Park National Corp. Annual Report 2018

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FY2018 Annual Report · Park National Corp.

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PARKNATIONAL

C O R P O R A T I O N

Park National Corporation
Post Office Box 3500
Newark, Ohio 43058-3500
740.349.8451
ParkNationalCorp.com

2018

ANNUAL REPORT

PARKNATIONA L

C O R P O R A T I O N

CRAWFORD

ASHLAND

WAYNE

RICHLAND

MERCER

MARION

MORROW

HOLMES

COSHOCTON

TUSCARAWAS

GUERNSEY

KNOX

LICKING

FRANKLIN

MUSKINGUM

FAIRFIELD

PERRY

HOCKING

ATHENS

DARKE

CHAMPAIGN

MIAMI

CLARK

MADISON

GREENE

BUTLER

WARREN

HAMILTON

CLERMONT

OHIO
 Century National Bank: Athens, Coshocton,

Guernsey, Hocking, Muskingum, Perry, Tuscarawas

 Fairfield National Bank: Fairfield, Franklin

 First-Knox National Bank: Ashland, Holmes, Knox,

Morrow, Richland, Wayne

g Guardian Finance Company: Clark, Fairfield,

Franklin, Licking, Warren

 Park National Bank: Franklin, Licking

 Park National Bank: Butler, Clermont, Hamilton
Southwest Ohio & Northern Kentucky

 Richland Bank: Richland

s Scope Aircraft Finance: Franklin

 Second National Bank: Darke, Mercer

 Security National Bank: Champaign, Clark, Greene,

Madison, Warren

 United Bank: Crawford, Marion

 Unity National Bank: Miami

JEFFERSON

IREDELL

MECKLENBURG

KENTUCKY
 Park National Bank: Jefferson

NORTH CAROLINA
 NewDominion Bank: Iredell, Mecklenburg

FAIRFIELD
NATIONAL
BANK

DIVISION OF THE PARK NATIONAL BANK

GUARDIAN

FINANCE COMPANY

PARK

NATIONAL BANK

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

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

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

Shareholders’ Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 6

Park National Corporation Directors and Executive Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Directors and Officers of Affiliates:

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

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

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

NewDominion Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

The Park National Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .15

Park National Bank of Southwest Ohio and Northern Kentucky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Richland Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . 20

Second National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . 22

Security National Bank Division . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

United Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. . 26

Unity National Bank Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .27

Guardian Finance Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Scope Aircraft Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 29

Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .30

Management’s Report on Internal Control Over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .49

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Financial Statements:

Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .51

Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 53

Condolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..55

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

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

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..59

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

CHANGE OR TRANSITION?
Why are we starting with this? Because while change may be abrupt, forced upon us
and otherwise incline towards sub-optimal results, transitions are known, planned,
expected and hopefully lead to good things. And that’s what we are embarking
on—a transition.

For 48 years, Dan DeLawder has been fully engaged in advancing the fortunes of
first The Park National Bank (PNB), then Park National Corporation (PRK). Now
he has informed both boards that he intends to begin cutting back, effective after
our upcoming annual shareholder meeting. We have good examples to follow —
John Alford after Everett Reese; Bill McConnell after John; and Dan followed Bill.
Effective May 1, 2019, Dan will remain as Chairman of the Executive Committee,
David Trautman will become Chairman of the Board and continue as CEO and
Matthew R. Miller will become President. While some may view this as change, we
view it as a logical step in a transition plan. Dan and David have worked together
for 35+ years; Matt has worked with both Dan and David for his entire 10-year
career at PNB/PRK. We know each other pretty well; our colleagues know us
pretty well, too. We believe our individual talents complement each other’s and
we are unwavering in our quest to improve personally and professionally. In short,
we don’t believe you will see any dramatic philosophical or practical shifts in our
approach to serving our stakeholders (more on that later).

Yes, you say, this is all very interesting. But usually when an annual report begins
with something other than financial results, it is because someone is trying to
mask mediocrity. This is not the case. Here are some of the numbers we believe will
support our point:

Favorite Number (000s)

2018

Income Before Taxes

Taxes

Net Income

Return on Equity (ROE)

Return on Assets (ROA)

Efficiency Ratio

$131,299

($20,912)

$110,387

14.08%

1.45%

61.68%

2017

$118,469

($34,227)

$84,242

11.15%

1.09%

60.62%

2016

$122,895

($36,760)

$86,135

11.68%

1.16%

62.96%

Nearly every figure trended in the right direction, except our efficiency ratio. Net
Income Before Taxes - up; Taxes - down; Net Income - up; ROE - up; ROA - up.

Earnings per share (EPS)

Year-end stock price per share

Dividends per share

Dividend yield on year-end stock price

$7.07

$84.95

$4.07

4.79%

$5.47

$5.59

$104.00

$119.66

$3.76

3.62%

$3.76

3.14%

Do you see any correlation between stock price, dividends and earnings per share?
Decades ago, in a college finance class, we were told that per share stock price would be
related to earnings and dividends per share. Naively, we thought the relationship would
be positive. Apparently, if we make more money per share and increase our dividend per
share, the stock price goes down. On the plus side, our dividend yield has gone up.

We should not be glib about our market price, and we are not. But we cannot control
when financial stocks go out of favor, which is what happened in late 2018. From
January 1, 2018 to December 31, 2018, the Keefe, Bruyette, Woods (KBW) bank stock
index dropped 21.22 percent. During that period, PRK stock dropped 18.32 percent.

You may find more details on our financial performance in our form 10k or our Annual
Report to shareholders.

STRATEGIC PLAN
In April 1989, your board approved our first written strategic plan. It has been amended
three times. We say amended, for the changes we incorporated at those times were
reflections of new information that informed our then-current thinking. The most
recent strategic plan, approved by your board in October 2018, was the product of a
new approach. In last year’s letter, we wrote about our relationship with The Arbinger
Institute and how they were training us to consider our mindset towards others as the
critical factor in our behaviors towards them. To quote from last year’s letter:

“…people should see others as people—each with hopes, dreams and challenges—not as
objects (stepping stones, obstacles or irrelevancies). When we see each other as people
(an “Outward” mindset), we do things for them. When we see others as objects (an
“Inward” mindset), we do things to them.”

Under the leadership of EVP Matt Miller, and guided by Mike Merchant of The Arbinger
Institute, we developed a plan based on an Outward Mindset. With that perspective,
we examined a) who are all the people we impact; and b) what may we do to help them
achieve their goals? We identified seven stakeholders:

• Our Customers
• Our Associates
• Our Communities
• Our Partners (e.g. realtors, municipalities, school systems, auto dealerships, etc.)
• Our Shareholders
• Our Boards
• Our Regulators

We exist to help these stakeholders thrive. This is our “Why we do what we do”. We
believe if we help these groups achieve their goals, we will maximize our potential for
service to all. We also believe our strategic plan will serve as our constitution and our
playbook, as it reaffirms our core beliefs and informs our daily activities.

WHAT DOES THE OUTWARD MINDSET
LOOK LIKE IN ACTION?
Readers unfamiliar with The Outward Mindset may wonder what it is and what it looks
like in action. Here’s an example in our world…27 years ago, we introduced our Freedom
Years® program. It is designed for customers aged 50 or better who have $10,000 or
more in any combination of deposit and/or investment accounts. Here are some benefits
that Freedom Years® members enjoy:

• Access to group travel, from local day trips to adventure safaris to walking tours

around the world

•

Events like speaker programs, local entertainment opportunities and euchre
parties

The Outward Mindset piece to our Freedom Years® program is manifested in many
ways, though none so clearly as our appeal for drivers. Long before Uber® and Lyft®,
we decided that if our Freedom Years® members were going to travel, and that travel
involved getting to the airport (sometimes hours away), we were going to get them
there. So we asked our colleagues to pick up customers at their homes and drive them
to the airport. When customers returned from the trip, our colleague drivers took them
from the airport back to their homes. Often, the pick-up times from home or airport
were before 5 am or after 11 pm.

Why do this? Because we thought of the perfect travel experience — through our
customers’ eyes — and concluded that one stressful part of travel is getting to and
from the airport. We had a sense to remove this stress (in the form of door-to-door
service) and we just did it. And we’ve been doing it for 25+ years. Not one customer has
complained about being escorted from their home directly to and from the airport. Your
authors have driven a number of customers to and from airports and each time we are
thrilled to be part of a special trip. Here’s a sample of what our 137 associate/drivers
have been part of:

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

1. Bringing customers home right after a summer storm has knocked the power
out to most of the county. Our associates were moving tree limbs to get into
driveways; helping customers get into their home without using their electric
garage door opener (they did not bring a physical key to the house with them);
using flashlights to get them inside their home; driving them to a relative’s house
vs. their own home because they had no power.

2. An associate returning back to a customer’s home before their flight departs
Ohio to retrieve items the customer forgot, like carry-on bags; medicine and/
or passports! And our associate made it back to the airport before the flight
departed!

We have countless other examples; the two above not only illustrate an Outward
Mindset in action, they also reveal a bit about why our Freedom Years® members love
the program.

Another example:
Early last year the leaders of two of our banking divisions came to us with an idea. Brian
Hinkle (Farmers & Savings (F&S) division President), Vickie Sant (First-Knox National
Bank (FK) division President) and Bob Boss (then FK division EVP) wanted to combine
F&S into FK. They offered the following logic:

Why Combine?

Why Not?

Easier to attract talented colleagues if F&S
was part of FK

Customers may perceive a weaker
devotion to F&S communities

More career opportunities for F&S colleagues
as part of FK

Associates’ titles, email addresses, etc.
may change

We preserve affiliate independence…
why combine?

Better for customers who were confused
about two banks so geographically close,
with different names, but operating as one

Different name (for F&S), but same people…
and it is people who serve our customers

Can support local communities more with
greater resources

Save maintenance on separate website and
mobile apps

Maintaining the status quo requires little effort or courage. “We have always done
it that way” is a powerful sedative, particularly if your performance record is strong.
Challenging the status quo, as Brian, Vickie, Bob and the F&S and FK boards did,
requires courage, imagination, fortitude and vision. They looked outside the impact on
themselves and asked, “What’s best for our stakeholders?” In doing this, they anticipated
the conclusions we would reach in our strategic plan about whom we serve — our seven
stakeholders.

LEADER MOVES
In March, Scott Rasor assumed the presidency of our Unity National Bank (Unity)
division. Scott sees the best in people, looks to help them succeed and they thrive under
his leadership. He is an unwavering supporter of all that’s good for Unity colleagues and
customers alike.

In September, Bob Boss assumed the President and CEO title from Vickie Sant (see
below) at FK. Bob joined us when we purchased two offices from Ohio Legacy in
Millersburg. He has proven a tireless promoter of FK and PRK and an unrelenting
developer of new business. His challenge will be to take the firm foundation laid by
Vickie Sant and help his colleagues build upon it.

Vickie Sant
In the spring of 1997, then-PRK CEO Bill McConnell spoke to the Knox County
community and FK employees about PRK’s pending affiliation with FK. In his talk,
he described the benefits of working together—how we could accommodate larger
customers, invest more in technology and support our communities to a greater degree.
He also described how our combined corporation would not need two sets of audit
teams, loan review teams, accountants, etc. In the audience was the head of FK’s audit
department, Vickie Sant. Vickie later told us that she didn’t recall much of what Bill said,
other than that she and her three colleagues in FK’s audit department were out of jobs.
What she did not hear was that while we did not need two sets of certain positions, we
would do all we could to help the people in those redundant positions find other spots
in the combined entity. Rather than being defeated by the news that her department
was going away, Vickie seized on the opportunity to grow. She assumed varying duties
in branch administration, operations and eventually succeeded Gordy Yance as FK’s
President and CEO. She is a model for all of us. She started as a part-time teller, rose to
head of audit, completed additional formal education, then reset her course after her
position was eliminated, to lead one of our largest affiliates as its President and CEO.
Vickie is a remarkable person who has earned more time with her family (and anything
else she wants to do). True to her service nature, while Vickie has retired, she remains in
town and will continue to help her successor, Bob Boss, and PRK generally.

WARM WELCOMES
We have been asked how we find new colleagues, new board members and new affiliate
partners. It is simple. We look for leaders…people who elevate, inspire and challenge
us. These people are not marked by titles, upbringing, status, privilege, etc. — they are
marked by character. We find these people have four traits in common (courtesy of J.
Rufus Fears):

• They have a bedrock of principles
• They have a moral compass
• They have vision
• They have an ability to assemble a coalition to achieve their vision

On January 1, 2019, Jason Judd and Mark Ramser joined the PRK board. Jason also
joined the PNB board and Mark continues as an advisory board member of FK. Jason
and Mark are leaders of the highest quality, and we look forward to working with and
learning from them.

The following individuals have joined the PRK team as affiliate division board members.
Like Jason and Mark, they are first-class leaders and we look forward to working with
them to maximize our potential in all communities, with all customers and prospects.

Board Member

Ken Beuley

Jack Cathey, Ph.D.

Tim Cowen

Beth Delaney

Travis Faber

Louis Foreman

Charley Hodges

Chuck Hood, Jr.

Blaine Jackson

David Longo

Matthew D. Miller

Dennis Moser

Don Renaldo, M.D.

Chris Tuttle

Stephen G. Wells

Sara White

Affiliate Division

NewDominion Bank

First-Knox National Bank

Richland Bank

Second National Bank

NewDominion Bank

First-Knox National Bank

NewDominion Bank

First-Knox National Bank

NewDominion Bank

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

FOND FAREWELLS
The following individuals ended their affiliate division board service last year. We are
grateful for their support of their respective affiliate division and PRK, and we wish
them all the best.

Board Member

Phil Fullenkamp

Affiliate Division

Second National Bank

Benjamin Goldman

Richland Bank

Robert Goodrich

Century National Bank

Eleanor Hood

Rick Taylor*

Fairfield National Bank

PRK

Robert Thompson

Century National Bank

*Rick Taylor continues to serve on the Richland Bank affiliate division board

Years of Service

ON THE OTHER SIDE
J. Gilbert Reese
Director Emeritus J. Gilbert Reese (Gib) passed away November 20, 2018. Like his father
Everett D. Reese before him, Gib’s influence on PNB and PRK was profound and lasting.
He joined the PNB board in 1965, and the PRK board in 1987 (upon forming our holding
company). Gib possessed a wonderful combination of intellect and humor and he was
unvarnished in his observations. He would quickly and surgically point out where we
could improve; he was equally quick to point out where we deserved applause. He
reminded us of our responsibilities to shareholders, customers and local communities.
This organization and many others miss his candor, his judgment and his support.

John W. Kozak
John Kozak passed away November 19, 2018. He joined PRK as part of our acquisition
of Century National Bank (then Mutual Federal), where he was Chief Financial Officer
(CFO). He served as PRK/PNB CFO from 1998-2012 and on the PNB board from 2006 to
2012, when he retired to spend some well-deserved time with his wife Sue, their four
children and their grandchildren.

NEWDOMINION BANK (ND)
In July, we closed on the merger of ND into PNB. We could not be more pleased with
the leadership of Blaine Jackson, his team and his board, and we are delighted to include
our ND friends as part of the PRK Family of Community Banks. We could articulate all
the reasons why we are excited about the prospects of working with ND, but we will let
Blaine explain it, as he did in the following quote from an interview with The American
Banker (italics added):

JACKSON: I expect the metropolitan markets will continue to see strong activity. Loan
demand remains strong in metro markets and borrowing needs continue to increase in
size. Clients in metro markets are beginning to outgrow their local community bank.
This is one of the reasons NewDominion agreed to merge with Park National. Since
the merger closed on July 1, we have made $46.5 million in loans that would have
previously surpassed our pre-merger limit [of $4 million]. In our specific situation, we’re
able to look, think, and feel like a local community bank but with the firepower of a
much larger bank behind us.

We couldn’t have said it better. ND is a collection of leaders, and we look forward to
working with them to maximize ND’s potential in the Charlotte area.

CAROLINA ALLIANCE BANK (CAB)
On September 13, 2018, we announced the signing of a definitive agreement by which
CAB would merge into PNB. Over the past several years we had become acquainted
with John Kimberly (CEO), John Poole (retired CEO) and Lamar Simpson (CFO). Each time
we met, we were more impressed with their energy, integrity and devotion to their
communities. We discovered that more connected us than divided us. We liked spending
time with them, and they with us. Thus when their board, led by Terry Cash, Lou Bissette
and Rick Sumerel, decided to explore strategic possibilities, we were delighted to offer

affiliating with PRK and PNB as an alternative. We expect to close the merger in the
second quarter of 2019.

LOUISVILLE
In March 2018, Andrew Holden joined PNB to establish an office in Louisville, KY.
Andrew is our kind of banker — humble and service-minded, with a keen intellect.
He has assembled an excellent team to serve the Louisville community. Early results
are promising and we look forward to helping Andrew, his team and the Louisville
community.

NATIONWIDE REACH, LOCAL FEEL
Readers of this letter may be surprised to know we have shareholders and customers in
nearly every state. Now we have (or soon will have) physical locations in North Carolina,
South Carolina, Kentucky and Ohio. What separates us? Geography. What unites us,
what connects us? A common and unwavering devotion to customers, colleagues and
community. An unyielding sense of purpose, drive, ambition. A healthy dose of humility.
A love of service. Respect and affection for each other. Accepting personal responsibility
for ensuring customer concerns and needs are addressed. A willingness to act; to make
mistakes, to learn from those mistakes and enjoy the growth that follows stretching.

We have invited a brilliant group of bankers to join us, and they accepted. They are
joined by affiliate division board members that are leaders in their fields and/or
communities. We all seek excellence — in customer, colleague and community relations,
in financial performance and in personal and professional growth and development. We
are excited about our future together.

A CLOSING NOTE
We do not presume to be thought leaders, but we do actively seek information that may
inform our thinking and help us grow. Here are some books that have influenced us over
the past year. Perhaps you have read them and/or will be moved by them as we have.

Forged in Crisis, The Power of Courageous Leadership in Turbulent Times,
by Nancy Koehn

Angels Among Us, by The Arbinger Institute

The Traveler’s Gift, by Andy Andrews

The Book of Jewish Values, by Joseph Telushkin

The Daily Stoic: 366 Meditations on Wisdom, Perseverance, and the Art of Living,
by Ryan Holiday and Stephen Hanselman

The Lessons of History, by Ariel and Will Durant

12 Rules for Life: An Antidote to Chaos, by Jordan B. Peterson

A Year with C.S. Lewis: Daily Readings from His Classic Works, by C.S. Lewis

100 Days in the Life of Rutherford B. Hayes, by Eric Ebinger

The Second World War, by Winston Churchill

Thank you for another year of support. We learned a lot last year, and we are eager to
apply these lessons to our efforts this year. Please contact us if we may help you or
anyone you refer to our service.

Your fellow shareholders,

C. Daniel DeLawder
Chairman of the Board

David L. Trautman
Chief Executive Officer and President

PRK Annual Report Layout 2018 FINAL 201902 EPA.indd 4

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

(In thousands, except per share data)

2018

Earnings:

Total interest income

Total interest expense

Net interest income

Net income

Per Share:

Net income - basic

Net income - diluted

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 equity

Return on average assets

Efficiency Ratio

$310,801

43,903

266,898

110,387

7.13

7.07

4.07

53.03

$7,804,308

6,260,860

5,692,132

1,411,080

636,966

832,506

14.08%

1.45%

61.68%

2017

$286,424

42,665

243,759

84,242

5.51

5.47

3.76

49.46

$7,537,620

5,817,326

5,372,483

1,512,824

906,289

756,101

11.15%

1.09%

60.62%

Percent Change

8.51%

2.90%

9.49%

31.04%

29.40%

29.25%

8.24%

7.22%

3.54%

7.62%

5.95%

-6.73%

-29.72%

10.11%

26.28%

33.03%

1.75%

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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 AMERICAN Symbol – PRK
CUSIP #700658107

GENER AL SHAREHOLDER INQUIRIES:
Park National Corporation
Brady T. Burt, Secretary
50 North Third Street
Post Office Box 3500
Newark, Ohio 43058-3500
740.349.3927

DIVIDEND REINVESTMENT PL AN:
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 common 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 shareholders. If you have any questions or need an enrollment form, please contact the Corporation’s Stock Transfer Agent and Registrar as indicated below.

STOCK TR ANSFER AGENT AND REGISTR AR:
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 2018) are available on our website by clicking on the “SEC Filing” section and then 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

EMAIL:
Brady T. Burt
BBurt@ParkNationalBank.com

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PARKNAT IONAL

C O R P O R A T I O N

Total Banking Centers: 109

Total Financial Service Centers: 9

Total ATMs: 132

Asset Size: $7.8 billion

Website: ParkNationalCorp.com

Headquarters: Newark, Ohio

NYSE American: PRK

Donna M. Alvarado
President
AGUILA International

Brady T. Burt
Chief Financial Officer
Park National Corporation

C. Daniel DeLawder
Chairman
Park National Corporation

James R. DeRoberts
Partner
Gardiner, Allen,
DeRoberts Insurance

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

Alicia Sweet Hupp
President and CEO
Sweet Manufacturing
Company

Stephen J. Kambeitz
Entrepreneur

Timothy S. McLain

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

Robert E. O’Neill
President
Southgate Corporation

Julia A. Sloat
Senior Vice President
American Electric Power, Inc.

William T. McConnell
Director Emeritus

David L. Trautman

President
Park National Corporation

Leon Zazworsky
President
Mid State Systems, Inc

EXECUTIVE OFFICERS

CHAIRMAN
C. Daniel DeLawder

PRESIDENT
David L. Trautman

CHIEF FINANCIAL OFFICER
Brady T. Burt

PRK Annual Report Layout 2018 FINAL 201902 EPA.indd 7

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Offices: 18 ATMs: 16

Website: CenturyNationalBank.com

Phone: 740.455.7230 or 800.548.3557

President: Patrick L. Nash

Counties served: Athens, Coshocton, Guernsey,

Hocking, Muskingum, Perry, Tuscarawas

2018 HIGHLIGHTS
In December, Dr. Robert Thompson and Mr. Robert Goodrich retired their seats on our advisory board. Mr. Goodrich served
28 years and Dr. Thompson served 18 years. We appreciate their contributions during their tenure. In the last year and a half we
relocated our New Philadelphia Lending Center, opened a new office in Cambridge, and built an office in Coshocton. This provides
greater servicing and growth opportunities for our expanding client and prospect base. Since the award was introduced in 2015,
Century has been voted Best Financial Institution in Muskingum County each year.

Athens*
898 East State Street
Athens, Ohio 45701
740.593.7756

Cambridge*
758 Wheeling Avenue
Cambridge, Ohio 43725
740.439.0014

Coshocton Plaza*
100 Downtowner Plaza
Coshocton, Ohio 43812
740.623.0114

Coshocton North*
229 North Third Street
Coshocton, Ohio 43812
740.622.4455

Newcomerstown*
220 East State Street
Newcomerstown, Ohio 43832
740.498.4103

New Concord*
1 West Main Street
New Concord, Ohio 43762
740.826.7676

New Lexington*
206 North Main Street
New Lexington, Ohio 43764
740.342.4103

Zanesville Kroger*
3387 Maple Avenue
Zanesville, Ohio 43701
740.455.7326

Zanesville Lending Center*
505 Market Street
Zanesville, Ohio 43701
740.454.6892

Zanesville South*
2127 Maysville Avenue
Zanesville, Ohio 43701
740.455.7301

New Philadelphia Lending Center
1309 Fourth Street N.W., Suite B
New Philadelphia, Ohio 44663
330.681.7000

Zanesville South Maysville*
2810 Maysville Pike
Zanesville, Ohio 43701
740.455.3169

Dresden*
91 West Dave Longaberger Avenue
Dresden, Ohio 43821
740.754.2265

Zanesville Brandywine*
1201 Brandywine Boulevard
Zanesville, Ohio 43701
740.455.7285

*Includes Automated Teller Machine

Logan*
61 North Market Street
Logan, Ohio 43138
740.385.5621

Main Office
14 South Fifth Street
Zanesville, Ohio 43701
740.455.7230

Zanesville Military*
990 Military Road
Zanesville, Ohio 43701
740.454.8505

Zanesville East*
80 Sunrise Center Drive
Zanesville, Ohio 43701
740.455.7305

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ADVISORY BOARD MEMBERS

Michael L. Bennett
Second Capital Consulting, LLC

Julie A. Brown
Fink’s Harley-Davidson, Southside
Collision, Fink’s Quality Cars and
Fink’s Custom Vans

Clinton W. Cameron
Cameron Drilling Company

Ward D. Coffman, III
Coffman Law Offices

Scott D. Eickelberger
Kincaid, Taylor and Geyer

Robert D. Goodrich, II
Retired, Wendy’s Management Group,
Inc.

Dr. Susan K. Hasseler
Muskingum University

Patrick L. Hennessey
P&D Transportation, Inc.

Henry C. Littick, II
Southeastern Ohio Broadcasting
Systems, Inc.

Thomas M. Lyall
Chairman, Century National Bank

Timothy S. McLain, CPA
McLain, Hill, Rugg & Associates, Inc.

Patrick L. Nash
President, Century National Bank

Dr. Robert J. Thompson
Neurological Associates of
Southeastern Ohio, Inc.

