security gains in 2011, was due
to a $14.5 million decline in net interest income and an increase in operating
expenses of $10.3 million, offset by a $13.5 million decline in the provision for
loan losses and an increase to fee income of $3.4 million. 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 in 2007 and 2008. The loan loss provision for those participation loans
was $3.4 million, $11.1 million and $7.1 million in 2012, 2011 and 2010,
respectively.

Table 3 – GFSC – Summary Income Statement
For the years ended December 31,

(In thousands)

Net interest income
Provision for loan losses
Fee income
Operating expenses

Income before taxes
Federal income taxes

Net income

Balances at December 31,

(In thousands)

Assets
Loans
Deposits

2012

$ 9,156
859
—
2,835

$ 5,462
1,912

$ 3,550

2012

$49,926
50,082
8,358

2011

$ 8,693
2,000
—
2,506

$ 4,187
1,466

$ 2,721

2011

$46,682
47,111
8,013

2010

$ 7,611
2,199
2
2,326

$ 3,088
1,082

$ 2,006

2010

$43,209
43,714
7,062

Net income for GFSC was $3.5 million for the year ended December 31, 2012,
an increase of $829,000 or 30.5% from $2.7 million for fiscal year 2011. This
improvement was the result of increased net interest income due to the 6.31%
increase in loans in 2012, as well as a lower provision for loan losses based
on improving trends, including declines in net-charge-offs, in the GFSC loan
portfolio.

M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S

For the year ended December 31, 2012, Park’s Parent Company had net
income of $195,000, compared to a net loss of $1.6 million in 2011. Net
interest income for Park’s Parent Company included interest income on
loans by Park to SEPH and on subordinated debt investments by Park with
PNB, which were eliminated in the consolidated Park National Corporation
totals. Additionally, net interest income included interest expense related to
the $35.25 million and $30 million of subordinated notes issued by Park
in December 2009 and April 2012, respectively.

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

(In thousands)

Net interest income
Provision for loan losses
Fee income
Gain on sale of Vision business
Security gains
Operating expenses

Income before taxes
State income taxes
Federal income taxes
Net income

Balances at December 31,

(In thousands)

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

2012

2011

2010

$ 235,315
35,419
70,236
22,167
—
187,968

$ 104,331
—
25,701
78,630

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

$ 116,555
6,088
28,327
82,140

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

74,737
(1,161)
17,797
58,101

2012

2011

2010

$6,642,803
—
4,450,322
4,716,032
—

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

$7,282,261
—
4,732,685
5,095,420
—

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

first quarter of 2012.

(2) The liabilities held for sale represent the deposits and other liabilities at Vision that were sold

in the first quarter of 2012.

PROJECTION OF FISCAL 2013 RESULTS BY OPERATING SEGMENT
The information in the table below provides Park’s current projection of
pre-tax, pre-provision income (loss) by operating segment for the 2013 fiscal
year. Pre-tax, pre-provision income (loss) is calculated using net interest
income, plus other income, less other expense. For comparison purposes,
management has also included the pre-tax, pre-provision results for the
fiscal year ended December 31, 2012.

Table 7 – Projected Pre-tax, Pre-provision Income (Loss)

(In thousands)

PNB
GFSC
Parent excluding SEPH

Total Ohio-based operations

SEPH*

Park National Corporation

2012

$135,981
6,321
(1,610)

$140,692

(942)

$139,750

Projected Range for 2013

$129,000
5,000
(5,000)

$139,000
6,000
(4,000)

$129,000

$141,000

(16,000)

(10,000)

$113,000

$131,000

*Includes Vision’s results through February 16, 2012, including the $22.2 million pre-tax gain on
the sale of the Vision business on February 16, 2012.

Management expects the low interest rate environment to remain throughout
2013. Credit loss experience is expected to continue to improve. Similar to
management’s guidance one year ago, loan growth is expected to grow
modestly, between 1% and 3%.

The information below begins with Park’s projected consolidated pre-tax,
pre-provision income and incorporates a projected range for provision for loan
losses, income before income tax, income taxes and net income for Park on a
consolidated basis in 2013.

Table 8 – Projected Net Income

(In thousands)

2012 Actual

Projected Range for 2013

Pre-tax, pre-provision income
Provision for loan losses

Income before income tax

Income taxes

Net income

$139,750
35,419

$104,331
25,701

$ 78,630

$113,000
20,000

$ 93,000
23,250

$ 69,750

$131,000
15,000

$116,000
30,160

$ 85,840

SUMMARY DISCUSSION OF OPERATING RESULTS FOR PARK
A year ago, Park’s management projected that net interest income would be
$240 million to $250 million in 2012. The actual results in 2012 were $235.3
million, $4.7 million below the bottom of the projected range. Park’s manage-
ment projected that the average interest earning assets for 2012 would be
approximately $6,200 million. The actual average interest earning assets for
the year were $6,190 million, $10 million or 0.2% lower than the projected
balance. Park’s forecast for the net interest margin in 2012 was a range of
3.88% to 3.98%. The actual results for the year were 3.83%, slightly below
the bottom of the estimated range.

Park’s management also projected a year ago that the provision for loan losses
would be $20 million to $27 million in 2012. The actual provision for loan
losses in 2012 was $35.4 million, which exceeded the top of the estimated
range by $8.4 million.

Fee income for 2012 was $70.2 million, excluding the $22.2 million pre-tax
gain on the sale of the Vision business. A year ago, Park’s management pro-
jected that fee income would be in a range of $62 million to $66 million.
The actual results were $4.2 million above the top of the range.

A year ago, Park’s management projected that operating expenses would be
approximately $170 million to $175 million. Operating expenses for 2012
were $188.0 million, $13.0 million above the top of the estimated range.

ISSUANCE OF PREFERRED SHARES 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 had 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 qualified as Tier 1 capital for regulatory purposes.

U.S. Generally Accepted Accounting Principles (GAAP) required 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 required that Park 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 was below market
value; therefore, the fair value of the Series A Preferred Shares was 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 was accreted through retained earnings using the level
yield method over a 60-month period. GAAP requires Park to measure earnings

M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S

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 $3,425,000 for 2012, $5,856,000 for 2011 and $5,807,000 for 2010.
The accretion of the discount was $1,854,000 in 2012, $856,000 in 2011 and
$807,000 in 2010.

On April 25, 2012, Park entered into a Letter Agreement with the U.S. Treasury
pursuant to which Park repurchased the 100,000 Series A Preferred Shares for
a purchase price of $100 million plus pro rata accrued and unpaid dividends.
Total consideration of $101.0 million included accrued and unpaid dividends
of $1.0 million. In addition to the accrued and unpaid dividends of $1.0
million, the charge to retained earnings, resulting from the repurchase
of the Series A Preferred Shares, was $1.6 million on April 25, 2012.
On May 2, 2012, Park entered into a Letter Agreement pursuant to which Park
repurchased from the U.S. Treasury the Warrant to purchase 227,376 Park
common shares for consideration of $2.8 million, or $12.50 per Park
common share.
Income available to common shareholders is net income minus the preferred
share dividends and accretion. Income available to common shareholders was
$75.2 million for 2012, $76.3 million for 2011, and $52.3 million for 2010.
See Note 1 and Note 25 of the Notes to Consolidated Financial Statements for
additional information on the Series A Preferred Shares.

DIVIDENDS ON COMMON SHARES
Cash dividends declared on common shares were $3.76 in 2012, 2011 and
2010 and the quarterly cash dividend on common shares was $0.94 per share
for each quarter of 2012, 2011 and 2010.

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 GAAP and general practices within the financial services
industry. The preparation of financial statements in conformity with 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 management believes the determination of the allowance for loan and
lease losses (“ALLL”) involves a higher degree of judgment and complexity
than its other significant accounting policies. The ALLL is calculated with the
objective of maintaining a reserve level believed by management to be sufficient
to absorb probable incurred credit losses in the loan portfolio. Management’s
determination of the adequacy of the ALLL is based on periodic evaluations of
the loan portfolio and of current economic conditions. However, this evaluation
is inherently subjective as it requires material estimates, including expected
default probabilities, the loss given default, the amounts and timing of expected
future cash flows on impaired loans, and estimated losses on consumer loans
and residential mortgage loans based on historical loss experience and current
economic conditions. All of these factors may be susceptible to significant
change. To the extent that actual results differ from management estimates,
additional loan loss provisions may be required that would adversely impact
earnings for future periods. Refer to the “CREDIT EXPERIENCE –Provision
for Loan Losses” section 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 off against the ALLL. 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, 2012,
OREO totaled $35.7 million, a decrease of 15.6%, compared to $42.3
million at December 31, 2011.
In accordance with GAAP, management utilizes the fair value hierarchy,
which has the objective of maximizing the use of observable market inputs.
The accounting guidance also requires 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, 2012, financial assets valued using Level 3 inputs for Park had an aggregate
fair value of approximately $74.6 million. This was 6.1% 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 $53.9 million (or 72.3%) of the total amount of Level
3 inputs. Additionally, there were $78.2 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 subsidiary 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 by assessing 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. If after assessing these events or circumstances, it is con-
cluded that it is more likely than not that the fair value of a reporting unit
is less than its carrying amount, then performing the second step of the impair-
ment test is required. If the carrying amount of the goodwill exceeds the fair
value, an impairment charge must be recorded in an amount equal to the
excess. The fair value of the goodwill, which resides on the books of PNB, Park’s
subsidiary bank, is estimated by reviewing the past and projected operating
results for PNB, deposit and loan totals for PNB and banking industry
comparable information. At December 31, 2012, on a consolidated basis, Park
had core deposit intangibles of $337,000 subject to amortization and $72.3
million of goodwill, which was not subject to periodic amortization.

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. Management believes there are a significant number of
consumers and businesses which seek long-term relationships with
community-based financial institutions of quality and strength. While not
engaging in activities such as foreign lending, nationally syndicated loans
or investment banking, Park attempts to meet the needs of its customers
for commercial, real estate and consumer loans, consumer and commercial
leases, and investment, fiduciary and deposit services.

M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S

Park’s subsidiaries compete for deposits and loans with other banks,
savings associations, credit unions and other types of financial institutions.
At December 31, 2012, Park operated 130 financial service offices and
a network of 144 automated teller machines in 28 Ohio counties and
one county in northern Kentucky.
A summary of financial data, average loans and average deposits, for Park’s
banking subsidiaries and their divisions for 2012, 2011 and 2010 is shown
in Table 9. See Note 23 of the Notes to Consolidated Financial Statements for
additional financial information for the Corporation’s operating segments.
Please note that the financial statements for various divisions of PNB are not
reported on a separate basis and, therefore, net income is not included in
the summary financial data below.

Table 9 – Park National Corporation Affiliate Financial Data

(In thousands)

Park National Bank:
Park National
Bank Division

Security National
Bank Division

First-Knox National
Bank Division

Century National
Bank Division

Richland Trust
Bank Division

Fairfield National
Bank Division

Second National
Bank Division

2012

2011

2010

Average
Loans

Average
Deposits

Average
Loans

Average
Deposits

Average
Loans

Average
Deposits

$1,286,751

$1,354,196

$1,206,520

$1,387,223

$1,141,941

$1,315,047

412,388

767,560

394,605

685,428

377,503

647,417

513,976

507,237

493,158

482,537

470,832

475,419

604,382

480,536

573,056

460,825

547,014

477,248

248,421

439,420

244,687

422,261

226,094

437,974

245,064

394,239

236,467

383,358

219,310

376,985

302,185

290,870

281,749

281,347

273,531

282,654

Park National SW &
N KY Bank Division

291,297

United Bank Division

92,258

218,407

196,841

329,690

95,528

240,213

193,685

349,700

96,752

258,593

202,550

Unity National
Bank Division

Farmers & Savings
Bank Division

Scope Aircraft
Finance

SEPH/Vision Bank

Guardian Finance

Parent Company,

including consolidating
entries

147,956

149,537

146,965

145,051

147,239

134,125

95,661

75,684

97,228

71,386

99,839

68,924

175,019

133,306

48,987

67,737

8,524

156,681

582,221

45,957

575,784

8,093

146,424

666,652

40,792

666,868

6,219

(186,990)

(115,400)

(171,001)

(144,711)

(161,145)

(168,018)

Consolidated
Totals

$4,410,661

$4,835,397

$4,713,511

$5,192,489

$4,642,478

$5,182,015

SOURCE OF FUNDS
Deposits: Park’s major source of funds is deposits from individuals, busi-
nesses and local government entities. These deposits consist of non-interest
bearing and interest bearing deposits.

Average total deposits were $4,835 million in 2012, compared to $5,192
million in 2011 and $5,182 million in 2010.

Total deposits were $4,716 million at December 31, 2012, compared to
$4,465 million at December 31, 2011. This represents an increase in total
deposits of $251 million or 5.6% in 2012. The increase in total deposits in
2012 was predominately in Park’s non-interest bearing checking accounts
and interest bearing savings accounts.

Table 10 – Year-End Deposits

December 31,
(In thousands)

Non-interest bearing checking
Interest bearing transaction

accounts

Savings
All other time deposits
Other

2012

2011

$1,137,290

$ 995,733

1,088,617
1,038,356
1,450,424
1,345

1,037,385
931,527
1,499,105
1,364

Change

$141,557

51,232
106,829
(48,681)
(19)

Total

$4,716,032

$4,465,114

$250,918

A year ago, management projected that Park’s total deposits would 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, 2011 and 2012, as the U.S. economy has gradually
recovered from the severe recession. The average federal funds rate was 0.15%
for 2012, 0.10% for 2011 and 0.18% for 2010.

The average interest rate paid on interest bearing deposits was 0.49% in 2012,
compared to 0.66% in 2011 and 0.98% in 2010. The average cost of interest
bearing deposits for each quarter of 2012 was 0.42% for the fourth quarter,
0.46% for the third quarter, 0.53% for the second quarter and 0.56% for the
first quarter.

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 0.26% in 2012, compared to 0.28% in 2011 and 0.39% in
2010.

The year-end balance for short-term borrowings was $344 million at December
31, 2012, compared to $264 million at December 31, 2011 and $664 million
at December 31, 2010. The increase from 2011 to 2012 and the large decrease
from 2010 to 2011 were due to investment security purchases at year-end
2012 and 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 and subordinated notes discussed
in the following section.) In 2012, average long-term debt was $908 million,
compared to $882 million in 2011 and $725 million in 2010. Average total debt
(long-term and short-term) was $1,166 million in 2012, compared to $1,179
million in 2011 and $1,026 million in 2010. Average total debt decreased by
$13 million or 1.1% in 2012 compared to 2011 and increased by $153 million
or 14.9% in 2011 compared to 2010. 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 during 2011 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 78% of average
total debt in 2012 compared to 75% in 2011 and 71% in 2010.

On November 30, 2012, Park’s banking subsidiary, PNB, restructured $300
million of fixed rate repurchase agreement borrowings with a third-party
investment banking firm. The restructuring reduced the weighted average
interest rate paid on the debt from 4.04% to 1.75% and extended the weighted
average maturity term from 4.4 years to 5.0 years. A $25 million prepayment
penalty was paid by PNB to the third-party investment banking firm as part of
the restructuring which will be amortized over the five-year remaining term of
the restructured borrowing. The effective rate on the restructured borrowing
is 3.40%, including the impact of the prepayment penalty amortization.

The average interest rate paid on long-term debt was 3.45% for 2012,
compared to 3.42% for 2011 and 3.91% for 2010.

M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S

Subordinated Debenture/Notes: Park assumed, with the 2007 Vision
acquisition, $15 million of floating rate junior subordinated notes. The interest
rate on these junior subordinated notes adjusted 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 banking subsidiary, PNB, issued a $25 million subordinated debenture
on December 28, 2007. The interest rate on this subordinated debenture
adjusted every quarter at 200 basis points above the three-month LIBOR interest
rate. The maturity date for the subordinated debenture was December 29, 2017
and the subordinated debenture was eligible to 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 matu-
rity 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 related to this
subordinated debenture to a fixed interest rate of 6.01% through the use of the
interest rate swap. This subordinated debenture qualified 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. This subordinated debenture was paid off in full on December 31, 2012.

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 and regulations of the Federal Reserve Board.
Each subordinated note was purchased at a purchase price of 100% of the
principal amount by an accredited investor.

On April 20, 2012, Park issued $30.0 million of subordinated notes to 56
purchasers. These subordinated notes have a fixed annual interest rate of
7% with quarterly interest payments. The maturity date of these subordinated
notes is April 20, 2022. The subordinated notes may be prepaid by Park any
time after April 20, 2017. The subordinated notes qualify as Tier 2 Capital
under applicable rules and regulations 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 debenture and subordinated notes.

Sale of Common Shares: Park sold an aggregate of 509,184 common
shares, out of treasury shares, during 2010. Of the 509,184 common shares
sold in 2010, 437,200 common shares were issued upon the exercise of
warrants associated with the capital raise that closed on October 30, 2009.
As part of the capital raise that closed on December 10, 2010, Park sold
71,984 common shares and issued warrants for the purchase of 71,984
common shares. In total for 2010, Park sold 509,184 common shares
and issued 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.

There were no sales of common shares during the years ended December 31,
2012 or 2011.

Shareholders’ Equity: Tangible shareholders’ equity (shareholders’ equity
less goodwill and other intangible assets) to tangible assets (total assets less
goodwill and other intangible assets) was 8.79% at December 31, 2012,
compared to 9.68% at December 31, 2011 and 9.04% at December 31, 2010.

The ratio of tangible shareholders’ equity to tangible assets for each of the
fiscal years ended December 31, 2011 and 2010 included the issuance of $100
million of Park Series A Preferred Shares to the U.S. Treasury on December 23,
2008. As previously discussed, Park repurchased the $100 million of Park

Series A Preferred Shares from the U.S. Treasury on April 25, 2012. Excluding
the balance of Series A Preferred Shares, the ratio of tangible common share-
holders’ equity to tangible assets was 8.25% at December 31, 2011 and 7.69%
at December 31, 2010. As noted above, the ratio of tangible common share-
holders’ equity to tangible assets was 8.79% at December 31, 2012.

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 shareholders’ equity. The unrealized
holding gain on AFS securities, net of income taxes, was $9.6 million at
year-end 2012, compared to an unrealized holding gains of $12.7 million at
year-end 2011 and $15.1 million at year-end 2010. The decrease in the amount
of unrealized holding gains on AFS securities, net of income taxes, at year-end
2011 was primarily due to the sale of AFS securities in 2011 for gains. Park 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 $6.2 million, $5.0 million and $2.4 million in 2012, 2011 and 2010,
respectively. The comprehensive loss in each of 2012, 2011 and 2010 was
due to changes in actuarial assumptions, primarily decreases in the discount
rate. This actuarial loss more than offset the positive investment returns to
the Pension Plan in 2010, 2011 and 2012. At year-end 2012, the balance
in accumulated other comprehensive income/(loss) pertaining to the
Pension Plan was $(27.1) million, compared to $(20.9) million at
December 31, 2011, and $(15.9) million at December 31, 2010.
Park also recognized net comprehensive income/(loss) of $0.6 million,
$0.5 million and $(0.1) million for the years ended December 31, 2012,
2011 and 2010, respectively, due to the mark-to-market of the $25 million
(notional amount) cash flow hedge that expired on December 28, 2012. 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 $4,411 million in 2012, compared to $4,714
million in 2011 and $4,642 million in 2010. The average yield on loans was
5.35% in 2012, compared to 5.61% in 2011 and 5.80% in 2010. The average
prime lending rate was 3.25% in 2012, 2011 and 2010. Approximately 52%
of Park’s loan balances mature or reprice within one year (see Table 30).
The yield on average loan balances for each quarter of 2012 was 5.23% for the
fourth quarter, compared to 5.31% for the third quarter, 5.36% for the second
quarter and 5.52% for the first quarter. At December 31, 2012, loan balances
were $4,450 million, compared to $4,317 million at year-end 2011, an increase
of $133 million or 3.1%. The loan growth of $133 million in 2012 was due to
increases in loans of $197 million at PNB and $3 million at GFSC, offset by a
decline in legacy Vision loans held by SEPH of $67 million. The increase in
loans experienced at PNB in 2012 was primarily related to continued demand
for 1-4 family mortgages, which increased by $123.5 million. Of the $123.5
million increase in the mortgage loan portfolio, approximately $91.1 million
of the increase was associated with our decision to continue to retain a portion
of the 15-year, fixed-rate mortgages originated by PNB rather than selling these
loans in the secondary market. The balance of the increase in loans of $73.2
million was across all loan portfolio categories, with the exception of the real
estate construction portfolio, which declined during the 2012 year.

In 2011, year-end loan balances were $4,317 million, a decrease of $416
million or 8.8% from the balance of $4,733 million at year-end 2010. The large
decrease in loan balances was primarily due to $369 million of loans at Vision
being shown on Park’s balance sheet as assets held for sale at December 31,
2011.

M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S

A year ago, management projected that year-end loan balances would increase
by 1% to 3% in 2012. The actual change in year-end loan balances was an
increase of 3.1%.
Year-end residential real estate loans were $1,713 million, $1,629 million and
$1,692 million in 2012, 2011 and 2010, respectively. Residential real estate
loans increased by $84 million or 5.2% in 2012, primarily due to manage-
ment’s decision to continue to retain certain of the 15-year, fixed-rate mortgage
loans originated during the year. Residential real estate loans decreased by
$63.6 million or 3.8% in 2011, due to the pending sale of the Vision business.
The balance of loans for 15-year, fixed rate mortgage was $315 million at
December 31, 2011, with a weighted average interest rate of 3.79%. This
15-year, fixed-rate product increased by $91 million to $406 million
at December 31, 2012, and has a weighted average interest rate of 3.57%.