OFFICERS

CHAIRMAN
Thomas M. Lyall

PRESIDENT
Patrick L. Nash

SENIOR VICE PRESIDENTS
Barbara A. Gibbs
Bruce D. Kolopajlo
Jody D. Spencer*
Alton P. Thompson

VICE PRESIDENTS
Robert W. Bigrigg
Theresa M. Gilligan
Stephen A. Haren
Jeffrey C. Jordan
Paula L. Meadows
Rebecca R. Porteus
Terri L. Sidwell
Brian E. Wells

ADMINISTRATIVE OFFICERS
John D. Dalponte
Sonya R. Denny
Paulla S. Emery
Amber M. Gibson
Angela S. Grigg
Joel Kupchik
Scott A. Lamonica
Christy S. Robinson
Kandy M. Sampsel
Emila S. Smith
Brittany J. Stubbs
Melissa M. Tom**
Kayla M. Watts

*Trust Officer
**Assistant Trust Officer

ASSISTANT VICE PRESIDENTS
William G. Addington*
Jessica L. Cranz
Lynn M. Garrision
Alaina J. Joseph
Susan A. Lasure
Jeremy A. Morrow
Kelly J. Rager
Nathaniel E. Schneider
Victoria M. Thomas
Jennifer L. Thompson

BANKING OFFICERS
Darin S. Alexander
Jana R. Brandon
Susan T. Edwards
Noelle K. Jarrett
Kang S. Kim
Diana L. McHenry
Jason J. Newton
William E. Rinehart
Paula J. Stewart
Beth A. Stillwell
Jason L. Wilhelm

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FAIRFIELD
NATIONAL
BANK

DIVISION OF THE PARK NATIONAL BANK

Offices: 9 ATMs: 14

Website: FairfieldNationalBank.com

Phone: 740.681.8210

President: Stephen G. Wells

Counties served: Fairfield, Franklin

2018 HIGHLIGHTS
Fairfield National was selected as the Lancaster Eagle Gazette reader’s choice award for the best bank in Fairfield County in 2018.
We are the leading financial institution in the county with the most locations, the only locally-staffed Trust department, the largest
FDIC deposit market share in the county, and handled the most real estate transactions in the county during the year.

Baltimore*
1301 West Market Street
Baltimore, Ohio 43105
740.862.4104

Canal Winchester*
6195 Gender Road
Canal Winchester, Ohio 43110
614.920.2454

East Main*
1001 East Main Street
Lancaster, Ohio 43130
740.653.5598

Main Office*
143 West Main Street
Lancaster, Ohio 43130
740.653.7242

Main Office Drive-Thru*
150 West Wheeling Street
Lancaster, Ohio 43130
740.653.7242

Meijer*
2900 Columbus-Lancaster Road
Lancaster, Ohio 43130
740.687.1000

Memorial Drive*
1280 North Memorial Drive
Lancaster, Ohio 43130
740.653.1422

Pickerington*
1274 Hill Road North
Pickerington, Ohio 43147
614.759.1522

Slate Ridge*
1988 Baltimore-Reynoldsburg Road
(Route 256)
Reynoldsburg, Ohio 43068
614.868.1988

West Fair*
1001 West Fair Avenue
Lancaster, Ohio 43130
740.653.1199

Off-Site ATM Locations

Lancaster - Fairfield Medical Center (2)
401 North Ewing Street, Lancaster

Lancaster - Ohio University
1570 Granville Pike, Lancaster

Kroger East
1141 East Main Street, Lancaster

*Includes Automated Teller Machine

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FAIRFIELD
NATIONAL
BANK

DIVISION OF THE PARK NATIONAL BANK

ADVISORY BOARD MEMBERS

Charles P. Bird, Ph.D.
Retired, Ohio University

Leonard F. Gorsuch
Fairfield Homes, Inc.

Jonathan W. Nusbaum, M.D.
Retired, Surgeon

Dean DeRolph
Kumler Collision and Automotive

Eleanor V. Hood
The Lancaster Festival

S. Alan Risch
Risch Drug Stores, Inc.

Jennifer Johns Friel
Midwest Fabricating Company

James L. McLain, II
J. McLain CPA Group

Stephen G. Wells
President, Fairfield National Bank

OFFICERS

PRESIDENT
Stephen G. Wells

SENIOR VICE PRESIDENT
Laura F. Tussing*

VICE PRESIDENTS
Daniel R. Bates
Jamey L. Binkley
Kim I. Sheldon
Luann K. Snyder*

ASSISTANT VICE PRESIDENTS
Molly S. Bates
Edward J. Gurile III
Michael D. Mitchell*
Trudy M. Reeb
Jason A. Saul
Brenda S. Shamblin
Tina L. Taley

BANKING OFFICERS
Vincent E. Carpico*
Eric W. Croft
Daniel J. Fawcett*

Cynthia A. Moore
Tiffany J. Ruckman
Allison G. Spangler*

ADMINISTRATIVE OFFICERS
Scott M. Gray
Christina L. Kittle
Dustin J. Poling**
Katherine A. Smiley Parker

*Trust Officer
**Assistant Trust Officer

PRK Annual Report Layout 2018 FINAL 201902 EPA.indd 11

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Offices: 13 ATMs: 21

Website: FirstKnox.com

Phone: 740.399.5500 or 800.837.5266

President: Robert E. Boss

Counties served: Ashland, Holmes, Knox, Morrow, Richland, Wayne

2018 HIGHLIGHTS
First-Knox National Bank was selected as the Main Street Mount Vernon Business of the Year in 2018. During the Knox County
Chamber of Commerce’s annual awards dinner, retiring president, Vickie Sant, was recognized with the Lifetime Achievement
award, and Cheri Butcher received the Women in Business Leadership award. First-Knox continues to enjoy 60% of the deposit
market share in Knox County.

Off-Site ATM Locations

Apple Valley
21973 Coshocton Road, Howard

BAGS
88 East Jackson Street, Millersburg

Colonial City Lanes
110 Mount Vernon Avenue, Mount Vernon

COTC - Ariel Hall
236 South Main Street, Mount Vernon

Kenyon College Bookstore
106 Gaskin Avenue, Gambier

Knox Community Hospital
1330 Coshocton Road, Mount Vernon

Loudonville - Stake’s Short Stop
3052 State Route 3

Morrow County Hospital
651 West Marion Road, Mount Gilead

Mount Vernon Nazarene University
800 Martinsburg Road, Mount Vernon

*Includes Automated Teller Machine

Ashland*
1000 Sugarbush Drive
Ashland, Ohio 44805
419.281.1590

Bellville*
154 Main Street
Bellville, Ohio 44813
419.886.3711

Blackjack Road*
8641 Blackjack Road
Mount Vernon, Ohio 43050
740.399.5260

Centerburg*
35 West Main Street
Centerburg, Ohio 43011
740.625.6136

Coshocton Avenue*
810 Coshocton Avenue
Mount Vernon, Ohio 43050
740.397.5551

Danville*
4 South Market Street
Danville, Ohio 43014
740.599.6686

Fredericktown*
137 North Main Street
Fredericktown, Ohio 43019
740.694.2035

Loudonville*
120 North Water Street
Loudonville, Ohio 44842-0179
419.994.4115

Main Office*
One South Main Street
Mount Vernon, Ohio 43050
740.399.5500

Millersburg*
225 North Clay Street
Millersburg, Ohio 44654
330.674.2610

Mount Gilead*
504 West High Street
Mount Gilead, Ohio 43338
419.946.9010

Operations Center
105 West Vine Street
Mount Vernon, Ohio 43050
740.399.5500

Perrysville*
112 North Bridge Street
Perrysville, Ohio 44864-0156
419.938.5622

Wooster
2148 Eagle Pass, Suite G
Wooster, Ohio 44691
330.462.7030

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ADVISORY BOARD MEMBERS

Robert E. Boss
President, First-Knox National Bank

Daniel L. Mathie
Critchfield, Critchfield & Johnston, Ltd.

Roger E. Stitzlein
Loudonville Farmers Equity

Timothy R. Cowen
Cowen Truck Line, Inc.

Matthew D. Miller
Mayor of Ashland

Jeffry D. Harris
Area Development Foundation, Inc.

Mark R. Ramser
Ohio Cumberland Gas Co.

Chris D. Tuttle
Amish Oak Furniture Company, Inc.

Gordon E. Yance
Retired, First-Knox National Bank

Korey M. Kidwell
Murray, Rauzi, Kidwell & Cunningham,
Ltd.

William B. Levering
Levering Management, Inc.

Kim M. Rose
Critchfield, Critchfield & Johnston, Ltd.

Vickie A. Sant
Chairwoman, First-Knox National Bank

ADMINISTRATIVE OFFICERS
Katherine M. Bartlebaugh**
Melissa A. Caudill
Jessica D. Davis
Laurie P. Gallwitz
Rebekah E. Jenkins
Jeffrey A. Kinney
Matia M. Mathews
Monique A. Milligan
Brenda S. Mitchell
Tiffany D. Stefano

*Trust Officer
**Assistant Trust Officer

OFFICERS

CHAIRWOMAN
Vickie A. Sant

PRESIDENT
Robert E. Boss

SENIOR VICE PRESIDENTS
Cheri L. Butcher*
Cynthia R. Higgs
James W. Hobson
Julie A. Leonard

VICE PRESIDENTS
Todd M. Hawkins*
Brian R. Hinkle
Jason B. Hummel
James S. Meyer
Todd P. Vermilya

ASSISTANT VICE PRESIDENTS
Timothy H. Bahler
Nicholas R. Blanchard
Heather A. Brayshaw

Phyllis D. Colopy
Levi D. Curry
Rachelle E. Dallas
Gregory A. Henley
Debra E. Holiday
R. Edward Kline
Mary A. Loyd
Jason R. McCulloch*

BANKING OFFICERS
Gabriel J. Aufrance
Mark D. Blanchard
Lance E. Dill
Krystal E. Drye
Todd A. Geren
Brandon D. Hayes
Kassandra L. Hoeflich
Darrell E. Lee
Paul J. Mayville
Sherry L. Snyder
Steven A. Waers
Kyle M. Walls

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Offices: 2 ATMs: 1

Website: NewDominionBank.com

Phone: 704.943.5700 or 800.592.6248

President: J. Blaine Jackson

Counties served: Iredell, Mecklenburg

2018 HIGHLIGHTS
NewDominion Bank joined the Park National Family of Community Banks in 2018. NewDominion is a full-service retail and
commercial bank committed to providing handcrafted banking to their clients – and the community. The bank was founded in
2005 and is headquartered in Charlotte, NC.

“Our leadership team is committed to providing concierge-style service to our clients and is excited to expand our account and
loan offerings by being a part of the Park family,” said President J. Blaine Jackson.

Metro Office*
1111 Metropolitan Avenue, Suite 500
Charlotte, NC 28204
704.943.5700

Lake Norman Office
124 Trade Court, Suite A
Mooresville, NC 28117
704.943.5700

ADVISORY BOARD MEMBERS

*Includes Automated Teller Machine

Ken Beuley
Keith Corporation

David L. Hood, Jr.
Hood, Hargett & Associates, Inc.

Donald Philip Renaldo, M.D.
Donald Automotive Group

Dr. Jack M. Cathey
University of North Carolina
at Charlotte

J. Blaine Jackson
President, NewDominion Bank

Stephen G. Wells
President, Fairfield National Bank

Louis Foreman
Enventys

Charles T. Hodges
New Forum, Inc.

OFFICERS

PRESIDENT
J. Blaine Jackson

EXECUTIVE VICE PRESIDENTS
Todd M. Bodgan
Gregory G. Burke
Timothy J. Ignasher

SENIOR VICE PRESIDENT
Robert S. Jenkins

David Longo
CBI

Dennis W. Moser
The Moser Group, Inc.

Sara C. White
CLT Residential

VICE PRESIDENTS
Rebecca S. Berolatti
Bryant W. Brewer
Charles R. Busse
Keith W. Hurley
Eleanor F. Jarosz
Jaclyn B. King
Adrian K. Marbry

ASSISTANT VICE PRESIDENTS
Nicholas M. Carver
Rhett Postal

George G. Shackelford
Andrew S. Thorndyke

BANKING OFFICERS
Jennifer M. Mayhew
MaryBeth M. Simon

ADMINISTRATIVE OFFICERS
Amy L. Farris Ray
Monica L. Gainey
Lauren A. Sergy
Sarah J. Sylvester

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Offices: 17 ATMs: 22

Website: ParkNationalBank.com

Phone: 740.349.8451 or 888.545.4762

Chairman: C. Daniel DeLawder

President: David L. Trautman

Counties served: Franklin, Licking, Jefferson (KY)

2018 HIGHLIGHTS
In May, Park National opened a lending office in Louisville. We again partnered with Habitat for Humanity Mid-Ohio by donating

$45,000 and providing 93 volunteers on 4 home projects for nearly 700 hours. Park was the top-ranking community bank on

Columbus Business First’s Banks and Savings and Loans list (ranked by Central Ohio deposits). Retirement plans continue to be

popular with local businesses as our plans managed has grown by 74% in the past 5 years.

Downtown Columbus
140 East Town Street, Suite 1400
Columbus, Ohio 43215
614.228.0063

Kroger Marketplace*
1155 North 21st Street
Newark, Ohio 43055
740.349.3946

Dugway*
1495 Granville Road
Newark, Ohio 43055
740.349.3947

Eastland*
1008 East Main Street
Newark, Ohio 43055
740.349.3942

Gahanna Kroger*
1365 Stoneridge Drive
Gahanna, Ohio 43230
614.475.5213

Granville*
119 East Broadway
Granville, Ohio 43023
740.587.0238

Southgate*
567 Hebron Road
Heath, Ohio 43056
740.522.3176

Hebron*
103 East Main Street
Hebron, Ohio 43025
740.928.2691

Johnstown*
60 West Coshocton Street
Johnstown, Ohio 43031
740.967.1831

Louisville (KY) Lending Center
2120 Wickham Place, Suite 105
Louisville, KY 40245

Main Office*
50 North Third Street
Newark, Ohio 43055
740.349.8451

McMillen*
1633 West Main Street
Newark, Ohio 43055
740.349.3944

Operations Centers
21 South First Street
22 South First Street
51 North Third Street
Newark, Ohio 43055
740.349.8633

Pataskala Kroger**
350 East Broad Street
Pataskala, Ohio 43062
740.927.8113

21st Street*
990 North 21st Street
Newark, Ohio 43055
740.349.3943

30th Street*
800 South 30th Street
Heath, Ohio 43056
740.522.5693

Utica*
33 South Main Street
Utica, Ohio 43080
740.892.3841

Worthington*
7140 North High Street
Worthington, Ohio 43085
614.841.0123

Off-Site ATM Locations

Denison University, Slayter Hall
200 Ridge Road, Granville

Kendal at Granville
2158 Columbus Road, Granville

Kroger
600 East Main Street, Hebron

Kroger
6962 East Main Street, Reynoldsburg

Licking Memorial Hospital
1320 West Main Street, Newark

OSU-N/COTC Campus
1179 University Drive, Newark

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

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Board of Directors

BOARD MEMBERS

Donna M. Alvarado
AGUILA International

Stephen J. Kambeitz
Entrepreneur

Julia A. Sloat
American Electric Power, Inc.

C. Daniel DeLawder
Chairman, The Park National Bank

William T. McConnell
Director Emeritus

David L. Trautman
President, The Park National Bank

James R. DeRoberts
Gardiner, Allen, DeRoberts Insurance

Robert E. O’Neill
Southgate Corporation

Leon Zazworsky
Mid State Systems, Inc.

F.W. Englefield, IV
Englefield, Inc.

J. Gilbert Reese
Director Emeritus

OFFICERS - CENTRAL OHIO

CHAIRMAN
C. Daniel DeLawder

PRESIDENT
David L. Trautman

EXECUTIVE
VICE PRESIDENT
Matthew R. Miller

SENIOR VICE PRESIDENTS
Adrienne M. Brokaw
Brady T. Burt
Thomas J. Button
Thomas M. Cummiskey*
Robert N. Kent, Jr.
Timothy J. Lehman
Laura B. Lewis
Cheryl L. Snyder
Paul E. Turner
Jeffrey A. Wilson

VICE PRESIDENTS
Corey S. Alton
Alan G. Anderson
Clinton G. Bailey

Gail A. Blizzard
Edward L. Brady
Jill A. Brewer
Alice M. Browning
James M. Buskirk*
Bryan M. Campolo
Peter G. Cassanos
Erica L. Chance
Anne K. Cole
Matthew D. Colwell
Cynthia L. Crane
Kathleen O. Crowley
Jaqueline L. Davis
Lori T. Drake
Aaron T. Dunifon
April R. Dusthimer
Brian J. Elder
Jill S. Evans
Joan L. Franks
Chanda L. Frenton
Jerrod F. Gambs
John S. Gard*
Jeffrey C. Gluntz
Scott C. Green
Linda M. Harris
Kelly A. Herreman

Cheri L. Hottinger
Damon P. Howarth*
Daniel L. Hunt
Teresa M. Kroll*
Craig M. Larson
Candy J. Lehman
Bethany B. Lewis
Mark A. Longstreth
David G. Lundregan*
Carl H. Mayer
Eric J. McKee
Lydia E. Miller
Mark H. Miller
Jennifer L. Morehead
Cynthia A. Neely
Tracey E. Ramsey
Gregory M. Rhoads
Karen K. Rice
David J. Rohde
Ralph H. Root, III
Christine S. Schneider
Eric M. Sideri
Jerry D. Simon
Robert G. Springer
Linda M. Staubach
Julie L. Strohacker*

Peggy A. Tidwell
Sandra S. Travis
Angie D. Treadway
Berkley C. Tuggle, Jr.
Daniel H. Turben
Stanley A. Uchida
John B. Uible*
Monte J. VanDeusen
Bradden E. Waltz
Jenny L. Ward
Megan C. Warman*
Barbara A. Wilson
Ryan D. Wood
Christa D. Wright
J. Bradley Zellar*

ASSISTANT VICE
PRESIDENTS
Brandon M. Akey
Ellen P. Akey
Stephanie J. Allen
Jessica J. Altman
Kevin J. Andrew
Michelle L. Arnold
Jack E. Arthur
Eric M. Baker*

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Renee L. Baker
Brent A. Barnes
Sharon L. Bolen
Stephen E. Buchanan
Jill E. Burnworth
Jennifer S. Coates
Jennifer G. Corbitt
Amber L. Cummins*
Matthew E. Dickey
Jonathan M. Downes
Michael D. Dudgeon
Edward E. Duffey
Amanda K. Evans
Catherine J. Evans
Andrew J. Fackler
Michael E. Fee
Kathryn S. Firestone
Maxwell M. Fischer
Allen S. Fish
Brenda M. Frakes
Michele A. Gray
Jeffrey D. Guminey
David W. Hardy*
Louise A. Harvey
Teresa A. Hennessy
Candy L. Holbrook
Brian G. Kaufman
Lisa A. Keller
Cynthia L. Kissel
Steven J. Klein
Daniel K. Maloney
Julia E. McCormack
April D. Milby
William L. Nelson
Diane M. Oberfield
Jodi C. Pagath
Karen L. Pavone
Amy M. Pinson
Lacie M. Priest

Zachary A. Reuscher
Tasha L. Richer
Steven E. Ritzer
Michelle A. Rood
Jessica L. Royster
Mareion A. Royster*
Troy A. Rucker
Leda J. Rutledge
Ruth Y. Sawyer
Casey M. Scott
Kevin M. Shellberg
Jeffrey L. Shellhaas
Ryan D. Smith
James O. Spichiger
John A. Stevens
Lisa E. Stranger
Lori B. Tabler
Scott A. VanHorn
Ginger R. Varner
Heather N. Wiley
D. Bradley Wilkins
Barry H. Winters

BANKING OFFICERS
Thomas E. Ballard
Katherine M. Barclay
Andrea N. Bardsley
Jennifer F. Bobb
Renae M. Buchanan
Kimberly A. Burgess
Marsha L. Cerra
Daniel O. Clements
Grace R. Cline
Belinda L. Cole
Andrew J. Connell
Tara L. Craaybeek
Regina B. Cullison
Scott A. Davis
Darcy D. Grossett

Adam S. Hoar*
Abigail C. Hobbs
Cynthia R. Hollis
Asher D. Hunter
Amber L. Keirns
Timothy A. Keith
Lauren M. Kellett*
Justin A. Kossow
Diann M. Langwasser
Kristie L. Massa
Douglas R. McCann
Kimberly G. McDonough
Jessica M. McPeek
Paulina S. McQuigg
David P. Mosser
Kathy K. Myers*
Jamie G. Norckauer
Shannon C. O’Dea-Miller
Richard J. Patellos Jr.
Sherri L. Pembrook
Joyce A. Reaser
Abigail R. Rehbeck**
Anne M. Robinette
Gary R. Russell II
Michelle M. Sandlin
Jason E. Schneider
Melissa N. Spain
Rose M. Wilson
Christopher J. Wohlheter**

ADMINISTRATIVE OFFICERS
Kimberly K. Ballmann
Janell K. Bame
Jenna L. Barnett
Teri R. Beebe
Adam J. Bonner
Jennifer E. Byrd
Linda R. Cartwright
Deborah J. Daniels

Heather H. Davis
Calyn E. Duggan
John T. Erickson
Alison S. Ernest
Teresa K. Faris
Aaron W. Frick
Patricia A. Hall
Tabitha C. Hancock
Heather L. Hankins
Wendy N. Hartman
Cynthia K. Hogle
Audrey M. Lacroix
Jennifer M. Lewis
Karen L. Mill
Tinalee A. Mox
Rodger D. Orr
Gary L. Painter
Scott D. Parks
Tiffany S. Penner
Mary J. Phillips
Jeffrey A. Pillow
Dawn R. Poole
Jessica L. Schorger
Sheila A. Stafford
Michelle M. Tipton
Nathanial L. Veith
Andrew S. Wear
Elaine L. White
Mallory M. Wilkins
Andrew J. Williams
Breanna R. Wilson
Jessica L. Woolard
David S. Zambo

*Trust Officer
**Assistant Trust Officer

OFFICERS - LOUISVILLE

MARKET PRESIDENT
W. Andrew Holden

VICE PRESIDENTS
Erin F. Clark
John L. Conrad III
Brian T. McChesney

ASSISTANT VICE PRESIDENT
Alec B. Taylor

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Offices: 8 ATMs: 7
Website: ParkNationalBank.com
Phone: 513.576.0600 or 888.474.7275
President: David J. Gooch
Counties served: Butler, Clermont, Hamilton

2018 HIGHLIGHTS
Park National Bank, Southwest Ohio & Northern Kentucky continued to demonstrate its commitment to the community in 2018,
earning recognition from the Greater Cincinnati United Way as a Tremendous 25 Company for the seventh consecutive year
and from the Community Foundation of West Chester Liberty as Corporate Philanthropist of the Year. “These awards would not
be possible without the incredible contributions of time and talent by our associates,” said President Dave Gooch. Associates
volunteered more than 3,800 hours and served on 38 boards in 2018.

Owensville*
5100 State Route 132
Owensville, Ohio 45160
513.732.2131

Rookwood*
3825 Edwards Road, Suite 520
Cincinnati, Ohio 45209
513.718.6040

West Chester
8366 Princeton-Glendale Road
West Chester, Ohio 45069
513.346.2000

*Includes Automated Teller Machine

Amelia*
1187 Ohio Pike
Amelia, Ohio 45102
513.753.7283

Anderson*
1075 Nimitzview Drive
Cincinnati, Ohio 45230
513.232.9599

Eastgate*
4550 Eastgate Boulevard
Cincinnati, Ohio 45245
513.753.0900

Milford*
25 Main Street
Milford, Ohio 45150
513.831.4400

New Richmond*
100 Western Avenue
New Richmond, Ohio 45157
513.553.3131

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ADVISORY BOARD MEMBERS

Daniel L. Earley
Chairman, Retired President, Park
National Bank of Southwest Ohio and
Northern Kentucky

Jeanne M. Golliher
Cincinnati Development Fund

David J. Gooch
President, Park National Bank of
Southwest Ohio and Northern Kentucky

Larry H. Maxey
Synchronic Business Solutions

Thomas E. Niehaus
Vorys Advisors LLC

Martin J. Grunder, Jr.
Grunder Landscaping Co.

Richard W. Holmes
Retired, Pricewaterhouse Coopers, LLP

OFFICERS

PRESIDENT
David J. Gooch

SENIOR VICE PRESIDENTS
Jennifer K. Fischer
William M. Schumacker*
Adam T. Stypula

VICE PRESIDENTS
Jay F. Berliner
Sam J. DeBonis
Jason D. Hughes

BANKING OFFICERS
Jason O. Verhoff

ADMINISTRATIVE OFFICERS
Seth W. Kirchner

*Trust Officer

James E. Hyson
Louis J. Prabell
Ginger L. Vining
Joseph A. Wagner
William K. Wright*

ASSISTANT VICE PRESIDENTS
Matthew M. Bauer
Jana M. Beal
Kim J. Cunningham
Michelle R. Hamilton
Kevin R. McKinney
Cyndy H. Wright

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Offices: 10 ATMs: 10

Website: RichlandBank.com

Phone: 419.525.8700

President: Chris R. Hiner

County served: Richland

2018 HIGHLIGHTS
Richland Bank celebrated 120 years serving Richland County families, businesses, and communities. Out of 13 financial institutions in
the county, we continue to be the #1 deposit market share holder with 30% of the deposits. Benjamin Goldman retired his seat on
our advisory board after 25 years of service. We appreciate his contributions during his tenure. Elizabeth Delaney, owner of Spherian
Mid-Ohio Employment Services, was elected to the advisory board at the April meeting.

Marion Avenue*
50 Marion Avenue
Mansfield, Ohio 44903
419.524.3310

Ontario*
325 North Lexington-Springmill Road
Ontario, Ohio 44906
419.529.4112

Shelby*
155 Mansfield Avenue
Shelby, Ohio 44875
567.275.4110

Springmill*
889 North Trimble Road
Mansfield, Ohio 44906
419.747.4821

*Includes Automated Teller Machine

Ashland Road*
797 Ashland Road
Mansfield, Ohio 44905
419.589.6321

Butler*
85 Main Street
Butler, Ohio 44822
419.883.3291

Cook Road*
460 West Cook Road
Mansfield, Ohio 44907
419.756.3696

Kroger Lexington*
1500 Lexington Avenue
Mansfield, Ohio 44907
419.756.3587

Lexington*
276 East Main Street
Lexington, Ohio 44904
419.884.1054

Main Office*
3 North Main Street
Mansfield, Ohio 44901
419.525.8700

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ADVISORY BOARD MEMBERS

Mark Breitinger
Milark Industries, Inc.

Michael L. Chambers
J&B Acoustical, Inc.

Elizabeth A. DeLaney
Spherion Mid-Ohio Employment
Services, Inc.

Chris R. Hiner
President, Richland Bank

Timothy J. Lehman
Senior Vice President,
The Park National Bank

Jeffrey S. Monica
McDonald’s

Linda H. Smith
Ashwood, LLC

Rick R. Taylor
Jay Industries, Inc.

ADMINISTRATIVE OFFICERS
Lisa S. Clingan
Shaun R. Coffield
Jessica L. Dulle
Vicky L. Garcia
Jill L. Montgomery

*Trust Officer

OFFICERS

PRESIDENT
Chris R. Hiner

EXECUTIVE VICE PRESIDENT
Frank W. Wagner, II

SENIOR VICE PRESIDENT
Donald R. Harris, Jr.
Charla A. Irvin*

VICE PRESIDENTS
John Q. Cleland
Jeffrey A. Parton
Rebecca J. Toomey

ASSISTANT VICE PRESIDENTS
Jimmy D. Burton
Susan A. Fanello
Clayton J. Herold
Ralph J. Kelsay
Beth K. Malaska
Barbara A. Miller
Ryan D. Smith
Sheryl L. Smith
Linda M. Whited

BANKING OFFICERS
Megan M. Blakenship
Kelli D. Cyrus*
Barbara L. Schopp-Miller
Deborah A. Sweet

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Offices: 7 ATMs: 6

Website: SecondNational.com

Phone: 937.548.2122 or 855.548.2122

President: John E. Swallow

Counties served: Darke, Mercer

2018 HIGHLIGHTS
Second National celebrated its 135th anniversary in July. In The Daily Advocate’s Reader’s Choice Awards, Second National was voted
Best Investment Services Company (7 years in a row) and Best Mortgage Lender. This year, we contributed more than $216,000 to
the communities we serve.

Arcanum*
603 North Main Street
Arcanum, Ohio 45304
937.692.5191

Celina*
800 North Main Street
Celina, Ohio 45822
419.268.0049

Fort Recovery*
117 North Wayne Street
Fort Recovery, Ohio 45846
419.375.4101

Main Office
499 South Broadway
Greenville, Ohio 45331
937.548.2122

North*
1302 Wagner Avenue
Greenville, Ohio 45331
937.548.5068

Third and Walnut*
175 East Third Street
Greenville, Ohio 45331
937.547.2555

Versailles*
101 West Main Street
Versailles, Ohio 45380
937.526.3287

*Includes Automated Teller Machine

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ADVISORY BOARD MEMBERS

Steven C. Badgett
Retired, Second National Bank

Travis J. Faber
Faber & Associates

Michael J. Pax
Pax Machine Works, Inc.

Tyeis Baker-Baumann
Rebsco, Inc.

Wayne G. Deschambeau
Wayne HealthCare

Travis L. Fliehman
Fliehman Law Group

Jeffrey E. Hittle
Hittle Buick GMC, Inc.

John E. Swallow
President, Second National Bank

OFFICERS

PRESIDENT
John E. Swallow

VICE PRESIDENTS
C. Russell Badgett
D. Todd Durham*
Joy D. Greer
Daniel G. Schmitz
Brian A. Wagner

ASSISTANT VICE PRESIDENTS
Kimberly A. Baker
Gerald O. Beatty
Alexa J. Clark
Brent A. Dawson
Debby J. Folkerth
Vicki L. Neff
Shane D. Stonebraker

BANKING OFFICERS
Antonia T. Baker*
Kathy J. Etter
Brandy L. Rhodehamel
Shawn M. Robinson
Stephen C. Schulte
Melanie A. Smith

ADMINISTRATIVE OFFICER
Laura E. Cloyd

*Trust Officer

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Offices: 18 ATMs: 24

Website: SecurityNationalBank.com

Phone: 937.324.6800 or 800.836.1557

President: John A. Brown

Counties served: Champaign, Clark, Greene, Madison, Warren

2018 HIGHLIGHTS
Security National Bank celebrated its 115th anniversary this year. Since 1903, Security has been recognized as a leader in Clark and
surrounding counties. 2018 was no different as we were again named a finalist for the Chamber of Commerce’s Best Financial
Institution award. This is recognition of how our associates take care of their clients and the communities we serve. Our leaders were
integral in the success of many community-enhancing projects like this year’s United Way campaign, Greene County’s REACH Center,
local job creation and retention, and the Museum of Art’s Capital Campaign.

Western*
920 West Main Street
Springfield, Ohio 45504
937.322.0152

Xenia*
161 East Main Street
Xenia, Ohio 45385
937.372.9211

Off-Site ATM Locations

Shell Gas Station
440 South Jefferson Avenue, Plain City

2051 North Bechtle Avenue, Springfield

Clark State Community College
570 East Leffel Lane, Springfield

Wittenberg University - Student Center
738 Woodlawn Avenue, Springfield

Champaign County Community Center
1512 South US Highway 68, Urbana

82 North Allison Avenue, Xenia

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

*Includes Automated Teller Machine

East Main*
2730 East Main Street
Springfield, Ohio 45503
937.325.0351

Enon*
3680 Marion Drive
Enon, Ohio 45323
937.864.7318

Jamestown*
82 West Washington Street
Jamestown, Ohio 45335
937.675.7311

Main Office*
40 South Limestone Street
Springfield, Ohio 45502
937.324.6800

Mechanicsburg*
2 South Main Street
Mechanicsburg, Ohio 43044
937.834.3387

Medway*
130 West Main Street
Medway, Ohio 45341
937.849.1393

Monument Square*
1 Monument Square
Urbana, Ohio 43078
937.653.1226

New Carlisle*
201 North Main Street
New Carlisle, Ohio 45344
937.845.3811

North Lewisburg*
8 West Maple Street
North Lewisburg, Ohio 43060
937.747.2911

North Limestone*
1756 North Limestone Street
Springfield, Ohio 45503
937.390.3688

Northridge*
1600 Moorefield Road
Springfield, Ohio 45503
937.390.3088

Park Layne*
2035 South Dayton-Lakeview Road
New Carlisle, Ohio 45344
937.849.1331

Plain City
105 West Main Street
Plain City, Ohio 43064
614.873.5521

Scioto Street*
828 Scioto Street
Urbana, Ohio 43078
937.653.1290

South Charleston*
102 South Chillicothe Street
South Charleston, Ohio 45368
937.462.8368

Springboro*
720 Gardner Road
Springboro, Ohio 45066
937.748.6700

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ADVISORY BOARD MEMBERS

R. Andrew Bell
Marsh & McLennan Agency

Thomas P. Loftis
Midland Properties, Inc.

Chester L. Walthall
Walthall Holding Co. Inc.

John A. Brown
President, Security National Bank

John McKinnon
Clark Schaffer Hackett & Co.

Robert A. Warren
Hauck Bros., Inc.

Alicia Sweet Hupp
Sweet Manufacturing Company

Scott D. Michael
Michael Farms, Inc.

Larry E. Kaffenbarger
Kaffenbarger Truck Equipment
Company

Dr. Karen E. Rafinski
The Registry

ADMINISTRATIVE OFFICERS
Jacqueline S. Folck
Mary T. Vallery

*Trust Officer

OFFICERS

PRESIDENT
John A. Brown

EXECUTIVE VICE PRESIDENT
Jeffrey A. Darding

SENIOR VICE PRESIDENTS
Connie P. Craig
Thomas A. Goodfellow
Andrew J. Irick

VICE PRESIDENTS
Margaret L. Foley*
Thomas B. Keehner
James A. Kreckman*
Patrick K. Rastatter
David A. Snyder
Michael B. Warnecke

ASSISTANT VICE PRESIDENTS
Andrew L. Birch
Rachel M. Brewer*
Bradley R. Ditto
Catherine L. Hill*
Andrew S. Peyton
Carl D. Puckett

BANKING OFFICERS
Teresa L. Belliveau*
Jason G. Hill
Ricky L. Lewis
Brian M. Nott
Christopher D. Wilkin
Jeffrey S. Williams

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Offices: 6 ATMs: 6

Website: UnitedBankOhio.com

Phone: 419.562.3040 or 800.589.3040

President: Donald R. Stone

Counties served: Crawford, Marion

2018 HIGHLIGHTS
The bank sponsored and participated in four new single-family home builds in Marion and Morrow counties with the Buckeye
Ridge Habitat for Humanity. The Galion-County Chamber of Commerce presented Assistant Vice President Jennifer Kuns with
the Volunteer of the Year award.

Barks Road*
129 Barks Road East
Marion, Ohio 43302
740.383.3355

Caledonia*
140 East Marion Street
Caledonia, Ohio 43314
419.845.2721

Crestline*
245 North Seltzer Street
Crestline, Ohio 44827
419.683.1010

Galion*
8 Public Square
Galion, Ohio 44833
419.468.6600

Main Office*
401 South Sandusky Avenue
Bucyrus, Ohio 44820
419.562.3040

Prospect*
105 North Main Street
Prospect, Ohio 43342
740.494.2131

*Includes Automated Teller Machine

ADVISORY BOARD MEMBERS

Lois J. Fisher
Lois J. Fisher & Assoc.

Michael L. Kocher
MKB Farms Ltd.

OFFICERS

PRESIDENT
Donald R. Stone

VICE PRESIDENTS
Scott E. Bennett
John T. Herring

Michele M. McElligott
Certified Public Accountant,
Avita Health System

Douglas M. Schilling
Schilling Graphics, Inc.

Donald R. Stone
President, United Bank

Douglas E. Wilson Sr.
Realtor, Craig A. Miley Realty &
Auction, Ltd.

ASSISTANT VICE PRESIDENT
Jennifer J. Kuns

BANKING OFFICERS
David J. Lauthers
John S. McDonald

ADMINISTRATIVE OFFICERS
James A. DeSimone
Vickey L. Martin
Brian J. McConnell
Heidi L. Ray
Jody L. Spiegel
Agnieszka D. Stover

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Offices: 4 ATMs: 5

Website: UnityNationalBk.com

Phone: 937.615.1042 or 800.778.3342

President: Scott E. Rasor

County served: Miami

2018 HIGHLIGHTS
We helped 56 families achieve new home ownership in 2018 and financed the purchase of 963 new or used cars, trucks, boats and
RVs. Our Trust & Investments team increased their book of business by approximately 30%. This year’s Unity in the Community
efforts resulted in 110 volunteers assisting 21 Miami County organizations with projects like food preparation, yard work,
organization, and stocking shelves. We donated over 440 hours of service.

Administrative Office
212 North Main Street
Piqua, Ohio 45356
937.773.0752

Main Office*
215 North Wayne Street
Piqua, Ohio 45356
937.615.1042

Sunset*
1603 Covington Avenue
Piqua, Ohio 45356
937.778.4617

Tipp City*
1176 West Main Street
Tipp City, Ohio 45371
937.667.4888

ADVISORY BOARD MEMBERS

Dr. Richard N. Adams
Retired, Representative of Ohio General
Assembly

Rick M. Heinl
Repacorp, Inc.

Tamara L. Baird-Ganley
Baird Funeral Home

Michael C. Bardo
Retired, Hartzell Industries, Inc.

Dr. Douglas D. Hulme
Retired, Oakview Veterinary Hospital

Timothy Johnston
Retired Consultant

Troy*
1314 West Main Street
Troy, Ohio 45373
937.339.6626

Off-Site ATM Location

Upper Valley Medical Center
3130 North Dixie Highway, Troy

*Includes Automated Teller Machine

Scott E. Rasor
President, Unity National Bank

W. Samuel Robinson
Murray, Wells, Wendeln & Robinson
CPAs, Inc.

OFFICERS

PRESIDENT
Scott E. Rasor

VICE PRESIDENTS
G. Dwayne Cooper
Bradley S. Cummings
Lisa L. McGraw

ADMINISTRATIVE OFFICERS
Margo L. Booser
Angela L. Schultz

* Trust Officer

ASSISTANT VICE PRESIDENTS
Kyle M. Cooper
Bryant W. Fox
Kenneth S. Magoteaux*

BANKING OFFICERS
Timothy M. Summers
Matthew I. Verhotz

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GUARDIAN

FINANCE C OMPANY

Offices: 5

Website: GuardianFinanceCompany.com

Phone: 877.277.0345

President: Matthew R. Marsh

Counties served: Clark, Fairfield, Franklin, Licking, Warren

2018 HIGHLIGHTS
Guardian is a consumer finance company dedicated to providing trustworthy credit options to consumers that typically don’t
have access to traditional prime lending sources. Guardian was started by Earl Osborne whose family had been in the consumer
finance industry for over 80 years. Earl began the company with a goal of helping their customers understand the importance of
credit and our associates continue to this day striving to achieve this goal. In 2018, Guardian returned a dividend of $5,000,000 to
Park National Corporation.

Home Office
3812 Fishinger Boulevard
Hilliard, Ohio 43026
877.277.0345

Heath
619 Hebron Road
Heath, Ohio 43056
740.788.8766

Lancaster
137 West Main Street
Lancaster, Ohio 43130
740.654.6959

Springboro
720 Gardner Road
Springboro, Ohio 45066
937.323.1011

Springfield
1017 North Bechtle Avenue
Springfield, Ohio 45504
937.323.1011

OFFICERS

PRESIDENT
Matthew R. Marsh

ASSISTANT VICE PRESIDENT
April D. Storie

BANKING OFFICER
Mary E. Parsell

ADMINISTRATIVE OFFICERS
Karah L. Cundiff
Charles L. Harris

Tracie L. McDonald
Valerie J. Morgan
Misty A. Tipple

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Office: 1

Website: ScopeAir.com

Phone: 614.221.5773 or 800.357.5773

President: Robert N. Kent, Jr.

2018 HIGHLIGHTS
Scope continued to grow its position as a leading finance source in the owner-flown business aircraft segment. Through
involvement in various industry associations, Scope associates have worked to support pilots and aircraft owners around the
country. Profit contribution for the business line has also grown, constituting 5% of Park National Corporation income in 2018.

Columbus
140 East Town Street, Suite 1400
Columbus, Ohio 43215
614.221.5773

OFFICERS

PRESIDENT
Robert N. Kent, Jr.

EXECUTIVE VICE PRESIDENT
Charles W. Sauter

VICE PRESIDENT
Andrew H. Knoesel

ASSISTANT VICE PRESIDENTS
Pamela J. Cooksey
Michael J. Smith

BANKING OFFICER
Emily P. Cox
Logan P. Markward

ADMINISTRATIVE OFFICER
Donna J. Parsley

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M A N AG E M E N T ’ S D I S C USS I O N A N D A N A LY S I S

Management’s discussion and analysis addresses the financial condition and results of
operations for Park National Corporation and our subsidiaries (unless the context
otherwise requires, collectively, “Park” or the “Corporation”). This discussion should be
read in conjunction with the consolidated financial statements and related notes and
the five-year summary of selected financial data. Management’s discussion and analysis
contains forward-looking statements that are provided to assist in the understanding of
anticipated future financial performance. Forward-looking statements provide current
expectations or forecasts of future events and are not guarantees of future
performance. The forward-looking statements are based on management’s expectations
and are subject to a number of risks and uncertainties. Although management believes
that the expectations reflected in such forward-looking statements are reasonable,
actual results may differ materially from those expressed or implied in such
statements. Risks and uncertainties that could cause actual results to differ materially
include, without limitation: Park’s ability to execute our business plan successfully and
within the expected time frame; general economic and financial market conditions,
specifically in the real estate markets and the credit markets, either nationally or in the
states in which Park and our subsidiaries do business, may experience a slowing or
reversal of the recent economic expansion in addition to continuing residual effects of
recessionary conditions and an uneven spread of positive impacts of recovery on the
economy and our counterparties, resulting in adverse impacts on the demand for loan,
deposit and other financial services, delinquencies, defaults and counterparties’ ability
to meet credit and other obligations and the possible impairment of collectability of
loans; changes in interest rates and prices may adversely impact prepayment penalty
income, mortgage banking income, the value of securities, loans, deposits and other
financial instruments and the interest rate sensitivity of our consolidated balance sheet
as well as reduce interest margins and impact loan demand; changes in consumer
spending, borrowing and saving habits, whether due to the tax reform legislation,
changing business and economic conditions, legislative and regulatory initiatives, or
other factors; changes in unemployment; changes in customers’, suppliers’, and other
counterparties’ performance and creditworthiness; the adequacy of our risk
management program in the event of changes in the strategic, information technology,
information security, market, economic, operational, asset/liability repricing, liquidity,
credit and interest rate risks associated with Park’s business; disruption in the liquidity
and other functioning of U.S. financial markets; our liquidity requirements could be
adversely affected by changes to regulations governing bank and bank holding company
capital and liquidity standards as well as by changes in our assets and liabilities;
competitive factors among financial services organizations could increase significantly,
including product and pricing pressures, changes to third-party relationships and our
ability to attract, develop and retain qualified banking professionals; customers could
pursue alternatives to bank deposits, causing us to lose a relatively inexpensive source
of funding; uncertainty regarding the nature, timing, cost and effect of changes in
banking regulations or other regulatory or legislative requirements affecting the
respective businesses of Park and our subsidiaries, including major reform of the
regulatory oversight structure of the financial services industry and changes in laws and
regulations concerning taxes, pensions, bankruptcy, consumer protection, rent
regulation and housing, financial accounting and reporting, environmental protection,
insurance, bank products and services, bank capital and liquidity standards, fiduciary
standards, securities and other aspects of the financial services industry, specifically the
reforms provided for in the Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010 (the “Dodd-Frank Act”) and the Basel III regulatory capital reforms, as well
as regulations already adopted and which may be adopted in the future by the relevant
regulatory agencies, including the Consumer Financial Protection Bureau, the Office of
the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the
Federal Reserve Board, to implement the Dodd-Frank Act’s provisions, and the Basel III
regulatory capital reforms; the effects of easing restrictions on participants in the
financial services industry; 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; changes in
law and policy accompanying the current presidential administration, including the Tax
Cuts and Jobs Act, and uncertainty or speculation pending the enactment of such
changes; significant changes in the tax laws, which may adversely affect the fair values
of net deferred tax assets and obligations of state and political subdivisions held in
Park’s investment securities portfolio; the impact of our ability to anticipate and
respond to technological changes on our ability to respond to customer needs and meet

competitive demands; operational issues stemming from and/or capital spending
necessitated by the potential need to adapt to industry changes in information
technology systems on which Park and our subsidiaries are highly dependent; the ability
to secure confidential information and deliver products and services through the use of
computer systems and telecommunications networks; a failure in or breach of our
operational or security systems or infrastructure, or those of our third-party vendors and
other service providers, resulting in failures or disruptions in customer account
management, general ledger, deposit, loan, or other systems, including as a result of
cyber attacks; the existence or exacerbation of general geopolitical instability and
uncertainty; the effect of trade policies (including the impact of tariffs, a U.S.
withdrawal from or significant renegotiation of trade agreements, trade wars and other
changes in trade regulations), monetary and other fiscal policies (including the impact
of money supply and interest rate policies of the Federal Reserve Board) and other
governmental policies of the U.S. federal government; the impact on financial markets
and the economy of any changes in the credit ratings of the U.S. Treasury obligations
and other U.S. government - backed debt, as well as issues surrounding the levels of
U.S., European and Asian government debt and concerns regarding the creditworthiness
of certain sovereign governments, supranationals and financial institutions in Europe
and Asia; the uncertainty surrounding the actions to be taken to implement the
referendum by United Kingdom voters to exit the European Union; our litigation and
regulatory compliance exposure, including the costs and effects of any adverse
developments in legal proceedings or other claims and the costs and effects of
unfavorable resolution of regulatory and other governmental examinations or other
inquiries; continued availability of earnings and excess capital sufficient for the lawful
and prudent declaration of dividends; fraud, scams and schemes of third parties; the
impact of widespread natural and other disasters, pandemics, dislocations, civil unrest,
terrorist activities or international hostilities on the economy and financial markets
generally and on us or our counterparties specifically; the effect of healthcare laws in
the U.S. and potential changes for such laws which may increase our healthcare and
other costs and negatively impact our operations and financial results; Park’s ability to
integrate recent acquisitions (including NewDominion Bank) as well as any future
acquisitions, which may be unsuccessful, or may be more difficult, time-consuming or
costly than expected; the ability to complete the proposed merger of Park and CAB
Financial Corporation (“CAB”) on the proposed terms and within the expected time
frame; the risk that the businesses of Park and CAB will not be integrated successfully
or such integration may be more difficult, time-consuming or costly than expected;
expected revenue synergies and cost savings from the proposed merger of Park and CAB
may not be fully realized or realized within the expected time frame; revenues following
the proposed merger of Park and CAB may be lower than expected; customer and
employee relationships and business operations may be disrupted by the proposed
merger of Park and CAB; Park issued equity securities in the acquisition of NewDominion
Bank and may issue equity securities in connection with future acquisitions, including
the proposed merger of Park and CAB, if consummated, which could cause ownership
and economic dilution to Park’s current shareholders; the discontinuation of LIBOR and
other reference rates which may result in increased expenses and litigation, and
adversely impact the effectiveness of hedging strategies; and other risk factors relating
to the banking industry as detailed from time to time in Park’s reports filed with the SEC
including those described in “Item 1A. Risk Factors” of Part I of Park’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2018. Park does not undertake, and
specifically disclaims any obligation, to publicly release the results of any revisions that
may be made to update any forward-looking statement to reflect the events or
circumstances after the date on which the forward-looking statement was made, or
reflect the occurrence of unanticipated events, except to the extent required by law.

OVERVIEW
Financial Results by Segment
The table below reflects the net income (loss) by segment for the fiscal years ended
December 31, 2018, 2017, and 2016. 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.”

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Table 1 - Net Income (Loss) by Segment
(In thousands)

2018

PNB

GFSC

Parent Company

Ongoing operations

SEPH

Total Park

$109,472

521

(3,883)

$106,110

4,277

$110,387

2017

$87,315

260

(2,457)

$85,118

(876)

$84,242

2016

$84,451

(307)

(4,557)

$79,587

6,548

$86,135

The category “Parent Company” above excludes the results for SEPH, an entity which is
winding down commensurate with the disposition of its problem assets. Management
considers the “Ongoing operations” results, which exclude the results of SEPH, to reflect
the business of Park and our subsidiaries going forward. The following discussion below
provides additional information regarding the segments that make up the “Ongoing
operations”, followed by additional information regarding SEPH.

During the first quarter of 2018, Park adopted ASU 2017-07, Improving the Presentation
of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This
ASU requires that an employer report the service cost component in the same line
item as other compensation costs arising from services rendered by the pertinent
employees during the period. The other components of net benefit cost are required
to be presented in the income statement separately from the service cost. This ASU
is required to be applied retrospectively to all periods presented. As a result of the
adoption of this ASU, all prior periods have been recast to separately record the service
cost component and other components of net benefit cost. For Park, this resulted in an
increase in other income and an offsetting increase in other expense with no change to
net income.

During the first quarter of 2018, Park adopted ASU 2016-01, Recognition and
Measurement of Financial Assets and Financial Liabilities. Changes reflected in
the current U.S. generally accepted accounting principles (“GAAP”) model primarily
affect the accounting for equity investments, financial liabilities under the fair value
option, and the presentation and disclosure requirements for financial instruments.
As a result of the adoption of this ASU, Park recorded an increase of $1.9 million to
beginning retained earnings and a $995,000 increase to beginning accumulated other
comprehensive loss.

On July 1, 2018, NewDominion Bank, a North Carolina state-chartered bank
(“NewDominion”), merged with and into PNB, with PNB continuing as the surviving
entity pursuant to the Agreement and Plan of Merger and Reorganization, dated as of
January 22, 2018, by and among Park, PNB, and NewDominion. On the acquisition date,
NewDominion had $328 million in total assets, $278 million in total loans, and $284
million in total deposits. The acquisition was valued at $79.2 million and resulted in
Park issuing 435,457 Park common shares and paying $30.7 million in cash as merger
consideration in exchange for the NewDominion common stock. For the twelve months
ended December 31, 2018, Park recorded merger-related expenses of $4.6 million
associated with the NewDominion acquisition.

The Park National Bank (“PNB”)
The table below summarizes PNB’s net income for the fiscal years ended December 31,
2018, 2017, and 2016.

Table 2 - PNB Summary Income Statement
(In thousands)

2018

Net interest income

Provision for loan losses

Other income

Other expense

Income before income taxes

Income tax expense

Net income

$258,547

7,569

88,981

206,843

$133,116

23,644

$109,472

2017

$235,243

9,898

82,742

185,891

$122,196

34,881

$87,315

2016

$227,576

2,611

79,959

182,718

$122,206

37,755

$84,451

Net interest income of $258.5 million for the fiscal year ended December 31, 2018

represented a $23.3 million, or 9.9%, increase compared to $235.2 million for the fiscal
year ended December 31, 2017. The increase was the result of a $24.8 million increase in
interest income, partially offset by a $1.5 million increase in interest expense.

The $24.8 million increase in interest income was due to a $22.7 million increase in
interest income on loans, along with a $2.1 million increase in interest income on
investments. The increase in interest income on loans was partially the result of a
$148.4 million increase in average loans from $5.29 billion for the fiscal year ended
December 31, 2017, to $5.44 billion for the fiscal year ended December 31, 2018.
Additionally, the yield on loans increased by 28 basis points to 4.85% for the fiscal year
ended December 31, 2018, compared to 4.57% for the fiscal year ended December 31,
2017. Included in interest income for the fiscal years ended December 31, 2018 and
2017 was $817,000 and $233,000, respectively, in interest income, related to PNB
participations in legacy Vision Bank (“Vision”) assets. Interest income was also impacted
by the acquisition of NewDominion on July 1, 2018. NewDominion contributed $8.1
million to interest income at PNB during the fiscal year ended December 31, 2018.