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 certain of the 15-year, fixed-rate residential mortgage loans that
it originated. The balance of sold fixed-rate residential mortgage loans was
$1,313 million at year-end 2012, compared to $1,347 million at year-end 2011
and $1,471 million at year-end 2010. The decrease in Park’s sold residential
mortgage loan portfolio of $158 million in the last two years was due to the
retention of the 15-year, fixed-rate residential mortgage loan product. The
retained 15-year fixed-rate residential mortgage loan product totaled $406
million at December 31, 2012, an increase of $231 million from the $175
million in this portfolio at December 31, 2010. This increase of $231
million was $73 million more than the decrease in the long-term, fixed-rate
residential mortgage sold servicing portfolio. Management is pleased with this
performance, as the 15-year, fixed-rate mortgage loans retained on the balance
sheet would have been sold prior to 2010 and included in the servicing portfolio.
Year-end consumer loans were $652 million, $617 million and $667 million
in 2012, 2011 and 2010, respectively. Consumer loans increased by $35 million
or 5.7% in 2012 and decreased by $50 million or 7.5% in 2011. The increase
in consumer loans in 2012 was primarily due to an increase in automobile
lending in Ohio. The decrease in consumer loans in 2011 was primarily due to
a decline in automobile loans originated in Ohio, as competition for automobile
loans increased in 2011.
On a combined basis, year-end commercial, financial and agricultural loans,
real estate construction loans and commercial real estate loans totaled $2,082
million, $2,070 million and $2,371 million at year-end 2012, 2011 and 2010,
respectively. These combined loan totals increased by $12 million or 0.6% in
2012 and decreased by $301 million or 12.7% in 2011. The increase in 2012
was primarily due to an increase in commercial, financial and agricultural
loans of $80.1 million, offset by a decline in real estate construction loans of
$52.0 million. The decrease in 2011 was primarily due to the pending sale
of the Vision business as $211 million of these combined loan totals were
classified as assets held for sale on Park’s balance sheet at December 31,
2011.

Table 11 reports year-end loan balances by type of loan for the past five years.

Table 11 – Loans by Type

December 31,
(In thousands)
Commercial, financial
and agricultural

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

Consumer
Leases

2012

2011

2010

2009

2008

$ 823,927

$ 743,797

$ 737,902

$ 751,277

$ 714,296

165,528

217,546

406,480

495,518

533,788

1,713,645

1,628,618

1,692,209

1,555,390

1,560,198

1,092,164
651,930
3,128

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

Total loans

$4,450,322

$4,317,099

$4,732,685

$4,640,432

$4,491,337

Table 12 – Selected Loan Maturity Distribution

December 31, 2012
(In thousands)
Commercial, financial
and agricultural

Real estate – construction
Real estate – commercial

One Year
or Less (1)

$324,415
80,379
143,952

Over One
Through
Five Years

Over
Five
Years

Total

$328,565
34,458
150,253

$ 170,947
50,691
797,959

$ 823,927
165,528
1,092,164

Total

$548,746

$513,276

$1,019,597

$2,081,619

Total of these selected loans due

after one year with:
Fixed interest rate
Floating interest rate

346,454
166,822

119,696
899,901

$ 466,150
$1,066,723

(1) Nonaccrual loans of $88.4 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. As
conditions change over time, Park’s overall interest rate risk, liquidity needs
and potential return on the investment portfolio will change. Management
regularly evaluates the securities in the investment portfolio as circumstances
evolve. Circumstances that could result in the sale of a security include: to
better manage interest rate risk; to meet liquidity needs; or to improve the
overall yield in the investment portfolio.
Park classifies the majority of its securities as AFS (see Note 4 of the Notes to
Consolidated Financial Statements). These securities are carried on the books
at their estimated fair value with the unrealized holding gain or loss, net of
federal taxes, accounted for as accumulated other comprehensive income
(loss). 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 most of the U.S. Government sponsored entity
collateralized mortgage obligations (“CMOs”) that it purchases as held-to-
maturity. A classification of held-to-maturity means that Park has the positive
intent and the ability to hold these securities until maturity. Park classifies most
of its CMOs as held-to-maturity because these securities are generally not as
liquid as the other U.S. Government sponsored entity asset-backed securities
that Park classifies as AFS. At year-end 2012, Park’s held-to-maturity securities
portfolio was $401 million, compared to $820 million at year-end 2011 and
$674 million at year-end 2010. Park purchased $388 million of CMOs in 2012,
$628 million of CMOs in 2011 and $314 million of CMOs in 2010. All of the
CMOs, mortgage-backed securities, and callable notes in Park’s investment
portfolio were issued by a U.S. Government sponsored entity.
Average taxable investment securities were $1,610 million in 2012, compared
to $1,841 million in 2011 and $1,730 million in 2010. The average yield on
taxable securities was 3.14% in 2012, compared to 3.74% in 2011 and 4.44%
in 2010. Average tax-exempt investment securities were $3.1 million in 2012,
compared to $8 million in 2011 and $17 million in 2010. The average tax-
equivalent yield on tax-exempt investment securities was 7.03% in 2012,
compared to 7.17% in 2011 and 7.24% in 2010.
Year-end total investment securities (at amortized cost) were $1,567 million
in 2012, compared to $1,689 million in 2011 and $2,017 million in 2010.
Management purchased investment securities totaling $1,227 million in 2012,
$1,268 million in 2011 and $3,033 million in 2010. The decrease in investment
purchases during 2011 was primarily due to the reduced interest rate environ-
ment 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
purchases during 2010 included 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 $1,348 million in 2012, $1,013 million
in 2011 and $2,385 million in 2010. The increase in proceeds from repayments
and maturities in 2012 was primarily due to accelerated prepayments of U.S.
Government sponsored entity mortgage-backed securities and U.S. Government
sponsored entity CMOs and also from U.S. Government sponsored entity
callable notes being called. 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 proceeds

M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S

from repayments and maturities in 2010 included 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 2010.
Proceeds from sales of investment securities were $610 million in 2011 and
$460 million in 2010. Park realized net security gains on a pre-tax basis of
$28.8 million in 2011, and $11.9 million in 2010. There were no sales of
investment securities in 2012.

At year-end 2012, 2011 and 2010, the average tax-equivalent yield on the
total investment portfolio was 2.76%, 3.31% and 4.01%, respectively. The
weighted average remaining maturity of the total investment portfolio was
2.1 years at December 31, 2012, 1.7 years at December 31, 2011 and 3.6
years at December 31, 2010. Obligations of the U.S. Treasury and other U.S.
Government sponsored entities, and U.S. Government sponsored entity asset-
backed securities were approximately 95.7% of the total investment portfolio
at year-end 2012, approximately 95.7% of the total investment portfolio at
year-end 2011 and approximately 95.9% of the total investment portfolio
at year-end 2010.

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 2012,
management estimated that the average maturity of the investment portfolio
would lengthen to 5.4 years with a 100 basis point increase in long-term inter-
est rates and to 6.5 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

Table 14 – Distribution of Assets, Liabilities and Shareholders’ Equity

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 2012, management
estimated that the average maturity of the investment portfolio would decrease
to 1.1 years with a 100 basis point decrease in long-term interest rates and to
0.9 years with a 200 basis point decrease in long-term interest rates.

Table 13 sets forth the carrying value of investment securities, as well as the
percentage held within each category at year-end 2012, 2011 and 2010:

Table 13 – Investment Securities

December 31,
(In thousands)

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

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

2012

2011

2010

$ 695,727
1,573
816,322
59,031
6,876
2,222

$ 371,657
4,652
1,262,527
60,728
6,876
2,033

$ 273,313
14,211
1,681,815
61,823
6,876
1,753

$1,581,751

$1,708,473

$2,039,791

44.0%
0.1%
51.7%
3.7%
0.4%
0.1%

21.8%
0.3%
73.9%
3.5%
0.4%
0.1%

13.4%
0.7%
82.5%
3.0%
0.3%
0.1%

Total

100.0%

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

Non-interest earning assets:
Allowance for loan losses
Cash and due from banks
Premises and equipment, net
Other assets

TOTAL

LIABILITIES AND SHAREHOLDERS’ 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

Non-interest bearing liabilities:

Demand deposits
Other

Total non-interest bearing liabilities

Shareholders’ equity

TOTAL

Daily
Average

2012

Interest

Average
Rate

Daily
Average

2011

Interest

Average
Rate

Daily
Average

2010

Interest

Average
Rate

$264,192
68,873
575
178

333,818

5.60%
3.74%
7.15%
0.23%

5.03%

2,686
1,126
23,842

27,654

823
30,169

58,646

0.19%
0.12%
1.31%

0.66%

0.28%
3.42%

1.09%

$236,184
50,549
217
408

287,358

5.35%
3.14%
7.03%
0.25%

4.64%

$ 1,411
1,072
15,921

18,404

678
31,338

50,420

0.11%
0.11%
1.03%

0.49%

0.26%
3.45%

1.02%

$4,410,661
1,610,044
3,087
166,319

6,190,111

(61,995)
119,410
54,917
464,363

$6,766,806

$1,239,417
1,006,321
1,540,863

3,786,601

258,661
907,704

4,952,966

1,048,796
75,312

1,124,108

689,732

$6,766,806

$4,713,511
1,840,842
8,038
78,593

6,640,984

(128,512)
124,649
69,507
499,543

$7,206,171

$1,430,492
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

$269,306
76,839
1,220
200

347,565

5.80%
4.44%
7.24%
0.22%

5.36%

4,450
1,303
36,212

41,965

1,181
28,327

71,473

0.33%
0.15%
1.78%

0.98%

0.39%
3.91%

1.35%

$4,642,478
1,729,511
16,845
93,009

6,481,843

(119,700)
116,961
69,839
493,762

$7,042,705

$1,354,392
891,021
2,029,088

4,274,501

300,939
725,356

5,300,796

907,514
87,885

995,399

746,510

$7,042,705

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

$236,938

$275,172

$276,092

3.62%
3.83%

3.94%
4.14%

4.01%
4.26%

(1) Loan income includes loan related fee income of $3,096 in 2012, $2,381 in 2011 and $238 in 2010. Loan income also includes the effects of taxable equivalent adjustments using a 35% tax rate in 2012,

2011 and 2010. The taxable equivalent adjustment was $1,547 in 2012, $1,734 in 2011 and $1,614 in 2010.

(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 2012, 2011 and 2010. The taxable equivalent adjustments were $77 in
2012, $204 in 2011 and $434 in 2010.
Includes subordinated debenture and subordinated notes.

(4)

M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S

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 14 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 by $37.9 million or 13.9% to $235.3 million for
2012 compared to a decrease of $810,000 or 0.3% to $273.2 million for 2011.
The tax equivalent net yield on interest earning assets (net interest margin) was
3.83% for 2012, compared to 4.14% for 2011 and 4.26% for 2010. The net
interest rate spread (the difference between rates received for interest earning
assets and the rates paid for interest bearing liabilities) was 3.62% for 2012,
compared to 3.94% for 2011 and 4.01% for 2010. The decrease in net interest
income in 2012 was due to the decrease in the net interest spread to 3.62%
from 3.94% and due to the sale of the Vision business on February 16,
2012. The average balance of interest earning assets decreased by $451
million, or 6.8%, to $6,190 million in 2012 largely as a result of the sale
of the Vision business.

The average yield on interest earning assets was 4.64% in 2012, compared to
5.03% in 2011 and 5.36% in 2010. The average federal funds rate for 2012
was 0.15%, compared to an average rate of 0.10% in 2011 and 0.18% in 2010.
On a quarterly basis for 2012, the average yield on interest earning assets was
4.49% for the fourth quarter, 4.56% for the third quarter, 4.71% for the second
quarter and 4.81% for the first quarter.

The average rate paid on interest bearing liabilities was 1.02% in 2012,
compared to 1.09% in 2011 and 1.35% in 2010. On a quarterly basis for
2012, the average rate paid on interest bearing liabilities was 0.97% for the
fourth quarter, 1.00% for the third quarter, and 1.05% for both the second
and first quarters.

The following table displays (for each quarter of 2012) the average balance of
interest earning assets, net interest income and the tax equivalent net interest
margin.

Table 15 – Quarterly Net Interest Margin

(In thousands)

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

2012

Average Interest
Earning Assets

Net Interest
Income

Tax Equivalent
Net Interest Margin

$6,297,772
6,134,797
6,200,288
6,128,159

$6,190,111

$ 61,728
58,680
58,016
56,891

$235,315

3.97%
3.87%
3.75%
3.72%

3.83%

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

Table 16 – Volume/Rate Variance Analysis

Change from 2011 to 2012
Total
Rate
Volume

Change from 2010 to 2011
Total
Rate
Volume

(In thousands)

Increase (decrease) in:
Interest income:

Total loans

$(16,271) $(11,737) $(28,008)

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

Taxable investments
Tax-exempt investments
Money market
instruments

Total interest
income

(8,038)
(348)

(10,286)
(10)

(18,324)
(358)

4,711
(631)

(12,676)
(14)

(7,965)
(645)

213

230

(31)

(22)

(24,444)

(22,016)

(46,460)

8,037

(21,783)

(13,746)

Table 16 – Volume/Rate Variance Analysis (continued)

(In thousands)

Interest expense:

Change from 2011 to 2012
Total
Rate
Volume

Change from 2010 to 2011
Total
Rate
Volume

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

(307) $
58
(3,289)
(94)
898

(968) $ (1,275)
(54)
(112)
(7,921)
(4,632)
(145)
(51)
1,169
271

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

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

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

Total interest
expense

(2,734)

(5,492)

(8,226)

2,457

(15,284)

(12,827)

Net variance

$(21,710) $(16,524) $(38,234)

$ 5,580 $ (6,499) $

(919)

Other Income: Total other income was $92.4 million in 2012, compared to
$94.9 million in 2011 and $74.9 million in 2010. The decrease of $2.5 million
in 2012 compared to 2011 was primarily due to the fact that the increase of
$22.2 million from the gain recognized on the sale of the Vision business, the
increase of $3.0 million in other service income and the increase of approxi-
mately $1.0 million in income from fiduciary activities, were more than offset
by there being no gains from the sale of investment securities in 2012, in
contrast to $28.8 million of gains in 2011. 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.

The following table displays total other income for Park in 2012, 2011
and 2010.

Table 17 – Other Income

Year Ended December 31,
(In thousands)

Income from fiduciary activities
Service charges on deposits
Gain on sale of Vision business
Net gains on sales of securities
Other service income
Checkcard fee income
Bank owned life insurance income
ATM fees
Gain/loss on the sale of OREO, net
OREO devaluations
Other

Total other income

2012

$15,947
16,704
22,167
—
13,631
12,541
4,754
2,359
4,414
(6,872)
6,758

$92,403

2011

$14,965
18,307
—
28,829
10,606
12,496
5,089
2,703
1,312
(8,219)
8,822

$94,910

2010

$13,874
19,717
—
11,864
13,816
11,177
4,978
2,951
1,466
(13,206)
8,243

$74,880

The following table breaks out the change in total other income for the year
ended December 31, 2012 compared to December 31, 2011 and for the year
ended December 31, 2011 compared to December 31, 2010 between Park’s
Ohio-based operations and SEPH/Vision.

Table 18 – Other Income Breakout

(In thousands)
Income from fiduciary

activities
Service charges
on deposits
Gain on sale of

Vision business
Net gains on sale
of securities

Other service income
Checkcard fee income
Bank owned life

insurance income

ATM fees
Gain/loss on the sale

of OREO, net
OREO devaluations
Other

Change from 2011 to 2012

Ohio-based SEPH/
Operations

Total

Change from 2010 to 2011
SEPH/
VB

Ohio-based
Operations

Total

$ 1,106

$ (124)

982

$ 1,081

$ 1,091

(615)

(988)

(1,603)

(1,211)

(199)

(1,410)

— 22,167

22,167

—

(23,634)
4,499
802

(5,195)
(1,474)
(757)

(28,829)
3,025
45

11,770
(3,295)
852

(240)
(282)

176
(289)
(1,883)

(95)
(62)

(335)
(344)

2,926
1,636
(181)

3,102
1,347
(2,064)

111
37

(277)
832
528

5,195
85
467

—
(285)

123
4,155
51

16,965
(3,210)
1,319

111
(248)

(154)
4,987
579

Total other income

$(20,360) $17,853

$(2,507)

$10,428

$9,602

$20,030

M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S

Income from fiduciary activities increased by $1.0 million or 6.6% to $15.9
million in 2012 and increased by $1.1 million or 7.9% to $15.0 million in
2011. The increases in fiduciary fee income in 2012 and 2011 were 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
largely based on the market value of the assets being managed. The Dow Jones
Industrial Average stock index annual average was 10,669 for calendar year
2010, 11,958 for calendar year 2011 and 12,960 for calendar year 2012.
The market value of the assets that Park manages was $3.55 billion at
December 31, 2012, compared to $3.3 billion at December 31, 2011
and December 31, 2010.
Service charges on deposit accounts decreased by $1.6 million or 8.8% to
$16.7 million in 2012 and decreased by $1.4 million or 7.2% to $18.3 million
in 2011. The decrease in 2012 was primarily due to the sale of the Vision
business on February 16, 2012, which resulted in a $1.0 million decrease
in services charges on deposits in 2012 compared to 2011. The balance of the
decline in 2012 of approximately $615,000 was related to declines in service
charges on deposits within Park’s Ohio-based operations, largely as a result of
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 2012.
As previously discussed, on February 16, 2012, Park completed the sale of the
Vision business for a purchase price of $27.9 million. As a result of the trans -
action, Park recorded a pre-tax gain of $22.2 million (after actual expenses
directly related to the transaction). This gain on sale was recognized at Vision
prior to the merger of the remaining Vision subsidiary with and into SEPH.
Park recognized net gains from the sale of investment securities of $28.8
million in 2011 and $11.9 million in 2010. There were no sales of investments
securities in 2012. 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.
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 increased
by $3.0 million, or 28.5%, to $13.6 million in 2012, compared to $10.6 million
in 2011. The increase in other service income was primarily due to an increase
in the amount of fixed-rate mortgage loans originated and sold in 2012 within
Park’s Ohio-based operations. Other service income for Park’s Ohio-based
operations increased $4.5 million in 2012. This increase was offset by a $1.5
million decline in other service income for the combined SEPH/VB as a result
of the sale of the Vision business. The amount of fixed-rate mortgage loans orig-
inated and sold in 2012 was $409 million, compared to $190 million in 2011.
As previously discussed, Park began to originate and retain 15-year, fixed-rate
residential mortgages in August 2010, which results in fewer loans being sold
in the secondary market. The balance of 15-year, fixed-rate resi dential mort-
gage loans retained was $406 million at December 31, 2012, an increase of
$91 million compared to $315 million at December 31, 2011. In 2011,
other service income decreased by $3.2 million, or 23.2%, to $10.6 million,
compared to $13.8 million in 2010. The decrease in other service income in
2011 was primarily due to a decline in the amount of fixed-rate mortgage loans
originated and sold.
Checkcard fee income, which is generated from debit card transactions
increased $45,000 or 0.4 % to $12.5 million in 2012. During 2011, checkcard
fee income increased $1.3 million or 11.8% to $12.5 million. The increases
in both 2012 and 2011 were attributable to continued increases in the volume
of debit card transactions. In 2012, increases in checkcard fee income of
$802,000 for Park’s Ohio-based operations were offset by a decline of
$757,000 for SEPH/VB following the sale of the Vision business.
Gain/(loss) on the sale of OREO, net, totaled $4.4 million in 2012, an increase
of $3.1 million compared to $1.3 million in 2011. The gain/(loss) on sale of

OREO was primarily related to other real estate owned at SEPH. Of the $4.4
million net gain, $3.9 million was at SEPH.
OREO devaluations, which result from declines in the fair value (less
anticipated selling costs) of property acquired through foreclosure, totaled
$6.9 million in 2012, a decrease of $1.3 million or 16.4% compared to $8.2
million in 2011. The OREO devaluations in 2012 related primarily to other real
estate owned at SEPH. Of the $6.9 million in OREO devaluations in 2012, $5.6
million were related to devaluations recognized at SEPH. Of the $5.6 million at
SEPH, $1.7 million was recorded as a valuation allowance to mark to market
approximately $6.7 million of OREO ($5 million net of allowance) to a bulk
sale value for potential sale of a group of properties.
A year ago, Park’s management forecast that total other income, excluding the
gain from the sale of the Vision business, would be approximately $62 million
to $66 million for 2012. The actual performance for 2012 was higher than
management’s original estimate, at $70.2 million.
Other Expense: Total other expense was $188.0 million in 2012, compared
to $188.3 million in 2011 and $187.1 million in 2010. Total other expense
decreased by $349,000, or 0.2%, in 2012. Total other expense increased by
$1.2 million or 0.6% in 2011. The following table displays total other expense
for Park in 2012, 2011 and 2010.

Table 19 – Other Expense

Year Ended December 31,
(In thousands)

Salaries and employee benefits
Data processing fees
Professional fees and services
Net occupancy expense of bank premises
Furniture and equipment expense
Insurance
Marketing
Postage and telephone
Intangible amortization expense
State taxes
Loan put provision
OREO expense
Other

Total other expense

Full time equivalent employees

2012

$ 95,977
3,916
24,267
9,444
10,788
5,780
3,474
5,983
2,172
3,786
3,299
4,011
15,071

$187,968

1,826

2011

$102,068
4,965
21,119
11,295
10,773
6,821
2,967
6,060
3,534
1,544
—
3,266
13,905

$188,317

1,920

2010

$ 98,315
5,728
19,972
11,510
10,435
8,983
3,656
6,648
3,422
3,171
—
3,358
11,909

$187,107

1,969

The following table breaks out the change in total other expense for the year
ended December 31, 2012 compared to December 31, 2011 and for the year
ended December 31, 2011 compared to December 31, 2010 in each of Park’s
Ohio-based operations and SEPH/Vision.

Table 20 – Other Expense Breakout

(In thousands)

Salaries and

employee benefits
Data processing fees
Professional fees
and services
Net occupancy

expense of bank
premises
Furniture and

equipment expense

Insurance
Marketing
Postage and telephone
Intangible amortization

expense
State taxes
Loan put provision
OREO expense
Other

Total other
expense

Change from 2011 to 2012

Ohio-based SEPH/
Operations

Total

Change from 2010 to 2011
SEPH/
VB

Ohio-based
Operations

Total

$ 2,911 $ (9,002)
(1,466)

417

$(6,091)
(1,049)

$4,286
(279)

$(533)
(484)

$3,753
(763)

1,589

1,559

3,148

(137)

1,284

1,147

(85)

(1,766)

(1,851)

(239)

(215)

850
(197)
720
203

(835)
(844)
(213)
(280)

— (1,362)
—
3,299
(5)
488

2,242
—
750
678

15
(1,041)
507
(77)

(1,362)
2,242
3,299
745
1,166

466
(1,696)
(667)
(578)

(746)
(1,627)
—
(65)
1,655

(128)
(466)
(22)
(10)

338
(2,162)
(689)
(588)

112
858
— (1,627)
—
—
(92)
(27)
1,996
341

$10,078 $(10,427)

$ (349)

$ 373

$ 837

$1,210

M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S

Salaries and employee benefits expense decreased by $6.1 million or 6.0% to
$96.0 million in 2012 and increased by $3.8 million or 3.8% to $102.1 million
in 2011. The decrease in 2012 was primarily related to a decrease of $9.0
million at SEPH/VB due to the sale of the Vision business on February 16, 2012,
offset by a $2.9 million increase in salaries and employee benefits for Park’s
Ohio-based operations. Park had 1,826 full-time equivalent employees at year-
end 2012, compared to 1,920 at year-end 2011 and 1,969 at year-end 2010.