The $1.5 million increase in interest expense was due to a $13.1 million increase in
interest expense on deposits, partially offset by an $11.6 million decrease in interest
expense on borrowings. The increase in interest expense on deposits was partially the
result of a $125.9 million, or 2.9%, increase in average interest-bearing deposits from
$4.34 billion for the fiscal year ended December 31, 2017, to $4.47 billion for the fiscal
year ended December 31, 2018. Additionally, the cost of deposits increased by 28 basis
points from 0.44% for the fiscal year ended December 31, 2017 to 0.72% for the fiscal
year ended December 31, 2018. The decrease in interest expense on borrowings was the
result of a decrease in long-term debt. During the fourth quarter of 2017, Park utilized
excess cash to repay $350 million of long-term debt which matured during November
2017. The effective interest rate on the repaid long-term debt had been 3.22%. Interest
expense was also impacted by the acquisition of NewDominion on July 1, 2018.
NewDominion contributed $674,000 to interest expense at PNB during 2018.

The provision for loan losses of $7.6 million for the fiscal year ended December 31,
2018 represented a decrease of $2.3 million, compared to $9.9 million for the fiscal year
ended December 31, 2017. Refer to the “CREDIT EXPERIENCE - Provision for (Recovery
of) Loan Losses” section for additional details regarding the level of the provision for
(recovery of) loan losses recognized in each period presented above.

Other income of $89.0 million for the fiscal year ended December 31, 2018 represented
an increase of $6.2 million, or 7.5%, compared to $82.7 million for the fiscal year ended
December 31, 2017. The $6.2 million increase was primarily related to a $2.6 million
increase in income from fiduciary activities, a $1.5 million increase in checkcard fee
income, a $1.2 million increase in gains on the sale of OREO, net, a $993,000 increase in
other components of net periodic benefit income, a $833,000 increase in other income
on repossessed assets, included in miscellaneous income, a $714,000 increase in gain
on sale of repossessed assets, net, a $661,000 increase in gain on the sale of certain
non-performing commercial loans, a $591,000 increase in equity investment income
which is included in miscellaneous income, a $462,000 increase in bank owned life
insurance income, primarily from the change in death benefits paid on policies during
2018 and 2017, and a $367,000 increase in gain on sale of assets, net, offset by a $2.3
million net loss on sales of investment securities during the fiscal year ended December
31, 2018, and a $1.2 million decrease in service charges on deposit accounts. Other
income was impacted by the acquisition of NewDominion on July 1, 2018. NewDominion
contributed $429,000 to other income at PNB during 2018.

Other expense of $206.8 million for the fiscal year ended December 31, 2018
represented an increase of $20.9 million, or 11.3%, compared to $185.9 million for the
fiscal year ended December 31, 2017. The $20.9 million increase was primarily related to
a $7.0 million increase in salaries expense, a $5.2 million increase in employee benefits
expense, a $1.7 million increase in professional fees and services expense, a $1.1
million increase in data processing fees, a $1.0 million increase in occupancy expense,
a $937,000 increase in non-loan related losses which are included in miscellaneous
expense, a $799,000 increase in furniture and equipment expense, a $762,000 increase
in state tax expense, a $732,000 increase in marketing expense, a $578,000 increase in
core deposit intangible amortization expense, and a $497,000 increase in contribution
expense which is included in miscellaneous expense, offset by a $1.0 million decrease
in other insurance. Other expense was also impacted by the acquisition of NewDominion
on July 1, 2018. NewDominion contributed $5.8 million to other expense at PNB during
2018.

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MANAGEMENT’S DISCUSSION AND ANALYSISIncome tax expense of $23.6 million for the fiscal year ended December 31, 2018
represented a decrease of $11.3 million compared to $34.9 million for the fiscal year
ended December 31, 2017. The decrease in income tax expense was largely due to a
decrease in the federal corporate income tax rate from 35% to 21%, effective January 1,
2018.

PNB’s results for the fiscal years ended December 31, 2018, 2017 and 2016 included
income and expense related to participations in legacy Vision assets. The impact of
these participations on particular items within PNB’s income and expense for these
fiscal periods is detailed in the table below:

Table 3 - PNB Adjusted for Vision Participations
2017
2018

2016

(In thousands)

PNB as
reported

Adjust-
ments1

PNB as
adjusted

PNB as
reported

Adjust-
ments1

PNB as
adjusted

PNB as
reported

Adjust-
ments1

PNB as
adjusted

Net interest income

$258,547

$817

$257,730

$235,243

$233

$235,010

$227,576

$801

$226,775

the level of provision for (recovery of) loan losses recognized in each period presented.

Total deposits at December 31, 2018 were $6.33 billion, compared to $5.90 billion at
December 31, 2017, an increase of $438.1 million, or 7.4%. The deposit growth for the
fiscal year ended December 31, 2018 consisted of savings deposits growth of $157.5
million (8.4%), transaction account growth of $104.6 million (8.3%), non-interest bearing
deposits growth of $166.3 million (9.7%) and time deposits growth of $9.7 million
(0.9%).

Excluding deposits at NewDominion, total deposits at December 31, 2018 were $6.09
billion, compared to $5.90 billion at December 31, 2017, an increase of $188.4 million,
or 3.2%. The deposit growth for the fiscal year ended December 31, 2018, excluding
NewDominion, consisted of savings deposits growth of $155.3 million (8.2%) and non-
interest bearing deposits growth of $85.9 million (5.0%), offset by a reduction in time
deposits of $48.9 million (4.7%) and a reduction in transaction accounts of $3.9 million
(0.3%).

7,569

(19)

7,588

9,898

(5)

9,903

2,611

(3,118)

5,729

88,981

1,460

87,521

82,742

Other expense

206,843

199

206,644

185,891

244

492

82,498

79,959

185,399

182,718

194

662

79,765

182,056

Guardian Financial Services Company (“GFSC”)
The table below summarizes GFSC’s net income (loss) for the fiscal years ended
December 31, 2018, 2017, and 2016.

$133,116 $2,097

$131,019

$122,196

$(10)

$122,206

$3,451

$118,755

23,644

372

23,272

34,881

(3)

34,884

37,755

1,066

36,689

Table 5 - GFSC Summary Income Statement
(In thousands)

Net income (loss)

$109,472 $1,725

$107,747

$87,315

$(7)

$87,322

$84,451

$2,385

$82,066

1Adjustments consist of the impact on the particular items reported in PNB’s income statement of PNB
participations in legacy Vision assets.

The table below provides certain balance sheet information and financial ratios for PNB
as of or for the fiscal years ended December 31, 2018 and 2017.

Table 4 - PNB Balance Sheet Information

Net interest income

Provision for loan losses

Other income

Other expense

Income (loss) before income taxes

Income tax expense (benefit)

December 31,
2018

December 31,
2017

% change from
12/31/17

Net income (loss)

2018

$5,048

1,328

187

3,245

$662

141

$521

2017

$5,839

1,917

103

3,099

$926

666

$260

2016

$5,874

1,887

4,515

$(471)

(164

$(307)

Provision for
(recovery of)
loan losses

Other income

Income (loss) before
income taxes

Income tax expense
(benefit)

(In thousands)

Loans

Allowance for loan losses

Net loans

Investment securities

Total assets

Total deposits

Average assets1

Efficiency ratio

Return on average assets

$5,671,173

$5,339,255

49,067

5,622,106

1,407,326

7,753,848

6,334,796

7,573,713

59.03%

1.45%

47,607

5,291,648

1,507,926

7,467,851

5,896,676

7,664,725

57.56%

1.14%

6.22%

3.07%

6.24%

(6.67)%

3.83%

7.43%

(1.19)%

2.55%

27.19%

1Average assets for the fiscal years ended December 31, 2018 and 2017.

Loans outstanding at December 31, 2018 were $5.67 billion, compared to $5.34 billion
at December 31, 2017, an increase of $331.9 million, or 6.2%. The loan growth for 2018
resulted from increases in commercial loan balances of $241.4 million (8.9%), residential
loan balances of $42.1 million (3.6%), consumer loan balances of $34.9 million (2.8%)
and home equity line of credit balances of $12.5 million (6.2%). Loans outstanding at
December 31, 2018 were $5.67 billion, compared to $5.61 billion at September 30, 2018,
an increase of $65.2 million, or 1.2% (4.6% annualized).

Excluding loans outstanding at NewDominion, loans outstanding at December 31, 2018
were $5.39 billion, compared to $5.34 billion at December 31, 2017, an increase of $54.6
million, or 1.0%. The loan growth for 2018, excluding NewDominion, resulted from an
increase in commercial loan balances of $54.6 million (2.0%) and consumer loan growth
of $34.4 million (2.8%), offset by declines in home equity line of credit balances of $21.4
million (10.5%) and residential loan balances of $13.9 million (1.2%).

PNB’s allowance for loan losses increased by $1.5 million, or 3.1%, to $49.1 million at
December 31, 2018, compared to $47.6 million at December 31, 2017. Net charge-offs
were $6.1 million, or 0.11% of total average loans, for the fiscal year ended December
31, 2018 and were $11.1 million, or 0.21% of total average loans, for the fiscal year
ended December 31, 2017. Refer to the “CREDIT EXPERIENCE - Provision for (Recovery
of) Loan Losses” section for additional information regarding PNB’s loan portfolio and

The table below provides certain balance sheet information and financial ratios for
GFSC as of or for the fiscal years ended December 31, 2018 and 2017.

Table 6 - GFSC Balance Sheet Information

(In thousands)

Loans

Allowance for loan losses

Net loans

Total assets

Average assets1

Return on average assets

December 31,
2018

December 31,
2017

% change from
12/31/17

$32,664

$33,385

2,445

30,219

31,388

29,741

1.75%

2,382

31,003

32,077

33,509

0.78%

(2.16)%

2.64%

(2.53)%

(2.15)%

(11.24)%

124.36%

1Average assets for the fiscal years ended December 31, 2018 and 2017.

Park Parent Company
The table below summarizes the Park Parent Company’s net loss for the fiscal years
ended December 31, 2018, 2017, and 2016.

Table 7 - Park Parent Company Income Statement
2018
(In thousands)

Net interest income (expense)

Provision for loan losses

Other income

Other expense

Loss before income tax benefit

Income tax benefit

Net loss

$692

—

6,033

14,618

$(7,893)

(4,010)

$(3,883)

2017

$588

—

3,065

8,805

$(5,152)

(2,695)

$(2,457)

2016

$(138)

—

955

9,731

$(8,914)

(4,357)

$(4,557)

The net interest income (expense) for Park’s parent company included, for all periods
presented, interest income on subordinated debt investments in PNB, which were

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MANAGEMENT’S DISCUSSION AND ANALYSIS eliminated in the consolidated Park National Corporation totals. For the fiscal year
ended December 31, 2016, the net interest income (expense) included interest income
on loans to SEPH (paid off on December 14, 2016). Additionally, net interest income
(expense) for the fiscal years ended December 31, 2017 and 2016, included interest
expense related to the $30.00 million of 7% Subordinated Notes due April 20, 2022
issued by Park to accredited investors on April 20, 2012, which Park prepaid in full
(principal plus accrued interest) on April 24, 2017.

Other income of $6.0 million for the fiscal year ended December 31, 2018 represented
an increase of $2.9 million compared to $3.1 million for the fiscal year ended December
31, 2017. The $2.9 million increase was largely due to a $1.5 million increase in income
related to certain equity securities and a $1.5 million increase in bank owned life
insurance income, primarily from death benefits paid on policies during 2018.

Other expense of $14.6 million for the fiscal year ended December, 2018 represented
an increase of $5.8 million, or 66.0%, compared to $8.8 million for the fiscal year ended
December 31, 2017. The $5.8 million increase was primarily related to an increase of
$3.2 million in salaries expense, which included $1.6 million of one-time expenses
related to the acquisition of NewDominion Bank, and an increase of $3.1 million in
professional fees and services, which included $3.2 million in one-time expenses related
to the acquisition of NewDominion Bank and the pending acquisition of CAB Financial
Corporation, offset by a $594,000 decrease in state tax expense.

SE Property Holdings, LLC (“SEPH”)
The table below summarizes SEPH’s net income (loss) for the fiscal years ended
December 31, 2018, 2017 and 2016. SEPH holds the remaining assets and liabilities
retained by Vision subsequent to the sale of the Vision business on February 16,
2012. Prior to holding the remaining Vision assets, SEPH held OREO assets that were
transferred from Vision to SEPH. This segment represents a run-off portfolio of the
legacy Vision assets.

Table 8 - SEPH Summary Income Statement
(In thousands)

2018

Net interest income

Recovery of loan losses

Other income

Other expense

Income before income taxes

Income tax expense

Net income (loss)

$2,611

(952)

5,900

4,049

$5,414

1,137

$4,277

2017

$2,089

(3,258)

519

5,367

$499

1,375

$(876)

2016

$4,774

(9,599)

3,068

7,367

$10,074

3,526

$6,548

Net interest income increased to $2.6 million for the fiscal year ended December 31,
2018 from $2.1 million for the fiscal year ended December 31, 2017. The increase
was the result of an increase in interest payments received from SEPH impaired loan
relationships.

For the fiscal year ended December 31, 2018, SEPH had net recoveries of loan losses of
$952,000, compared to net recoveries of loan losses of $3.3 million for the fiscal year
ended December 31, 2017.

The $5.4 million increase in other income for the fiscal year ended December 31, 2018,
compared to the fiscal year ended December 31, 2017, was primarily the result of a $2.8
million increase in gain on the sale of OREO, net, a $2.2 million gain on the sale of loans
and a $853,000 increase in loan fee income as a result of payments received from SEPH
impaired loan relationships, offset by a $247,000 decrease in income related to OREO
properties and a $219,000 increase in OREO devaluations.

The $1.3 million decrease in other expense for the fiscal year ended December 31,
2018, compared to the fiscal year ended December 31, 2017, was the result of a $1.3
million decrease in legal fees and a $476,000 decrease in supplemental retirement plan
expense which is included in miscellaneous expense, which was offset by a $651,000
increase in management and consulting fees resulting from the collection of payments
on certain SEPH impaired loan relationships during 2018.

Legacy Vision assets at SEPH totaled $3.2 million as of December 31, 2018, compared to
$18.8 million at December 31, 2017. In addition to these SEPH assets, PNB participations
in legacy Vision assets totaled $2.5 million at December 31, 2018, compared to $9.0

million at December 31, 2017.

Park National Corporation
The table below summarizes Park’s net income for the fiscal years ended December 31,
2018, 2017, and 2016.

Table 9 - Park Summary Income Statement

(In thousands)

Net interest income

Provision for (recovery of) loan losses

Other income

Other expense

Income before income taxes

Income tax expense

Net income

2018

2017

2016

$266,898

$243,759

$238,086

7,945

101,101

228,755

$131,299

20,912

$110,387

8,557

86,429

203,162

$118,469

34,227

$84,242

(5,101)

84,039

204,331

$122,895

36,760

$86,135

Other expense at Park for the twelve months ended December 31, 2018 included
$4.6 million associated with the NewDominion acquisition and $589,000 associated
with the pending acquisition of CAB Financial Corporation. Of the total $5.2 million in
acquisition-related expenses for the fiscal year ended December 31, 2018, $4.8 million
was included in expense at Park’s parent company, with the remaining $0.4 million
being included in expense at PNB.

DIVIDENDS ON COMMON SHARES
Cash dividends declared on Park’s common shares were $4.07 in 2018 and $3.76 in 2017
and 2016. The quarterly cash dividend on Park’s common shares was $0.94 per share for
the first quarter of 2018, $1.21 per share for the second quarter of 2018, and $0.96 per
share for the third and fourth quarter of 2018. The second quarter of 2018 included a
one-time special cash dividend of $0.25 per share. The quarterly cash dividend on Park’s
common shares was $0.94 per share for each quarter of 2017 and 2016.

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

Allowance for Loan and Lease Losses (“ALLL”): The determination of the ALLL
involves a higher degree of judgment and complexity than Park’s 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 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.

Other Real Estate Owned (“OREO”): 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 of
the OREO, 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 within other income on the date of sale. At
December 31, 2018, OREO totaled $4.3 million, a decrease of 69.7%, compared to $14.2
million at December 31, 2017.

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MANAGEMENT’S DISCUSSION AND ANALYSISFair Value: 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, Level 2, and Level 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/or cash flow analyses. 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.

Goodwill and other intangibles: The accounting for goodwill and other intangibles also
involves a higher degree of judgment than most other significant accounting policies.
GAAP establishes standards for the impairment assessment of goodwill and other
intangibles. Goodwill and other intangibles represents the excess of the purchase price
over net identifiable tangible and intangible assets acquired in a purchase business
combination. Park’s goodwill relates to the value inherent in the banking industry
and that value is dependent upon the ability of PNB, Park’s national bank 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.

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, 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 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 additional analysis 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, not to exceed the total goodwill allocated to the reporting
unit. At December 31, 2018, on a consolidated basis, Park had $112.7 million of goodwill
and $7.0 million of other intangibles, all of which is recorded at PNB.

Pension Plan: The determination of pension plan obligations and related expenses
requires the use of assumptions to estimate the amount of benefits that employees
will earn while working, as well as the present value of those benefits. Annual pension
expense is principally based on four components: (1) the value of benefits earned by
employees for working during the year (service cost), (2) the increase in the liability due
to the passage of time (interest cost), and (3) other gains and losses, reduced by (4) the
expected return on plan assets for our pension plan.

Significant assumptions used to measure our annual pension expense include:

• the interest rate used to determine the present value of liabilities (discount rate);
• certain employee-related factors, such as turnover, retirement age and mortality;
• the expected return on assets in our funded plan; and
• the rate of salary increases

Our assumptions reflect our historical experience and management’s best judgment
regarding future expectations. Due to the significant management judgment involved,
our assumptions could have a material impact on the measurement of our pension plan
expense and obligation.

ABOUT OUR BUSINESS
Through its national bank subsidiary, PNB, Park is engaged in a general commercial
banking and trust business, primarily in Ohio and North Carolina, with the exception
of nationwide aircraft loans and nationwide asset-based lending to consumer finance
companies. 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 our customers for commercial, real estate and consumer loans, and investment,
fiduciary and deposit services.

Park’s subsidiaries compete for deposits and loans with other banks, savings
associations, credit unions and other types of financial institutions. At December
31, 2018, Park operated 118 financial service offices (including those of PNB, Scope
Leasing, Inc. (“Scope Aircraft Finance”), and GFSC) and a network of 136 automated
teller machines in 29 Ohio counties, 1 Kentucky county and 2 North Carolina
counties. SEPH also operated one office, located in Newark, Ohio.

A summary of average loans and average deposits for Park’s subsidiaries, including
PNB, and PNB’s divisions and Scope Aircraft Finance for 2018, 2017 and 2016 is
shown in Table 10. See Note 28 - Segment Information of the Notes to Consolidated
Financial Statements for additional financial information for the Corporation’s operating
segments. Please note that the financial statements for the divisions of PNB are not
prepared on a separate basis and, therefore, net income is not included in the summary
financial data in Table 10.

Table 10 - Park Affiliate Financial Data

(In thousands)

Park National Bank:

Park National
Bank Division

First-Knox National Bank
Division

Security National Bank
Division

Century National Bank
Division

Second National Bank
Division

2018

2017

2016

Average
Loans

Average
Deposits

Average
Loans

Average
Deposits

Average
Loans

Average
Deposits

$1,768,378 $1,696,374

$1,745,485 $1,636,205 $1,623,565

$1,526,438

740,112

790,310

736,544

790,998

723,308

737,784

455,344

823,260

463,880

815,025

459,172

798,809

607,698

661,007

631,115

620,138

649,645

574,171

388,519

366,249

398,876

366,421

382,555

356,913

Richland Bank Division

232,348

506,949

233,278

511,673

231,884

501,678

Park National SW & N KY
Bank Division

Fairfield National Bank
Division

Unity National
Bank Division

United Bank, N.A.
Division

NewDominion
Bank Division1

470,243

265,590

451,544

258,628

421,873

219,603

268,571

422,071

276,696

398,628

269,805

399,174

204,468

198,956

199,846

202,772

183,985

187,088

130,426

221,358

122,512

211,377

109,727

203,613

138,542

135,373

—

Scope Aircraft Finance

261,099

2,769

260,322

1,963

238,464

1,471

SEPH

GFSC

2,606

—

30,842

3,231

11,472

33,668

—

3,833

14,434

33,370

Parent Company, other

(238,532)

41,451

(237,731)

75,435

(218,925)

—

4,174

69,888

Consolidated Totals

$5,460,664 $6,134,948

$5,327,507 $5,893,096 $5,122,862

$5,580,804

1NewDominion was acquired July 1, 2018. Averages for NewDominion reflect the six months that the
NewDominion business was a division of PNB.

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

Average total deposits were $6,135 million in 2018, compared to $5,893 million in 2017,
and $5,581 million in 2016. Table 11 provides a summary of deposit balances as of
December 31, 2018 and 2017, along with the change over the past year.

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MANAGEMENT’S DISCUSSION AND ANALYSIS Table 11 - Year-End Deposits
December 31, (In thousands)

2018

2017

Change

Non-interest bearing checking

$1,804,881

$1,633,941

$170,940

Interest bearing transaction accounts

Savings

All other time deposits

Other

Total

1,364,743

2,046,792

1,043,177

1,267

1,260,095

1,888,545

1,033,476

1,269

104,648

158,247

9,701

(2)

$6,260,860

$5,817,326

$443,534

The average interest rate paid on interest bearing deposits was 0.72% in 2018,
compared to 0.44% in 2017, and 0.32% in 2016. The average cost of interest bearing
deposits for each quarter of 2018 was 0.85% for the fourth quarter, 0.83% for the third
quarter, 0.64% for the second quarter and 0.54% for the first quarter.

The deposit growth for 2018 included deposits from the acquisition of NewDominion,
which totaled $249.7 million at December 31, 2018.

Maturities of time deposits in amounts of $100,000 or more as of December 31, 2018
and 2017 were:

Table 12 - Maturities of Time Deposits

December 31
(In thousands)

3 months or less

Over 3 months through 6 months

Over 6 months through 12 months

Over 12 months

Total

$100,000 or more

2018

$151,205

93,759

73,273

107,231

$425,468

2017

$146,793

91,532

81,333

82,904

$402,562

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 0.74% in 2018,
compared to 0.43% in 2017, and 0.19% in 2016. The year-end balance for short-term
borrowings was $222 million at December 31, 2018, compared to $391 million at
December 31, 2017, and $395 million at December 31, 2016.

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 include
the subordinated notes discussed in the following section. In 2018, average long-
term debt was $424 million, compared to $788 million in 2017, and $776 million in
2016. The average interest rate paid on long-term debt was 2.38% for 2018, compared
to 2.86% for 2017, and 3.13% for 2016. Average total debt (long-term and short-term)
was $642 million in 2018, compared to $1,018 million in 2017, and $1,017 million in
2016. Average total debt decreased by $376 million, or 37.0%, in 2018 compared to
2017, and increased by $762,000, or 0.07%, in 2017 compared to 2016. Average long-
term debt was 66% of average total debt in 2018, compared to 77% of average total
debt in 2017, and 76% of average total debt in 2016.

Subordinated Notes: Park assumed, with the 2007 acquisition of Vision’s parent holding
company, $15.5 million of floating rate junior subordinated notes. The $15.5 million
of junior subordinated notes were purchased by Vision Bancshares Trust I (“Trust I”)
following the issuance of Trust I’s $15.0 million of floating rate preferred securities.
The interest rate on these junior subordinated notes adjusts every quarter at 148 basis
points above the three-month LIBOR interest rate. The maturity date for the junior
subordinated notes is December 30, 2035 and the junior subordinated notes may be
prepaid after December 30, 2010. These junior subordinated notes qualify as Tier 1
capital under current Federal Reserve Board guidelines.

On April 20, 2012, Park issued an aggregate principal amount of $30.0 million of
subordinated notes to 56 purchasers. These subordinated notes had a fixed annual
interest rate of 7% with quarterly interest payments. The maturity date of these

subordinated notes was April 20, 2022 and the subordinated notes were eligible to be
prepaid after April 20, 2017. The subordinated notes qualified as Tier 2 capital under
applicable Federal Reserve Board guidelines. Each subordinated note was purchased at
a purchase price of 100% of the principal amount by an accredited investor. Park paid in
full the $30.0 million outstanding principal amount, plus accrued interest, on April 24,
2017.

See Note 17 - Subordinated Notes of the Notes to Consolidated Financial Statements for
additional information about the subordinated notes.

Shareholders’ Equity: The ratio of total shareholders’ equity to total assets was
10.67% at December 31, 2018, compared to 10.03% at December 31, 2017, and 9.94%
at December 31, 2016. The ratio of tangible shareholders’ equity [shareholders’ equity
($832.5 million) less goodwill ($112.7 million) and other intangibles ($7.0 million)] to
tangible assets [total assets ($7,804 million) less goodwill ($112.7 million) and other
intangibles ($7.0 million)] was 9.28% at December 31, 2018, compared to 9.16% at
December 31, 2017, and 9.06% at December 31, 2016.

In accordance with GAAP, Park reflects any unrealized holding gain or loss on AFS debt
securities or change in the funded status of Park’s pension plan, net of income taxes, as
accumulated other comprehensive income (loss) which is part of Park’s shareholders’
equity.

The unrealized net holding loss, net of income taxes, on AFS debt securities was $20.1
million at year-end 2018, compared to the unrealized net holding loss, net of income
taxes, of $2.9 million at year-end 2017, and compared to the unrealized net holding loss,
net of income taxes, of $3.0 million at year-end 2016.

In accordance with GAAP, Park adjusts accumulated other comprehensive loss to
recognize the net actuarial gain or loss reflected in the funding status of Park’s pension
plan. See Note 19 - Benefit Plans of the Notes to Consolidated Financial Statements for
information on the accounting for Park’s pension plan. Pertaining to the funding status
of the pension plan, Park recognized a net comprehensive loss of $3.0 million in 2018,
a net comprehensive loss of $8.8 million in 2017, and a net comprehensive gain of $0.6
million in 2016. The net comprehensive loss in 2018 was due to changes in actuarial
assumptions being more than offset by lower than projected returns on pension plan
assets during 2018. The net comprehensive loss in 2017 was due to changes in actuarial
assumptions which were partially offset by increased investment returns on pension
plan assets. The net comprehensive gain in 2016 was due to changes in actuarial
assumptions being more than offset by increased investment returns on pension plan
assets.