Professional fees and services increased by $3.1 million or 14.9% to $24.3
million in 2012 and increased by $1.1 million or 5.7% to $21.1 million in
2011. 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 2011 and 2012 was primarily due to an increase in legal and
consulting fees at both PNB and SEPH. This additional expense was primarily
related to an increase in costs associated with the workout of problem loans
at Park’s SEPH subsidiary.

Net occupancy expense decreased by $1.9 million or 16.4% to $9.4 million
in 2012 and decreased by $215,000 or 1.9% to $11.3 million in 2011. The
reduction in 2012 was due largely to the sale of the Vision business.

Insurance expense decreased by $1.0 million or 15.3% to $5.8 million in 2012
and decreased by $2.2 million or 24.1% to $6.8 million in 2011. The decline in
2012 was primarily the result of lower insurance expense at SEPH/VB following
the sale of the Vision business, which eliminated the FDIC insurance expense
for the Vision subsidiary. The remaining decline in 2012 was the result of the
full year impact of the new FDIC assessment methodology utilizing total assets
less tangible equity, which went into effect in the third quarter of 2011.

As previously discussed, as part of the transaction between Vision and
Centennial, Park agreed to allow Centennial to “put back” up to $7.5 million
aggregate principal amount of loans, which were originally included within the
loans sold in the transaction. The loan put option expired on August 16, 2012,
180 days after the closing of the transaction. In total, Centennial put back forty-
four loans, totaling approximately $7.5 million. Upon repurchase, Park was
required to charge each of the repurchased loans down to its then current fair
value. Park recognized $3.3 million of loan put provision expense in 2012 to
establish a liability account that was utilized to cover write downs on the forty-
four loans repurchased from Centennial.

The subcategory “other” expense includes expenses for supplies, travel,
charitable contributions, amortization of low income housing tax investments
and other miscellaneous expense. The subcategory other expense increased
by $1.2 million or 8.4% in 2012 and increased by $2.0 million or 16.8% in
2011. The $1.2 million increase in 2012 was largely due to the establishment
of a $1.5 million liability for potential credit loss exposure related to certain
off-balance sheet arrangements in the Ohio-based operations.

A year ago, Park’s management projected that total other expense would be
approximately $170 million to $175 million in 2012. The actual expense for
the year of $188.0 million was $13.0 million higher than the upper end of
management’s estimate.

Income Taxes: Federal income tax expense was $25.7 million in 2012,
compared to $28.3 million in 2011 and $17.8 million in 2010. Federal
income tax expense as a percentage of income before taxes, adjusted for
the state income tax expense or benefit, was 24.6% in 2012, compared to
25.6% in 2011 and to 23.4% in 2010. The difference between the statutory
federal income tax rate of 35% and Park’s effective tax rate is the permanent tax
differences, primarily consisting of tax-exempt interest income from municipal
investments and loans, low income housing tax credits, bank owned life insur-
ance income, and dividends paid on shares held within Park’s salary deferral
plan. Park’s permanent tax differences for 2012 were approximately $11.4
million.

State income tax expense (benefit) was zero in 2012, $6.1 million in 2011 and
$(1.2) million in 2010. All of the state income tax expense or benefit pertains
to Vision, 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 carry-forward asset and other state
deferred tax assets at Vision.

State income tax benefit was $1.2 million in 2010 as a result of losses at Vision.
Park performed an analysis in 2010 to determine if a valuation allowance
against deferred tax assets was required in accordance with GAAP. Vision was
subject to state income tax in Alabama and Florida. In 2010, a state tax benefit
of $1.16 million was recorded by Vision, 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 ensure the allowance is sufficient to
absorb probable, incurred credit losses. 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 for Park was $35.4 million in 2012, $63.3 million
in 2011 and $87.1 million in 2010. Net loan charge-offs were $48.3 million in
2012, $125.1 million in 2011 and $60.2 million in 2010. Net loan charge-offs
for the year ended December 31, 2012 included the charge-off of $12.1 million
related to the retained Vision loans to bring the retained Vision loan portfolio
to fair value prior to the merger of Vision with and into SEPH on February 16,
2012. The ratio of net loan charge-offs to average loans was 1.10% in 2012,
2.65% in 2011 and 1.30% in 2010.

Park’s Ohio-based subsidiaries had a combined loan loss provision of $17.5
million in 2012, $32.2 million in 2011 and $25.7 million in 2010. Absent the
loan loss provision of $3.4 million, $11.1 million, and $7.1 million for 2012,
2011 and 2010, respectively, related to participation in Vision loans that PNB
purchased, the provision for loan losses for Ohio-based subsidiaries would
have been $14.1 million, $21.1 million, and $18.6 million, respectively. Net
loan charge-offs for Park’s Ohio-based subsidiaries were $19.7 million in 2012,
$49.2 million in 2011 and $23.6 million in 2010. The net loan charge-off ratio
for Park’s Ohio-based subsidiaries was 0.46% for 2012, 1.19% for 2011 and
0.60% for 2010. Of the $19.7 million and $49.2 million in net loan charge-offs
for Park’s Ohio-based subsidiaries in 2012 and 2011, respectively, $3.5 million
and $18.1 million were related to participations in Vision loans that PNB had
purchased. Absent the charge-offs on these Vision loan participations, net
charge-offs for Park’s Ohio-based operations were $16.2 million and $31.1
million and the net loan charge-off ratio was 0.38% and 0.76% for 2012
and 2011.

The provision for loan losses for SEPH, including those provisions recorded
at Vision prior to the February 16, 2012 merger of Vision with and into SEPH,
was $17.9 million in 2012. The provision for loan losses for Vision was $31.1
million in 2011 and $61.4 million in 2010. Net loan charge-offs for SEPH,
including net charge-offs of $12.1 million recorded at Vision prior to the
merger of Vision with and into SEPH, were $28.6 million in 2012. Net charge-
offs for Vision were $75.9 million in 2011 and $36.6 million in 2010. SEPH’s
ratio of net loan charge-offs to average loans was 21.5% in 2012 and Vision’s
ratio of net loan charge-offs to average loans was 13.04% in 2011 and 5.48%
in 2010.

M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S

The following table shows the improving credit trends in Park’s Ohio-based
operations’ commercial loan portfolio:

Table 23 – Park Ohio – Commercial Credit Trends

Year Ended December 31,
(In thousands)

2012

2011

2010

Commercial loans*

Pass rated
Special mention
Substandard
Impaired

Total

$2,225,702
49,275
16,843
89,365

$2,131,007
66,254
29,604
95,109

$2,046,016
85,287
78,529
90,694

$2,381,185

$2,321,974

$2,300,526

*Commercial loans include: (1) Commercial, financial and agricultural loans; (2) Commercial
real estate loans; (3) Commercial related loans in the construction real estate portfolio; and
(4) Commercial related loans in the residential real estate portfolio.

The commercial loan table above demonstrates the improvement experienced
over the last 24 months in Park’s Ohio-based operations’ commercial portfolio.
Pass rated commercial loans have grown $179.7 million, or 8.8% since
December 31, 2010. Over this period, special mention loans have declined by
$36.0 million, or 42.2% and substandard loans have declined by $61.7 million,
or 78.5%. These improved credit metrics in the special mention and substan-
dard categories of the commercial loan portfolio have a significant impact on
the general reserves that are established to cover incurred losses on performing
commercial loans. As these metrics have improved over the past 24 months,
general reserves have declined.

Delinquent and accruing loan trends for Park’s Ohio-based operations have
also improved over the past 24 months. Delinquent and accruing loans were
$39.6 million or 0.90% of total loans at December 31, 2012, compared to
$40.1 million (0.96%) at December 31, 2011 and $45.8 million (1.12%)
at December 31, 2010.

Impaired commercial loans for Park’s Ohio-based operations were $89.4
million as of December 31, 2012, down slightly from the balances of impaired
loans of $95.1 million and $90.7 million at December 31, 2011 and 2010,
respectively. The $89.4 million of impaired commercial loans at December 31,
2012 included $16.7 million of loans modified in a troubled debt restructuring
which are currently on accrual status and performing in accordance with the
restructured terms. Impaired commercial loans are individually evaluated for
impairment and specific reserves are established to cover incurred losses.

Management believes that the allowance for loan losses at year-end 2012 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 Management’s
Discussion and Analysis for additional information on management’s
evaluation of the adequacy of the allowance for loan losses.

A year ago, management projected the provision for loan losses would be
$20 million to $27 million in 2012. The actual performance was above the
high end of our expectation by $8.4 million, at $35.4 million for the 2012 year.
The provision for loan losses was greater than management’s projection due to
$16.1 million in loan loss provision related to one loan relationship retained
from the Vision loan portfolio, most of which was recognized in the third
quarter of 2012.

On February 16, 2012, when Vision merged with and into SEPH, the loans
which had been retained by Vision were transferred by operation of law at their
fair market value and no allowance for loan loss has been or will be carried at
SEPH. The loans included in both the performing and nonperforming portfolios
of SEPH continue to be carried at their fair value. The table below provides
additional information regarding charge-offs as a percentage of unpaid
principal balance, as of December 31, 2012:

Table 21 – SEPH – Retained Vision Loan Portfolio
Charge-offs as a percentage of unpaid principal balance

December 31, 2012
(In thousands)

Unpaid
Principal Balance

Charge-
offs

Net Book
Balance

Charge-off
Percentage

Nonperforming loans –
retained by SEPH
Performing loans –
retained by SEPH

$126,801

$71,509

$55,292

4,236

350

3,886

Total SEPH loan exposure

$131,037

$71,859

$59,178

56%

55%

Park management obtains updated appraisal information for all nonperforming
loans at least annually. As new appraisal information is received, management
performs an evaluation of the appraisal and applies a discount for anticipated
disposition costs to determine the net realizable value of the collateral, which
is compared against the outstanding principal balance to determine if additional
write-downs are necessary.

At year-end 2012, the allowance for loan losses was $55.5 million or 1.25%
of total loans outstanding, compared to $68.4 million or 1.59% of total loans
outstanding at year-end 2011 and $143.6 million or 3.03% of total loans out-
standing at year-end 2010. 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, 2012, 2011 and 2010.

Table 22 – General Reserve Trends – Park National Corporation

Year Ended December 31,
(In thousands)

2012

2011

2010

Allowance for loan losses, end of period

$ 55,537

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

8,276

$ 47,261

68,444

$ 143,575

15,935

66,904

52,509

$ 76,671

$4,450,322

$4,317,099

$4,732,685

137,238

187,074

250,933

$4,313,084

$4,130,025

$4,481,752

1.25%

1.59%

3.03%

1.10%

1.27%

1.71%

The decline in general reserves as a percentage of non-impaired loans from
1.27% at December 31, 2011 to 1.10% at December 31, 2012 was primarily
due to the elimination of general reserves held against the retained Vision
performing loans that are held at SEPH and improving credit trends in the
commercial loan portfolio for Park’s Ohio-based operations (PNB and GFSC).
At December 31, 2011, Vision had general reserves of approximately $1.85
million, which were established to cover incurred losses on the retained
performing loans following the sale of the Vision business to Centennial. Upon
completion of the sale of the Vision business and prior to the merger of Vision
with and into SEPH on February 16, 2012, all retained loans (performing and
nonperforming) were charged down to their fair value, resulting in a $1.85
million decline in Park’s general reserves.

M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S

The table below provides a summary of the loan loss experience over the past
five years:

Table 24 – Summary of Loan Loss Experience

(In thousands)

2012

2011

2010

2009

2008

Average loans

(net of unearned
interest)
Allowance for
loan losses:

Beginning balance
Charge-offs:

Commercial, financial
and agricultural

Real estate –
construction

Real estate –
residential
Real estate –
commercial

Consumer
Leases

$4,410,661 $4,713,511 $4,642,478 $4,594,436 $4,354,520

68,444

143,575

116,717

100,088

87,102

26,847

18,350

8,484

10,047

2,953

9,985

64,166

23,308

21,956

34,052

8,607

20,691

18,401

11,765

12,600

10,454
5,375
—

23,063
7,612
—

7,748
8,373
—

5,662
9,583
9

4,126
9,181
4

Total charge-offs $

61,268 $ 133,882 $ 66,314 $

59,022 $ 62,916

Recoveries:

Commercial, financial
and agricultural

Real estate –

construction

Real estate –
residential
Real estate –
commercial

Consumer
Leases

1,066 $ 1,402 $

1,237 $

1,010 $

2,979

1,463

813

1,322

861

137

5,559

1,719

1,429

1,723

1,128

783
2,555
—

1,825
2,385
4

850
1,763
—

771
2,001
3

451
2,807
31

5,415

Total recoveries

12,942 $ 8,798 $

6,092 $

6,830 $

Net charge-offs $

48,326 $ 125,084 $ 60,222 $

52,192 $ 57,501

Provision charged
to earnings

Transfer of loans
at fair value

Allowance for loan
losses acquired
(transferred) related
to Vision

35,419

63,272

87,080

68,821

70,487

—

(219)

—

(13,100)

—

Ending balance

55,537 $ 68,444 $ 143,575 $ 116,717 $ 100,088

Ratio of net charge-offs

to average loans
Ratio of allowance for
loan losses to end
of year loans

1.10%

2.65%

1.30%

1.14%

1.32%

1.25%

1.59%

3.03%

2.52%

2.23%

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

Table 25 – Allocation of Allowance for Loan Losses

December 31,

2012

2011

2010

2009

2008

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

6,841

3.72%

14,433

5.04%

70,462

8.59%

47,521

10.68%

24,794

11.88%

14,759

38.51%

15,692

37.72%

30,259

35.75%

19,753

33.51%

22,077

34.74%

11,736
6,566

24.54%
14.65%
— 0.07%

15,539
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%

Total

$55,537 100.00% $68,444 100.00% $143,575 100.00% $116,717 100.00% $100,088 100.00%

As of December 31, 2012, 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. 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,
accruing TDRs, loans past due 90 days or more and still accruing and other
real estate owned for the last five years:

Table 26 – Park – Nonperforming Assets

December 31,
(In thousands)

Nonaccrual loans
Accruing TDRs
Loans past due 90 days

or more

Total nonperforming

loans

Other real estate owned –

PNB

Other real estate owned –

Vision

Other real estate owned –

SEPH

Total nonperforming

assets

Percentage of

nonperforming loans
to total loans
Percentage of

nonperforming assets
to total loans
Percentage of

nonperforming assets
to total assets

2012

2011

2010

2009

2008

$155,536
29,800

$195,106
28,607

$289,268
—

$233,544
142

$159,512
2,845

2,970

3,489

3,590

14,773

5,421

$188,306

$227,202

$292,858

$248,459

$167,778

14,715

13,240

8,385

6,037

6,149

—

33,324

35,203

19,699

21,003

29,032

—

$224,024

$269,474

$334,567

$289,699

$193,626

4.23%

5.26%

6.19%

5.35%

3.74%

5.03%

6.24%

7.07%

6.24%

4.31%

3.37%

3.86%

4.59%

4.11%

2.74%

Tax equivalent interest income from loans for 2012 was $236.2 million. Park
has forgone interest income of approximately $7.2 million from nonaccrual
loans as of December 31, 2012 that would have been earned during the year
if all loans had performed in accordance with their original terms.

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

Table 27 – SEPH/Vision – Nonperforming Assets

December 31,
(In thousands)

2012

2011

2010

2009

2008

Nonaccrual loans
Accruing TDRs
Loans past due 90 days or more

$55,292
—
—

$ 98,993
2,265
122

$171,453
—
364

$148,347
—
11,277

$ 91,206
2,845
644

94,695

—
19,699

Other real estate owned – SEPH
Other real estate owned – Vision

21,003
—

29,032
—

—
33,324

—
35,203

Total nonperforming assets

$76,295

$130,412

$205,141

$194,827

$114,394

Percentage of

nonperforming loans
to total loans
Percentage of

nonperforming assets
to total loans
Percentage of

nonperforming assets
to total assets

N.M.

26.82%

23.58%

13.71%

N.M.

32.02%

28.78%

16.57%

N.M.

25.90%

21.70%

12.47%

$15,635

18.51% $16,950

17.23% $ 11,555

15.59% $ 14,725

16.19% $ 14,286

15.90%

Total nonperforming loans

$55,292

101,380

171,817

159,624

M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S

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

Table 28 – Park Excluding SEPH/Vision – Nonperforming Assets

December 31,
(In thousands)

Nonaccrual loans
Accruing TDRs
Loans past due 90 days

or more

Total nonperforming

loans

Other real estate owned –

PNB

Total nonperforming

assets

Percentage of

nonperforming loans
to total loans
Percentage of

nonperforming assets
to total loans
Percentage of

nonperforming assets
to total assets

2012

2011

2010

2009

2008

$100,244
29,800

$ 96,113
26,342

$117,815
—

$85,197
142

$68,306
—

2,970

3,367

3,226

3,496

4,777

$133,014

$125,822

$121,041

$88,835

$73,083

14,715

13,240

8,385

6,037

6,149

$147,729

$139,062

$129,426

$94,872

$79,232

3.03%

3.00%

2.96%

2.24%

1.92%

3.36%

3.32%

3.16%

2.39%

2.08%

2.26%

2.21%

1.99%

1.54%

1.29%

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, 2011 and 2012, 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 nonperform-
ing loans over the past five years. Financial institutions operating in Florida and
Alabama (including Vision) have been particularly hard hit by the severe reces-
sion as the demand for real estate and the price of real estate have sharply
decreased.

Park had $68.3 million of commercial loans included on the watch list
of potential problem commercial loans at December 31, 2012 compared
to $134.5 million at year-end 2011 and $238.7 million at year-end 2010.
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 1.5% in 2012, 3.1% in 2011 and 5.0% in 2010.
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, 2012, loans considered to
be impaired consisted substantially of commercial loans graded as “doubtful”
and placed on non-accrual status. These specific reserves are typically based
on management’s best estimate of the fair value of collateral securing these
loans. The amount ultimately charged off for these loans may be different from
the specific reserve as the ultimate liquidation of the collateral may be for
amounts different from management’s estimates.

When determining the quarterly and annual 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 4.5 (pass-rated) are considered to be
of acceptable credit risk. Commercial loans graded a 5 (special mention) are
considered to be watch list credits and a higher loan loss reserve percentage
is allocated to these loans. 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 com-
mercial loan graded an 8 (loss) is completely charged off.

As of December 31, 2012, management had taken partial charge-offs of
approximately $105.1 million related to the $137.2 million of commercial
loans considered to be impaired, compared to charge-offs of approximately
$103.8 million related to the $191.5 million of impaired commercial loans at
December 31, 2011. The table below provides additional information related
to the Park impaired commercial loans at December 31, 2012, including those
impaired commercial loans at PNB, impaired PNB participations in Vision loans
and those impaired Vision commercial loans (commercial land and develop-
ment (“CL & D”) and other commercial) retained at SEPH.

Table 29 – Park National Corporation Impaired Commercial Loans

December 31, 2012
(In thousands)

PNB
PNB participations

in VB loans

SEPH – CL&D loans
SEPH – other loans

Unpaid
Principal
Balance
(UPB)

Prior
Charge-
offs

Total
Impaired
Loans

Specific
Reserve

Carrying
Balance

Carrying
Balance
as a
% of UPB

$ 85,020

$ 9,764

$ 75,256

$7,979

$ 67,277

79.13%

43,409
57,346
56,570

29,300
44,088
21,955

14,109
13,258
34,615

297
—
—

13,812
13,258
34,615

31.82%
23.12%
61.19%

Total Park

$242,345

$105,107

$137,238

$8,276

$128,962

53.21%

A significant portion of Park’s allowance for loan losses is allocated to
commercial loans classified as “special mention” or “substandard.” “Special
mention” loans are loans that have potential weaknesses that may result in loss
exposure to Park. “Substandard” loans are those that exhibit a well defined
weakness, jeopardizing repayment of the loan, resulting in a higher probability
that Park will suffer a loss on the loan unless the weakness is corrected. Park’s
annualized 48-month loss experience, defined as charge-offs plus changes in
specific reserves, within the commercial loan portfolio has been 0.66% of the
principal balance of these loans. This annualized 48-month loss experience
includes only the performance of the PNB loan portfolio. The allowance for
loan losses related to performing commercial loans was $32.1 million or
1.40% of the outstanding principal balance of other accruing commercial
loans at December 31, 2012.

The overall reserve of 1.40% for other accruing commercial loans breaks down
as follows: pass-rated commercial loans are reserved at 1.25%; special mention
commercial loans are reserved at 4.75%; and substandard commercial loans
are reserved at 11.12%. The reserve levels for pass-rated, special mention
and substandard commercial loans in excess of the annualized 48-month
loss experience of 0.66% are due to the following factors which management
reviews on a quarterly or annual basis:

(cid:0) 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.

(cid:0) 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.

M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S

(cid:0) 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 the adjustments made to the environmental loss factor
impacting each segment in the performing commercial loan portfolio
correlate 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 48 months. Management generally
considers a one-year coverage period (the “Historical Loss Factor”) appro -
priate because the probable loss on any given loan in the consumer loan pool
should ordinarily become apparent in that time frame. However, management
may incorporate adjustments to the Historical Loss Factor as circumstances
warrant additional reserves (e.g., increased loan delinquencies, improving
or deteriorating economic conditions, changes in lending management and
underwriting standards, etc.). At December 31, 2012, the coverage level
within the consumer portfolio was approximately 1.52 years.

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

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

Cash and cash equivalents increased by $43.8 million during 2012 to $201.3
million at year-end. Cash provided by operating activities was $105.2 million
in 2012, $123.5 million in 2011 and $127.3 million in 2010. Net income was
the primary source of cash for operating activities during each year.

Cash used in investing activities was $194.7 million in 2012. Cash provided
by investing activities was $274.4 million in 2011 and cash used in investing
activities was $353.3 million in 2010. 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 $120.6 million in 2012,
provided cash of $354.8 million in 2011 and used cash of $187.7 million
in 2010. 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 was $163.1 million in 2012, $71.9 million in 2011 and
$153.7 million in 2010.

Cash provided by financing activities was $133.4 million for 2012. Cash used
in financing activities was $374.2 million in 2011. 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 increased and provided $250.9
million of cash in 2012, and decreased and used $97.7 million of cash in 2011,
and also decreased in 2010 and used cash of $92.6 million. Another major

source of cash for financing activities is short-term borrowings and long-term
debt. In 2012, net short-term borrowings increased and provided $80.6 million
in cash, and net long-term borrowings decreased and used $65.1 million in
cash. 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. Park’s management generated cash in 2010 from the sale of common
shares previously held as treasury shares. The sale of common shares provided
cash of $33.5 million in 2010. Additionally, in 2012, cash declined by $100.0
million from the repurchase of the Series A Preferred Shares and $2.8 million
from the repurchase of the common share warrant, both from the U.S. Treasury.
Finally, cash declined by $60.2 million in 2012, $62.9 million in 2011, and
$62.1 million in 2010, from cash dividends paid.

Funds are available from a number of sources, including the investment
securities portfolio, the core deposit base, Federal Home Loan Bank borrow-
ings and the capability to securitize or package loans for sale. In the opinion
of Park’s management the present funding sources provide more than adequate
liquidity for Park to meet its cash flow needs.

The following table shows interest rate sensitivity data for five different time
intervals as of December 31, 2012:

Table 30 – Interest Rate Sensitivity

0-3
Months

3-12
Months

1-3
Years

3-5
Years

Over 5
Years

Total

$ 668,163 $ 284,553 $ 210,553

$209,014

$209,468 $1,581,751

37,185
1,149,759

—
1,174,745

—
1,274,918

—
439,775

—
411,125

37,185
4,450,322

1,855,107

1,459,298

1,485,471

648,789

620,593

6,069,258

$ 571,265 $

— $ 517,352

— $

— $1,088,617

(In thousands)

Interest earning

assets:
Investment

securities (1)
Money market
instruments

Loans (1)

Total interest
earning
assets

Interest bearing
liabilities:
Interest bearing
transaction
accounts (2)

Savings

accounts (2)
Time deposits
Other

233,766
366,292
—
Total deposits 1,171,323

— 804,590
355,722
—
1,677,664

563,555
1,345
564,900

—
163,849
—
163,849

— 1,038,356
1,450,424
1,345
3,578,742

1,006
—
1,006

Short-term

borrowings
Long-term debt
Subordinated
debentures/
notes

Total interest
bearing
liabilities

Interest rate

$ 344,168 $

— $

—

75,500

126,500

327,399

— $ 344,168
781,658

252,259

15,000

—

35,250

30,000

—

80,250

1,530,491

640,400

1,839,414

521,248

253,265

4,784,818

sensitivity gap

324,616

818,898

(353,943)

127,541

367,328

1,284,440

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

324,616

1,143,514

789,571

917,112

1,284,440

5.35%

18.84%

13.01%

15.11%

21.16%

(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 $185.3 million are included within the three to twelve
month maturity category.

(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 52% of interest bearing transaction accounts and 23% 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 18.84% to a negative 2.94%.

M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S

The interest rate sensitivity gap analysis provides a good overall picture of
Park’s static interest rate risk position. At December 31, 2012, the cumulative
interest earning assets maturing or repricing within twelve months were
$3,314 million compared to the cumulative interest bearing liabilities maturing
or repricing within twelve months of $2,171 million. For the twelve-month
cumulative gap position, rate sensitive assets exceeded rate sensitive liabilities
by $1,144 million or 18.84% of interest earning assets.
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 rate 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.
The cumulative twelve-month interest rate sensitivity gap position at year-end
2011 was a positive $1,376 million or 21.5% of total interest earning assets.
The percentage of interest earning assets maturing or repricing within one
year was 54.6% at year-end 2012, compared to 61.3% at year-end 2011.
The percentage of interest bearing liabilities maturing or repricing within
one year was 45.4% at year-end 2012, compared to 50.3% at year-end 2011.
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 non-interest 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, 2012, the earnings simulation model projected that
net income would increase by 1.1% using a rising interest rate scenario and
decrease by 6.6% using a declining interest rate scenario over the next year.
At December 31, 2011, the earnings simulation model projected that net
income would increase by 2.1% using a rising interest rate scenario and
decrease by 3.5% 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.
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 was 3.83% in
2012, 4.14% in 2011, and 4.26% in 2010. 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.

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, 2012.

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, 2012

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

$3,265,459 $

— $

— $3,265,459

927,505

358,051

163,862

1,006

1,450,424

344,168

—

75,500

126,500

327,399

252,259

344,168

781,658

—

1,394

2,435

—

1,924

—

— 80,250

80,250

926

—

678

—

4,922

2,435

$4,616,461 $486,475

$492,187 $334,193

$5,929,316

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, 2012, the Corporation had $815.6 million of loan commit-
ments for commercial, commercial real estate, and residential real estate
loans and had $23.0 million of standby letters of credit. At December 31, 2011,
the Corporation had $809.1 million of loan commitments for commercial,
commercial real estate and residential real estate loans and had $18.8 million
of standby letters of credit.

Commitments to extend credit under loan commitments and standby letters
of credit do not necessarily represent future cash requirements. These com -
mitments often expire without being drawn upon. However, all of the loan
commitments and standby letters of credit are permitted to be drawn upon in
2013. At December 31, 2012, Park had established a $1.7 million liability for
potential credit loss exposure related to these off-balance sheet arrangements.
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, 2012.

Capital: Park’s primary means of maintaining capital adequacy is through
net retained earnings. At December 31, 2012, the Corporation’s shareholders’
equity was $650.4 million, compared to $742.4 million at December 31,
2011. Shareholders’ equity at December 31, 2012 was 9.79% of total assets,
compared to 10.65% of total assets at December 31, 2011. The decline in
shareholders’ equity of $92.0 million was primarily due to Park’s April 25,
2012 repurchase of the $100 million in Series A Preferred Shares issued
to the U.S. Treasury as part of the CPP and the repurchase of the warrant to
purchase 227,376 Park common shares for $2.8 million during 2012.

Tangible shareholders’ equity (shareholders’ equity less goodwill and other
intangible assets) was $577.7 million at December 31, 2012 and was $667.5
million at December 31, 2011. At December 31, 2012, tangible shareholders’
equity was 8.79% of total tangible assets (total assets less goodwill and other
intangible assets), compared to 9.68% at December 31, 2011.

M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S

Tangible common equity (tangible shareholders’ equity less the balance, if any,
of the Series A Preferred Shares) was $577.7 million at December 31, 2012,
compared to $569.4 million at December 31, 2011. At December 31, 2012,
tangible common equity was 8.79% of tangible assets, compared to 8.25%
at December 31, 2011.

Net income for 2012 was $78.6 million, $82.1 million in 2011 and $58.1
million in 2010.

Preferred share dividends paid as a result of Park’s participation in the CPP
were $1.6 million in 2012 and $5.0 million in 2011, and 2010. Accretion of
the discount on the Series A Preferred Shares was $1,854,000 in 2012,
$856,000 in 2011, and $807,000 in 2010. As mentioned previously, Park
repurchased the Series A Preferred Shares on April 25, 2012. Income available
to common shareholders is net income less the preferred share dividends and
accretion. Income available to common shareholders was $75.2 million for
2012, $76.3 million in 2011, and $52.3 million in 2010.

Cash dividends declared for common shares were $57.9 million in 2012 and
2011, and $57.1 million in 2010. On a per share basis, the cash dividends
declared were $3.76 per share in each of 2012, 2011 and 2010.

Park did not purchase any treasury shares during 2012, 2011 or 2010.
Treasury shares had a balance of $76.4 million at December 31, 2012,
$77.0 million at December 31, 2011, and $77.7 million at December 31, 2010.
During 2012, the value of treasury shares was reduced by $632,000 as a result
of the issuance of an aggregate of 6,120 common shares to directors of Park
and to the directors of Park’s bank subsidiary, PNB (and its divisions). During
2011, the value of treasury shares was reduced by $726,000 as a result of the
issuance of an aggregate of 7,020 common shares to directors of Park and to
the directors of Park’s bank subsidiaries PNB and Vision (and their divisions).
During 2010, Park issued 437,200 common shares as a result of the exercise
of warrants that were originally issued in 2009. Also during 2010, Park issued
71,984 common shares resulting in a total of 509,184 common shares issued
in 2010, which reduced the amount of treasury shares available. The issuance
of these shares out of treasury shares reduced the value of treasury shares by
the weighted average cost of $47.0 million in 2010. Additionally in 2010, the
value of treasury shares 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 PNB and Vision (and their divisions).

Park did not issue any new common shares (that were not already held in
treasury shares, as discussed above) in either 2012 or 2011. 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 canceled
during 2010. Common shares had a balance of $302.7 million for the year
ended December 31, 2012, and $301.2 million at each of the years ended
December 31, 2011, and 2010.

Accumulated other comprehensive loss was $17.5 million at December 31,
2012, compared to $8.8 million at December 31, 2011 and $1.9 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.
During the 2012 year, the change in net unrealized gains, net of tax, was a loss
of $3.1 million and Park did not realize any after-tax gains, resulting in an
unrealized gain of $9.6 million at December 31, 2012. In addition, Park
recognized other comprehensive loss of $6.2 million related to the change in
Pension Plan assets and benefit obligations in 2012 compared to a loss of $5.0
million in 2011. Finally, Park has recognized other comprehensive gain of $0.6
million in 2012 due to the mark-to-market of a cash flow hedge at December
31, 2012 compared to a $0.5 million gain in comprehensive income for the
year ended December 31, 2011.

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 shareholders’ equity less intangible assets divided by tangible assets) is
4%. Park’s leverage ratio was 9.17% at December 31, 2012 and exceeded the
minimum capital required by $344 million. The minimum Tier 1 risk-based
capital ratio (defined as leverage capital divided by risk-adjusted assets) is 4%.
Park’s Tier 1 risk-based capital ratio was 13.12% at December 31, 2012 and
exceeded the minimum capital required by $424 million. The minimum total
risk-based capital ratio (defined as leverage capital plus supplemental capital
divided by risk-adjusted assets) is 8%. Park’s total risk-based capital ratio was
15.77% at December 31, 2012 and exceeded the minimum capital required
by $361 million.

The Park National Bank, the only financial institution subsidiary of Park,
met the well capitalized ratio guidelines at December 31, 2012. See Note 22
of the Notes to Consolidated Financial Statements for the capital ratios for Park
and its financial institution subsidiary.

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
Gain on sale of

Vision business (1)

Net gains on sale
of securities

Non-interest income
Non-interest 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

2012

2011

2010

2009

2008

$ 285,735 $ 331,880 $ 345,517 $ 367,690 $ 391,339
135,466
255,873

71,473
274,044

94,199
273,491

58,646
273,234

50,420
235,315

35,419

63,272

87,080

68,821

70,487

199,896

209,962

186,964

204,670

185,386

22,167

—

—
70,236
187,968
78,630

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

75,205

76,284

52,294

68,430

13,566

4.88

4.88
3.76

4.95

4.95
3.76

3.45

3.45
3.76

4.82

4.82
3.76

0.97

0.97
3.77

M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S

Table 32 – Consolidated Five-Year Selected Financial Data (continued)

Table 33 – Quarterly Financial Data (continued)

(Dollars in thousands,
except share data)

March 31

Three Months Ended
Sept. 30
June 30

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
shares outstanding – basic

Weighted-average common
shares 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

(1) The Vision business was sold on February 16, 2012 for a gain on sale of $22.2 million.

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

Non-GAAP Financial Measures: Park’s management uses certain non-GAAP
(U.S. generally accepted accounting principles) financial measures to evaluate
Park’s performance. Specifically, management reviews (i) net income available
to common shareholders excluding impairment charge, (ii) net income avail-
able to common shareholders excluding impairment charge per common
share-diluted, (iii) return on average assets excluding impairment charge,
(iv) return on average common equity excluding impairment charge, and
(v) the ratio of non-interest 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. 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 U.S. 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 U.S. GAAP.

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

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

Average balances:

Loans
Investment securities
Money market

2012

2011

2010

2009

2008

$4,410,661 $4,713,511 $4,642,478 $4,594,436 $4,354,520
1,801,299
1,746,356
1,613,131

1,877,303

1,848,880

instruments and other

166,319

78,593

93,009

52,658

15,502

Total earning assets 6,190,111

6,640,984

6,481,843

6,524,397

6,171,321

Non-interest bearing

deposits

Interest bearing

deposits

1,048,796

999,085

907,514

818,243

739,993

3,786,601

4,193,404

4,274,501

4,232,391

3,862,780

Total deposits

4,835,397

5,192,489

5,182,015

5,050,634

4,602,773

Short-term borrowings $ 258,661 $ 297,537 $ 300,939 $ 419,733 $ 609,219
835,522
881,921
Long-term debt
Shareholders’ equity
567,965
743,873
Common shareholders’

780,435
675,314

907,704
689,732

725,356
746,510

equity
Total assets

Ratios:

Return on average

assets (x)

Return on average

common equity (x)
Net interest margin (2)
Dividend payout ratio
Average shareholders’
equity to average
total assets
Leverage capital
Tier 1 capital
Risk-based capital

658,855
6,766,806

646,169
7,206,171

649,637
7,042,705

579,224
7,035,531

565,612
6,708,086

1.11%

1.06%

0.74%

0.97%

0.20%

11.41%
3.83%
73.68%

10.19%
9.17%
13.12%
15.77%

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%

9.60%
9.04%
12.45%
14.89%

8.47%
8.36%
11.69%
13.47%

(1) The Vision business was sold on February 16, 2012 for a gain on sale of $22.2 million.

(2) Computed on a fully taxable equivalent basis.

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

The following table is a summary of selected quarterly results of operations for
the years ended December 31, 2012 and 2011.

Table 33 – Quarterly Financial Data

(Dollars in thousands,
except share data)

March 31

Three Months Ended
Sept. 30
June 30

Dec. 31

2012:

Interest income

Interest expense

Net interest income

Provision for loan losses

Gain on sale of

Vision business (1)

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
shares outstanding – basic

Weighted-average common
shares equivalent – diluted

$74,838

$71,486

$70,618

$68,793

13,110

61,728

8,338

22,167

44,540

31,475

12,806

58,680

5,238

12,602

58,016

16,655

11,902

56,891

5,188

—

25,146

18,886

13,757

11,982

20,888

16,287

29,998

16,938

11,982

16,287

1.95

1.10

0.78

1.06

15,405,910

15,405,902

15,405,894

15,410,606

15,417,745

15,405,902

15,405,894

15,410,606

M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S

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

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

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)

Non-interest expense

excluding
impairment
charge to
net revenue (1)

2012

2011

2010

2009

2008

$75,205

$76,284

$52,294

$68,430

$68,552

4.88

4.95

3.45

4.82

4.91

1.11%

1.06%

0.74%

0.97%

1.02%

11.41%

11.81%

8.05%

11.81%

12.12%

57.07%

55.18%

54.01%

52.59%

(1) Computed on a fully tax equivalent basis.

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

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

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

The Corporation’s common shares (symbol: PRK) are traded on the NYSE MKT
LLC. At December 31, 2012, the Corporation had 4,206 shareholders of record.
The following table sets forth the high, low and closing sale prices of, and divi-
dends declared on the common shares for each quarterly period for the years
ended December 31, 2012 and 2011, as reported by NYSE MKT LLC.

Table 35 – Market and Dividend Information

2012:

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

2011:

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

High

Low

Last
Price

$ 72.75

$ 65.06

$ 69.17

69.93

72.18

71.25

61.94

65.30

61.44

69.75

70.02

64.63

$ 73.64

$ 62.99

$ 66.82

69.59

66.21

65.70

62.14

49.00

49.80

65.86

52.88

65.06

Cash
Dividend
Declared
Per Share

$0.94

0.94

$0.94

0.94

PERFORMANCE GRAPH
Table 36 compares the total return performance for Park common shares with
the NYSE MKT Composite Index, the NASDAQ Bank Stocks Index and the SNL
Financial Bank and Thrift Index for the five-year period from December 31,
2007 to December 31, 2012. The NYSE MKT Composite Index is a market
capitalization-weighted index of the stocks listed on NYSE MKT. 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 MKT 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.

150

125

100

e
u
a
V
x
e
d
n
I

12/31/07

12/31/08

12/31/09

12/31/10

12/31/11

12/31/12

Table 36 – Total Return Performance

PERIOD ENDING

Index

12/31/07

12/31/08

12/31/09

12/31/10

12/31/11

12/31/12

Park National Corporation

NYSE MKT Composite

NASDAQ Bank

SNL Bank and Thrift Index

100.00

117.71

102.87

59.55

78.46

57.51

80.74

65.67

56.74

134.82

101.40

74.97

63.34

128.58

107.78

67.10

49.25

135.08

114.90

79.64

66.14

The total return for Park’s common shares has outperformed the total return
of the NYSE MKT Composite Index, the NASDAQ Bank Stocks Index and the SNL
Bank and Thrift Index for the five-year period indicated in Table 36. The annual
compound total return on Park’s common shares for the past five years was a
positive 6.2%. By comparison, the annual compound total returns for the past
five years on the NYSE MKT Composite Index, the NASDAQ Bank Stocks Index
and the SNL Bank and Thrift Index were a positive 2.8%, a negative 4.5% and
a negative 7.9%, respectively.

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 Shareholders
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, 2012, 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, 2012.

The Corporation’s independent registered public accounting firm, Crowe Horwath LLP, has audited the Corporation’s
2012 and 2011 consolidated financial statements included in this Annual Report and the Corporation’s internal control
over financial reporting as of December 31, 2012, 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

Brady T. Burt
Chief Financial Officer

February 26, 2013

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, 2012 and
2011 and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash
flows for each of the three years in the period ended December 31, 2012. We also have audited Park National Corporation’s
internal control over financial reporting as of December 31, 2012, 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 disposi-
tions 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 expendi-
tures 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, 2012 and 2011, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2012, 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, 2012, based on criteria established in Internal Control –
Integrated Framework issued by the COSO.

Crowe Horwath LLP

Columbus, Ohio
February 26, 2013

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, 2012 and 2011 (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 $1,099,658

and $801,147 at December 31, 2012 and 2011, respectively)

Securities held-to-maturity, at amortized cost (fair value of $410,705

and $834,574 at December 31, 2012 and 2011, 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.

2012

$ 164,120

37,185

201,305

1,114,454

401,390

65,907

1,581,751

4,450,322

(55,537)

4,394,785

161,069

72,334

337

53,751

19,710

35,718

7,763

114,280

—

464,962

$6,642,803

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

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, 2012 and 2011 (In thousands, except share and per share data)

LIABILITIES AND SHAREHOLDERS’ EQUITY

Deposits:

Non-interest bearing

Interest bearing

Total deposits

Short-term borrowings

Long-term debt

Subordinated debentures/notes

Total borrowings

Other liabilities:

Accrued interest payable

Other

Liabilities held for sale

Total other liabilities

Total liabilities

COMMITMENTS AND CONTINGENCIES

Shareholders’ equity:

Preferred shares (200,000 shares authorized;

No shares issued at December 31, 2012 and
100,000 shares issued at December 31, 2011
with $1,000 per share liquidation preference)

Common shares, no par value (20,000,000 shares authorized;

16,150,987 and 16,151,021 shares issued at
December 31, 2012 and 2011, respectively)

Common share warrants

Accumulated other comprehensive income (loss), net

Retained earnings

Less: Treasury shares (738,989 and 745,109 shares
at December 31, 2012 and 2011, respectively)

Total shareholders’ equity

2012

$1,137,290

3,578,742

4,716,032

344,168

781,658

80,250

1,206,076

3,459

66,870

—

70,329

5,992,437

—

302,654

—

(17,518)

441,605

(76,375)

650,366

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

Total liabilities and shareholders’ equity

$6,642,803

$6,972,245

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, 2012, 2011 and 2010 (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

Net gain on sale of OREO

OREO devaluations

Gain on sale of Vision business

Other

Total other income

2012

2011

2010

$234,638

$262,458

$267,692

50,549

140

408

285,735

2,483

15,921

678

31,338

50,420

235,315

35,419

199,896

15,947

16,704

—

13,631

12,541

4,754

2,359

4,414

(6,872)

22,167

6,758

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

1,312

(8,219)

—

8,822

$ 92,403

$ 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

1,466

(13,206)

—

8,243

$ 74,880

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, 2012, 2011 and 2010 (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

Loan put provision

OREO expense

Other

Total other expense

Income before income taxes

State income taxes (benefit)

Federal income taxes

Net income

Preferred share dividends and accretion

Income available to common shareholders

Earnings per common share:

Basic

Diluted

2012

2011

2010

$ 95,977

$102,068

$ 98,315

3,916

24,267

9,444

2,172

10,788

5,780

3,474

5,983

3,786

3,299

4,011

15,071

187,968

104,331

—

25,701

$ 78,630

3,425

$ 75,205

$4.88

4,965

21,119

11,295

3,534

10,773

6,821

2,967

6,060

1,544

—

3,266

13,905

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

—

3,358

11,909

187,107

74,737

(1,161)

17,797

$ 58,101

5,807

$ 52,294

$3.45

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 O M P R E H E N S I V E

I N C O M E

PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 2012, 2011 and 2010 (In thousands)

Net income

Other comprehensive income (loss), net of tax:

Change in funded status of pension plan, net of income taxes

of $(3,328), $(2,707) and $(1,307) for years ended
December 31, 2012, 2011, and 2010, respectively

Unrealized net holding gain (loss) on cash flow hedge,

net of income taxes of $296, $276 and $(53) for years
ended December 31, 2012, 2011 and 2010, respectively

Unrealized net holding gain (loss) on securities available-for-sale,

net of income taxes of $(1,645), $(1,318) and $(8,078) for years
ended December 31, 2012, 2011 and 2010, respectively

Other comprehensive income (loss)

Comprehensive income

2012

$78,630

2011

$82,140

2010

$ 58,101

(6,180)

(5,027)

(2,427)

550

512

(98)

(3,057)