At year-end 2018, the balance in accumulated other comprehensive loss pertaining to
the pension plan was $29.7 million, compared to $23.5 million at December 31, 2017,
and $14.7 million at December 31, 2016.

INVESTMENT OF FUNDS
Loans: Average loans were $5,461 million in 2018, compared to $5,328 million in 2017,
and $5,123 million in 2016. The actual yield on average loan balances was 4.98% in
2018, compared to 4.69% in 2017, and 4.74% in 2016. Approximately 48% of Park’s loan
balances mature or reprice within one year (see Table 36). The actual yield on average
loan balances for each quarter of 2018 was 5.10% for the fourth quarter, 4.95% for the
third quarter, 4.90% for the second quarter and 4.94% for the first quarter.

Loan interest income for 2018, 2017, and 2016 included $3.4 million, $2.3 million,
and $6.2 million, respectively, related to payments received on certain SEPH impaired
loan relationships, some of which are participated with PNB as well as $1.1 million of
the accretion of loan purchase accounting adjustments related to the acquisition of
NewDominion. Excluding this income, the yield on loans was 4.89%, 4.66%, and 4.64%,
for the fiscal years ended December 31, 2018, 2017, and 2016 and 5.05% for the fourth
quarter of 2018, 4.91% for the third quarter of 2018, 4.84% for the second quarter of
2018, and 4.75% for the first quarter of 2018.

At December 31, 2018, loan balances were $5,692 million, compared to $5,372 million
at year-end 2017, an increase of $320 million, or 5.9%. The loan growth of $320 million
in 2018 was largely due to an increase in loans of $332 million at PNB, offset by
declines in loans at SEPH and GFSC. Of the $332 million increase at PNB, $59 million
represents growth subsequent to the acquisition of NewDominion.

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MANAGEMENT’S DISCUSSION AND ANALYSISTable 13 reports year-end loan balances by type of loan for the past five years.

Table 13 - Loans by Type
December 31,
(In thousands)

Commercial, financial and
agricultural

2018

2017

2016

2015

2014

$1,072,786

$1,053,453

$994,619

$955,727

$856,535

Construction real estate

248,274

181,470

188,945

173,345

155,804

Residential real estate

1,793,618

1,725,224

1,808,497

1,855,443

1,851,375

Commercial real estate

1,283,045

1,167,607

1,155,703

1,113,603

1,069,637

Consumer

Leases

Total loans

1,292,136

1,241,736

1,120,850

967,111

893,160

2,273

2,993

3,243

2,856

3,171

$5,692,132 $5,372,483 $5,271,857 $5,068,085 $4,829,682

On a combined basis, year-end commercial, financial and agricultural loans, construction
real estate loans and commercial real estate loans increased by $202 million, or 8.4%,
in 2018 and increased by $63 million, or 2.7%, in 2017. The increase in 2018 was
due to an increase in commercial real estate loans of $115.4 million, an increase in
construction real estate loans of $66.8 million and an increase in commercial, financial
and agricultural loans of $19.3 million. The increase in 2017 was due to an increase
in commercial, financial and agricultural loans of $58.8 million and an increase in
commercial real estate loans of $11.9 million, offset by a decrease in construction real
estate loans of $7.5 million.

Consumer loans increased by $50 million, or 4.1%, in 2018 and increased $121 million,
or 10.8%, in 2017. The increase in consumer loans in each of 2018 and 2017 was
primarily due to an increase in automobile lending in Ohio.

Residential real estate loans increased by $68 million, or 4.0%, in 2018 and decreased
$83 million, or 4.6%, in 2017. A portion of the long-term, fixed-rate residential mortgage
loans that Park originates are sold in the secondary market and Park typically retains
servicing on a majority of these loans. The balance of sold, fixed-rate residential
mortgage loans, in which Park has maintained the servicing rights, was $1,389 at year-
end 2018, compared to $1,371 million at year-end 2017, and $1,330 million at year-end
2016.

Table 14 summarizes the distribution of maturities for all selected loan segments.

Table 14 - Selected Loan Maturity Distribution
December 31, 2018
(In thousands)

1 Year or
Less 1,2

Over 1-5
Years

Over
5 Years

Total

Commercial, financial and
agricultural

Construction real estate

Commercial real estate

$333,128

$433,940

$305,718

$1,072,786

72,434

55,426

64,063

111,777

248,274

$178,612

1,049,007

1,283,045

Total

$460,988

$676,615

$1,466,502

$2,604,105

Total of these selected loans
due after one year with:

Fixed interest rate

Floating interest rate

$387,514

$247,641

$635,155

289,101

1,218,861

1,507,962

1Nonaccrual loans of $42.4 million are included within the one year or less classification above.

2Purchase accounting discounts of $2.4 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 debt securities as AFS (see Note 5 - Investment
Securities of the Notes to Consolidated Financial Statements). These debt securities are
carried on the books at their estimated fair value with the unrealized holding gain or
loss, net of income taxes, accounted for as accumulated other comprehensive income

(loss). The debt securities that are classified as AFS are free to be sold in future periods
in carrying out Park’s investment strategies.

Park classifies certain types of U.S. Government sponsored entity collateralized
mortgage obligations (“CMOs”) that it purchases as Held-To-Maturity (“HTM”). In
addition, starting in 2015, Park began to purchase tax-exempt municipal securities,
also classified as HTM. These debt securities are classified as HTM because they
are generally not as liquid as the investment securities that Park classifies as AFS. A
classification of HTM means that Park has the positive intent and the ability to hold
these securities until maturity. At year-end 2018, Park’s HTM securities portfolio was
$352 million, compared to $357 million at year-end 2017, and $260 million at year-end
2016. Included in the HTM debt securities portfolio as of December 31, 2018 were $305
million of tax-exempt municipal securities. All of the CMOs, mortgage-backed securities,
and callable notes in Park’s investment portfolio were issued by U.S. Government
sponsored entities.

Average taxable debt investment securities were $1,192 million in 2018, compared
to $1,310 million in 2017, and $1,413 million in 2016. The average yield on taxable
debt investment securities was 2.47% in 2018, compared to 2.10% in 2017, and 2.17%
in 2016. Average tax-exempt debt investment securities were $302 million in 2018,
compared to $247 million in 2017, and $91 million in 2016. The average tax-equivalent
yield on tax-exempt debt investment securities was 3.67% in 2018, compared to 4.48%
in 2017, and 4.43% in 2016.

Total debt securities (at amortized cost) were $1,381 million at December 31, 2018,
compared to $1,455 million at December 31, 2017, and $1,521 million at December
31, 2016. Management purchased debt securities totaling $380 million in 2018,
compared to $143 million in 2017, and $720 million in 2016. Proceeds from repayments,
redemptions and maturities of debt securities were $208 million in 2018, compared to
$208 million in 2017, and $783 million in 2016.

During 2018, Park sold certain AFS debt investment securities with a book value of
$247.0 million at a loss of $2.6 million and sold certain HTM debt securities with a book
value of $7.4 million at a gain of $0.3 million. These HTM securities had been paid down
by 96.3% of the principal outstanding at acquisition. No debt securities were sold during
2017 or 2016.

At year-end 2018, 2017, and 2016, the average tax-equivalent yield on the total
investment portfolio was 2.72%, 2.47%, and 2.30%, respectively. The weighted average
remaining maturity of the total investment portfolio was 4.7 years at December 31,
2018, 4.4 years at December 31, 2017, and 4.4 years at December 31, 2016. Obligations
of the U.S. Treasury and other U.S. Government sponsored entities and U.S. Government
sponsored entities’ asset-backed securities were approximately 74.4% of the total
investment portfolio at year-end 2018, 75.9% of the total investment portfolio at year-
end 2017, and approximately 83.9% of the total investment portfolio at year-end 2016.

Other investment securities (as shown on the Consolidated Balance Sheets) consist of
stock investments in the FHLB, the FRB and equity securities. Total other investment
securities were $56 million at December 31, 2018, compared to $64 million at December
31, 2017, and $65 million at December 31, 2016. Management purchased equity
securities totaling $2.6 million in 2018, compared to $3.5 million in 2016. There were
no equity security purchases in 2017. Proceeds from the redemption/repurchase of
FHLB stock were $7.0 million in 2018. There were no proceeds from other investment
securities in 2017 or 2016.

During 2017, Park sold certain equity securities with a book value of $444,000 at a
gain of $1.8 million. There were no sales of equity securities in 2018 or 2016. During
the year ended December 31, 2018, $287,000 of unrealized losses were recorded
within “Gain on equity securities, net” on the Consolidated Statements of Income. An
additional $3.5 million gain recorded within “Gain on equity securities, net” on the
Consolidated Statements of Income for the year ended December 31, 2018 relates to
Park’s 8.55% investment in NewDominion which was held at December 31, 2017. See
Note 4 - Business Combinations. During 2017 and 2016, equity securities had unrealized
gains of $1.3 million and $2.3 million, respectively, recorded in accumulated other
comprehensive loss.

The average maturity of the investment portfolio would lengthen if long-term interest
rates were to increase as principal repayments from mortgage-backed securities and
CMOs would decline. At year-end 2018, management estimated that the average

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MANAGEMENT’S DISCUSSION AND ANALYSIS maturity of the investment portfolio would lengthen to 5.0 years with a 100 basis point
increase in long-term interest rates and to 5.8 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 were to decrease as the principal repayments
from mortgage-backed securities and CMOs would increase as borrowers would
refinance their mortgage loans and the callable U.S. Government sponsored entity notes
would shorten to their call dates. At year-end 2018, management estimated that the
average maturity of the investment portfolio would decrease to 4.4 years with a 100
basis point decrease in long-term interest rates and to 3.9 years with a 200 basis point
decrease in long-term interest rates.

Table 15 sets forth the carrying value of investment securities, as well as the
percentage held within each category at year-end 2018, 2017 and 2016:

Table 15 - 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

2018

2017

2016

$—

$242,720

$267,533

305,278

1,049,951

43,388

8,225

4,238

300,412

905,946

50,086

8,225

5,435

188,622

1,058,383

50,086

8,225

6,934

$1,411,080

$1,512,824

$1,579,783

Investments by category as a percentage of total investment securities

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

Obligations of states and political subdivisions

U.S. Government asset-backed securities

Federal Home Loan Bank stock

Federal Reserve Bank stock

Equities

Total

—%

21.6%

74.4%

3.1%

0.6%

0.3%

16.0%

19.9%

59.9%

3.3%

0.5%

0.4%

16.9%

11.9%

67.0%

3.2%

0.5%

100.0%

ANALYSIS OF EARNINGS
Net Interest Income: 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 16 for three
years of history on the average balances of the balance sheet categories as well as the average rates earned on interest earning assets and the average rates paid on interest bearing
liabilities.)

Table 16 - Distribution of Assets, Liabilities and Shareholders’ Equity
2018

December 31,
(In thousands)
ASSETS
Interest earning assets:

Loans1, 2
Taxable investment securities
Tax-exempt investment securities3
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 debt4

Total interest bearing liabilities

Non-interest bearing liabilities:

Demand deposits
Other

Total non-interest bearing liabilities

Shareholders’ equity
TOTAL
Tax equivalent net interest income
Net interest spread
Net yield on interest earning assets (net interest margin)

Daily Average Interest

Average Rate

Daily Average

$271,673
29,479
11,100
1,407
313,659

4.98%
2.47%
3.67%
1.93%
4.46%

$8,097
11,718
12,375
32,190
1,600
10,113
43,903

0.58%
0.58%
1.17%
0.72%
0.74%
2.38%
0.86%

$5,460,664
1,192,339
302,254
73,001
7,028,258

(50,151)
114,357
57,195
479,610
$7,629,269

$1,396,869
2,019,734
1,056,864
4,473,467
217,327
424,178
$5,114,972

1,661,481
68,676
1,730,157
784,140
$7,629,269

$5,327,507
1,309,708
247,448
262,100
7,146,763

(52,688)
113,882
56,910
476,176
$7,741,043

$1,322,171
1,934,258
1,091,681
4,348,110
229,193
788,491
5,365,794

1,544,986
74,424
1,619,410
755,839
$7,741,043

2017
Interest

$249,757
27,440
11,093
3,087
291,377

$3,357
6,107
9,629
19,093
992
22,580
42,665

Average Rate

Daily Average

2016
Interest

Average Rate

$242,978
30,627
4,050
1,020
278,675

4.74%
2.17%
4.43%
0.51%
4.08%

$1,358
2,721
9,337
13,416
456
24,300
38,172

0.11%
0.16%
0.77%
0.32%
0.19%
3.13%
0.74%

4.69%
2.10%
4.48%
1.18%
4.08%

0.25%
0.32%
0.88%
0.44%
0.43%
2.86%
0.80%

$5,122,862
1,413,324
91,343
198,197
6,825,726

(56,890)
115,779
59,104
472,800
$7,416,519

$1,244,646
1,705,592
1,215,681
4,165,919
240,457
776,465
5,182,841

1,414,885
81,056
1,495,941
737,737
$7,416,519

$269,756

$248,712

$240,503

3.60%
3.84%

3.28%
3.48%

3.34%
3.52%

PRK Annual Report Layout 2018 FINAL 201902 EPA.indd 37

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MANAGEMENT’S DISCUSSION AND ANALYSIS1Loan income includes net loan-related fee income, purchase accounting accretion and origination expense in
the aggregate amount of $3.3 million in 2018, $3.1 million in 2017, and $1.6 million in 2016. Loan income also
includes the effects of taxable equivalent adjustments using a 21% federal corporate income tax rate in 2018
and a 35% tax rate in 2017 and 2016. The taxable equivalent adjustments were $528,000 in 2018, $1.1 million
in 2017, and $1.0 million in 2016.

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

3Interest income on tax-exempt investment securities includes the effects of taxable equivalent adjustments
using a 21% federal corporate income tax rate in 2018 and a 35% federal corporate income tax rate in 2017 and
2016. The taxable equivalent adjustments were $2.3 million in 2018, $3.9 million in 2017, and $1.4 million in
2016.

4Includes subordinated notes.

Average interest earning assets for 2018 decreased by $119 million, or 1.7%, to $7,028
million, compared to $7,147 million for 2017. Average interest earnings assets for 2017
increased by $321 million, or 4.7%, to $7,147 million, compared to $6,826 million for
2016. The average yield on interest earning assets increased by 38 basis points to 4.46%
for 2018, compared to 4.08% for 2017. The average yield on interest earning assets
remained constant, at 4.08% for both 2017 and 2016.

Interest income for 2018, 2017, and 2016 includes $3.4 million, $2.3 million, and
$6.2 million, respectively, related to payments received on certain SEPH impaired
loan relationships, some of which are participated with PNB as well as $1.1 million of
purchase accounting accretion for 2018. Excluding this income, the yield on loans was
4.89%, 4.66%, and 4.64%, for the fiscal years ended December 31, 2018, 2017, and 2016,
respectively, the yield on earning assets was 4.40%, 4.05%, and 4.00%, for the fiscal
years ended December 31, 2018, 2017, and 2016, respectively, and the net interest
margin was 3.77%, 3.46%, and 3.44%, for the fiscal years ended December 31, 2018,
2017, and 2016, respectively.

Average interest bearing liabilities for 2018 decreased by $251 million, or 4.7%, to
$5,115 million, compared to $5,366 million for 2017. Average interest bearing liabilities
for 2017 increased by $183 million, or 3.5%, to $5,366 million, compared to $5,183
million for 2016. The average cost of interest bearing liabilities increased by 6 basis
points to 0.86% for 2018, compared to 0.80% for 2017. The average cost of interest
bearing liabilities increased by 6 basis points to 0.80% for 2017, compared to 0.74% for
2016.

The table below shows for the fiscal years ended December 31, 2018, 2017, and 2016,
the average balance and tax equivalent yield by type of loan.

Table 17 - Average Loans and Tax Equivalent Yield
2017
Year Ended December 31,

2018

2016

(In thousands)

Average
balance

Tax
equivalent
yield

Average
balance

Tax
equivalent
yield

Average
balance

Tax
equivalent
yield

Home equity

$207,821

5.20%

$209,115

4.43%

$212,223

4.03%

Installment loans

1,294,644

5.05%

1,238,425

4.96%

1,057,662

5.33%

Real estate loans

1,178,887

4.13%

1,192,999

3.86%

1,232,722

3.80%

Commercial loans 1

2,774,367

5.27%

2,681,759

4.94%

2,614,198

4.99%

Excluding the impact of all items above, the tax equivalent yield on total loans and
leases was 4.89%, 4.66%, and 4.64%, for 2018, 2017, and 2016, respectively.

The table below shows for the fiscal year ended December 31, 2018, 2017, and 2016,
the average balance and cost of funds by type of deposit.

Table 18 - Average Deposits and Cost of Funds
Year Ended December 31,

2018

2017

2016

(In thousands)

Average
balance

Cost of
funds

Average
balance

Cost of
funds

Average
balance

Cost of
funds

Transaction accounts

$1,396,869 0.58% $1,322,171 0.25% $1,244,646 0.11%

Savings deposits and clubs

2,019,734 0.58%

1,934,258 0.32%

1,705,592 0.16%

Time deposits1

1,056,864 1.17% 1,091,681 0.88%

1,215,681 0.77%

Total interest bearing deposits1 $4,473,467 0.72% $4,348,110 0.44% $4,165,919 0.32%

1Time deposit interest expense for 2018 includes $287,000 of purchase accounting accretion related to the
acquisition of NewDominion. Excluding the impact of this accretion, the cost of funds on time deposits was
1.20% and the cost of funds on total interest bearing deposits was 0.73%.

The following table displays (for each quarter of 2018) the average balance of interest
earning assets, the net interest income and the tax equivalent net interest income and
net interest margin.

Table 19 - Quarterly Net Interest Margin

(In thousands)

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Average Interest
Earning Assets

Net Interest
Income1

$6,865,861

$64,850

6,885,094

7,206,111

7,141,429

64,742

67,676

69,630

Tax Equivalent
Net Interest
Income1

Tax Equivalent
Net Interest
Margin1

$65,551

65,447

68,392

70,366

3.87%

3.81%

3.78%

3.91%

3.84%

2018

$7,028,259

$266,898

$269,756

1Net interest income for the first, second, third, and fourth quarters of 2018 includes $1.1 million,
$814,000, $702,000, and $799,000, respectively, related to payments received on certain SEPH impaired
loan relationships, some of which are participated with PNB as well as $1.4 million of purchase accounting
accretion related to the acquisition of NewDominion. Excluding the impact of these loans and accretion, the
tax equivalent net interest margin was 3.73%, 3.77%, 3.73%, and 3.86%, for the first, second, third, and fourth
quarters of 2018, respectively.

In the following table, 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 20 - Volume/Rate Variance Analysis

Change from 2017 to 2018
Total

Volume Rate

Change from 2016 to 2017
Total
Rate

Volume

(In thousands)

Increase (decrease) in:
Interest income:

Other

4,945

12.01%

5,209

11.90%

6,057

11.05%

Total loans

$6,243 $15,673

$21,916

$9,704

$(2,925)

$6,779

Total loans and leases
before allowance

$5,460,664

4.98%

$5,327,507

4.69%

$5,122,862

4.74%

Taxable investments

(2,459)

4,498

2,039

(2,246)

(941)

(3,187)

1Commercial loan interest income includes the effects of taxable equivalent adjustments using a 21% federal
corporate income tax rate in 2018 and a 35% federal corporate income tax rate in 2017, and 2016. The taxable
equivalent adjustments were $528,000 in 2018, $1.1 million in 2017, and $1.0 million in 2016.

Loan interest income for 2018, 2017, and 2016 includes $3.4 million, $2.3 million,
and $6.2 million, respectively, related to payments received on certain SEPH impaired
loan relationships, some of which are participated with PNB as well as $1.1 million
of purchase accounting accretion for 2018. The amount included in home equity loan
interest income for 2018 was $202,000. Excluding the impact of these items, the tax
equivalent yield on home equity loans was 5.09%. The amount in real estate loan
interest income for 2018 was $545,000. Excluding the impact of these items, the tax
equivalent yield on real estate loans was 4.08%. The amount included in commercial
loan interest income for 2018, 2017, and 2016 was $3.8 million, $2.3 million, and $6.2
million, respectively. Excluding the impact of these items, the tax equivalent yield on
commercial loans was 5.14%, 4.88%, and 4.79% for 2018, 2017, and 2016, respectively.

Tax-exempt investments

2,457

(2,449)

6,920

123

Money market instruments

(2,228)

548

(1,680)

329

1,738

7,043

2,067

Total interest income

4,013

18,270

22,283

14,707

(2,005)

12,702

Interest expense:

Transaction accounts

$190

$4,550

$4,740

Savings accounts

Time deposits

Short-term borrowings

270

(307)

(51)

5,341

3,053

659

5,611

2,746

608

Long-term debt

(10,432)

(2,035)

(12,467)

$85

365

(952)

(21)

376

$1,914

$1,999

3,021

1,244

557

3,386

292

536

(2,096)

(1,720)

Total interest expense

(10,330)

11,568

1,238

(147)

4,640

4,493

Net variance

$14,343

$6,702

$21,045 $14,854

$(6,645)

$8,209

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MANAGEMENT’S DISCUSSION AND ANALYSIS Other Income: Other income was $101.1 million in 2018, compared to $86.4 million in
2017, and $84.0 million in 2016.

The following table displays total other income for Park in 2018, 2017 and 2016.

Table 21 - Other Income

Year Ended December 31,
(In thousands)

Income from fiduciary activities

Service charges on deposits

Other service income

Checkcard fee income

Bank owned life insurance income

ATM fees

OREO valuation adjustments

Gain on the sale of OREO, net

Net (loss) gain on the sale of investment securities

Gain on equity securities, net

Other components of net-periodic benefit income

Gain on the sale of non-performing loans

Miscellaneous

Total other income

2018

2017

2016

$26,293

$23,735

$21,400

11,461

14,266

17,317

6,815

1,978

(491)

4,235

(2,271)

3,213

6,820

2,826

8,639

12,653

13,162

15,798

4,858

2,253

(458)

251

1,821

—

14,259

14,419

15,057

4,338

2,268

(601)

1,323

—

5,794

5,308

—

6,562

6,268

$101,101

$86,429

$84,039

The following table breaks out the change in total other income for the year ended
December 31, 2018 compared to the year ended December 31, 2017, and for the year
ended December 31, 2017 compared to the year ended December 31, 2016, between
Park’s ongoing operations and SEPH.

Table 22 - Other Income Breakout

Change from 2017 to 2018

Change from 2016 to 2017

(In thousands)

Income from fiduciary activities

Service charges on deposits

Other service income

Checkcard fee income

Bank owned life insurance income

ATM fees

OREO valuation adjustments

Gain on the sale of OREO, net

Net (loss) gain on the sale of investment
securities

(4,092)

Gain on equity securities, net

Other components of net-periodic benefit
income

Gain on the sale of non-performing loans

Miscellaneous

3,213

1,005

660

2,300

Park less
SEPH

$2,558

(1,192)

SEPH

Total

Park less
SEPH

—

$2,558

$2,335

(1,192)

(1,606)

853

1,104

251

1,519

1,957

(275)

186

1,201

—

(219)

2,783

—

1,519

1,957

(275)

(33)

3,984

3,213

1,026

2,166

(223)

2,826

2,077

201

741

520

(15)

124

(17)

—

465

—

370

(4,092)

1,821

SEPH

Total

—

$2,335

(1,606)

(1,458)

(1,257)

—

741

520

(15)

143

(1,055)

(1,072)

—

(76)

1,821

—

486

—

294

Total other income

$9,291

$5,381

$14,672

$4,939

$(2,549)

$2,390

Income from fiduciary activities increased by $2.6 million, or 10.8%, to $26.3 million in
2018, compared to $23.7 million in 2017. The $23.7 million in 2017 was an increase of
$2.3 million, or 10.9%, compared to $21.4 million in 2016. The increases in fiduciary fee
income in 2018 and 2017 were primarily due to improvements in the equity markets
and also due to an increase in the total account balances serviced by PNB’s Trust
department. PNB charges fiduciary fees largely based on the market value of the trust
assets. The average market value of the trust assets managed by PNB was $5.49 billion
in 2018, compared to $5.05 billion in 2017 and $4.56 billion in 2016.

Service charges on deposit accounts decreased by $1.2 million, or 9.4%, to $11.5 million

in 2018, compared to $12.7 million in 2017. The $12.7 million in 2017 was a decrease
of $1.6 million, or 11.3%, compared to $14.3 million in 2016. The declines in 2018 and
2017 were related to declines in service charges on deposits within Park’s ongoing
operations, largely as a result of a decline in other non-sufficient funds (NSF) fee
income and service charges on demand deposit accounts.

Other service income increased by $1.1 million, or 8.4%, to $14.3 million in 2018,
compared to $13.2 million in 2017. The $13.2 million in 2017 was a decrease of $1.3
million, or 8.7%, compared to $14.4 million in 2016. The $853,000 increase in other
service income at SEPH for 2018 compared to 2017 and the $1.5 million decrease in
other service income at SEPH for 2017 compared to 2016 was primarily the result of
fluctuations in the recovery of fees from certain SEPH impaired loan relationships.

Checkcard fee income, which is generated from checkcard transactions, increased $1.5
million, or 9.6%, to $17.3 million in 2017, compared to $15.8 million in 2017. The $15.8
million in 2017 was an increase of $741,000, or 4.9%, compared to $15.1 million in
2016. The increases in 2018 and 2017 were attributable to continued increases in the
volume of checkcard transactions.

Bank owned life insurance income increased by $2.0 million, or 40.3%, to $6.8 million
in 2018, compared to $4.9 million in 2017. Bank owned life insurance income increased
by $520,000, or 12.0%, to $4.9 million in 2017, compared to $4.3 million in 2016. The
increase of $2.0 million from 2017 to 2018 and the $520,000 increase from 2016
to 2017 were primarily related to income from death benefits paid on policies. Park
recorded $2.7 million of income from death benefits paid on policies during 2018,
compared to $478,000 of income from death benefits paid on policies during 2017, and
$40,000 of income from death benefits paid on policies during 2016.

Gain on the sale of OREO, net, totaled $4.2 million in 2018, an increase of $4.0 million,
compared to $251,000 in 2017. The $251,000 in 2017 was a decrease of $1.1 million,
compared to $1.3 million in 2016. The increase in 2018 was primarily due to a $4.1
million gain on the sale of one OREO property, which was partially participated to PNB
from SEPH

During the year ended December 31, 2018, $287,000 of unrealized losses were recorded
within “Gain on equity securities, net” on the Consolidated Statements of Income. An
additional $3.5 million gain recorded within “Gain on equity securities, net” on the
Consolidated Statements of Income for the year ended December 31, 2018 related
to an investment security which was no longer held at December 31, 2018. During
2017 and 2016, equity securities had unrealized gains of $1.3 million and $2.3 million,
respectively, recorded in accumulated other comprehensive loss.

Other components of net periodic pension benefit income increased by $1.0 million,
or 17.7%, to $6.8 million in 2018, compared to $5.8 million in 2017, and increased
by $486,000, or 9.2%, to $5.8 million in 2017 compared to $5.3 million in 2016. The
increase in each of 2018 and 2017 was largely due to an increase in the expected return
on plan assets based on an increase in plan assets.

Gain on the sale of non-performing loans was $2.8 million for 2018. This was related to
certain non-performing loans, which had a book balance of $174,000, that were sold in
the fourth quarter of 2018. No non-performing loans were sold in 2017 or 2016.

Other miscellaneous income increased by $2.0 million, or 31.7%, to $8.6 million,
compared to $6.6 million in 2017. Other miscellaneous income increased by $294,000,
or 4.7%, to $6.6 million in 2017, compared to $6.3 million in 2016. The increase in
2018, compared to 2017, was primarily related to a $1.2 million increase in income
from capital investments, an $833,000 increase in income from repossessed assets
and a $437,000 increase in the net gain on the sale of assets. The increase in 2017,
compared to 2016, was primarily related to a $749,000 increase in income from capital
investments offset by a $288,000 decline in income from the operation of OREO
properties.

Other Expense: Other expense was $228.8 million in 2018, compared to $203.2 million
in 2017, and $204.3 million in 2016. Other expense increased by $25.6 million, or 12.6%,

PRK Annual Report Layout 2018 FINAL 201902 EPA.indd 39

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MANAGEMENT’S DISCUSSION AND ANALYSISin 2018, and decreased by $1.2 million, or 0.6%, in 2017. The following table displays
total other expense for Park for 2018, 2017 and 2016.

Table 23 - Other Expense
Year Ended December 31,
(In thousands)

Salaries

Employee benefits

Occupancy expense

Furniture and equipment expense

Data processing fees

Professional fees and services

Marketing

Insurance

Communication

State tax expense

Amortization of intangibles

Borrowing prepayment fee

Miscellaneous

Total other expense

2018

2017

2016

$103,755

$92,177

$87,034

30,289

11,251

16,139

8,477

28,894

5,144

5,289

4,981

3,813

578

—

24,937

10,201

15,324

7,250

24,833

4,374

6,354

4,826

3,583

—

10,145

9,303

24,174

10,239

13,766

5,608

27,181

4,523

5,825

4,985

3,560

—

5,554

11,882

$228,755

$203,162

$204,331

Full-time equivalent employees

1,782

1,746

1,726

The following table breaks out the change in other expense for the year ended
December 31, 2018, compared to the year ended December 31, 2017, and for the year
ended December 31, 2017 compared to the year ended December 31, 2016, between
Park’s ongoing operations and SEPH.

Table 24 - Other Expense Breakout

(In thousands)

Change from 2017 to 2018
Park
less SEPH

SEPH

Total

Change from 2016 to 2017
Park
less SEPH

SEPH

Total

Salaries

$11,585

$(7)

$11,578

$5,176

$(33)

$5,143

Employee benefits

Occupancy expense

Furniture and equipment
expense

Data processing fees

Professional fees and
services

Marketing

Insurance

Communication

State tax expense

Amortization of
intangibles

Borrowing prepayment
fee

5,347

1,050

815

1,227

—

5,352

1,050

845

(38)

815

1,559

1,227

1,642

(82)

—

(1)

—

763

(38)

1,558

1,642

4,730

(669)

4,061

(323)

(2,025)

(2,348)

770

(1,072)

156

184

578

—

(1)

—

770

(1,065)

155

230

578

(146)

531

(156)

—

(5,554)

(3)

(2)

(3)

(56)

—

(149)

529

(159)

—

(5,554)

Miscellaneous

1,541

(699)

842

(2,784)

205

(2,579)

Total other expense

$26,911 $(1,318)

$25,593

$831

$(2,000)

$(1,169)

Salaries expense increased $11.6 million, or 12.6%, to $103.8 million in 2018, compared
to $92.2 million in 2017 and increased $5.1 million, or 5.9%, to $92.2 million in 2017,
compared to $87.0 million in 2016. The increase in 2018 was due to a $1.1 million
one-time incentive paid out in March 2018, along with a $4.3 million increase in salary
expense, a $1.6 million increase in salary expense due to merger related costs for
the NewDominion acquisition, a $1.3 million increase in share-based compensation
expense related to PBRSU awards granted under the Park 2013 Long-Term Incentive

Plan (the “2013 Incentive Plan”) (prior to 2017) and the Park Long-Term Incentive Plan
for Employees (the “2017 Employee LTIP”), and a $2.0 million increase in incentive
compensation expense. The increase in 2017 was due to a $5.6 million increase in salary
expense and an $837,000 increase in share-based compensation expense related to
performance-based restricted stock unit awards granted under the Park 2013 Incentive
Plan, offset by a $1.4 million decrease in incentive compensation expense. Park had
1,782 full-time equivalent employees at year-end 2018, of which 40 full-time equivalent
employees are at NewDominion, compared to 1,746 full-time equivalent employees at
year-end 2017, and 1,726 full-time equivalent employees at year-end 2016.

Employee benefits expense increased $5.4 million, or 21.5%, to $30.3 million in 2018,
compared to $24.9 million in 2017 and increased $763,000, or 3.2%, to $24.9 million in
2017, compared to $24.2 million in 2016. The increase in 2018 was due to a $2.2 million
increase in group insurance costs, a $2.1 million increase in pension plan expense, and
a $1.7 million increase in the KSOP match, which was increased from a 25% match to
a 50% match in March of 2018, offset by a $964,000 decrease in miscellaneous other
employee benefits. The increase in 2017 was due to a $950,000 increase in group
insurance costs, offset by a $226,000 decrease in pension plan expense.

Occupancy expense increased by $1.1 million, or 10.3%, to $11.3 million in 2018,
compared to $10.2 million in 2017. The $1.1 million increase was primarily related to
the acquisition of NewDominion and an increase in maintenance and repairs on building
and grounds.

Furniture and equipment expense increased $815,000, or 5.3%, to $16.1 million in
2018, compared to $15.3 million in 2017, and increased $1.6 million, or 11.3%, to $15.3
million in 2017, compared to $13.8 million in 2016. The increase in 2018 was primarily
due to increases in maintenance and repairs on equipment. The increase in furniture and
equipment expense in 2017 was primarily due to a $1.2 million increase in maintenance
expense and a $172,000 increase in depreciation expense.

Data processing fees increased by $1.2 million, or 16.9%, to $8.5 million in 2018,
compared to $7.3 million in 2017, and increased by $1.6 million, or 29.3%, to $7.3
million in 2017, compared to $5.6 million in 2016. The increase in 2018 was largely
due to an increase in data processing fees related to the acquisition of NewDominion.
The increase in 2017 was related to increases in expenses related to the issuance of
new chip enabled checkcards and related card costs, plus an increase in checkcard
transactions.

Professional fees and services increased by $4.1 million, or 16.4% in 2018, compared
to $24.8 million in 2017, and decreased by $2.3 million, or 8.6%, to $24.8 million in
2017, compared to $27.2 million in 2016. 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
professional fees and services expense in 2018 was largely related to increases in
management and consulting expense as well as increases in other fees related to the
acquisition of NewDominion. The decrease in professional fees and services expense in
2017 was largely related to declines in consulting fees at SEPH.

Insurance expense decreased by $1.1 million, or 16.8%, to $5.3 million in 2018,
compared to $6.4 million in 2017, and increased $529,000, or 9.1%, to $6.4 million in
2017, compared to $5.8 million in 2016. The fluctuations in insurance expense were
primarily due to increases and declines in FDIC insurance expense.

Borrowing prepayment penalties were $5.6 million in 2016. During 2016, Park prepaid
$50 million of Federal Home Loan Bank (“FHLB”) advances, incurring a $5.6 million
prepayment penalty. These advances had an interest rate of 3.15% and a maturity date
of November 13, 2023.

The subcategory “Miscellaneous” other expense includes expenses for supplies,
travel, charitable contributions, and other miscellaneous expense. The subcategory
miscellaneous other expense increased by $842,000, or 9.1%, to $10.1 million in 2018,
compared to $9.3 million in 2017, and decreased by $2.6 million, or 21.7%, to $9.3
million in 2017, compared to $11.9 million in 2016. The $842,000 increase in 2018
was primarily due to a $936,000 increase in fraud losses, and a $497,000 increase
in contribution expense, offset by a $610,000 decrease in supplemental executive
retirement plan expense. The $2.6 million decrease in 2017 was primarily due to a
$880,000 decrease in fraud losses, a $493,000 decrease in contribution expense, and
the fact that miscellaneous expense for 2016 included $1.7 million in accruals due

PRK Annual Report Layout 2018 FINAL 201902 EPA.indd 40

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MANAGEMENT’S DISCUSSION AND ANALYSIS to the ongoing evaluation of litigation and other proceedings impacting the GFSC
subsidiary and the Park Parent Company.

Income Taxes: Income tax expense was $20.9 million in 2018, compared to $34.2
million in 2017, and $36.8 million in 2016. Income tax expense as a percentage
of income before taxes was 15.9% in 2018, 28.9% in 2017, and 29.9% in 2016. The
difference between the statutory federal corporate income tax rate of 21% for 2018
and Park’s effective tax rate reflects permanent tax differences, primarily consisting of
tax-exempt interest income from municipal investments and loans, qualified affordable
housing and historical tax credits, bank owned life insurance income, and dividends
paid on common shares held within Park’s salary deferral plan, as well as accelerated
depreciation in 2018. Park’s permanent federal tax differences for 2018 were
approximately $7.1 million, compared to $8.5 million for 2017.

As stated earlier, the Tax Cuts and Jobs Act permanently lowered the federal corporate
income tax rate to 21% from then existing maximum rate of 35%, effective January
1, 2018. As a result of the reduction of the federal corporate income tax rate to 21%,
GAAP required companies to re-value certain tax-related assets and liabilities as of the
date of enactment, with the resulting tax effects accounted for in the reporting period
of enactment. This re-valuation impacted Park’s net deferred tax liabilities and qualified
affordable housing tax credit investments. The effect of the Tax Cuts and Jobs Act was
an increase to federal income tax expense at Park of $1.2 million for 2017

CREDIT EXPERIENCE
Provision for (Recovery of) Loan Losses: The provision for (recovery of) 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 provision for (recovery
of) loan losses is determined by management after reviewing the risk characteristics
of the loan portfolio, historic and current loan loss experience and current economic
conditions.

The table below provides additional information on the provision for loan losses and the
ALLL for Park for 2018, 2017 and 2016.

Table 25 - ALLL Information - Park

(In thousands)

ALLL, beginning balance

Charge-offs

Recoveries

Net charge-offs

Provision for (recovery of) loan losses:

ALLL, ending balance

Average loans

2018

2017

$49,988

$50,624

13,552

(7,131)

6,421

7,945

19,403

(10,210)

9,193

8,557

$51,512

49,988

2016

$56,494

20,799

(20,030)

769

(5,101)

50,624

$5,460,664

$5,327,507

$5,122,862

Net charge-offs as a percentage of average loans

0.12%

0.17%

0.02%

For the year ended December 31, 2018, gross income of $4.9 million would have been
recognized on loans that were nonaccrual as of December 31, 2018 had these loans
been current in accordance with their original terms. Interest income on nonaccrual
loans may be recorded on a cash basis and be included in earnings only when Park
expects to receive the entire recorded investment of the loan. Of the $4.9 million
that would have been recognized, approximately $3.2 million was included in interest
income for the year ended December 31, 2018.

PNB and GFSC, are the only subsidiaries that carry an ALLL balance. The following table
provides additional information on the provision for loan losses and the ALLL for PNB
and GFSC for 2018, 2017 and 2016.

Table 26 - ALLL Information - PNB and GFSC

(In thousands)

ALLL, beginning balance

Charge-offs:

PNB and GFSC loans

PNB participations in Vision loans

Total charge-offs

Recoveries:

PNB and GFSC loans

PNB participations in Vision loans

Total recoveries

Net charge-offs

Provision for (recovery of) loan losses:

PNB and GFSC loans

PNB participations in Vision loans

Total provision for loan losses

ALLL, ending balance

Average loans, PNB and GFSC

2018

2017

2016

$49,988

$50,624

$56,494

13,552

19,393

20,274

—

13,552

19,395

20,352

(6,160)

(19)

(6,179)

7,373

8,916

(19)

8,897

(6,938)

(6)

(6,944)

12,451

11,819

(4)

11,815

(6,788)

(3,196)

(9,984)

10,368

7,616

(3,118)

4,498

$51,512

$49,988

$50,624

$5,459,317

$5,316,035

$5,108,428

Net charge-offs as a percentage of average loans
Net charge-offs as a percentage of average loans -
excluding PNB participations in Vision loans

0.14%

0.23%

0.20%

0.23%

0.26%

Charge-offs for 2018 include the charge-off of $20,000 in specific reserves for which
provision expense had been recognized in a prior year, compared to $163,000 for 2017
and $2.2 million for 2016. Net charge-offs adjusted for changes in specific reserves as
a percentage of average loans for the years ended December 31, 2018, 2017, 2016 were
0.16%, 0.24%, and 0.13%, respectively.

SEPH, as a non-bank subsidiary of Park, does not carry an ALLL balance, but recognizes
a provision for loan losses when a charge-off is taken and recognizes a recovery of loan
losses when a recovery is received.

Table 27 - ALLL Information - SEPH
(In thousands)

ALLL, beginning balance

Charge-offs

Recoveries

Net recoveries

Recovery of loan losses:

ALLL, ending balance

Average loans

2018

2017

2016

$—

—

(952)

$—

(3,266)

(3,258)

$—

$2,606

$11,472

$—

447

(10,046)

(9,599)

$—

$14,434

At year-end 2018, the allowance for loan losses was $51.5 million, or 0.90%, of total
loans outstanding, compared to $50.0 million, or 0.93% of total loans outstanding
at year-end 2017, and $50.6 million, or 0.96% of total loans outstanding at year-end
2016. 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, 2018, 2017 and 2016.

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MANAGEMENT’S DISCUSSION AND ANALYSISTable 28 - General Reserve Trends - Park

Year Ended December 31,

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

2017

2016

Table 30 - Allocation of Allowance for Loan Losses

(In thousands)

Allowance for loan losses, end of period

Specific reserves

General reserves

Total loans

Impaired commercial loans

Non-impaired loans

Allowance for loan losses as a percentage
of year-end loans

General reserves as a percentage of
non-impaired loans

General reserves as a percentage of
non-impaired loans (excluding purchased loans)

2018

$51,512

2,273

$49,239

$49,988

$50,624

684

548

$49,304

$50,076

$5,692,132

$5,372,483

$5,271,857

48,135

56,545

70,415

$5,643,997

$5,315,938

$5,201,442

0.90%

0.93%

0.96%

0.87%

0.93%

0.96%

0.91%

N/A

Specific reserves increased $1.6 million to $2.3 million at December 31, 2018, compared
to $684,000 at December 31, 2017. General reserves decreased $65,000, or 0.1%,
to $49.2 million at December 31, 2018, compared to $49.3 million at December 31,
2017. As of December 31, 2018, no allowance had been established for acquired loans.
Excluding acquired loans, the general reserve as a percentage of total loans less
impaired commercial loans was 0.91%.

Management believes that the allowance for loan losses at year-end 2018 is adequate
to absorb probable, incurred credit losses in the loan portfolio. See Note 1 - Summary
of Significant Accounting Policies 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.

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

Table 29 - Summary of Loan Loss Experience
(In thousands)

2018

2017

2016

2015

2014

Average loans (net of unearned interest)

$5,460,664 $5,327,507 $5,122,862 $4,909,579

$4,717,297

Allowance for loan losses:

Beginning balance

Charge-offs:

Commercial, financial and agricultural

Construction real estate

Residential real estate

Commercial real estate

Consumer

Leases

49,988

50,624

56,494

54,352

59,468

2,796

441

281

6,017

105

1,208

1,798

5,786

1,436

3,014

412

9,962

10,275

10,151

—

2,478

470

2,352

348

8,642

—

3,779

1,316

3,944

8,003

7,738

—

Total charge-offs

$13,552

$19,403

$20,799

$14,290

$24,780

December 31,

2018

2017

2016

2015

2014

(In thousands)

Allowance

Percent of
Loans Per
Category

Allowance

Percent of
Loans Per
Category

Allowance

Percent of
Loans Per
Category

Allowance

Percent of
Loans Per
Category

Allowance

Percent of
Loans Per
Category

Commercial, financial,
and agricultural

$16,777

18.85%

$15,022

19.61%

$13,434

18.87%

$13,694

18.86%

$10,719

17.73%

Construction real estate

4,463

4.36%

4,430

3.38%

5,247

3.58%

8,564

3.42%

8,652

3.23%

Residential real estate

8,731

31.51%

9,321

32.11%

10,958

34.31%

13,514

36.61%

14,772

38.33%

Commercial real estate

9,768

22.54%

9,601

21.73%

10,432

21.92%

9,197

21.97%

8,808

22.15%

Consumer

11,773

22.70%

11,614

23.11%

10,553

21.26%

11,524

19.08%

11,401

18.49%

Leases

Total

—

0.04%

—

0.06%

—

0.06%

—

0.07%

$51,512

100.00%

$49,988

100.00%

$50,624

100.00%

$56,494

100.00%

$54,352

100.00%

As of December 31, 2018, Park had no concentrations of loans exceeding 10% 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) troubled debt restructurings (TDRs) on accrual
status; and 3) loans which are contractually past due 90 days or more as to principal or
interest payments, where interest continues to accrue. Park’s management continues to
evaluate TDRs to determine those that may be appropriate to return 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. Nonperforming assets include
nonperforming loans, OREO and other nonperforming assets. OREO results from taking
possession of property that served as collateral for a defaulted loan. As of December
31, 2018, other nonperforming assets consisted of aircraft acquired as part of a loan
workout. As of December 31, 2017, other nonperforming assets consisted of lease
receivables acquired as part of a loan workout.

Generally, management obtains updated appraisal information for nonperforming loans
and OREO 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 to the
outstanding principal balance to determine if additional write-downs are necessary.

The following is a summary of Park’s nonaccrual loans, accruing TDRs, loans past due
90 days or more and still accruing, OREO, and other nonperforming assets at the end of
each of the last five years:

Table 31 - Park - Nonperforming Assets

(In thousands)

Nonaccrual loans

Accruing TDRs

2018

2017

December 31,
2016

2015

2014

$67,954

$72,056

$87,822

$95,887

$100,393

15,173

20,111

18,175

24,979

16,254

Recoveries:

Commercial, financial and agricultural

$1,221

Construction real estate

Residential real estate

Commercial real estate

Consumer

Leases

Total recoveries

Net charge-offs (recoveries)

Provision (recovery) included in earnings

712

844

272

4,078

$7,131

$6,421

7,945

809

2,124

1,863

810

4,603

$1,259

$1,373

8,559

2,446

3,671

4,094

2,092

2,438

2,241

3,295

$1,003

12,572

2,985

7,759

2,671

$10,210

$20,030

$11,442

$26,997

$9,193

$769

$2,848

$(2,217)

8,557

(5,101)

4,990

(7,333)

Loans past due 90 days or more and accruing

2,243

1,792

2,086

1,921

2,641

Total nonperforming loans

$85,370

$93,959 $108,083

$122,787

$119,288

OREO – PNB

OREO – SEPH

Other nonperforming assets - PNB

2,788

1,515

3,464

6,524

7,666

4,849

6,025

7,456

10,687

7,901

11,195

11,918

—

Total nonperforming assets

$93,137

$112,998 $122,009

$141,438

$141,893

Percentage of nonperforming loans to total loans

Percentage of nonperforming assets to total loans

Percentage of nonperforming assets to total assets

1.50%

1.64%

1.19%

1.75%

2.05%

2.42%

2.10%

2.31%

2.79%

1.50%

1.63%

1.93%

2.47%

2.94%

2.03%

Ending balance

$51,512

$49,988

$50,624

$56,494

$54,352

Ratio of net charge-offs (recoveries) to
average loans

Ratio of allowance for loan losses to end of
year loans

0.12%

0.17%

0.02%

0.06%

(0.05)

0.90%

0.93%

%0.96

1.11%

1.13%

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MANAGEMENT’S DISCUSSION AND ANALYSIS SEPH nonperforming assets at the end of each of the last five years were as follows:

Table 32 - SEPH - Nonperforming Assets

(In thousands)

Nonaccrual loans

Accruing TDRs

Loans past due 90 days or more and accruing

December 31,

2017

2016

2015

2014

$10,303

$11,738

$14,419

$22,916

—

2018

$1,635

—

Total nonperforming loans

$1,635

$10,303

$11,738

$14,419

$23,013

OREO - SEPH

1,515

7,666

7,901

11,195

11,918

Total nonperforming assets

$3,150

$17,969

$19,639

$25,614

$34,931

Nonperforming assets for Park, excluding SEPH, at the end of each of the last five years
were as follows:

Table 33 - Park excluding SEPH - Nonperforming Assets

(In thousands)

Nonaccrual loans

Accruing TDRs

December 31,

2018

2017

2016

2015

2014

$66,319

$61,753

$76,084

$81,468

$77,477

15,173

20,111

18,175

24,979

16,157

Loans past due 90 days or more and accruing

2,243

1,792

2,086

1,921

2,641

Total nonperforming loans

$83,735

$83,656

$96,345 $108,368

$96,275

OREO – PNB

Other nonperforming assets - PNB

2,788

3,464

6,524

4,849

6,025

7,456

10,687

—

Total nonperforming assets1

$89,987

$95,029 $102,370

$115,824 $106,962

Percentage of nonperforming loans to total loans

Percentage of nonperforming assets to total loans

Percentage of nonperforming assets to total assets

1.47%

1.58%

1.16%

1.56%

1.83%

2.14%

2.00%

1.77%

1.95%

2.29%

2.23%

1.27%

1.38%

1.60%

1.55%

1Includes PNB participations in loans originated by Vision and related OREO totaling $2.5 million, $9.0 million,
$9.6 million, $9.8 million, and $11.5 million at December 31, 2018, 2017, 2016, 2015, and 2014, respectively.

Credit Quality Indicators: 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 that are 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 a 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 or have been charged down to the net realizable
value of the underlying collateral. Commercial loans graded a 7 (doubtful) are shown as
nonperforming and Park charges these loans down to their fair value by taking a partial
charge-off or recording a specific reserve. Any commercial loan graded an 8 (loss) is
completely charged off.

The following table highlights the credit trends within the commercial loan portfolio of
PNB and GFSC.

Table 34 - PNB and GFSC - Commercial Credit Trends

Commercial loans* (In thousands)

Pass rated

Special Mention

Substandard

Impaired

Accruing purchased credit impaired (“PCI”)

December 31,
2018

December 31,
2017

December 31,
2016

$2,889,613

$2,654,784

$2,601,607

16,027

481

46,500

3,944

22,873

605

46,242

—

14,644

441

58,676

—

Total

$2,956,565

$2,724,504

$2,675,368

*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.

Park had $20.3 million of non-impaired commercial loans included on the watch list,
including $3.9 million of PCI loans, at December 31, 2018, compared to $23.5 million of
non-impaired commercial loans included on the watch list at December 31, 2017, and
$15.1 million of non-impaired commercial loans included on the watch list at December
31, 2016. 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
commercial loans, Park’s watch list of potential problem commercial loans was 0.7%
in 2018, 0.9% in 2017, and 0.6% in 2016. The existing conditions of these loans do not
warrant classification as nonaccrual. However, these loans have shown some weakness
and management performs additional analyses regarding each borrower’s ability to
comply with payment terms.

Delinquencies have remained low for PNB and GFSC over the past 36 months.
Delinquent and accruing loans were $31.4 million, or 0.55% of total loans at December
31, 2018, compared to $26.5 million, or 0.49% of total loans at December 31, 2017, and
$27.8 million, or 0.53% of total loans at December 31, 2016.

Impaired Loans: Park’s allowance for loan losses includes an allocation for loans
specifically identified as impaired under GAAP. At December 31, 2018, loans considered
to be impaired consisted substantially of commercial loans graded as “substandard” or
“doubtful” and placed on non-accrual status. Specific reserves on impaired commercial
loans 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.

Impaired commercial loans for PNB and GFSC operations were $46.5 million at
December 31, 2018, a decrease of $258,000, compared to $46.2 million at December 31,
2017. The $46.5 million of impaired commercial loans at December 31, 2018 included
$3.2 million of loans modified in a troubled debt restructuring which are currently on
accrual status and performing in accordance with the restructured terms, down from
$7.0 million at December 31, 2017. Impaired commercial loans are individually evaluated
for impairment and specific reserves are established to cover any probable, incurred
losses for those loans that have not been charged down to the net realizable value of
the underlying collateral or to the net present value of expected cash flows.