$ (8,687)

$69,943

(2,448)

$ (6,963)

$75,177

(15,004)

$(17,529)

$ 40,572

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 H A R E H O L D E R S ’

E Q U I T Y

PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 2012, 2011 and 2010 (In thousands, except share and per share data)

Balance, January 1, 2010

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)

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

Reissuance of common shares
from treasury shares held

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

director grants

Preferred Shares

Common Shares

Shares
Outstanding

100,000

Amount

$ 96,483

Shares
Outstanding

14,882,780

—

Amount

$306,569

—

Retained
Earnings

$423,872

58,101

Accumulated
Other
Comprehensive
Income (Loss)

Treasury
Shares

Total

$(125,321)

$ 15,661

$717,264

—

58,101

807

—

(50)

509,184

—

7,020

—

(4)

(898)

176
(166)

(57,076)

—

(12,729)
(807)

166
(5,000)

(185)

—

46,954

634

(2,427)

(98)

(15,004)
—

(15,004)
(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)

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

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

director grants

—

82,140

—

82,140

856

—

(42)

7,020

—

(2)

(176)

(57,907)

—
(856)
176
(5,000)

(338)

—

726

(5,027)

512

(2,448)
—

—

(2,448)
(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

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

Change in funded status of pension plan, net of

income taxes of $(3,328)
Unrealized net holding gain on
cash flow hedge, net of
income taxes of $296

Unrealized net holding loss on

securities available-for-sale,
net of income taxes of $(1,645)

Cash dividends, $3.76 per share
Cash payment for fractional shares
in dividend reinvestment plan
Common share warrants redeemed
Preferred shares redeemed
Accretion of discount on preferred shares
Preferred share dividends
Treasury shares reissued for

director grants

—

78,630

—

78,630

(100,000)

(100,000)
1,854

—

(34)

6,120

—

(57,932)

(2)
(2,843)

—

(1,854)
(1,571)

(225)

—

632

(6,180)

550

(3,057)
—

—

(3,057)
(57,932)

(2)
(2,843)
(100,000)
—
(1,571)

407

Balance, December 31, 2012

—

15,411,998

$302,654

$441,605

$ (76,375)

$ (17,518)

$650,366

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, 2012, 2011 and 2010 (In thousands)

Operating activities:

Net income
Adjustments to reconcile net income to net cash

provided by operating activities:

Provision for loan losses
Loan put provision
Amortization of loan fees and costs, net
Provision for depreciation
Other than temporary impairment on investment securities
Amortization of intangible assets
(Accretion)/amortization of investment securities
Deferred income tax (benefit)
Realized net investment security gains
Compensation expense for issuance of treasury shares to directors
Loan originations to be sold in secondary market
Proceeds from sale of loans in secondary market
Gain on sale of loans in secondary market
OREO devaluations
Bank owned life insurance income
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 in other investments
Net loan originations, portfolio loans
Sales of assets/liabilities related to Vision Bank
Purchases of bank owned life insurance, net
Purchases of premises and equipment, net

Net cash (used in) provided by investing activities

Financing activities:

Net increase (decrease) in deposits
Net increase (decrease) in short-term borrowings
Issuance of treasury shares, net
Proceeds from issuance of subordinated notes
Proceeds from long-term debt
Repayment of sub-debt
Repayment of long-term debt
Cash payment for repurchase of common share warrant

from U.S. Treasury

Repurchase of preferred shares from U.S. Treasury
Cash dividends paid

Net cash provided by (used in) financing activities

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

2012

2011

2010

$ 78,630

$ 82,140

$ 58,101

35,419
3,299
2,119
6,954
54
2,172
(239)
12,717
—
407
(442,890)
422,875
5,807
6,872
(4,754)

(15,231)
(9,010)
—

105,201

—
—

681,513
666,431

(262,679)
(964,704)
1,697
(163,106)
(144,436)
(2,500)
(6,964)

(194,748)

250,918
80,574
—
30,000
300,000
(25,000)
(340,129)

(2,843)
(100,000)
(60,154)

133,366

63,272
—
2,871
7,583
—
3,534
490
28,466
(28,829)
388
(269,922)
263,170
3,557
8,219
(5,089)

(18,722)
(10,826)
(6,766)

123,536

584,573
25,410

454,937
557,552

(625,925)
(641,751)
1,095
(71,862)
—
(3,000)
(6,618)

274,411

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

—
—
(62,907)

(374,241)

43,819
157,486
$ 201,305

23,706
133,780
$ 157,486

87,080
—
4,179
7,126
23
3,422
(2,413)
(9,603)
(11,864)
449
(443,369)
443,360
1,220
13,206
(4,978)

(18,774)
180
—

127,345

460,192
—

146,986
2,238,059

(313,642)
(2,719,265)
220
(153,677)
—
(4,562)
(7,602)

(353,291)

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

—
—
(62,076)

200,635

(25,311)
159,091
$ 133,780

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 (“GAAP”) 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”), fair value accounting
and accounting for goodwill as significant estimates.

Reclassifications
Certain prior year amounts have been reclassified to conform with the current
year presentation. Reclassifications had no effect on prior year net income or
shareholders’ equity.

Restrictions on Cash and Due from Banks
The Corporation’s bank subsidiary is required to maintain average reserve
balances with the Federal Reserve Bank. The average required reserve balance
was approximately $41.0 million at December 31, 2012 and $38.1 million at
December 31, 2011. No other compensating balance arrangements were in
existence at December 31, 2012.

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 comprehensive 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
considered to be other-than-temporary are recorded as a charge to earnings
in the Consolidated Statements of Income. Declines in debt securities that are
considered 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 impair-
ment 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 subsidiary bank, The Park National Bank (PNB) is a member 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 stock and FRB stock are classified
as restricted securities and are carried at their redemption value within other
investment securities on the balance sheet. 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 $25.7 million and $11.5 million at December 31, 2012 and 2011,
respectively. These amounts are included in loans on the Consolidated Balance
Sheets and in the residential real estate loan segments in Notes 5 and 6. The
contractual balance was $25.2 million and $11.4 million at December 31,
2012 and 2011, respectively. The gain expected upon sale was $568,000 and
$182,000 at December 31, 2012 and 2011, respectively. None of these loans
are 90 days or more past due or on nonaccrual status as of December 31,
2012 or 2011.

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 may be
recorded on a cash basis and be 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

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

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. 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,
the borrower has demonstrated the ability to pay 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 the 28 Ohio counties and one Kentucky county
where PNB operates. The primary industries represented by these customers
include manufacturing, retail trade, health care and other services.

Commercial real estate: Commercial real estate (“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. PNB and its divisions generally require that the CRE loan amount be
no more than 85% of the purchase price or the appraised value of the commer-
cial 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 PNB banking division 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 construction loan occurs and foreclosure follows, the subsidiary bank must
take control of the project and attempt either to arrange for completion of con-
struction 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 HELOCs 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 banking
division 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 banking division’s portfolio in
this lending category are adjustable rate, fully amortized mortgages or 15-year,
fixed rate 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 banking divisions. 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
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
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 historical 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, giving consideration to losses experienced over a full
cycle. For the historical loss factor at December 31, 2012, 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, 2011 and
2012 within the individual segments of the commercial and consumer loan
categories. Management believes the 48-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 as of December 31, 2012
is based on the historical loss experience over the past 48 months, plus an
additional judgmental reserve, increasing the total allowance for loan loss

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

coverage in the consumer portfolio to approximately 1.52 years of historical
loss. The loss coverage ratio was 1.38 years at December 31, 2011. The loss
factor applied to Park’s commercial portfolio as of December 31, 2012 is
based on the historical loss experience over the past 48 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 increased the total allowance for loan loss coverage in the
commercial portfolio to approximately 2.59 years of historical loss. The loss
coverage ratio was 2.80 years at December 31, 2011. 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 com mercial loans graded special mention and substandard.

U.S. 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 contractual 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 accrued interest receivable,
both as of the end of the year. Impairment is measured 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 a loan is considered to be collateral dependent, the fair value
of collateral, less estimated selling costs, is used to measure impairment.

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 con -
tractual interest rate below the market rate, not by forgiving debt. TDRs are
separately identified for impairment disclosures and are measured at the
present value of estimated future cash flows using the loan’s effective rate
at inception. If a TDR is considered to be a collateral dependent loan, the
loan is reported, net, at the fair value of the collateral.

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 are evaluated
for impairment whenever events or changes in circumstances indicate that the
carrying amount of a particular 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 devalua-
tions, 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 valua-
tion 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 other 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 and is included within “other service income.”

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 estimated
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
property 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 amor-
tized to expense over their estimated useful lives.

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

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 deposit and loan totals
of the Park segment and the economic conditions in the markets served by the
Park segment.

The following table reflects the activity in goodwill and other intangible assets
for the years 2012, 2011 and 2010.

(In thousands)

December 31, 2009

Amortization

December 31, 2010

Amortization

December 31, 2011
Amortization

December 31, 2012

Goodwill

$ 72,334

Core Deposit
Intangibles

Total

$ 9,465

$ 81,799

—

(3,422)

$ 72,334

$ 6,043

$ 78,377

—

$ 72,334
—

$ 72,334

(3,534)

$ 2,509
(2,172)

337

(3,534)

$ 74,843
(2,172)

$ 72,671

U.S. 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 assessing 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 carry-
ing amount. If after assessing these events or circumstances, it is concluded that
it is not more likely than not that the fair value of a reporting unit is less than its
carrying amount, then performing the two-step impairment test is unnecessary.
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 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, 2012, the
Company determined that goodwill for Park’s subsidiary bank, PNB, was not
impaired.

Goodwill and other intangible assets (as shown on the Consolidated Balance
Sheets) totaled $72.7 million at December 31, 2012, $74.8 million at
December 31, 2011 and $78.4 million at December 31, 2010.

The core deposit intangibles are being amortized to expense principally on
the straight-line method, over a period of six years. The amortization period
for the core deposit intangibles related to Vision Bank was accelerated in the
4th quarter of 2011 and 1st quarter of 2012 due to the pending sale of the
Vision Bank business to Centennial Bank. (See Note 3 of these Notes to
Consolidated Financial Statements for details on the sale of the Vision Bank
business.) Core deposit intangible amortization expense was $2.2 million in
2012, $3.5 million in 2011 and $3.4 million in 2010.

The accumulated amortization of core deposit intangibles was $21.8 million as
of December 31, 2012 and $19.6 million at December 31, 2011. The expected
core deposit intangible amortization expense for each of the next five years is
as follows:

(In thousands)

2013
2014
2015
2016
2017

Total

$337
—
—
—
—

$337

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)

Interest paid on deposits and other borrowings
Income taxes paid

2012

$51,877
7,000

2011

$59,552
17,700

2010

$74,680
24,600

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

December 31,
(In thousands)

Transfers to OREO

2012

2011

2010

$23,634

$36,209

$35,507

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.

Treasury Shares
The purchase of Park’s common shares is recorded at cost. At the date of
retirement or subsequent reissuance, the treasury shares 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.

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 shares 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 2012, 2011 or 2010. No stock options vested in 2012,
2011 or 2010. Park granted 6,120 common shares to its directors in 2012
and 7,020 in 2011 and 2010.

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

Loan Commitments and Related Financial Instruments
Financial instruments include off-balance sheet credit instruments, such as
commitments to make loans and commercial letters of credit, issued to meet
customer financing needs. The face amount for these items represents the
exposure to loss, before considering customer collateral or ability to repay.
Such financial instruments are recorded when they are funded.

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 earnings. 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 non-interest 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 non-interest 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 share-
holders 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.

Operating Segments
Prior to February 16, 2012, the operating segments for the Corporation were
its two chartered bank subsidiaries, PNB (headquartered in Newark, Ohio)
and Vision Bank (“Vision” or “VB”) (headquartered in Panama City, Florida).
On February 16, 2012, Vision sold certain assets and liabilities to Centennial
Bank (see Note 3 of these Notes to Consolidated Financial Statements).
Promptly following the closing of the transaction, Vision surrendered its
Florida banking charter to the Florida Office of Financial Regulation 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 (“SEPH”), with SEPH being the
surviving entity. The closing of this transaction prompted Park to add SEPH
as a reportable segment. Additionally, due to the increased significance of
the entity, Guardian Financial Services Company (“GFSC”) was added as
a reportable segment in the first quarter of 2012.

Adoption of New Accounting Pronouncements
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 FASB’s 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 is 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 qualitative discussion about the sensitivity of the measurements. The new
guidance became effective for interim and annual periods beginning on or
after December 15, 2011. The adoption of the new guidance on January 1,
2012 impacted the fair value disclosures in Note 21.

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

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

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 became 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 impacted 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 became effective for
annual and interim goodwill impairment tests performed for fiscal years begin-
ning after December 15, 2011. The adoption of this guidance did not have an
impact on the consolidated financial statements.

No. 2011-12 Deferral of the Effective Date for Amendments to the
Presentation of Reclassifications of Items Out of Accumulated Other
Comprehensive Income in Accounting Standards Update No. 2011-05:
In December 2011, FASB issued Accounting Standards Update 2011-12,
Deferral of the Effective Date for Amendments to the Presentation of
Reclassifications of Items Out of Accumulated Other Comprehensive
Income in Accounting Standards Update No. 2011-05 (ASU 2011-12).
This ASU defers only those changes in ASU 2011-05 that relate to the pre -
sentation of reclassification adjustments. Entities are to continue to report
reclassifications out of accumulated other comprehensive income consistent
with the presentation requirements in effect before ASU 2011-05. The other
requirements in ASU 2011-05 were not affected by this ASU. Further guidance
surrounding the reclassification of items out of accumulated other compre -
hensive income was provided by FASB in ASU 2013-02, Reporting of Amounts
Reclassified Out of Accumulated Other Comprehensive Income.

No. 2012-02 Testing Indefinite-Lived Intangible Assets for
Impairment: In July 2012, FASB issued Accounting Standards Update
2012-02, Testing Indefinite-Lived Intangible Assets for Impairment
(ASU 2012-02). The ASU allows an entity to first assess qualitative factors
to determine whether the existence of events or circumstances indicate that it
is more likely than not that the indefinite-lived intangible asset is impaired. The
new guidance is effective for annual and interim impairment tests performed for
fiscal years beginning after September 15, 2012. The adoption of this guidance
is not expected to have an impact on the consolidated financial statements.

No. 2013-02 Reporting of Amounts Reclassified Out of Accumulated
Other Comprehensive Income: In February 2013, FASB issued Accounting
Standards Update 2013-02, Reporting of Amounts Reclassified Out of
Accumulated Other Comprehensive Income (ASU 2013-02). The ASU
requires an entity to provide information about the amounts reclassified out of
accumulated other comprehensive income by component. In addition, an entity
is required to present, either on the face of the statement where net income is
presented or in the notes, significant amounts reclassified out of accumulated
other comprehensive income by the respective line items of net income but only
if the amount reclassified is required under U.S. GAAP to be reclassified to net
income in its entirety in the same reporting period. For other amounts that are
not required under U.S. GAAP to be reclassified in their entirety to net income,
an entity is required to cross-reference to other disclosures required under
U.S. GAAP that provide additional detail about these amounts. The new guidance
is effective prospectively for reporting periods beginning after December 15,
2012. The adoption of this guidance is expected to impact financial statement
disclosures.

2. ORGANIZATION
Park National Corporation is a bank holding company headquartered
in Newark, Ohio. Through its banking subsidiary, PNB, Park is engaged in
a general commercial banking and trust business, primarily in 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. 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.

Through February 16, 2012, Park operated a second banking subsidiary, Vision
Bank, which was engaged in a general commercial banking business, primarily
in Baldwin County, Alabama and the panhandle of Florida. VB 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. Promptly following the sale of the Vision business to
Centennial, Vision surrendered its Florida banking charter to the Florida Office
of Financial Regulation and became a non-bank Florida corporation. The
Florida Corporation merged with and into a wholly-owned, non-bank subsidiary
of Park, SEPH, with SEPH being the surviving entity. SEPH holds the remaining
assets and liabilities retained by Vision subsequent to the sale. SEPH also holds
other real estate owned (“OREO”) that had previously been transferred to SEPH
from Vision. SEPH’s assets consist primarily of performing and nonperforming
loans and other real estate owned (“OREO”). This segment represents a run off
portfolio of the legacy Vision assets.

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 BUSINESS
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 to
Centennial Bank (“Centennial”), an Arkansas state-chartered bank which is
a wholly-owned subsidiary of Home BancShares, Inc. (“Home”), an Arkansas
corporation, 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, and
the Second Amendment to Purchase and Assumption Agreement, dated as
of April 30, 2012 (the “Agreement”) 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

The assets purchased and liabilities assumed by Centennial as of February 16,
2012, included the following:

(In thousands)

Assets sold

Cash and due from banks
Loans
Allowance for loan losses

Net loans

Fixed assets
Other assets

Total assets sold

Liabilities sold
Deposits
Other liabilities

Total liabilities sold

February 16,
2012

$ 20,711
355,750
(13,100)

342,650

12,496
4,612

$380,469

$522,856
2,049

$524,905

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 recorded a pre-tax gain, net of expenses directly related to the sale, of
approximately $22.2 million, resulting from the transactions contemplated
by the Agreement. The pre-tax gain, net of expense is summarized in the table
below:

(In thousands)

Premium paid
One-time gains
Loss on sale of fixed assets
Employment and severance agreements
Other one-time charges, including estimates

Pre-tax gain

$27,913
298
(2,434)
(1,610)
(2,000)

$22,167

Promptly following the closing of the transactions contemplated by the
Agreement, Vision surrendered its Florida banking charter to the Florida
Office of Financial Regulation 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
(“SEPH”), with SEPH being the surviving entity.

As part of the transaction between Vision and Centennial, Park agreed to allow
Centennial to “put back” up to $7.5 million aggregate principal amount of
loans, which were originally included within the loans sold in the transaction.
The loan put option expired on August 16, 2012, 180 days after the closing
of the transaction, which was February 16, 2012. Prior to August 16, 2012,
Centennial notified Park of its intent to put back approximately $7.5 million.
Through December 31, 2012, Centennial had put back forty-four loans, totaling
approximately $7.5 million. These forty-four loans were recorded on the books
at a fair value of $4.2 million. The difference of $3.3 million was written off
against the loan put liability that had previously been established in the first
half of 2012.

The balance sheet of SEPH as of December 31, 2012 and March 31, 2012
was as follows:

(In thousands)

Assets:
Cash
Performing loans
Nonperforming loans
OREO
Other assets

Total assets

Liabilities and equity:

Intercompany borrowings
Other liabilities
Equity

Total liabilities and equity

December 31,
2012

$ 7,444
3,886
55,292
21,003
16,803

$104,428

$ 93,000
838
10,590

$104,428

March 31,
2012
(unaudited)

$ 16,049
16,123
82,326
28,578
18,417

$161,493

$140,000
4,623
16,870

$161,493

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 2012, there were $54,000 in investment securities deemed to be
other-than-temporarily impaired, related to an equity investment in a financial
institution. 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.

Investment securities at December 31, 2012 were as follows:

Gross

Unrealized Unrealized

Amortized
Cost

Holding
Gains

Holding
Losses

Estimated
Fair Value

$ 695,655

$ 1,352

$1,280

$ 695,727

(In thousands)

2012:

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

entities’ asset-backed securities

Other equity securities

401,882
1,137

14,067
1,085

984

—

447
—

1,003

415,502
2,222

Total

2012:

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

$1,099,658

$16,523

$1,727

$1,114,454

570

$ —

572

entities’ asset-backed securities

400,820

9,351

Total

$ 401,390

$ 9,353

410,133

$ 410,705

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, 2012, the amortized cost of Park’s available-for-
sale and held-to-maturity mortgage-backed securities was $277.8 million and
$0.1 million, respectively. At December 31, 2012, the amortized cost of Park’s
available-for-sale and held-to-maturity CMOs was $124.1 million and $400.7
million, respectively.

Other investment securities (as shown on the Consolidated Balance Sheets)
consist of stock investments in the Federal Home Loan Bank (“FHLB”) and the
Federal Reserve Bank (“FRB”). These restricted stock investments are carried
at their redemption value. Park owned $59.0 million of FHLB stock and $6.9
million of FRB stock at December 31, 2012. Park owned $60.7 million of
FHLB stock and $6.9 million of FRB stock at December 31, 2011.

Management does not believe any individual unrealized loss as of December
31, 2012 or December 31, 2011, 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.

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 amortized cost and estimated fair value of investments in debt securities at
December 31, 2012, 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 other U.S. Government

sponsored entities’ notes:
Due within one year

Due one through five years

Due five through ten years

Total

Obligations of states and
political subdivisions:
Due within one year

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

$516,905

123,750

55,000

$695,655

984

$518,257

122,912

54,558

$695,727

$ 1,003

$401,882

$415,502

570

572

Total

$400,820

$410,133

Approximately $695.7 million of Park’s securities shown in the above table as
U.S. Treasury and other U.S. Government sponsored entities’ notes are callable
notes. These callable securities have a final maturity of 9 to 15 years, but are
shown in the table at their expected call date.

Investment securities having a book value of $1,364 million and $1,548 million
at December 31, 2012 and 2011, 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, 2012, $655 million was pledged for government and
trust department deposits, $667 million was pledged to secure repurchase
agreements and $41 million was pledged as collateral for FHLB advance
borrowings. At December 31, 2011, $813 million was pledged for government
and trust department deposits, $669 million was pledged to secure repurchase
agreements and $66 million was pledged as collateral for FHLB advance
borrowings.

At December 31, 2012, 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 2012, Park had no sales of investment securities. During 2011, Park
received proceeds from the sale of investment securities of $610.0 million,
realizing a pre-tax gain of $28.8 million ($18.7 million after-tax). Certain of the
investment securities sold in 2011 included all investment securities (AFS and
HTM) held by Vision, which were sold in preparation of the sale of the business
to Centennial. There were no HTM securities sold by PNB in 2011. During
2010, Park sold $460.2 million of U.S. Government sponsored entity mortgage-
backed securities, realizing a pre-tax gain of $11.9 million ($7.7 million
after-tax). No gross losses were realized in 2012, 2011 or 2010.

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, 2012:

(In thousands)

2012:

Securities
Available-for-Sale

Obligations of U.S.