As of December 31, 2018, management had taken partial charge-offs of approximately
$11.2 million related to the $48.1 million of commercial loans considered to be
impaired, compared to charge-offs of approximately $10.0 million related to the $56.5
million of impaired commercial loans at December 31, 2017. The table below provides
additional information related to Park’s impaired commercial loans at December 31,
2018, including those impaired commercial loans at PNB excluding SEPH and those
impaired Vision commercial loans retained at SEPH.

Table 35 - Park Impaired Commercial Loans
December 31, 2018

(In thousands)

Unpaid
principal
balance (UPB)

Prior
charge-offs

Total
impaired
loans

Specific
reserve

Carrying
balance

Carrying
balance as a
% of UPB

PNB excluding SEPH

$54,933

$8,433

$46,500

$2,273

$44,227

80.51%

SEPH

4,448

2,813

1,635

—

1,635

36.76%

Total Park

$59,381

$11,246

$48,135

$2,273

$45,862

77.23%

PCI loans: In conjunction with the NewDominion acquisition, Park acquired loans with
deteriorated credit quality with a book value of $5.1 million which were recorded at
the preliminary fair value of $4.9 million. The carrying amount of loans acquired with
deteriorated credit quality at December 31, 2018 was $4.4 million, of which $474,000
is considered impaired due to additional credit deterioration post acquisition. The
remaining $3.9 million are not included in impaired loan totals.

Allowance for loan losses: Loss factors are reviewed quarterly and updated at least
annually to reflect recent loan loss history and incorporate current risk and trends which
may not be recognized in historical data.

A significant portion of Park’s allowance for loan losses is allocated to commercial
loans. “Special mention” loans are loans that have potential weaknesses that may result

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MANAGEMENT’S DISCUSSION AND ANALYSISin loss exposure to Park. “Substandard” loans are those that exhibit a well-defined
weakness, jeopardizing repayment of the loans, resulting in a higher probability
that Park will suffer a loss on the loans unless the weakness is corrected. Excluding
acquired loans, the allowance for loan losses related to performing commercial loans
was $32.8 million or 1.19% of the outstanding principal balance of other accruing
commercial loans at December 31, 2018. Excluding acquired loans, at December 31,
2018, the coverage level within the commercial loan portfolio was approximately
3.39 years compared to 3.24 years at December 31, 2017. Historical loss experience,
defined as charge-offs plus changes in specific reserves, over the past 108 months for
the commercial loan portfolio was 0.35% for 2018. Historical loss experience over the
past 96 months for the commercial portfolio was 0.37% for 2017. This 108-month loss
experience includes only the performance of the PNB loan portfolio and excludes the
impact of PNB participations in Vision loans.

Excluding acquired loans, the overall reserve of 1.19% for other accruing commercial
loans breaks down as follows: pass-rated commercial loans are reserved at 1.17%;
special mention commercial loans are reserved at 5.29%; and substandard commercial
loans are reserved at 9.75%. The reserve levels for pass-rated, special mention and
substandard commercial loans in excess of the annualized 108-month loss experience
of 0.35% are due to the following factors which management reviews on a quarterly or
annual basis:

• Historical Loss Factor: Management updated the historical loss calculation
during the fourth quarter of 2018, incorporating annualized net charge-offs
plus changes in specific reserves through December 31, 2018. With the addition
of 2018 historical losses, management extended the historical loss period to
108 months from 96 months. The 108-month historical loss period captures all
annual periods subsequent to June 2009, the end of the most recent recession,
thus encompassing the full economic cycle to date.

• Loss Emergence Period Factor: At least annually, 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 from the
probable occurrence of a loss event to the credit being moved to nonaccrual. If
the loss emergence period for any commercial loan segment is greater than one
year, management applies additional general reserves to all performing loans
within that segment of the commercial loan portfolio. The loss emergence period
was last updated in the fourth quarter of 2018.

• Loss Migration Factor: Park’s commercial loans are individually risk graded. If
loan downgrades occur, the probability of default increases, and accordingly,
management allocates a higher percentage reserve to those accruing commercial
loans graded special mention and substandard. Annually, management calculates
a loss migration factor for each commercial loan segment for special mention
and substandard credits based on a review of losses over the period of time a
loan takes to migrate from pass-rated to impaired. The loss migration factor was
last updated in the fourth quarter of 2018.

• 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. The environmental loss factor was increased by 0.05% during the
fourth quarter of 2018 due to consideration of the current economic environment
in association to the 108 month historical loss period.

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
108 months, through December 31, 2018. Management generally considers a one-year
coverage period (the “Historical Loss Factor”) appropriate because the probable loss
on any given loan in the consumer loan pool should ordinarily become apparent in that
time frame. However, management may incorporate adjustments to the Historical Loss
Factor as circumstances warrant additional reserves (e.g., increased loan delinquencies,

borrower bankruptcy status, improving or deteriorating economic conditions, changes
in lending management and underwriting standards, etc.). Excluding acquired loans,
at December 31, 2018, the coverage level within the consumer loan portfolio was
approximately 1.87 years compared to 1.92 years at December 31, 2017. Historical
loss experience over the past 108 months for the consumer loan portfolio was 0.33%
for 2018. This compares to historical loss experience over a 96-month period for the
consumer loan portfolio of 0.34% for 2017.

The judgmental increases discussed above incorporate management’s evaluation of the
impact of environmental qualitative factors which pose additional risks and assignment
of a component of the allowance for loan losses in consideration of these factors. Such
environmental factors include: national and local economic trends and conditions;
experience, ability and depth of lending management and staff; effects of any changes
in lending policies and procedures; and levels of, and trends in, consumer bankruptcies,
delinquencies, impaired loans, and charge-offs and recoveries. The determination of
this component of the allowance for loan losses requires considerable management
judgment. 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.

Loans acquired as part of the acquisition of NewDominion were recorded at fair value
on the date of acquisition, July 1, 2018. An allowance is only established on these
NewDominion loans as a results of credit deterioration post acquisition. As of December
31, 2018, there was no allowance related to acquired NewDominion loans.

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 decreased by $1.9 million during 2018 to $167.2 million
at year end. Cash provided by operating activities was $133.0 million in 2018, $88.0
million in 2017, and $87.9 million in 2016. Net income was the primary source of cash
provided by operating activities during each year.

Cash provided by investing activities was $44.3 million in 2018, and cash used in
investing activities was $62.0 million in 2017, and $152.6 million in 2016. Investment
securities transactions and loan originations/repayments are the major use or source of
cash in investing activities. Proceeds from the sale, repayment or maturity of investment
securities provide cash and purchases of investment securities use cash. Net investment
securities transactions provided cash of $76.7 million in 2018, $67.4 million in 2017,
and $59.7 million in 2016. Cash used by the net increase in the loan portfolio was $57.3
million in 2018, $119.3 million in 2017, and $199.5 million in 2016.

Cash used in financing activities was $179.1 million in 2018, and $3.4 million in 2017
and cash provided by financing activities was $61.7 million in 2016. A major source of
cash provided by financing activities is the net change in deposits. Deposits increased
and provided $159.6 million of cash in 2018, $295.4 million of cash in 2017, and $174.3
million of cash in 2016. Other major sources of cash from financing activities are short-
term borrowings and long-term debt. In 2018, net short-term borrowings decreased and
used $169.3 million in cash and net long-term debt decreased and used $100.0 million
in cash. In 2017, net short-term borrowings decreased and used $3.5 million in cash and
net long-term debt decreased and used $230.0 million in cash. In 2016, net long-term
debt decreased and used $55.6 million in cash. Finally, cash declined by $63.0 million
in 2018, $57.5 million in 2017, and $57.7 million in 2016, from the payment of cash
dividends.

Funds are available from a number of sources, including the capital markets, the
investment securities portfolio, the core deposit base, FHLB borrowings, the capability
to securitize or package loans for sale, and a $50.0 million revolving line of credit with
another financial institution, which did not have an outstanding balance as of December
31, 2018. In the opinion of Park’s management, the present funding sources provide
more than adequate liquidity for Park to meet our cash flow needs.

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MANAGEMENT’S DISCUSSION AND ANALYSIS The following table shows interest rate sensitivity data for five different time intervals
as of December 31, 2018:

Table 36 - Interest Rate Sensitivity

(In thousands)

Interest earning assets:

0-3
Months

3-12
Months

1-3
Years

3-5
Years

Over 5
Years

Total

Investment securities1

$88,062

$126,940

$293,605

$236,677

$691,258

$1,436,542

Money market instruments

25,324

—

25,324

Loans1

1,522,213

1,193,162

1,906,145

822,747

247,865

5,692,132

Total interest earning assets

1,635,599

1,320,102

2,199,750

1,059,424

939,123

7,153,998

Interest bearing liabilities:

Interest bearing transaction accounts2

$692,121

$—

$672,621

Savings accounts2

931,683

—

1,115,110

$—

—

Time deposits

Other

344,479

340,968

290,039

67,594

—

1,267

—

Total deposits

1,968,283

342,235

2,077,770

67,594

$—

$1,364,742

—

2,046,793

1,043,177

1,267

4,455,979

Short-term borrowings

$221,966

$—

$221,966

Long-term debt

25,000

75,000

150,000

Subordinated notes

15,000

—

Total interest bearing liabilities

2,230,249

417,235

2,227,770

217,594

—

400,000

15,000

5,092,945

Interest rate sensitivity gap

(594,650)

902,867

(28,020)

841,830

939,026

2,061,053

Cumulative rate sensitivity gap

(594,650)

308,217

280,197

1,122,027

2,061,053

Cumulative gap as a percentage of total
interest earning assets

(8.31)%

4.31%

3.92%

15.68%

28.81%

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 the 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,
2018, the earnings simulation model projected that net income would decrease by 0.4%
using a rising interest rate scenario and decrease by 3.1% using a declining interest
rate scenario over the next year. At December 31, 2017, the earnings simulation model
projected that net income would decrease by 1.8% using a rising interest rate scenario
and decrease by 5.2% using a declining interest rate scenario over the next year. At
December 31, 2016, the earnings simulation model projected that net income would
decrease by 1.9% using a rising interest rate scenario and decrease by 6.3% 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 3.84% in 2018, 3.48% in 2017 and 3.52% in 2016.

CONTRACTUAL OBLIGATIONS
In the ordinary course of operations, Park enters into certain contractual
obligations. The following table summarizes Park’s significant and determinable
obligations by payment date at December 31, 2018.

1Investment 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 $68.0 million are included within the three-month to twelve-month maturity category.

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

2Management 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 51% of
interest bearing transaction accounts and 46% of savings accounts are considered to re-price within one year. If
all of the interest bearing transaction accounts and savings accounts were considered to re-price within one
year, the one-year cumulative gap would change from a positive 4.31% to a negative 20.68%.

The interest rate sensitivity gap analysis provides an overall picture of Park’s static
interest rate risk position. At December 31, 2018, the cumulative interest earning assets
maturing or repricing within twelve months were $2,956 million compared to the
cumulative interest bearing liabilities maturing or repricing within twelve months of
$2,647 million. For the twelve-month cumulative interest rate sensitivity gap position,
rate sensitive assets exceeded rate sensitive liabilities by $308 million or 4.31% 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 increase.
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 2017
was a positive $407 million or 5.88% of total interest earning assets. The percentage
of interest earning assets maturing or repricing within one year was 41.3% at year-end
2018, compared to 43.8% at year-end 2017. The percentage of interest bearing liabilities
maturing or repricing within one year was 52.0% at year-end 2018, compared to 51.6%
at year-end 2017.

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

Table 37 - Contractual Obligations

December 31, 2018

(In thousands)

Payments Due In

Note

0-1
Years

1-3
Years

3-5
Years

Over
5 Years

Deposits without stated maturity

Certificates of deposit

Short-term borrowings

Long-term debt

Subordinated notes

Operating leases

Defined benefit pension plan1

Supplemental Executive Retirement
Plan

$5,217,683

—

670,674

304,811

67,595

221,966

—

100,000

150,000

—

2,839

8,428

—

15,000

3,725

2,996

810

18,520

20,022

51,726

Total

$5,217,683

1,043,177

221,966

400,000

15,000

10,370

98,696

550

1,482

1,556

30,008

33,596

Purchase obligations

6,013

270

—

6,553

Total contractual obligations

$6,228,153

$478,808

$242,439

$97,641

$7,047,041

1Pension payments reflect 10 years of payments, through 2028.

As of December 31, 2018, Park had $22.3 million in unfunded commitments related to
investments in qualified affordable housing projects which are not included in Table
37. Commitments are funded when capital calls are made by the general partner. Park
expects that the current commitments will be funded between 2019 and 2029.

As of December 31, 2018, Park had $6.1 million in unfunded commitments related to
certain equity investments which are not included in Table 37. Commitments are funded
when capital calls are made by the general partner.

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.

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MANAGEMENT’S DISCUSSION AND ANALYSISCommitments, Contingent Liabilities, and Off-Balance Sheet Arrangements: In order
to meet the financing needs of our customers, the Corporation issues loan commitments
and standby letters of credit. At December 31, 2018, the Corporation had $1,012.8
million of loan commitments for commercial, commercial real estate, and residential
real estate loans and had $13.3 million of standby letters of credit. At December
31, 2017, the Corporation had $893.2 million of loan commitments for commercial,
commercial real estate, and residential real estate loans and had $13.4 million of
standby letters of credit.

Commitments to extend credit under loan commitments and standby letters of credit
do not necessarily represent future cash requirements. These commitments often expire
without being drawn upon. However, all of the loan commitments and standby letters
of credit were permitted to be drawn upon in 2018. See Note 24 - Financial Instruments
with Off-Balance Sheet Risk and Financial Instruments with Concentration of Credit Risk
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, 2018.

Capital: Park’s primary means of maintaining capital adequacy is through retained
earnings. At December 31, 2018, the Corporation’s total shareholders’ equity was $832.5
million, compared to $756.1 million at December 31, 2017. Total shareholders’ equity at
December 31, 2018 was 10.67% of total assets, compared to 10.03% of total assets at
December 31, 2017.

Tangible shareholders’ equity was $712.8 million [total shareholders’ equity ($832.5
million) less goodwill ($112.7 million) and other intangibles ($7.0 million)] at December
31, 2018 and was $683.8 million [total shareholders’ equity ($756.1 million) less
goodwill and other intangibles ($72.3 million)] at December 31, 2017. At December 31,
2018, tangible shareholders’ equity was 9.28% of total tangible assets [total assets
($7,804 million) less goodwill ($112.7 million) and other intangibles ($7.0 million)],
compared to tangible shareholders’ equity was 9.16% of total tangible assets [total
assets ($7,538 million) less goodwill and other intangibles ($72.3 million)].

Net income was $110.4 million in 2018, $84.2 million in 2017 and $86.1 million in 2016.

Cash dividends declared for Park’s common shares were $63.6 million in 2018, $57.9
million in 2017, and $58.0 million in 2016. On a per share basis, the cash dividends
declared were $4.07 per share in 2018 and $3.76 per share in each of 2017 and 2016.

The table below shows the repurchases and issuances of common and treasury shares
for 2016 through 2018.

held as treasury shares in either of 2017 or 2016. Common shares had a balance of
$358.6 million, $307.7 million, and $305.8 million, at December 31, 2018, 2017, and
2016, respectively.

Accumulated other comprehensive loss (net) was $49.8 million at December 31, 2018,
compared to $26.5 million at December 31, 2017, and $17.7 million at December 31,
2016. During the 2018 year, the change in net unrealized holding (loss) gain on AFS
debt securities, net of income tax, was a loss of $15.6 million. During the 2017 year, the
change in net unrealized holding (loss) gain on debt securities available for sale, net of
income tax, was a gain of $77,000. During the 2016 year, the change in net unrealized
holding (loss) gain on AFS debt securities, net of income tax, was a loss of $2.7 million.
Finally, Park recognized an other comprehensive loss of $3.0 million, net of income tax,
related to the change in pension plan assets and benefit obligations in 2018, compared
to an other comprehensive loss of $8.8 million, net of income tax, related to the change
in pension plan assets and benefit obligations in 2017, and an other comprehensive
gain of $611,000, net of income tax, related to the change in pension plan assets and
benefit obligations in 2016. Beginning accumulated other comprehensive loss (net) as of
January 1, 2018, included a $995,000 adjustment related to the adoption of ASU 2016-
01 - Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of
Financial Assets and Financial Liabilities.

Financial institution regulators have established guidelines for minimum capital ratios
for banks, thrifts and bank holding companies. Park has elected not to include the net
unrealized gain or loss on AFS debt securities in computing regulatory capital. During
the first quarter of 2015, Park adopted the Basel III regulatory capital framework as
approved by the federal banking agencies. The adoption of this framework modified
the calculation of the various capital ratios, added an additional ratio, common equity
tier 1, and revised the adequately and well-capitalized thresholds under the prompt
corrective action regulations applicable to PNB. Additionally, under this framework,
in order to avoid limitations on capital distributions, including dividend payments and
stock repurchases, Park must hold a capital conservation buffer above the adequately
capitalized risk-based capital ratios. The capital conservation buffer began to phase in
starting on January 1, 2016 at .625% and, effective January 1, 2019, was fully phased
in at 2.50%. The capital conservation buffer was 1.875% for 2018 and 1.25% for 2017.
The amounts shown below as the adequately capitalized ratio plus capital conservation
buffer includes the fully phased-in 2.50% buffer. The Federal Reserve Board also
adopted requirements Park must maintain to be deemed “well-capitalized” and to
remain a financial holding company.

Park and PNB met each of the well-capitalized ratio guidelines applicable to them at
December 31, 2018. The following table indicates the capital ratios for PNB and Park at
December 31, 2018 and December 31, 2017.

Table 39 - PNB and Park Capital Ratios

Leverage

Tier 1
Risk-Based

Common
Equity Tier 1

Total
Risk-Based

8.29%

10.04%

4.00%

11.01%

13.30%

6.00%

11.01%

13.04%

4.50%

12.30%

14.19%

8.00%

Table 38

(In thousands, except share data)

Balance at January 1, 2016

Cash payment for fractional shares in dividend reinvestment plan

Treasury shares repurchased

Treasury shares reissued for director grants

Balance at December 31, 2016

Treasury
Shares

Number of
Common Shares

$(82,473)

$15,330,815

—

1,001

(47)

—

9,950

As of December 31, 2018

PNB

Park

$(81,472)

$15,340,718

Adequately capitalized ratio

Cash payment for fractional shares in dividend reinvestment plan

—

(55)

Treasury shares repurchased

Treasury shares reissued for share-based compensation awards

Treasury shares reissued for director grants

Balance at December 31, 2017

Cash payment for fractional shares in dividend reinvestment plan

Common shares issued for the acquisition of NewDominion Bank

Treasury shares repurchased

Treasury shares reissued for share-based compensation awards

Treasury shares reissued for director grants

(7,378)

(70,000)

645

1,126

6,381

11,150

$(87,079)

$15,288,194

—

(5,784)

1,304

1,186

(44)

435,457

(50,000)

12,921

11,650

Balance at December 31, 2018

$(90,373)

$15,698,178

Park issued 435,457 new common shares, which it had not already held as treasury
shares, during 2018 and did not issue any new common shares, which it had not already

Adequately capitalized ratio plus capital
conservation buffer

4.00%

8.50%

7.00%

10.50%

Well-capitalized ratio - PNB

Well-capitalized ratio - Park

5.00%

N/A

8.00%

6.00%

6.50%

N/A

10.00%

As of December 31, 2017

PNB

Park

Adequately capitalized ratio

Adequately capitalized ratio plus capital
conservation buffer

Well-capitalized ratio - PNB

Well-capitalized ratio - Park

Leverage

Tier 1
Risk-Based

Common
Equity Tier 1

Total
Risk-Based

7.36%

9.44%

4.00%

5.00%

N/A

10.35%

13.22%

6.00%

8.50%

8.00%

6.00%

10.35%

12.94%

4.50%

11.60%

14.14%

8.00%

7.00%

10.50%

6.50%

N/A

10.00%

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MANAGEMENT’S DISCUSSION AND ANALYSIS $73,714

$74,691

$80,229

$82,167

8,864

64,850

260

37,185

31,123

2.04

2.02

9,949

64,742

1,386

34,064

28,241

1.85

1.83

12,553

67,676

2,940

29,484

24,762

12,537

69,630

3,359

30,566

26,261

1.58

1.56

1.67

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 our asset/liability management program to react to
changes in interest rates.

SELECTED FINANCIAL DATA
Table 40 - Consolidated Five-Year Selected Financial Data
December 31, (Dollars in thousands, except per share data)

20184

2017

2016

2018:

Interest income

Interest expense

Net interest income

Provision for loan losses

4NewDominion was acquired July 1, 2018. Financial data for 2018 reflects the six months that NewDominion
business was a division of PNB.

xReported 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, 2018 and 2017.

Table 41 - Quarterly Financial Data

(Dollars in thousands, except share data)

March 31

June 30

Sept. 30

Dec. 31

Three Months Ended

Results of Operations:

Interest income

Interest expense

Net interest income

Provision for (recovery of) loan losses

Net interest income after provision for (recovery of)
loan losses

Non-interest income (1)

Non-interest expense (1)

Net income

Net income available to common shareholders

Per common share:

Net income per common share - basic

Net income per common share - diluted

Cash dividends declared

Average Balances:

Loans

Investment securities

2015

2014

Income before income taxes

$310,801

$286,424

$276,258

$265,074

$265,143

Net income

Per common share data:

42,665

38,172

37,442

40,099

Net income per common share - basic

243,759

238,086

227,632

225,044

Net income per common share - diluted

43,903

266,898

7,945

8,557

(5,101)

4,990

(7,333)

Weighted-average common shares outstanding - basic

15,288,332

15,285,532

15,686,542 15,695,522

258,953

235,202

243,187

222,642

232,377

Weighted-average common shares equivalent - diluted

15,431,625

15,417,607

15,832,734 15,764,548

101,101

228,755

110,387

$7.13

7.07

4.07

86,429

84,039

83,624

81,822

203,162

204,331

192,687

193,783

84,242

86,135

81,012

83,957

2017:

Interest income

Interest expense

Net interest income

Provision for (recovery of) loan losses

$5.51

5.47

3.76

$5.62

5.59

3.76

$5.27

5.26

3.76

$5.45

5.45

3.76

Income before income taxes

Net income

Per common share data:

$5,460,664

$5,327,507

$5,122,862

$4,909,579

$4,717,297

Net income per common share - diluted

Net income per common share - basic

$68,755

$70,476

$73,224

$73,969

9,803

58,952

876

28,121

20,267

1.32

1.31

10,698

59,778

4,581

26,342

19,032

1.24

11,673

61,551

3,283

30,546

22,112

1.45

1.44

10,491

63,478

(183)

33,460

22,831

1.49

1.48

1,461,068

1,557,156

1,504,667

1,478,208

1,432,692

Weighted-average common shares outstanding - basic

15,312,059

15,297,085

15,287,974 15,285,174

Money market instruments and other

73,001

262,100

198,197

342,997

204,874

Weighted-average common shares equivalent - diluted

15,432,769

15,398,865

15,351,590 15,378,825

Total earning assets

Non-interest bearing deposits

Interest bearing deposits

Total deposits

Short-term borrowings

Long-term debt

Shareholders’ equity

Common shareholders’ equity

Total assets

Ratios:

Return on average assetsx

Return on average common equityx

Net interest margin2

Efficiency ratio1, 2

Dividend payout ratio3

Average shareholders’ equity to average total assets

Common equity tier 1 capital

Leverage capital

Tier 1 capital

Risk-based capital

6,994,733

7,146,763

6,825,726

6,730,784

6,354,863

1,661,481

1,544,986

1,414,885

1,311,628

1,196,625

4,473,467

4,348,110

4,165,919

4,155,196

3,820,928

6,134,948

5,893,096

5,580,804

5,466,824

5,017,553

$217,327

$229,193

$240,457

$258,717

$263,270

424,178

784,140

788,491

776,465

755,839

737,737

793,469

710,327

867,615

680,449

7,629,269

7,741,043

7,416,519

7,306,460

6,893,302

1.45%

14.08%

3.84%

61.68%

57.57%

10.28%

13.04%

10.04%

13.30%

14.19%

1.09%

11.15%

3.48%

60.62%

68.71%

9.76%

12.94%

9.44%

13.22%

14.14%

1.16%

11.68%

3.52%

62.96%

67.29%

9.95%

12.83%

9.56%

13.11%

14.63%

1.11%

11.40%

3.39%

61.73%

71.51%

9.72%

12.54%

9.22%

12.82%

14.49%

1.22%

12.34%

3.55%

62.98%

69.02%

9.87%

N/A

9.25%

13.39%

15.14%

1During the first quarter of 2018, Park adopted ASU 2017-07, Improving the Presentation of Net Periodic
Pension Cost and Net Periodic Postretirement Benefit Cost, pursuant to which an employer is required to report
the service cost component in the same line item as other compensation costs arising from services rendered
by the pertinent employees during the period. All other components of net benefit cost are required to be
presented in the income statement separately from the service cost. For Park, this resulted in an increase in
non-interest income and an offsetting increase in non-interest expense with no change to net income as well
as increase to the efficiency ratio. This ASU is required to be applied retrospectively to all periods presented
and therefore non-interest income, non-interest expense and the efficiency ratio for the four annual periods
ending December 31, 2017 have been adjusted from the figures presented in Park’s Annual Report on Form
10-K for the fiscal year ended December 31, 2017.

2Calculated utilizing fully taxable equivalent net interest income which includes the effects of taxable
equivalent adjustments using a 21% federal corporate income tax rate for 2018 and a 35% federal corporate
income tax rate for 2017, 2016, 2015, and 2014. The taxable equivalent adjustments were $2.9 million for
2018, $5.0 million for 2017, $2.4 million for 2016, $865,000 for 2015, and $845,000 for 2014.

3Cash dividends paid divided by net income. NewDominion was acquired July 1, 2018. Financial data for 2018
reflects the six months that NewDominion business was a division of PNB.

Park’s common shares (symbol: PRK) are traded on NYSE AMERICAN. At December 31,
2018, Park had 3,609 shareholders of record. The following table sets forth the high,
low and closing sale prices of, and dividends declared on, the common shares for each
quarterly period for the years ended December 31, 2018 and 2017, as reported by NYSE
AMERICAN.