Treasury and other
U.S. Government
sponsored entities

U.S. Government

sponsored entities’
asset-backed
securities

Less than 12 Months

12 Months or Longer

Total

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

$177,470

$1,280

$ — $ — $177,470

$1,280

123,631

447

—

— 123,631

447

Total

$301,101

$1,727

$ — $ — $301,101

$1,727

2012:

Securities
Held-to-Maturity

U.S. Government

sponsored entities’
asset-backed
securities

$10,120

$ — $ — $ 10,120

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

1,992

entities’ asset-backed securities

818,232

14,377

Total

$ 820,224

$14,382

$ —

$ 32

$ 1,997

832,577

$834,574

The following table provides detail on investment securities with unrealized
losses aggregated by investment category and length of time the individual secu-
rities 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

$ — $ — $ 80

$32

$ 80

$32

2011:

Securities
Held-to-Maturity

U.S. Government

sponsored entities’
asset-backed
securities

$ — $ — $38,775

$32

$38,775

$32

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

5. LOANS
The composition of the loan portfolio, by class of loan, as of December 31,
2012 and December 31, 2011 was as follows:

(In thousands)

2012:

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

Residential real estate:

Commercial
Mortgage
HELOC
Installment

Consumer
Leases

Total 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

Loan
Balance

Accrued
Interest
Receivable

$ 823,927
1,092,164

$ 2,976
3,839

15,105
115,473
26,373
8,577

392,203
1,064,787
212,905
43,750
651,930
3,128

37
331
81
33

959
1,399
892
176
2,835
29

Recorded
Investment

$ 826,903
1,096,003

15,142
115,804
26,454
8,610

393,162
1,066,186
213,797
43,926
654,765
3,157

$4,450,322

$13,587

$4,463,909

$ 743,797
1,108,574

$ 3,121
4,235

$ 746,918
1,112,809

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

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

31
394
64
61

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

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

*Included within commercial, financial and agricultural loans, commercial real estate
loans, and SEPH/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 $6.7 million at December 31, 2012 and $6.8 million at December 31, 2011,
which is a net deferred income position in both years.

Overdrawn deposit accounts of $3.0 million and $3.6 million have been
reclassified to loans at December 31, 2012 and 2011, 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 loan as of December 31, 2012 and December 31, 2011:

(In thousands)

2012:

Commercial, financial
and agricultural

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

Residential real estate:

Commercial
Mortgage
HELOC
Installment

Consumer

Total 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

Total loans

Accruing
Restructured
Loans

Loans Past Due
90 Days
or More
and Accruing

Total
Nonperforming
Loans

Nonaccrual
Loans

$ 17,324
40,983

$ 5,277
3,295

37
1,007

$ 22,638
45,285

13,939
14,977
158
149

33,961
28,260
1,689
1,670
2,426

—
6,597
100
175

1,661
9,425
736
780
1,900

—
—
—
—

94
950
—
54
888

13,939
21,574
258
324

35,716
38,635
2,425
2,504
5,214

$155,536

$29,946

$3,030

$188,512

$ 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

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, 2012 and
December 31, 2011.

(In thousands)

2012:

Commercial, financial and agricultural
Commercial real estate
Construction real estate:
SEPH commercial

land and development

Remaining commercial
Mortgage
Installment

Residential real estate:

Commercial
Mortgage
HELOC
Installment

Consumer

Total loans

Nonaccrual
and Accruing
Restructured
Loans

Loans
Individually
Evaluated for
Impairment

Loans
Collectively
Evaluated for
Impairment

$ 22,601
44,278

$ 22,587
44,278

14
—

13,939
21,574
258
324

35,622
37,685
2,425
2,450
4,326

13,260
21,574
—
—

35,622
—
—
—
18

679
—
258
324

—
37,685
2,425
2,450
4,308

$185,482

$137,339

$48,143

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

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, 2012 and December 31, 2011, there were $96.9 million and
$83.7 million, respectively, in partial charge-offs on loans individually evaluated
for impairment with no related allowance recorded and $8.2 million and $20.1
million, respectively, of partial charge-offs on loans individually evaluated for
impairment that also had a specific reserve allocated.

The allowance for loan losses included specific reserves related to loans
individually evaluated for impairment at December 31, 2012 and 2011, of
$8.3 million and $15.9 million, respectively. These loans had a recorded
investment as of December 31, 2012 and 2011 of $28.8 million and $52.7
million, respectively.

The average balance of loans individually evaluated for impairment was
$164.2 million, $214.0 million, and $210.4 million for 2012, 2011, and 2010,
respectively.

Interest income on loans individually evaluated for impairment is recognized on
a cash basis. The following tables present the average recorded investment and
interest income recognized on loans individually evaluated for impairment for
the years ended December 31, 2012 and 2011.

(In thousands)

Recorded
Investment
as of
December 31, 2012

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

Residential real estate:

Commercial

Consumer

Total

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

Residential real estate:

Commercial

Consumer

Total

$ 22,587
44,278

13,260
21,574

35,622
18

$ 40,621
51,978

24,328
25,912

44,276
20

(In thousands)

Recorded
Investment
as of
December 31, 2011

Year ended December 31, 2012

Average
Recorded
Investment

$ 35,305
44,541

Interest
Income
Recognized

$ 529
968

17,277
27,774

39,248
19

—
818

497
1

Year ended December 31, 2011

Average
Recorded
Investment

$ 23,518
49,927

Interest
Income
Recognized

$ 209
829

58,792
29,152

52,640
16

—
339

214
1

$137,339

$164,164

$2,813

$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.

(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

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

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 loan as of December 31, 2012 and December 31, 2011.

(In thousands)

2012:

With no related allowance recorded

Commercial, financial
and agricultural

Commercial real estate
Construction real estate:
SEPH 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:
SEPH commercial

land and development

Remaining commercial

Residential real estate:

Commercial

Consumer
Total

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

$ 23,782
56,258

$ 14,683
35,097

$ —
—

56,075
29,328

39,918
18

12,268
11,412

1,271
8,071

12,740
14,093

31,957
18

7,904
9,181

520
7,481

3,944
—
$242,345

3,665
—
$137,339

—
—

3,180
1,540

—
2,277

1,279
—
$ 8,276

$ 23,164
58,242

$ 18,098
41,506

$ —
—

54,032
33,319

49,341
—

23,719
12,183

20,775
9,711

17,786
18,372

38,686
—

22,523
10,472

6,542
7,540

6,402
20
$290,908

5,590
20
$187,135

—
—

5,819
4,431

1,540
1,874

2,271
—
$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

The following table presents the aging of the recorded investment in past due
loans as of December 31, 2012 and December 31, 2011 by class of loan.

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

$ 6,251
2,212

$11,811
26,355

$ 18,062 $ 808,841 $ 826,903
1,096,003
1,067,436

28,567

686
3,652
171
135

1,163
11,948
620
563
12,924
—

11,314
5,838
85
40

5,917
17,370
309
787
2,688
—

12,000
9,490
256
175

7,080
29,318
929
1,350
15,612
—

3,142
106,314
26,198
8,435

386,082
1,036,868
212,868
42,576
639,153
3,157

15,142
115,804
26,454
8,610

393,162
1,066,186
213,797
43,926
654,765
3,157

(In thousands)

December 31, 2012:

Commercial, financial
and agricultural

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

Residential real estate:

Commercial
Mortgage
HELOC
Installment

Consumer
Leases

Total loans

$40,325

$82,514

$122,839 $4,341,070 $4,463,909

*Includes $3.0 million of loans past due 90 days or more and accruing. The remaining are past due,
nonaccrual loans.

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

*Includes $3.6 million of loans past due 90 days or more and accruing. The remaining are past due,
nonaccrual loans.

Credit Quality Indicators
Management utilizes past due information as a credit quality indicator
across the loan portfolio. Past due information as of December 31, 2012 and
December 31, 2011 is included in the tables above. 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 per -
centage is allocated to these loans. Loans classified as special mention
have potential weaknesses that deserve management’s close attention.

If left uncorrected, these potential weaknesses may result in deterioration of the
repayment prospects for the loan or of the institution’s credit position at some
future date. Commercial loans graded 6 (substandard), also considered watch
list credits, are considered to represent higher credit risk and, as a result, a
higher loan loss reserve percentage is allocated to these loans. Loans classified
as substandard loans are inadequately protected by the current sound worth
and paying capacity of the obligor or of the collateral pledged, if any. Loans
so classified have a well defined weakness or weaknesses that jeopardize the
liquidation of the debt. They are characterized by the distinct possibility that
the institution will sustain some loss if the deficiencies are not corrected.
Commercial loans that are graded a 7 (doubtful) are shown as nonaccrual
and Park generally charges these loans down to their fair value by taking a
partial charge-off or recording a specific reserve. Loans classified as doubtful
have all the weaknesses inherent in those classified as substandard with the
added characteristic that the weaknesses make collection or liquidation in full,
on the basis of currently existing facts, conditions and values, highly question-
able and improbable. Certain 6-rated loans and all 7-rated loans are included
within the impaired category. A loan is deemed impaired when management
determines the borrower’s ability to perform in accordance with the contractual
loan agreement is in doubt. Any commercial loan graded an 8 (loss) is
completely charged off.

The tables below present the recorded investment by loan grade at
December 31, 2012 and December 31, 2011 for all commercial loans:

(In thousands)

5 Rated

6 Rated

Impaired

Pass
Rated

Recorded
Investment

December 31, 2012:

Commercial, financial
and agricultural

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

Residential real estate:

Commercial

Leases

Total commercial

loans

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

$ 9,537
25,616

$10,874
3,960

$ 22,601
44,278

$ 783,891
1,022,149

$ 826,903
1,096,003

411
6,734

8,994
—

—
—

2,053
—

13,939
21,574

35,622
—

792
87,496

346,493
3,157

15,142
115,804

393,162
3,157

$51,292

$16,887

$138,014

$2,243,978

$2,450,171

$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

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 the borrower’s debt in the foreseeable future without the modification.
This evaluation is performed under the Company’s internal underwriting policy.
Management’s policy is to modify loans by extending the term or by granting a
temporary or permanent contractual interest rate below the market rate, not
by forgiving debt. Certain loans which were modified during the period ended
December 31, 2012 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 bor-
rower 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

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

to make payments in accordance with the terms of the restructured note.
Management reviews all accruing TDRs quarterly to ensure payments
continue to be made in accordance with the modified terms.

At December 31, 2012 and December 31, 2011, there were $84.7 million
and $100.4 million, respectively, of TDRs included in nonaccrual loan totals.
At December 31, 2012 and December 31, 2011, $52.6 million and $79.9
million of these nonaccrual TDRs were performing in accordance with the
terms of the restructured note. As of December 31, 2012 and December 31,
2011, there were $29.9 million and $28.7 million, respectively, of TDRs
included in accruing loan totals. Management will continue to review the
restructured loans and may determine it appropriate to move certain non -
accrual TDRs to accrual status in the future. At December 31, 2012 and
December 31, 2011, Park had commitments to lend $5.0 million and
$4.0 million, respectively, of additional funds to borrowers whose terms
had been modified in a TDR.

The specific reserve related to TDRs at December 31, 2012 and December 31,
2011 was $5.6 million and $9.1 million respectively. Modifications made in
2011 and 2012 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 also previously evaluated for impairment under ASC 310.
Additional specific reserves of $2.3 million were recorded during the twelve
month period ending December 31, 2012, as a result of TDRs identified in
the 2012 year.

The terms of certain other loans were modified during the year ended
December 31, 2012 that did not meet the definition of a TDR. Modified
substandard commercial loans which did not meet the definition of a TDR
had a total recorded investment as of December 31, 2012 of $800,000. The
modification of these loans: (1) involved a modification of the terms of a loan
to a borrower who was not experiencing financial difficulties, (2) resulted in
a delay in a payment that was considered to be insignificant, or (3) resulted in
Park obtaining additional collateral or guarantees that improved the likelihood
of the ultimate collection of the loan such that the modification was deemed to
be at market terms. Modified consumer loans which did not meet the definition
of a TDR had a total recorded investment as of December 31, 2012 of $26.5
million. Many of these loans were to borrowers who were not experiencing
financial difficulties but who were looking to reduce their cost of funds.

The following tables detail the number of contracts modified as TDRs during
the period ended December 31, 2012 and December 31, 2011 as well as the
recorded investment of these contracts at December 31, 2012 and December
31, 2011. The recorded investment pre- and post-modification is generally
the same.

(In thousands)

December 31, 2012:

Commercial, financial
and agricultural

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

Residential real estate:

Commercial
Mortgage
HELOC
Installment

Consumer

Total loans

Number of
Contracts

Accruing

Nonaccrual

Recorded
Investment

44
25

12
15
2
6

18
129
46
57
600

954

$ 2,843
2,648

$ 1,499
3,611

$ 4,342
6,259

—
531
99
175

1,139
4,279
736
761
1,899

1,301
6,579
85
78

1,842
5,776
58
508
670

1,301
7,110
184
253

2,981
10,055
794
1,269
2,569

$15,110

$22,007

$37,117

During 2012, as a result of general guidance issued by the Office of the
Comptroller of the Currency (“OCC”), $12.5 million of consumer loans
(includes mortgage, HELOC and installment loans in the residential real estate
segment and those loans in the consumer loan segment) were identified as
troubled debt restructurings (“TDR”) whereby the borrower’s obligation to
PNB has been discharged in bankruptcy and the borrower has not reaffirmed
the debt. These newly identified TDRs are included in the current year modified
loan totals above, within the residential real estate and consumer segments,
although certain of these modifications occurred prior to January 1, 2012.

(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

Total loans

Number of
Contracts

Accruing

Nonaccrual

Recorded
Investment

56
23

12
24
1
—

30
37
2
7
1

$ 2,842
3,332

$21,258
3,831

$24,100
7,163

—
11,890
—
—

500
3,234
—
95
—

4,268
6,712
66
—

29,095
2,691
56
126
18

4,268
18,602
66
—

29,595
5,925
56
221
18

193

$21,893

$68,121

$90,014

Of those loans listed in the tables above which were modified during the twelve
month period ended December 31, 2012, $6.5 million were on nonaccrual
status as of December 31, 2011 but were not classified as TDRs. Of those loans
which were modified during the twelve month period ended December 31,
2011, $29.9 million were on nonaccrual status as of December 31, 2010
but were not classified as TDRs.

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, 2012 and 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)

Commercial, financial
and agricultural

Commercial real estate
Construction real estate:

SEPH/Vision commercial land

and development
Remaining commercial
Mortgage
Installment

Residential real estate:

Commercial
Mortgage
HELOC
Installment

Consumer
Leases

Total loans

12 months ended
December 31, 2012

12 months ended
December 31, 2011

Number of
Contracts

Recorded
Investment

Number of
Contracts

Recorded
Investment

8
10

7
4
1
1

1
39
5
9
123
—

208

$ 244
2,113

970
1,476
85
27

16
2,863
70
272
743
—

$8,879

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

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 the $8.9 million in modified TDRs which defaulted during the twelve months
ended December 31, 2012, $606,000 were accruing loans and $8.3 million
were nonaccrual loans. Of the $32.5 million in modified TDRs which defaulted
during the twelve months ended December 31, 2011, $3.5 million were
accruing loans and $29.0 million were nonaccrual loans.

$4.4 million was related to Vision Bank’s executive officers, directors and
related entities and is not included in the December 31, 2012 total. During
2012, $4.4 million of new loans were made to these executive officers and
directors and repayments totaled $13.6 million. New loans and repayments
for 2011 were $4.9 million and $5.5 million, respectively.

Management transfers a loan to other real estate owned at the time that Park
takes constructive ownership of the asset. At December 31, 2012 and 2011,
Park had $35.7 million and $42.3 million, respectively, of other real estate
owned.

Certain of the Corporation’s executive officers, directors and related entities
of directors are loan customers of PNB or were loan customers of Vision
Bank in 2011. As of December 31, 2012 and 2011, loans and lines of credit
aggregating approximately $39.4 million and $53.0 million, respectively, were
outstanding to such parties. Of the amount outstanding at December 31, 2011,

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 man-
agement’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 opera-
tions 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 years ended December 31, 2012, December 31, 2011, and December 31, 2010 is summarized in the
following tables.

(In thousands)

December 31, 2012

Allowance for credit losses:

Beginning balance
Charge-offs
Recoveries

Net charge-offs

Provision

Ending balance

December 31, 2011

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

Commercial
Real Estate

Construction
Real Estate

Residential
Real Estate

Consumer

Leases

Total

$16,950
26,847
1,066

$25,781

24,466

$15,635

$11,555
2
1,184
18,350
1,402

$16,948

23,529

$16,950

$15,539
10,454
783

$ 9,671

5,868

$11,736

$24,369
150
4,327
23,063
1,825

$21,238

16,885

$15,539

$14,433
9,985
2,979

$ 7,006

(586)

$ 6,841

$70,462
63
1,998
64,166
1,463

$62,703

8,735

$14,433

$15,692
8,607
5,559

$ 3,048

2,115

$14,759

$30,259
4
5,450
20,691
1,719

$18,972

9,859

$15,692

$5,830
5,375
2,555

$2,820

3,556

$6,566

$6,925
—
141
7,612
2,385

$5,227

4,273

$5,830

$ —
—
—

$ —

—

$ —

$ 5
—
—
—
4

$ (4)

(9)

$ —

$ 68,444
61,268
12,942

$ 48,326

35,419

$ 55,537

$143,575
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.

Loans collectively evaluated for impairment in the following tables include all
performing loans at December 31, 2012 and December 31, 2011, as well as
nonperforming loans internally classified as consumer loans. Nonperforming
consumer loans are not typically individually evaluated for impairment, but
receive a portion of the statistical allocation of the allowance for loan losses.
Loans individually evaluated for impairment include all impaired loans inter-
nally classified as commercial loans at December 31, 2012 and 2011, which
are evaluated for impairment in accordance with U.S. GAAP (see Note 1 of
these Notes to Consolidated Financial Statements).

(In thousands)

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

2010

$ 116,717

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

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, 2012 and 2011 was as follows:

(In thousands)

December 31, 2012

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, 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

Commercial,
Financial and
Agricultural

Commercial
Real Estate

Construction
Real Estate

Residential
Real Estate

Consumer

Leases

Total

$ 3,180
12,455

$ 15,635

$ 22,523
801,404

$823,927

14.12%
1.55%

1.90%

$ 22,587
804,316

$826,903

$ 5,819
11,131

$ 16,950

$ 40,621
703,176

$743,797

14.33%
1.58%

2.28%

$ 40,621
706,297

$746,918

1,540
10,196

11,736

44,267
1,047,897

$1,092,164

3.48%
0.97%

1.07%

44,278
1,051,725

$1,096,003

$ 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

$ 2,277
4,564

$ 6,841

$ 34,814
130,714

$165,528

6.54%
3.49%

4.13%

$ 34,834
131,176

$166,010

$ 3,414
11,019

$ 14,433

$ 50,240
167,306

$217,546

6.80%
6.59%

6.63%

$ 50,240
167,856

$218,096

1,279
13,480

14,759

35,616
1,678,029

$1,713,645

3.59%
0.80%

0.86%

35,622
1,681,449

$1,717,071

$ 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

—
6,566

$ 6,566

$
18
651,912

$651,930

—
1.01%

1.01%

$
18
654,747

$654,765

—
5,830

$ 5,830

$ 20
616,485

$616,505

—
0.95%

0.95%

20
619,415

$619,435

$ —
—

$ —

$ —
3,128

$3,128

—
—

—

$ —
3,157

$3,157

$ —
—

$ —

$ —
2,059

$2,059

—
—

—

$ —
2,102

$2,102

8,276
47,261

55,537

$ 137,238
4,313,084

$4,450,322

6.03%
1.10%

1.25%

$ 137,339
4,326,570

$4,463,909

$ 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

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

2012

$ 17,354
69,091
61,679
4,009

$152,133

(98,382)

$53,751

2011

$ 18,151
69,690
59,037
4,283

$151,161

(97,420)

$ 53,741

Depreciation expense amounted to $7.0 million, $7.6 million and $7.1 million
for the years ended December 31, 2012, 2011 and 2010, respectively.

The Corporation leases certain premises and equipment accounted for as oper-
ating 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)

2013
2014
2015
2016
2017
Thereafter

Total

$1,394
1,079
845
536
390
678

$4,922

Rent expense for Park was $1.9 million, $2.4 million and $2.6 million, for
the years ended December 31, 2012, 2011 and 2010, respectively.

8. DEPOSITS
At December 31, 2012 and 2011, non-interest bearing and interest bearing
deposits were as follows:

December 31 (In thousands)

Non-interest bearing

Interest bearing

Total

2012

$1,137,290

3,578,742

$4,716,032

2011

$ 995,733

3,469,381

$4,465,114

At December 31, 2012, the maturities of time deposits were as follows:

(In thousands)

2013
2014
2015
2016
2017
After 5 years

Total

$ 927,505
265,643
92,408
88,655
75,207
1,006

$1,450,424

At December 31, 2012, Park had approximately $16.8 million of deposits
received from executive officers, directors, and their related interests.

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

Maturities of time deposits over $100,000 as of December 31, 2012 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

9. SHORT-TERM BORROWINGS
Short-term borrowings were as follows:

$212,188
113,169
141,244
190,664

$657,265

December 31 (In thousands)

2012

2011

Securities sold under agreements to repurchase

and federal funds purchased
Federal Home Loan Bank advances

Total short-term borrowings

$244,168
100,000

$344,168

$240,594
23,000

$263,594

The outstanding balances for all short-term borrowings as of December 31,
2012 and 2011 and the weighted-average interest rates as of and paid during
each of the years then ended were as follows:

(In thousands)

2012:

Ending balance
Highest month-end balance
Average daily balance
Weighted-average interest rate:

As of year-end
Paid during the year

2011:

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

$244,168
302,946
257,341

0.23%
0.26%

$240,594
265,412
246,145

0.29%
0.30%

$100,000
100,000
1,320

0.38%
0.28%

$ 23,000
232,000
51,392

0.04%
0.18%

$ —
—
—

—
—

$ —
—
—

—
—

At December 31, 2012 and 2011, FHLB advances were collateralized by invest-
ment 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, 2012 and 2011,
$2,053 million and $2,231 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 $667 million and $669 million of securities were pledged
to secure repurchase agreements as of December 31, 2012 and 2011,
respectively. Park’s repurchase agreements in short-term borrowings consist
of customer accounts and securities which are pledged on an individual secu-
rity basis. Park’s repurchase agreements with a third-party financial institution
are classified in long-term debt. See Note 10 of these Notes to Consolidated
Financial Statements.

10. LONG-TERM DEBT
Long-term debt is listed below:

December 31

(In thousands)

2012

2011

Outstanding
Balance

Average
Rate

Outstanding
Balance

Average
Rate

Total Federal Home Loan Bank advances

by year of maturity:

2012
2013
2014
2015
2016
2017
Thereafter

Total

—
75,500
75,500
51,000
1,000
51,000
252,259

$506,259

Total broker repurchase agreements

by year of maturity:

2016
2017

Total

$
—
300,000

$300,000

Other borrowings by year of maturity:

2012
2013
2014
2015
2016
2017
Thereafter

Total

Total combined long-term debt

by year of maturity:

2012
2013
2014
2015
2016
2017
Thereafter

Total

—
—
—
—
—
—
—

—

—
75,500
75,500
51,000
1,000
351,000
252,259

$806,259

Prepayment penalty

(24,601)

—
1.11%
1.61%
2.00%
2.05%
3.37%
2.94%

2.42%

—
1.75%

1.75%

—
—
—
—
—
—
—

—

—
1.11%
1.61%
2.00%
2.05%
1.99%
2.94%

2.17%

—

$ 15,500
75,500
75,500
51,000
1,000
51,000
252,314

$521,814

$ 75,000
225,000

$300,000

69
74
81
87
94
102
861

$ 1,368

$ 15,569
75,574
75,581
51,087
76,094
276,102
253,175

$823,182

—

2.09%
1.11%
1.61%
2.00%
2.05%
3.37%
2.94%

2.41%

4.05%
4.03%

4.04%

7.97%
7.97%
7.97%
7.97%
7.97%
7.97%
7.97%

7.97%

2.12%
1.11%
1.62%
2.01%
4.03%
3.91%
2.96%

3.01%

—

Total long-term debt

$781,658

2.87%

$823,182

3.01%

On November 30, 2012, Park restructured $300 million in repurchase
agreements at a rate of 1.75%. As part of this restructure, Park paid a prepay-
ment penalty of $25 million. The penalty is being amortized as an adjustment
to interest expense over the remaining term of the repurchase agreements using
the effective interest method, resulting in an effective interest rate of 3.4%. Of
the $25 million prepayment penalty, $24.6 million remained to be amortized
as of December 31, 2012. The remaining amortization will be $4.8 million
in 2013, $4.9 million in 2014, $5.0 million in 2015, $5.1 million in 2016
and $4.8 million in 2017.

Other borrowings as of December 31, 2011 consisted 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 was assumed by Centennial Bank in connection
with their acquisition of Vision’s branches on February 16, 2012.

Park had approximately $252.3 million of long-term debt at December 31,
2012 with a contractual maturity longer than five years. However, approximately
$250 million of this debt is callable by the issuer in 2013.

At December 31, 2012 and 2011, FHLB advances were collateralized by
investment securities owned by the Corporation’s banking divisions and
by various loans pledged under a blanket agreement by the Corporation’s
banking divisions.

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.

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

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 distributions 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, the Trust is not consolidated with Park’s financial
statements, but rather the subordinated notes are reflected as a liability.

On December 28, 2007, 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 0.31%
at December 31, 2012. On January 2, 2008, Park entered into an interest
rate swap transaction, which was designated as a cash flow hedge against the
variability of cash flows related to the Subordinated Debenture of $25 million
(see Note 19 of these Notes to Consolidated Financial Statements). This
Subordinated Debenture was prepaid in full on December 31, 2012.

On December 23, 2009, Park entered into a Note Purchase Agreement, dated
December 23, 2009, with 38 purchasers (the “2009 Purchasers”). Under the
terms of the Note Purchase Agreement, the 2009 Purchasers purchased from
Park an aggregate principal amount of $35.25 million of 10% Subordinated
Notes due December 23, 2019 (the “2009 Notes”). The 2009 Notes are
intended to qualify as Tier 2 capital under applicable rules and regulations
of the Federal Reserve Board. The 2009 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 outstand-
ing. Of the $35.25 million in 2009 Notes, $14.05 million were purchased by
related parties.

On April 20, 2012, Park entered into a Note Purchase Agreement, dated
April 20, 2012 (the “2012 Purchase Agreement”), with 56 purchasers (the
“2012 Purchasers”). Under the terms of the 2012 Purchase Agreement, the
2012 Purchasers purchased from Park an aggregate principal amount of $30
million of 7% Subordinated Notes Due April 20, 2022 (the “2012 Notes”). The
2012 Notes are intended to qualify as Tier 2 Capital under applicable rules and
regulations of the Federal Reserve Board. Each 2012 Note was purchased at

a purchase price of 100% of the principal amount thereof. The 2012 Notes may
not be prepaid by Park prior to April 20, 2017. From and after April 20, 2017,
Park may prepay all, or from time to time, any part of the 2012 Notes at 100%
of the principal amount (plus accrued interest) without penalty, subject to any
requirement under Federal Reserve Board regulations to obtain prior approval
from the Federal Reserve Board before making any prepayment.

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, 2012,
1,500,000 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.

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 2012:

January 1, 2012

Granted
Exercised
Forfeited/Expired

December 31, 2012

Number

74,020
—
—
74,020

—

Exercisable at year end
Weighted-average remaining contractual life
Aggregate intrinsic value

Weighted Average
Exercise Price per Share

$ 74.96
—
—
74.96

$ —

—
N/A
N/A

There were no options granted or exercised in 2012, 2011 or 2010.
Additionally, no expense was recognized for 2012, 2011 or 2010.

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. 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
will be deductible on the 2012 tax return. In January 2013, management con-
tributed $12.6 million, of which $11.0 million will be deductible on the 2012
tax return and $1.6 million will be deductible on the 2013 tax return. The
entire $11.0 million deductible on the 2012 tax return is reflected as part
of the deferred taxes at December 31, 2012. See Note 14 of these Notes
to Consolidated Financial Statements. Park does not expect to make any
additional contributions to the Pension Plan in 2013.

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 accrual measurement date of December 31, 2012 and 2011, plan
assets and benefit obligation activity for the Pension Plan are listed below:

The following table shows ending balances of accumulated other compre -
hensive loss at December 31, 2012 and 2011.

(In thousands)

2012

2011

(In thousands)

Change in fair value of plan assets

Fair value at beginning of measurement period
Actual return on plan assets
Company contributions
Benefits paid

Fair value at end of measurement period

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

$ 96,581
11,256
15,900
(5,969)

$117,768

$ 81,507
4,271
4,048
13,796
(5,969)

$85,464
1,813
14,000
(4,696)

$96,581

$74,164
4,557
3,967
3,515
(4,696)

$ 97,653

$81,507

(fair value of plan assets less benefit obligation)

$ 20,115

$15,074

The asset allocation for the Pension Plan as of each measurement date, by asset
category, was as follows:

Asset Category

Equity securities
Fixed income and cash equivalents

Total

Target Allocation

50% – 100%
remaining balance
—

2012

83%
17%
100%

2011

80%
20%
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 7.5% in 2012 and
7.75% in 2011. 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 $85.1 million
and $71.4 million at December 31, 2012 and 2011, 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, 2012 and 2011, the fair value of the 115,800 common
shares held by the Pension Plan was $7.5 million, or $64.63 per share and
$7.5 million, or $65.06 per share, respectively.

The weighted average assumptions used to determine benefit obligations
at December 31, 2012, 2011 and 2010 were as follows:

Discount rate
Rate of compensation increase

2012

4.47%
3.00%

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):

2013
2014
2015
2016
2017
2018 – 2022

Total

$ 6,431
6,163
6,623
6,619
7,233
41,653

$74,722

Prior service cost
Net actuarial loss

Total

Deferred taxes

2012

$
(54)
(41,691)

(41,745)

14,611

2011

$
(74)
(32,163)

(32,237)

11,283

Accumulated other comprehensive loss

$(27,134)

$(20,954)

Using an actuarial measurement date of December 31 for 2012, 2011 and
2010, components of net periodic benefit cost and other amounts recognized
in other comprehensive loss were as follows:

(In thousands)

2012

2011

2010

Components of net periodic benefit cost
and other amounts recognized in
other comprehensive 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

$ (4,271)
(4,048)
8,742
(20)
(1,708)

$ (1,305)

$(11,236)
20
1,708

$ (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

(9,508)

(7,734)

(3,734)

and other comprehensive (loss)/income $(10,813)

$(10,145)

$(6,222)

The estimated prior service costs for the Pension Plan that will be amortized
from accumulated other comprehensive loss 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 $(2.7) million.

The weighted average assumptions used to determine net periodic benefit cost
for the years ended December 31, 2012, 2011 and 2010 are listed below:

Discount rate
Rate of compensation increase
Expected long-term return on plan assets

2012

5.18%
3.00%
7.75%

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 the performance of the S&P 500 Index over
the most recent 10 years, 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 $1.3 million at December 31, 2012.

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 transaction
between market participants on the measurement date, using the most advan -
tageous market for the asset or liability. The fair values of equity securities,
consisting of mutual fund investments and common stock (U.S. large cap)
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, 2012 was $117.8 million. At December 31, 2012, $98.8
million of equity investments and cash in the Pension Plan were categorized
as Level 1 inputs; $18.9 million of plan investments in corporate (U.S. large
cap) and U.S. Government sponsored entity bonds were categorized as Level
2 inputs, as fair value is based on quoted market prices of comparable instru-
ments; and no investments were categorized as Level 3 inputs. The market
value of Pension Plan assets was $96.6 million at December 31, 2011. At
December 31, 2011, $83.2 million of investments in the Pension Plan were
categorized as Level 1 inputs; $13.4 million were categorized as Level 2; and
no investments were categorized as Level 3.

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 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
$1.0 million, $1.1 million, and $1.0 million for 2012, 2011 and 2010,
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. The
accrued benefit cost for the SERP totaled $7.4 million and $7.2 million for
2012 and 2011, respectively. The expense for the Corporation was $0.3
million for 2012, $0.6 million for 2011 and $0.5 million for 2010.

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
Partnership adjustments
Other
Loans held for sale fair value adjustment
Tax credit carry-forwards

2012

2011

$19,438

$23,956

—

296

14,611
697
3,750
4,855
3,329
2,973
—
—

11,283
1,523
3,733
6,364
2,016
2,515
4,585
1,269

Total deferred tax assets

$49,653

$57,540

Deferred tax liabilities:

Accumulated other comprehensive

income – unrealized gains on securities

Deferred investment income
Pension plan
Mortgage servicing rights
Other

Total deferred tax liabilities

Net deferred tax assets

$ 5,178
10,199
25,517
2,717
646

$44,257

$ 5,396

$ 6,824
10,199
21,567
3,255
2,260

$44,105

$13,435

Park performs an analysis to determine if a valuation allowance against
deferred tax assets is required in accordance with GAAP. Prior to the sale
of substantially all of its assets in February 2012, Vision was subject to income
tax in Alabama and Florida. During 2011, Park recognized $6.1 million in state
tax expense which was the charge necessary to write off the previously reported
state operating loss carry-forward asset and other state deferred tax assets at
Vision. Prior to the execution of the Purchase Agreement with Centennial, man-
agement 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 carry-forward asset recorded at Vision. The struc-
ture of the transactions contemplated by the Purchase Agreement did not allow
either the buyer or the seller to benefit from the previously recorded net operat-
ing loss carry-forward asset at Vision to offset future taxable income; therefore,
this asset was written off by Vision at December 31, 2011.

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.

The components of the provision for federal and state income taxes are
shown below:

December 31 (in thousands)

2012

2011

2010

Currently payable

Federal
State

Deferred
Federal
State

Valuation allowance

Federal
State

Total

$12,984
—

12,717
—

—
—

$ 5,949
—

$26,130
109

22,378
8,382

—
(2,294)

(8,333)
(3,564)

—
2,294

$25,701

$34,415

$16,636

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,
2012, 2011 and 2010.

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

2012

35.0%

(0.9)%
(1.6)%
(6.1)%

2011

35.0%

(1.0)%
(1.5)%
(5.2)%

2010

35.0%

(1.7)%
(2.3)%
(6.7)%

—

4.7%

(3.0)%

—
(1.8)%

24.6%

(1.3)%
(1.2)%

29.5%

2.0%
(1.0)%

22.3%

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 did not record state income
tax expense (benefit) in 2012.

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

2012

$485

—

(67)

$517

2011

$477

(3)

(60)

$485

2010

$595

(131)

(63)

$477

The amount of unrecognized tax benefits that, if recognized, would favorably
affect the effective income tax rate in the future periods at December 31, 2012,
2011 and 2010 was $404,000, $378,000 and $370,000, 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, 2012,
2011 and 2010 was $4,500, $2,500 and $(10,500), respectively. The amount
accrued for interest and penalties at December 31, 2012, 2011 and 2010
was $67,500, $63,000 and $60,500, 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

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 2008 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, 2012, 2011 and 2010.

Year ended December 31
(In thousands)

Before-Tax
Amount

Tax
Effect

Net-of-Tax
Amount

2012:

Unrealized losses on available-for-sale

securities

Unrealized net holding gain on

cash flow hedge

Changes in pension plan assets and
benefit obligations recognized in
other comprehensive income

$ (4,702)

$ (1,645)

$ (3,057)

846

296

550

(9,508)

(3,328)

(6,180)

Other comprehensive loss

$(13,364)

$ (4,677)

$ (8,687)

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)

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 loss

2012

$(27,134)
—
9,616

2011

$(20,954)
(550)
12,673

$(17,518)

$ (8,831)

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)

2012

2011

2010

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

$75,205

$76,284

$52,294

15,407,078

15,400,155

15,152,692

1,063

1,291

3,043

15,408,141

15,401,446

15,155,735

$4.88
$4.88

$4.95
$4.95

$3.45
$3.45

As of December 31, 2011, options to purchase 74,020 common shares were
outstanding under Park’s 2005 Plan. All options had expired as of December
31, 2012. A warrant to purchase 227,376 common shares was outstanding
at December 31, 2011 as a result of Park’s participation in the U.S. Treasury
Capital Purchase Program (“CPP”). Park repurchased the CPP warrant on
May 2, 2012. 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 shares and warrants to purchase common shares on
December 10, 2010 (the “December 2010 Warrants”). The December 2010
Warrants expired in 2011, with no warrants being exercised, but have been
considered in the 2011 diluted earnings per share calculation.

The common shares represented by the options and the December 2010
Warrants for the twelve months ended December 31, 2012 and 2011, totaling
a weighted average of 63,308 and 126,292, 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 included in
the computation of diluted earnings per common share for the year ended
December 31, 2012 and 2011, as the dilutive effect of this warrant was 1,063
and 1,291 common shares for the twelve month periods ended December 31,
2012 and December 31, 2011, respectively. The exercise price of the CPP
warrant to purchase 227,376 common shares was $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, 2012,
approximately $27.9 million of the total shareholders’ equity of PNB was avail-
able for the payment of dividends to the Corporation, without approval by the
applicable regulatory authorities.

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 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.

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 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:

December 31 (In thousands)

Loan commitments

Standby letters of credit

2012

$815,585

22,961

2011

$809,140

18,772

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. The Corporation evaluates each cus-
tomer’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 con-
sidered fair value hedges. Derivatives used to hedge the exposure to variability
in expected future cash flows, or other types of forecasted transactions, are
considered cash flow hedges.

For derivatives designated as cash flow hedges, the effective portion of changes
in the fair value of the 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 was to add stability to interest expense and to manage its exposure
to interest rate risk. Our interest rate swap involved 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 was designated as
a cash flow hedge. This interest rate swap matured on December 28, 2012.

At December 31, 2012 and 2011, the interest rate swap’s fair value of $0
million and $(0.8) million, respectively, was included in other liabilities.
No hedge ineffectiveness on the cash flow hedge was recognized during
the twelve months ended December 31, 2012, 2011 or 2010.

For the twelve months ended December 31, 2012 and 2011, the change in
the fair value of the interest rate swap reported in other comprehensive income
was a gain of $550,000 (net of taxes of $296,000) and a gain of $512,000
(net of taxes of $276,000), respectively. There was a zero balance related
to the interest rate swap in accumulated other comprehensive income as
of December 31, 2012.

As of December 31, 2012 and 2011, no derivatives were designated as fair value
hedges or hedges of net investments in foreign operations. Additionally, the
Company does not use derivatives for trading or speculative purposes.

As of December 31, 2012 and December 31, 2011, Park had mortgage loan
interest rate lock commitments (IRLCs) outstanding of approximately $28.9
million and $17.2 million, respectively. Park has specific contracts to sell each
of these loans to a third-party investor. These loan commitments represent
derivative instruments, which are required to be carried at fair value. The
derivative instruments used are not designed as hedges under GAAP. The
fair value of the derivative instruments was approximately $372,000 at
December 31, 2012 and $251,000 at December 31, 2011. The fair value
of the derivative instruments is included within loans held for sale and the
corresponding income is included within non-yield loan fee income. Gains
and losses resulting from expected sales of mortgage loans are recognized
when the respective loan contract is entered into between the borrower, Park,
and the third-party investor. The fair value of Park’s mortgage 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, 2012 and December
31, 2011, the fair value of the swap liability of $135,000 and $700,000, respec-
tively, is an estimate of the exposure based upon probability-weighted potential
Visa litigation losses.

20. LOAN SERVICING
Park serviced sold mortgage loans of $1,313 million at December 31, 2012
compared to $1,349 million at December 31, 2011, and $1,471 million at
December 31, 2010. At December 31, 2012, $16 million of the sold mortgage
loans were sold with recourse compared to $25 million at December 31, 2011.
Management closely monitors the delinquency rates on the mortgage loans
sold with recourse. As of December 31, 2012, management had established
a $550,000 reserve to account for future loan repurchases.

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)

2012

2011

2010

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

$ 9,301
3,399
(3,634)
(1,303)

$ 7,763

$ 1,021
1,303

$ 2,324

$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

The fair value of mortgage servicing rights at December 31, 2012 was
established using a discount rate of 10.0% and constant prepayment speeds
ranging from 6% to 25%.

Servicing fees included in other service income were $3.6 million, $3.9 million
and $4.2 million for the twelve months ended December 31, 2012, 2011 and
2010, 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

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:
(cid:0) 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.

(cid:0) 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.

(cid:0) 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, 2012 Using:

(In thousands)

Level 1

Level 2

Level 3

Balance at
12/31/12

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

$ —

$695,727

$ —

$695,727

—

1,003

—

1,003

—
1,442

—
—

415,502
—

25,743
372

—
$780

—
—

$ —
135

415,502
2,222

25,743
372

—
135

Interest rate swap
Fair value swap

$ —
—

—
—

Fair Value Measurements at December 31, 2011 Using:

(In thousands)

Level 1

Level 2

Level 3

Balance at
12/31/11

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

$ —

$371,657

$ —

$371,657

—

2,660

—

2,660

—
1,270

—
—

444,295
—

11,535
251

—
$763

—
—

$ —
700

444,295
2,033

11,535
251

846
700

Interest rate swap
Fair value swap

$ —
—

846
—

There were no transfers between Level 1 and Level 2 during 2012 or 2011.
Management’s policy is to transfer assets or liabilities from one level to
another when the methodology to obtain the fair value changes such that there
are more or fewer unobservable inputs as of the end of the reporting period.

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

The table below is a reconciliation of the beginning and ending balances of the
Level 3 inputs for the years ended December 31, 2012 and 2011, 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

Balance at January 1, 2012

$ —

$763

$(700)

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, 2012

Balance at January 1, 2011

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

—
—
—

—
—

$ —

$2,598

—
(128)
—

(2,470)
—

$ —

(54)
—
71

—
—

$780

$745

—
—
18

—
—

$763

—
—
—

—
565

$(135)

$ (60)

—
—
—

—
(640)

$(700)

Assets and Liabilities Measured on a Nonrecurring Basis
The following methods and assumptions were used by the Company in
determining the fair value of assets and liabilities measured at fair value
on a nonrecurring basis described below:

Impaired loans: At the time a loan is considered impaired, it is valued at
the lower of cost or fair value. Impaired loans carried at fair value have been
partially charged off or receive specific allocations of the allowance for loan
losses. For collateral dependent loans, fair value is generally based on real
estate appraisals. These appraisals may utilize a single valuation approach
or a combination of approaches including comparable sales and the income
approach. Adjustments are routinely made in the appraisal process by the inde-
pendent appraisers to adjust for differences between the comparable sales and
income data available. Such adjustments result in a Level 3 classification of the
inputs for determining fair value. Collateral is then adjusted or discounted
based on management’s historical knowledge, changes in market conditions
from the time of the valuation, and management’s expertise and knowledge of
the client and client’s business, resulting in a Level 3 fair value classification.
Impaired loans are evaluated on a quarterly basis for additional impairment
and adjusted accordingly. Additionally, updated valuations are obtained annually
for all impaired loans in accordance with Company policy.

Other Real Estate Owned (OREO): Assets acquired through or in lieu
of loan foreclosure are initially recorded at fair value less costs to sell when
acquired. 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. Fair value is based on recent
real estate appraisals and is updated at least annually. These appraisals may
utilize a single valuation approach or a combination of approaches including
the comparable sales approach and the income approach. Adjustments are
routinely made in the appraisal process by the independent appraisers to adjust
for differences between the comparable sales and income data available. Such
adjustments result in a Level 3 classification of the inputs for determining fair
value.

Appraisals for both collateral dependent impaired loans and other real
estate owned are performed by licensed appraisers. Appraisals are generally
obtained to support the fair value of collateral. In general, there are two types
of appraisals, real estate appraisals and lot development loan appraisals,
received by the Company. These are discussed below:

(cid:0) Real estate appraisals typically incorporate measures such as recent

sales prices for comparable properties. Appraisers may make adjustments
to the sales prices of the comparable properties as deemed appropriate
based on the age, condition or general characteristics of the subject
property. Management generally applies a 15% discount to real estate
appraised values which management expects will cover all disposition
costs (including selling costs). This 15% discount is based on historical
discounts to appraised values on sold OREO properties.

(cid:0) Lot development loan appraisals are typically performed using a

discounted cash flow analysis. Appraisers determine an anticipated
absorption period and a discount rate that takes into account an investor’s
required rate of return based on recent comparable sales. Management
generally applies a 6% discount to lot development appraised values,
which is an additional discount above the net present value calculation
included in the appraisal, to account for selling costs.

MSRs: MSRs are carried at the lower of cost or fair value. 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, determines
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 is then compared to market values
where possible to ascertain the reasonableness of the valuation in relation
to current market expectations for similar products. Accordingly, MSRs are
classified as Level 2.

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

Fair Value Measurements at December 31, 2012 Using:

(In thousands)

Level 1

Level 2

Level 3

Balance at
12/31/12

Impaired loans:

$ —

$25,997

Commercial real estate
Construction real estate:
SEPH commercial land
and development

—
Remaining commercial —
—

Residential real estate

—
—
—

12,832
8,113
6,990

Total impaired loans

$ —

$53,932

Mortgage servicing

rights

Other real estate owned:

$ —

$ 6,642

$ —

$ 6,642

Construction real estate —
—
Residential real estate
—
Commercial real estate

Total other

—
—
—

12,134
4,307
3,485

real estate owned

$ —

$19,926

Fair Value Measurements at December 31, 2011 Using:

(In thousands)

Level 1

Level 2

Level 3

Balance at
12/31/11

Impaired loans:

$ —

$24,859

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

—
Remaining commercial —
—

Residential real estate

—
—
—

21,228
8,860
12,935

Total impaired loans

$ —

$67,882

Mortgage servicing

rights

Other real estate owned:

$ —

$ 5,815

$ —

$ 5,815

Construction real estate —
—
Residential real estate
—
Commercial real estate

Total other

—
—
—

10,834
6,826
6,062

real estate owned

$ —

$23,722

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

Impaired loans had a book value of $137.2 million at December 31, 2012
after partial charge-offs of $105.1 million. Additionally, these impaired loans
had a specific valuation allowance of $8.3 million. Of the $137.2 million
impaired loan portfolio, loans with a book value of $59.0 million were carried
at their fair value of $53.9 million, as a result of charge-offs of $91.6 million
and a specific valuation allowance of $5.1 million. The remaining $78.2 million
of impaired loans were carried at cost, as the fair value of the underlying col -
lateral or present value of expected future cash flows on each of these loans
exceeded the book value for each individual credit. At December 31, 2011,
impaired loans had a book value of $187.1 million, after partial charge-offs
of $103.8 million. Additionally, these impaired loans had a specific valuation
allowance of $15.9 million. Of these, loans with a book value of $78.0 million
were carried at their fair value of $67.9 million as a result of partial charge-offs
of $97.6 million and a specific valuation allowance for those loans carried at
fair value of $10.1 million. The remaining $109.1 million of impaired loans at
December 31, 2011 were carried at cost. The financial impact of credit adjust-
ments related to impaired loans carried at fair value during the twelve months
ended December 31, 2012, 2011 and 2010 was $16.0 million, $37.4 million
and $59.2 million, respectively.

MSRs, which are carried at the lower of cost or fair value, were recorded at
$7.8 million at December 31, 2012. Of the $7.8 million MSR carrying balance
at December 31, 2012, $6.6 million was recorded at fair value and included a
valuation allowance of $2.3 million. The remaining $1.2 million was recorded
at cost, as the fair value exceeded cost at December 31, 2012. At December 31,
2011, MSRs were recorded at $9.3 million, including a valuation allowance
of $1.0 million. Expense related to MSRs carried at fair value for the years
ended December 31, 2012, 2011 and 2010 was $1.3 million, $273,000 and
$174,000, respectively.

At December 31, 2012 and December 31, 2011, the estimated fair value
of OREO, less estimated selling costs, amounted to $19.9 million and $23.7
million, respectively. The financial impact of OREO fair value adjustments
for the years ended December 31, 2012, 2011 and 2010 was $6.9 million,
$8.2 million and $13.2 million, respectively.

The following table presents qualitative information about Level 3 fair value
measurements for financial instruments measured at fair value on a non-
recurring basis at December 31, 2012:

Fair Value

Valuation Technique

Unobservable Input(s)

Range (Weighted Average)

(In thousands)

Impaired loans:

Commercial real estate

$25,997

Construction real estate:

SEPH commercial land and development

12,832

Remaining commercial

Residential real estate

Other real estate owned:
Commercial real estate

Construction real estate

Residential real estate

8,113

6,990

3,485

12,134

4,307

Sales comparison approach
Income approach
Cost approach

Sales comparison approach
Bulk sale approach

Adj to comparables
Capitalization rate
Accumulated depreciation

0.0% – 116.0% (22.3%)
7.5% – 20.9% (10.1%)
23.0% – 63.0% (50.4%)

Adj to comparables
Discount rate

0.0% – 218.0% (31.9%)
11.0% – 55.0% (23.4%)

0.0% – 75.0% (26.2%)
10.0% – 55.0% (18.3%)

Sales comparison approach

Adj to comparables

0.0% – 178.0% (17.9%)

Sales comparison approach
Income approach
Bulk sale approach
Cost approach

Sales comparison approach
Income approach
Bulk sale approach

Sales comparison approach
Income approach
Cost approach

Adj to comparables
Capitalization rate
Discount rate
Accumulated depreciation

Adj to comparables
Capitalization rate
Discount rate

Adj to comparables
Capitalization rate
Accumulated depreciation

0.0% – 67.0% (25.8%)
11.0% (11.0%)
13.0% (13.0%)
40.9% – 90.0% (65.0%)

0.0% – 273.0% (34.0%)
8.5% (8.5%)
10.0% – 12.0% (10.8%)

1.0% – 61.0% (18.0%)
7.9% – 9.3% (8.7%)
6.0% (6.0%)

The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for assets and liabilities not discussed above:

Cash and cash equivalents: The carrying amounts reported in the
Consolidated 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 are not material.

Deposit liabilities: The fair values disclosed for demand deposits (e.g.,
interest and non-interest checking, savings, and money market accounts)
are, by definition, equal to the amount payable on demand at the reporting date
(i.e., their carrying amounts). The carrying amounts for variable-rate, fixed-
term certificates of deposit approximate their fair values at the reporting date.
Fair values for fixed-rate certificates of deposit are estimated using a discounted
cash flow calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities of time
deposits.

Short-term borrowings: The carrying amounts of federal funds purchased,
borrowings under repurchase agreements and other short-term borrowings
approximate their fair values.

Long-term debt: Fair values for long-term debt are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on long-term debt to a schedule of monthly maturities.

Subordinated debentures and notes: Fair values for subordinated
debentures and notes are estimated using a discounted cash flow calculation
that applies interest rate spreads currently being offered on similar debt
structures to a schedule of monthly maturities.

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 financial instruments at December 31, 2012 and December 31, 2011, was as follows:

Fair Value Measurements at December 31, 2012:

(In thousands)

Financial assets:

Cash and money market instruments
Investment securities
Accrued interest receivable – securities
Accrued interest receivable – loans
Mortgage loans held for sale
Impaired loans carried at fair value
Mortgage IRLCs
Other loans

Loans receivable, net

Financial liabilities:

Non-interest bearing checking accounts
Interest bearing transaction accounts
Savings accounts
Time deposits
Other

Total deposits

Short-term borrowings
Long-term debt
Subordinated debentures/notes
Accrued interest payable – deposits
Accrued interest payable – debt /borrowings

Derivative financial instruments:

Interest rate swap
Fair value swap

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
Mortgage IRLCs
Other loans

Loans receivable, net

Assets held for sale
Financial liabilities:

Non-interest bearing checking
Interest bearing transaction accounts
Savings
Time deposits
Other

Total deposits
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

Carrying
Value

$ 201,305
1,515,844
6,122
13,588
25,743
53,932
372
4,314,738

$4,394,785

$1,137,290
1,088,617
1,038,356
1,450,424
1,345

$4,716,032

$ 344,168
781,658
80,250
1,960
1,499

—
135

2011

Fair
Value

$ 157,486
1,655,219
19,697
11,535
87,813
251
4,166,973
$4,266,572
382,462

$ 995,733
1,037,385
931,526
1,506,075
1,365
$4,472,084
$ 263,594
915,274
68,601
4,916
536,991

846
700

Carrying
Value

$ 157,486
1,640,869
19,697
11,535
87,813
251
4,149,056
$4,248,655
382,462

$ 995,733
1,037,385
931,526
1,499,105
1,365
$4,465,114
$ 263,594
823,182
75,250
4,916
536,186

846
700

Level 1

Level 2

Level 3

$ 201,305
1,442
—
—
—
—
—
—

—

$1,137,290
1,088,617
1,038,356
—
1,345

$3,265,608

—
—
—
21
8

—
—

$
—
1,522,937
6,122
2
25,743
—
372
—

26,115

—
—
—
1,458,793
—

$1,458,793

$ 344,168
861,466
79,503
1,939
1,491

—
—

—
780
—
13,586
—
53,932
—
4,348,705

$4,402,637

—
—
—
—
—

—

—
—
—
—
—

—
135

Total
Fair Value

$ 201,305
1,525,159
6,122
13,588
25,743
53,932
372
4,348,705

$4,428,752

$1,137,290
1,088,617
1,038,356
1,458,793
1,345

$4,724,401

$ 344,168
861,466
79,503
1,960
1,499

—
135

22. CAPITAL RATIOS
Prior to February 16, 2012, the Corporation operated two chartered bank
subsidiaries, PNB and Vision. On February 16, 2012, Vision sold certain assets
and liabilities to Centennial Bank. Following the sale, Vision surrendered its
Florida banking charter to the Florida Office of Financial Regulation (See Note
3 of these Notes to Consolidated Financial Statements). At December 31, 2012
and 2011, the Corporation and each of its then 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, 2012 and December 31, 2011.

2012

Total
Risk-
Based

Tier 1
Risk-
Based

Leverage

2011

Total
Risk-
Based

Leverage

Park National Bank

9.28% 11.17% 6.43%

9.52% 11.46%

6.58%

Vision Bank

Park

N/A

23.42% 24.72% 15.89%

13.12% 15.77% 9.17%

14.15% 16.65%

9.81%

Failure to meet the minimum requirements above could cause the Federal
Reserve Board to take action. Each of Park’s bank subsidiaries is also subject
to the capital requirements of their primary regulators. As of December 31,
2012 and 2011, Park and its then banking subsidiaries were well-capitalized
and met all capital requirements to which each was then subject. There are
no conditions or events since PNB’s most recent regulatory report filings that
management believes have changed the risk categories for PNB.

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 various measures of capital for Park and each of PNB and VB (during the period it was a Park banking subsidiary):

(In thousands)

Actual Amount

Ratio

To Be Adequately Capitalized
Ratio
Amount

To Be Well Capitalized

Amount

Ratio

At December 31, 2012:
Total risk-based capital

(to risk-weighted assets)

PNB
Park

Tier 1 risk-based capital

(to risk-weighted assets)

PNB
Park

Leverage ratio

(to average total assets)

PNB
Park

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

$502,680
732,413

$417,690
609,411

$498,367
115,637
812,286

$413,870
109,566
690,419

11.17%
15.77%

9.28%
13.12%

6.43%
9.17%

11.46%
24.72%
16.65%

9.52%
23.42%
14.15%

6.58%
15.89%
9.81%

$359,971
371,477

$179,986
185,739

$259,769
265,719

$347,972
37,427
390,270

$173,986
18,714
195,135

$251,691
27,588
281,506

8.00%
8.00%

4.00%
4.00%

8.00%
8.00%
8.00%

4.00%
4.00%
4.00%

$449,964
N/A

$269,978
N/A

$324,711
N/A

$434,965
46,784
N/A

$260,979
28,071
N/A

$314,614
34,485
N/A

10.00%
N/A

6.00%
N/A

5.00%
N/A

10.00%
10.00%
N/A

6.00%
6.00%
N/A

5.00%
5.00%
N/A

(1) Park management had agreed to maintain Vision Bank’s total risk-based capital at 16.00% and the leverage ratio at 12.00%.

23. SEGMENT INFORMATION
The Corporation is a bank holding company headquartered in Newark,
Ohio. Prior to February 16, 2012, the operating segments for the Corporation
were its two chartered bank subsidiaries, PNB (headquartered in Newark,
Ohio) and Vision (headquartered in Panama City, Florida). On February 16,
2012, Vision sold certain assets and liabilities to Centennial Bank (See Note 3
of these Notes to Consolidated Financial Statements). Promptly following the
closing of the transaction, Vision surrendered its Florida banking charter to the
Florida Office of Financial Regulation and became a non-bank Florida corpora-
tion. The Florida Corporation merged with and into a wholly-owned non-bank
subsidiary of Park, SEPH, with SEPH being the surviving entity. The closing
of this transaction prompted Park to add SEPH as a reportable segment.
Additionally, due to the increased significance of the entity, GFSC was
added as a reportable segment in the first quarter of 2012.

GAAP requires management 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 perform-
ance, better understand the potential for future cash flows, and make more
informed judgments about the company as a whole. Park’s current operating
segments are in line with GAAP as there are: (i) three 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.

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

Operating results for the year ended December 31, 2012 (In thousands)

Net interest income
Provision for loan losses
Other income
Other expense

Income (loss) before taxes
Income taxes (benefit)

Net income (loss)

Balances at December 31, 2012:
Assets
Loans
Deposits

PNB

$ 221,758
16,678
70,739
156,516

119,303
32,197

87,106

$6,502,579
4,369,173
4,814,107

Operating results for the year ended December 31, 2011 (In thousands)

Net interest income
Provision for loan losses
Other income (loss)
Other expense

Income (loss) before taxes
Income taxes (benefit)

Net income (loss)

Balances at December 31, 2011:
Assets
Assets held for sale (1)
Loans
Deposits
Liabilities held for sale (2)

PNB

$ 236,282
30,220
90,982
146,235

150,809
43,958

$ 106,851

$6,281,747
—
4,172,424
4,611,646
—

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)
Net income (loss)

Balances at December 31, 2010:
Assets
Loans
Deposits

PNB
$ 237,281
23,474
80,512
144,051

150,268
47,320
$ 102,948

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

—
—
—
—

—
—

—

—
—
—

$ 27,078
31,052
6,617
31,379

(28,736)
(6,210)

$ (22,526)

$650,935
382,462
123,883
32
536,186

VB
$ 27,867
61,407
(6,024)
31,623

(71,187)
(25,773)
$ (45,414)

$791,945
640,580
633,432

GFSC

$ 9,156
859
—
2,835

5,462
1,912

$ 3,550

$ 49,926
50,082
8,358

GFSC

$ 8,693
2,000
—
2,506

4,187
1,466

$2,721

$ 46,682
—
47,111
8,013
—

GFSC
$ 7,611
2,199
2
2,326

3,088
1,082
$ 2,006

$ 43,209
43,714
7,062

SEPH

(341)
17,882
21,431
22,032

(18,824)
(6,603)

$ (12,221)

$104,428
59,178
—

SEPH

(974)
—
(3,039)
1,082

(5,095)
(1,784)

$ (3,311)

$ 34,989
—
—
—
—

SEPH

—
—
—
—

—
—
—

All Other

$ 4,742
—
233
6,585

(1,610)
(1,805)

$ 195

$(14,130)
(28,111)
(106,433)

All Other

$ 2,155
—
350
7,115

(4,610)
(3,015)

$ (1,595)

$(42,108)
—
(26,319)
(154,577)
—

All Other
$ 1,285
—
390
9,107

(7,432)
(5,993)
$ (1,439)

$(48,451)
(26,384)
(167,767)

Total

$ 235,315
35,419
92,403
187,968

104,331
25,701

78,630

$6,642,803
4,450,322
4,716,032

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

$7,282,261
4,732,685
5,095,420

(1) The assets held for sale represent the loans and other assets at Vision Bank that were sold in the first quarter of 2012.

(2) The liabilities held for sale represent the deposits and other liabilities at Vision Bank that were sold in the first quarter of 2012.

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 is a reconciliation of financial information for the reportable
segments to the Corporation’s consolidated totals:

Statements of Income
for the years ended December 31, 2012, 2011 and 2010

Net Interest Depreciation

Income

Expense

Other
Expense

Income
Taxes

Assets

Deposits

(In thousands)

Income:

2012

2011

2010

Dividends from subsidiaries

$ 197,000

$105,000

$ 80,000

(In thousands)

2012:

Totals for reportable

segments

Elimination of

$230,573

$6,954 $174,429 $27,506 $6,656,933 $4,822,465

intersegment items

(4,948)

Parent Co. totals –
not eliminated

9,690

—

(35,639)

(106,433)

6,585

(1,805)

21,509

—

Totals

2011:

Totals for reportable

segments

Elimination of

$235,315

$6,954 $181,014 $25,701 $6,642,803 $4,716,032

$271,079

$7,583 $173,619 $37,430 $7,014,353 $4,619,691

intersegment items

(974)

Parent Co. totals –
not eliminated

3,129

—

(63,243)

(154,577)

7,115

(3,015)

21,135

—

Totals

2010:

Totals for reportable

segments

Elimination of

$273,234

$7,583 $180,734 $34,415 $6,972,245 $4,465,114

$272,759

$7,126 $170,874 $22,629 $7,330,712 $5,263,187

intersegment items

—

Parent Co. totals
– not eliminated

1,285

—

(77,876)

(167,767)

9,107

(5,993)

29,425

—

Totals

$274,044

$7,126 $179,981 $16,636 $7,282,261 $5,095,420

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 non-interest bearing deposits with a bank subsidiary.

Net cash provided by operating activities reflects cash payments (received
from subsidiaries) for income taxes of $4.54 million, $4.21 million and
$5.97 million in 2012, 2011 and 2010, respectively.

At December 31, 2012 and 2011, shareholders’ equity reflected in the
Parent Company balance sheet includes $173.1 million and $146.6 million,
respectively, of undistributed earnings of the Corporation’s subsidiaries which
are restricted from transfer as dividends to the Corporation.

Balance Sheets
December 31, 2012 and 2011

(In thousands)

Assets:
Cash

Investment in subsidiaries

Debentures receivable from PNB

Other investments

Other assets

Total assets

Liabilities:

Dividends payable

Subordinated notes

Other liabilities

Total liabilities

Total shareholders’ equity

2012

$ 98,726

589,523

30,000

2,133

19,639

$740,021

—

80,250

9,405

89,655

650,366

Total liabilities and shareholders’ equity

$740,021

2011

$134,650

643,959

—

2,280

19,406

$800,295

—

50,250

7,681

57,931

742,364

$800,295

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

10,027

232

207,259

11,869

5,643

385

111,028

10,639

195,390

1,806

100,389

3,016

4,789

411

85,200

12,632

72,568

5,993

197,196

103,405

78,561

(118,566)

(21,265)

$ 78,630

$ 82,140

(20,460)

$ 58,101

Statements of Cash Flows
for the years ended December 31, 2012, 2011 and 2010

(In thousands)

Operating activities:

Net income

2012

2011

2010

$ 78,630

$ 82,140

$ 58,101

Adjustments to reconcile net income to

net cash provided by operating activities:

Undistributed losses of subsidiaries
Decrease in other assets
Increase (decrease) in other liabilities

Net cash provided by
operating activities

Investing activities:

Purchase of investment securities
Capital contribution to subsidiary
Purchase of debentures receivable

from subsidiaries

Repayment of debentures receivable

from subsidiaries

Net cash provided by (used in)

investing activities

Financing activities:
Cash dividends paid
Proceeds from issuance of

common shares and warrants

Payment to repurchase

warrants

Payment to repurchase
preferred shares

Proceeds from issuance of
subordinated notes

Cash payment for fractional shares

Net cash used in

financing activities

(Decrease) increase in cash

Cash at beginning of year

118,566
5,748
1,724

21,265
8,268
(7,875)

20,460
7,344
(3,763)

204,668

103,798

82,142

—
(45,000)

(250)
(36,000)

—
(52,000)

(115,000)

(30,000)

—

52,000

—

2,500

(108,000)

(66,250)

(49,500)

(60,154)

(62,907)

(62,076)

407

(2,843)

(100,000)

30,000

(2)

(132,592)

(35,924)

134,650

—

(2)

33,541

—

(4)

(62,909)

(25,361)

160,011

(28,539)

4,103

155,908

Cash at end of year

$ 98,726

$134,650

$160,011

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

25. PARTICIPATION IN THE U.S. TREASURY CAPITAL

PURCHASE PROGRAM

On December 23, 2008, Park issued $100 million of Fixed-Rate Cumulative
Perpetual Preferred Shares, Series A, with a liquidation preference of $1,000
per share (the “Series A Preferred Shares”). The Series A Preferred Shares
constituted Tier 1 capital and ranked senior to Park’s common shares. The
Series A Preferred Shares were to pay cumulative dividends at a rate of 5%
per annum through February 14, 2014 and reset to a rate of 9% per annum
thereafter. For the period ended December 31, 2012, Park recognized a charge
to retained earnings of $3.4 million representing the preferred share dividend
and accretion of the discount on the preferred shares, associated with Park’s
participation in the CPP.

As part of its participation in the CPP, Park also issued a warrant to the
U.S. Treasury to purchase 227,376 common shares (the “Warrant”), which
was equal to 15% of the aggregate amount of the Series A Preferred Shares
purchased by the U.S. Treasury, having an exercise price of $65.97. The
initial exercise price for the Warrant and the market price for determining
the number of common shares subject to the Warrant were determined by
reference to the market price of the common shares on the date the Company’s
application for participation in the CPP was approved by the U.S. Department of
the Treasury (calculated on a 20-day trailing average). The Warrant had a term
of 10 years.

As a participant in the CPP, the Company was required to adopt certain
standards for compensation and corporate governance, established under
the American Recovery and Reinvestment Act of 2009 (the “ARRA”),
which amended and replaced the executive compensation provisions of
the Emergency Economic Stabilization Act of 2008 (“EESA”) in their entirety,
and the Interim Final Rule promulgated by the Secretary of the U.S. Treasury
under 31 C.F.R. Part 30. In addition, Park’s ability to declare or pay dividends
on or repurchase its common shares was partially restricted until December
23, 2011 as a result of its participation in the CPP.

On May 2, 2012, Park entered into a Letter Agreement pursuant to which
Park repurchased from the U.S. Treasury the Warrant to purchase 227,376
Park common shares in full for consideration of $2.8 million, or $12.50
per Park common share.

N O T E S

PARK NATIONAL CORPORATION
Post Office Box 3500
Newark, Ohio 43058-3500
740.349.8451
ParkNationalCorp.com

2012

ANNUAL REPORT