Table 42 - Market and Dividend Information

High

Low

Last Price

$116.75

119.00

114.62

106.94

$97.70

101.00

104.28

79.27

$103.76

111.42

105.56

84.95

$120.66

$102.20

$105.20

111.55

109.48

114.33

97.85

92.42

103.70

103.72

107.99

104.00

Cash Dividend
Declared
Per Share

$0.94

1.21

0.96

$0.94

0.94

2018:

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

2017:

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

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MANAGEMENT’S DISCUSSION AND ANALYSIS
PERFORMANCE GRAPH
Table 43 compares the cumulative total shareholder return performance for Park’s
common shares with the SNL Financial Bank and Thrift Index, the NYSE Composite
Index, and the SNL U.S. Bank NYSE Index for the five-year period from December 31,
2013 to December 31, 2018. The NYSE Composite Index is a market capitalization-
weighted index of the stocks listed on NYSE. The SNL Financial Bank and Thrift Index
is comprised of all publicly-traded bank holding company and thrift holding company
stocks researched by SNL Financial. The SNL U.S. Bank NYSE index is comprised of all
publicly-traded U.S. bank holding company stocks listed on NYSE researched by SNL
Financial.

The NYSE Financial Stocks Index includes the stocks of bank holding companies, thrift
holding companies, finance companies and securities broker-dealers. Park believes that
the SNL Financial Bank and Thrift Index is a more appropriate industry index for Park to
use for the five-year total return performance comparison.

Table 43 - Total Return Performance

Period Ending

Index

12/31/13

12/31/14

12/31/15

12/31/16

12/31/17

12/31/18

Park National Corporation

100.00

109.22

116.59

160.47

144.66

122.78

NYSE Composite Index

100.00

106.75

102.38

114.61

136.07

123.89

SNL Bank and Thrift Index

100.00

111.63

113.89

143.78

169.07

140.45

SNL U.S. Bank NYSE Index

100.00

113.27

113.96

141.23

170.96

141.70

The annual compound total return on Park’s common shares for the past five years was
a positive 4.2%. By comparison, the annual compound total returns for the past five
years on the NYSE Composite Index, the SNL Financial Bank and Thrift Index, and the
SNL U.S. Bank NYSE Index were a positive 4.4%, a positive 7.0% and a positive 7.2%,
respectively.

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MANAGEMENT’S DISCUSSION AND ANALYSIS M A N A G E M E N T ’ S R E P O R T O F 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, for the Corporation and its consolidated subsidiaries. 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 accounting principles generally accepted in the United States of America. 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 consolidated 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 Chief Executive Officer and President and our Chief Financial Officer, management evaluated the effectiveness of the Corporation’s
internal control over financial reporting as of December 31, 2018, 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’s (COSO) Internal Control
— Integrated Framework (2013).

The Corporation acquired NewDominion Bank on July 1, 2018. As permitted, management has excluded NewDominion Bank from its assessment of the effectiveness
of the Corporation’s internal control over financial reporting as of December 31, 2018. As of and for the year ended December 31, 2018, New Dominion represented
approximately 4.4% of combined total assets, 2.8% of combined net interest income, 0.4% of combined non-interest income, and 1.0% of combined net income.

Based on our assessment under the criteria described in the immediately preceding paragraph, management concluded that the Corporation maintained effective
internal control over financial reporting at a reasonable assurance level as of December 31, 2018. We reviewed the results of management’s assessment with the
Audit Committee of the Board of Directors of the Corporation.

The Corporation’s independent registered public accounting firm, Crowe LLP, has audited the Consolidated Balance Sheets of the Corporation and its subsidiaries as
of December 31, 2018 and 2017 and the related Consolidated Statements of Income, Statements of Comprehensive Income, Statements of Changes in Stockholders’
Equity and Cash Flows for each of the years in the three-year period ended December 31, 2018, included in this Annual Report and the Corporation’s internal control
over financial reporting as of December 31, 2018, and has issued their Report of Independent Registered Public Accounting Firm, which appears in this Annual Report.

David L. Trautman

Brady T. Burt

Chief Executive Officer and President

Chief Financial Officer, Secretary and Treasurer

February 26, 2019

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R E P O RT O F I N D E P E N D E N T R EG I S T E R E D P U B L I C ACCO U N T I N G FI R M

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

Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Park National Corporation and subsidiaries (the “Company”) as of December 31, 2018 and 2017,
the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period
ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over
financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework: (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018
and 2017, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2018 in conformity with accounting
principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework: (2013) issued by COSO.

Basis for Opinions
The Company’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 the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based
on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over
financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. 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. As permitted, the Company has excluded the operations of NewDominion Bank acquired during 2018, which is described in Note
4 of the consolidated financial statements, from the scope of management’s report on internal control over financial reporting. As such, it has also been excluded
from the scope of our audit of internal control over financial reporting. 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.

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

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

Crowe LLP

We have served as the Company’s auditor since 2006.

Columbus, Ohio
February 26, 2019

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Park National Corporation and Subsidiaries

at December 31, 2018 and 2017 (In thousands, except share and per share data)

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

A SSETS

Cash and due from banks

Money market instruments

Cash and cash equivalents

Investment securities:

2018

$141,890

25,324

167,214

2017

$131,946

37,166

169,112

Debt securities available-for-sale, at fair value (amortized cost of $1,028,883 and $1,097,645 at December 31, 2018 and 2017,
respectively)

1,003,421

1,091,881

Debt securities held-to-maturity, at amortized cost (fair value of $351,422 and $363,779 at December 31, 2018 and 2017,
Respectively)

Other investment securities

Total investment securities

Total loans

Allowance for loan losses

Net loans

Other assets:

Bank owned life insurance

Prepaid assets

Goodwill

Other intangible assets

Premises and equipment, net

Affordable housing tax credit investments

Accrued interest receivable

Other real estate owned

Mortgage loan servicing rights

Other

Total other assets

Total assets

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

351,808

55,851

1,411,080

5,692,132

(51,512)

5,640,620

188,417

94,079

112,739

6,971

59,771

50,347

22,974

4,303

10,178

35,615

357,197

63,746

1,512,824

5,372,483

(49,988)

5,322,495

189,322

97,712

72,334

—

55,901

49,669

22,164

14,190

9,688

22,209

585,394

533,189

$7,804,308

$7,537,620

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

Park National Corporation and Subsidiaries

at December 31, 2018 and 2017 (In thousands, except share and per share data)

LIABILITIES AND SHAREHOLDER S’ EQUIT Y

Deposits:

Non-interest bearing

Interest bearing

Total deposits

Borrowings:

Short-term borrowings

Long-term debt

Subordinated notes

Total borrowings

Other liabilities:

Accrued interest payable

Unfunded commitments in affordable housing tax credit investments

Other

Total other liabilities

Total liabilities

COMMITMENTS AND CONTINGENCIES

Shareholders’ equity:

Preferred shares (200,000 preferred shares authorized; no preferred shares outstanding at December 31, 2018 and 2017)

Common shares, no par value (20,000,000 common shares authorized; 16,586,165 and 16,150,752 common shares issued at
December 31, 2018 and 2017, respectively)

Accumulated other comprehensive loss, net of taxes

Retained earnings

Less: Treasury shares (887,987 and 862,558 common shares at December 31, 2018 and 2017, respectively)

Total shareholders’ equity

Total liabilities and shareholders’ equity

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

2018

2017

$1,804,881

$1,633,941

4,455,979

6,260,860

4,183,385

5,817,326

221,966

400,000

15,000

636,966

2,625

22,282

49,069

73,976

391,289

500,000

15,000

906,289

2,278

14,282

41,344

57,904

6,971,802

6,781,519

—

358,598

(49,788)

614,069

(90,373)

832,506

—

307,726

(26,454)

561,908

(87,079)

756,101

$7,804,308

$7,537,620

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Park National Corporation and Subsidiaries

for the years ended December 31, 2018 2017, and 2016 (In thousands, except per share data)

CO N S O L I DAT E D S TAT E M E N T S O F I N CO M E

Interest and dividend income:

Interest and fees on loans

Interest and dividends on:

Obligations of U.S. Government, its agencies and other securities - taxable

Obligations of states and political subdivisions - tax-exempt

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 (recovery of) loan losses

Net interest income after provision for (recovery of) loan losses

Other income:

Income from fiduciary activities

Service charges on deposit accounts

Other service income

Checkcard fee income

Bank owned life insurance income

ATM fees

OREO valuation adjustments

Gain on the sale of OREO, net

Net (loss) gain on the sale of investment securities

Gain on equity securities, net

Other components of net periodic benefit income

Gain on the sale of non-performing loans

Miscellaneous

Total other income

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

2018

2017

2016

$271,145

$248,687

$241,979

29,479

8,770

1,407

310,801

19,815

12,375

1,600

10,113

43,903

266,898

7,945

258,953

26,293

11,461

14,266

17,317

6,815

1,978

(491)

4,235

(2,271)

3,213

6,820

2,826

8,639

27,440

7,210

3,087

286,424

9,464

9,629

992

22,580

42,665

243,759

8,557

235,202

23,735

12,653

13,162

15,798

4,858

2,253

(458)

251

1,821

—

5,794

—

6,562

30,627

2,632

1,020

276,258

4,079

9,337

456

24,300

38,172

238,086

(5,101)

243,187

21,400

14,259

14,419

15,057

4,338

2,268

(601)

1,323

—

5,308

—

6,268

$101,101

$86,429

$84,039

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Park National Corporation and Subsidiaries

for the years ended December 31, 2018 2017, and 2016 (In thousands, except per share data)

CO N S O L I DAT E D S TAT E M E N T S O F I N CO M E

Other expense:

Salaries

Employee benefits

Occupancy expense

Furniture and equipment expense

Data processing fees

Professional fees and services

Marketing

Insurance

Communication

State tax expense

Amortization of intangibles

Borrowing prepayment fee

Miscellaneous

Total other expense

Income before income taxes

Income taxes

Net income

Earnings per common share:

Basic

Diluted

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

2018

2017

2016

$103,755

$92,177

$87,034

30,289

11,251

16,139

8,477

28,894

5,144

5,289

4,981

3,813

578

—

10,145

228,755

131,299

20,912

$110,387

$7.13

$7.07

24,937

10,201

15,324

7,250

24,833

4,374

6,354

4,826

3,583

—

9,303

203,162

118,469

34,227

$84,242

$5.51

$5.47

24,174

10,239

13,766

5,608

27,181

4,523

5,825

4,985

3,560

—

5,554

11,882

204,331

122,895

36,760

$86,135

$5.62

$5.59

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CO N S O L I DAT E D S TAT E M E N T S O F CO M P R E H E N S I V E I N CO M E

Park National Corporation and Subsidiaries

for the years ended December 31, 2018 2017, and 2016 (In thousands)

Net income

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

Defined benefit pension plan:

2018

$110,387

2017

$84,242

2016

$86,135

Amortization of net loss, net of income tax effect of $286, $121, and $271, for the years ended
December 31, 2018, 2017, and 2016, respectively

Unrealized net actuarial (loss) gain, net of income tax effect of $(1,076), $(2,457), and $59, for the
years ended December 31, 2018, 2017, and 2016, respectively

Change in funded status of pension plan, net of income tax effect

Securities available-for-sale:

1,075

(4,046)

(2,971)

455

(9,241)

(8,786)

Net loss (gain) realized on sale of securities, net of income tax effect of $(538) and $637 for the
years ended December 31, 2018 and 2017, respectively

2,024

(1,184)

Change in unrealized securities holding (loss) gain, net of income tax effect of $(4,674), $678, and
$(1,461), for the years ended December 31, 2018, 2017, and 2016, respectively

Unrealized net holding (loss) gain on securities available-for-sale, net of income tax effect

Other comprehensive loss

Comprehensive income

(17,586)

(15,562)

$(18,533)

$91,854

1,261

$(8,709)

$75,533

502

109

611

—

(2,713)

$(2,102)

$84,033

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

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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, 2018 2017, and 2016 (In thousands, except share and per share data)

Balance, January 1, 2016

Net income

Other comprehensive loss, net of income tax

Cash dividends, $3.76 per share

Cash payment for fractional shares in dividend reinvestment plan

Share-based compensation expense

Treasury shares reissued for director grants

Balance, December 31, 2016

Net income

Other comprehensive loss, net of income tax

Cash dividends, $3.76 per share

Cash payment for fractional shares in dividend reinvestment plan

Share-based compensation expense

Issuance of 9,674 common shares under share-based compensation awards,
net of 3,293 common shares withheld to pay employee income taxes

Treasury shares repurchased

Treasury shares reissued for director grants

Balance, December 31, 2017, as previously presented

Cumulative effect of change in accounting principle for marketable
equity securities, net of tax

Balance at December 31, 2017, as adjusted

Reclassification of disproportionate income tax effects

—

Net income

Other comprehensive loss, net of income tax

Cash dividends, $4.07 per share

Cash payment for fractional shares in dividend reinvestment plan

Issuance of 435,457 common shares for the acquisition of
NewDominion Bank

Share-based compensation expense

Issuance of 18,800 common shares under share-based compensation
awards, net of 5,879 common shares withheld to pay employee income
taxes

Treasury shares repurchased

Treasury shares reissued for director grants

Preferred Shares

Common Shares

Shares
Outstanding

Amount

Shares
Outstanding

Amount

Retained
Earnings

Treasury
Shares

Accumulated Other
Comprehensive
(Loss) Income

—

$—

15,330,815

$303,966

$507,505

$(82,473)

$(15,643)

86,135

(57,958)

(2,102)

(4)

1,864

(47)

9,950

(51)

1,001

—

$—

15,340,718

$305,826

$535,631

$(81,472)

$(17,745)

84,242

(57,883)

(8,709)

(6)

2,701

(795)

(55)

6,381

(70,000)

11,150

(197)

645

(7,378)

1,126

115

$—

15,288,194

$307,726

$561,908

$(87,079)

$(26,454)

1,917

(995)

$—

15,288,194

$307,726

$563,825

$(87,079)

$(27,449)

3,806

110,387

(63,555)

(3,806)

(18,533)

(44)

(4)

435,457

48,519

3,954

12,921

(1,597)

(317)

1,304

(50,000)

11,650

(5,784)

1,186

(77)

Balance, December 31, 2018

—

$—

15,698,178

$358,598

$614,069

$(90,373)

$(49,788)

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

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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, 2018, 2017, and 2016 (In thousands)

Operating activities:

Net income

Adjustments to reconcile net income to net cash provided by operating activities:

2018

2017

2016

$110,387

$84,242

$86,135

Provision for (recovery of) loan losses

Amortization of loan fees and costs, net

Net accretion of purchase accounting adjustments

Depreciation of premises and equipment

Amortization of investment securities, net

Amortization of prepayment penalty on long-term debt

Prepayment penalty on long-term debt

Decrease in deferred income tax

Realized net investment securities losses (gains)

Gain on equity securities, net

Share-based compensation expense

Loan originations to be sold in secondary market

Proceeds from sale of loans in secondary market

Gain on sale of loans in secondary market

Gain on sale of nonperforming loans

OREO valuation adjustments

Gain on sale of OREO, net

Bank owned life insurance income

Investment in qualified affordable housing tax credits amortization

Pension contribution

Changes in assets and liabilities:

Increase in prepaid dealer premiums

Decrease (increase) in other assets

Increase (decrease) in other liabilities

Net cash provided by operating activities

Investing activities:

Proceeds from redemption/repurchase of Federal Home Loan Bank stock

Proceeds from sales of investment securities

Proceeds from calls and maturities of:

Held-to-maturity debt securities

Available-for-sale debt securities

Purchase of:

Held-to-maturity debt securities

Available-for-sale debt securities

Equity securities

Net loan originations, portfolio loans

7,945

(6,158)

(793)

8,585

1,262

—

538

2,271

(3,213)

5,063

(202,827)

207,836

(4,879)

(2,826)

491

(4,235)

(6,815)

7,322

—

(1,298)

9,163

5,131

132,950

7,003

244,399

10,547

197,826

(7,133)

(373,372)

(2,590)

(57,315)

8,557

(5,758)

—

8,644

1,473

5,719

—

3,289

(1,821)

—

3,942

(230,860)

242,139

(5,014)

—

458

(251)

(4,858)

10,278

(15,000)

(4,350)

(1,060)

(11,778)

87,991

—

2,265

14,426

193,937

(113,519)

(29,684)

—

(119,336)

(5,101)

(5,279)

—

8,396

247

6,176

5,554

581

—

2,814

(287,722)

290,132

(5,517)

—

601

(1,323)

(4,338)

7,300

—

(5,733)

(7,042)

2,006

87,887

—

29,901

753,325

(141,045)

(579,006)

(3,500)

(199,494)

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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, 2018 2017, and 2016 (In thousands)

Investing activities (continued):

Proceeds from sale of nonperforming loans

Proceeds from the sale of OREO

Life insurance death benefits

Investment in qualified affordable housing projects

Purchases of premises and equipment

Cash received from acquisitions, net

Net cash provided by (used in) investing activities

Financing activities:

Net increase in deposits

Net (decrease) increase in short-term borrowings

Proceeds from issuance of long-term debt

Repayment of subordinated notes

Repayment of long-term debt

Value of common shares withheld to pay employee income taxes

Repurchase of treasury shares

Cash dividends paid

Net cash (used in) provided by financing activities

(Decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Cash paid for:

Interest

Income taxes

Non cash items:

Loans transferred to OREO

Loans transferred to foreclosed assets

New commitments in affordable housing tax credit investments

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

2018

$3,000

13,094

8,096

—

(11,533)

12,270

44,292

159,590

(169,323)

50,000

—

(150,000)

(610)

(5,784)

(63,013)

(179,140)

(1,898)

169,112

$167,214

$43,600

$7,345

$1,204

$11,379

$8,000

2017

$—

2,921

1,037

(7,000)

(7,018)

—

(61,971)

295,370

(3,506)

150,000

(30,000)

(350,000)

(347)

(7,378)

(57,493)

(3,354)

22,666

146,446

$169,112

$42,538

$26,190

$3,457

$5,553

$7,000

2016

$—

8,704

1,050

(15,029)

(7,466)

—

(152,560)

174,314

553

—

(55,554)

—

(57,653)

61,660

(3,013)

149,459

$146,446

$38,359

$27,260

$3,339

$—

$9,000

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N O T E S T O CO N S O L I DAT E D FI N A N C I A L S TAT 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”), unless the
context otherwise requires. Material intercompany accounts and transactions have been
eliminated.

Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“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.

Reclassifications
Certain prior year amounts have been reclassified to conform with the current year
presentation. Additionally, prior period financial statements reflect the retrospective
application of Accounting Standards Update (“ASU”) 2017-07 - Compensation -
Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension
Cost and Net Periodic Postretirement Benefit Cost. These reclassifications had no
impact on net income or shareholders’ equity.

Restrictions on Cash and Due from Banks
The Corporation’s national bank subsidiary, The Park National Bank (“PNB”), is required
to maintain average reserve balances with the Federal Reserve Bank of Cleveland. The
average required reserve balance was approximately $73.9 million at December 31,
2018 and $64.8 million at December 31, 2017. No other compensating balance
arrangements were in existence at December 31, 2018.

Investment Securities
Debt securities are classified upon acquisition into one of three categories: held-
to-maturity (“HTM”), available-for-sale (“AFS”), or trading (see Note 5 - Investment
Securities).

HTM securities are those debt securities that the Corporation has the positive intent
and ability to hold to maturity and are recorded at amortized cost. AFS securities are
those debt 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. AFS securities are reported at fair value,
with unrealized holding gains and losses excluded from earnings but included in other
comprehensive income (loss), net of applicable income taxes. The Corporation did not
hold any trading securities during any period presented. Equity securities are carried at
fair value, with changes in fair value reported in net income. Equity securities without
readily determinable fair values are carried at cost, minus impairment, if any, plus or
minus changes resulting from observable price changes in orderly transactions for the
identical or a similar investment.

Debt 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 that Park will be required to sell, a security in an unrealized
loss position before recovery of its amortized cost basis. Declines in the value of 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
impairment related to all other factors. The amount of the total other-than-temporary
impairment related to the credit loss is recognized in earnings. The amount of the
total other-than-temporary impairment related to all other factors is recognized in
other comprehensive income (loss), net of income tax. The credit loss is defined as the
difference between the present value of the cash flows expected to be collected and
the amortized costs basis.

Interest income from investment securities 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 method.

Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank of Cleveland (“FRB”)
Stock
PNB is a member of the FHLB and 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
Consolidated Balance Sheets. Impairment is evaluated based on the ultimate recovery
of par value. Both cash and stock dividends are reported as income.

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

Loans Held for Sale
Park has elected the fair value option for mortgage loans held for sale, which are carried
at their fair value as of each balance sheet date.

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. The fair value of the interest rate lock is
recorded at the time the commitment to fund the mortgage loan is executed and is
adjusted for the expected exercise of the commitment before the loan is funded. In
order to hedge the change in interest rates resulting from its commitments to fund
the loans, the Company enters into forward commitments for the future delivery of
mortgage loans when interest rate locks are entered into. Fair value of these mortgage
derivatives is estimated based on change in the mortgage interest rates from the date
the interest on the loan is locked. Changes in the fair values of these derivatives are
included in “Other service income” in the Consolidated Statements of Income.

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 nonaccrual interest payments applied to principal, any deferred
fees or costs on originated loans, and any unamortized premiums or discounts on
purchased loans. Interest income is accrued on the unpaid principal balance. Late
charges on loans are recognized as income when they are collected. Net loan origination
fees and costs are deferred and recognized in interest income using the level-yield
method without anticipating prepayments.

Commercial loans include: (1) commercial, financial and agricultural loans; (2)
commercial 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 (“HELOCs”),
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. The delinquency status of a loan is based on contractual terms and not on how
recently payments have been received. Commercial loans placed on nonaccrual status
are considered impaired (see Note 6 - Loans). Park’s charge-off policy for commercial
loans requires management to establish a specific reserve or record a charge-off when
collection is in doubt or it is probable a loss has been incurred 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, HELOCs, and consumer loans secured by
residential real estate 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

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N O T E S T O CO N S O L I DAT E D FI N A N C I A L S TAT E M E N T S

complete charge-off for any account that reaches 120 days past due.

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 Park expects to receive the entire
recorded investment of the loan.

Loans may be removed from nonaccrual status when loan payments have been received
to cure the delinquency status, the borrower has demonstrated the ability to maintain
current payment status in accordance with the loan agreement 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 (“C&I”)
loans are made for a wide variety of general corporate purposes, including financing
for commercial and industrial properties, financing for equipment, inventory and
accounts receivable, acquisition financing, commercial leasing, and to consumer finance
companies. 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. Risk of loss on C&I loans largely depends upon general
economic cycles, as they may adversely impact certain industries, competency of the
borrower’s management team, the quality of the underlying assets supporting the
loans including accounts receivable, inventory, and equipment, and the accuracy of
the borrower’s financial reporting. Such risks are mitigated by generally requiring the
borrower’s owners to guaranty the loans.

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. Risk of loss on CRE loans
largely depends upon the cash flow of the properties which is influenced by the
amount of vacancy experienced by the underlying real estate, the credit capacity of
the tenants occupying the underlying real estate, and general economic trends as
they may adversely impact the value of the property. These risks are mitigated by
generally requiring personal guaranties of the owners of the properties and by requiring
appraisals pursuant to government regulations.

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 a short-term
construction loan, depending on the needs of the individual borrower. 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 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
PNB division 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 that a default on a construction loan occurs and foreclosure follows, the PNB
division must take control of the project and attempt to either arrange for completion
of construction or 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. PNB and
its divisions 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 residences or second mortgages of individuals’
primary residences 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 a current independent third-party appraisal providing
the market value of the real estate securing the loan. Residential real estate loans

typically have longer terms and higher balances with lower yields as compared to
consumer loans, but generally carry lower risks of default. The Dodd-Frank Wall Street
Reform and Consumer Protection Act requires creditors to make a reasonable and good
faith determination of a consumer’s ability to repay any consumer credit transaction
secured by a dwelling. Documentation and verification of income within defined time
frames and not-to-exceed limits are basis for affirming ability to repay. Risk of loss
largely depends upon factors affecting the borrower’s ability to repay as well as the
general economic trends as they may adversely impact the value of the property. These
risks are mitigated by completing a comprehensive underwriting of the borrower and by
requiring appraisals pursuant to government regulations.

Consumer: The Company originates direct and indirect consumer loans, primarily
automobile loans, 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.

Concentration of Credit Risk
Park’s commercial loan portfolio includes loans to a wide variety of corporations and
businesses across many industrial classifications in the 29 Ohio counties, 2 North
Carolina counties and 1 Kentucky county where PNB and its divisions operate, with the
exception of nationwide aircraft loans and nationwide asset-based lending to consumer
finance companies. The primary industries represented by these customers include real
estate rental and leasing, finance and insurance, construction, agriculture, forestry,
fishing and hunting, manufacturing, retail trade, health care, accommodation and food
services and other services.

Purchased Credit Impaired (“PCI”) Loans
The Company has purchased loans, some of which have shown evidence of credit
deterioration since origination. These PCI loans are recorded at fair value, such that
there is no carryover of the sellers’ allowance for loan losses. After acquisition, losses
are recognized by an increase in the allowance for loan losses.

Such PCI loans are accounted for individually. The Company estimates the amount and
timing of expected cash flows for each loan and the expected cash flows in excess
of the amount paid is recorded as interest income over the remaining life of the loan
(accretable yield). The excess of the loan’s contractual principal and interest over
expected cash flows is not recorded (nonaccretable difference).

Over the life of the loan, expected cash flows continue to be estimated. If the present
value of expected cash flows is less than the carrying amount, a loss is recorded as a
provision for loan losses. If the present value of expected cash flows is greater than the
carrying amount, it is recognized as part of future interest income.

Allowance for Loan Losses (“ALLL”)
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”). Included in the statistical allocation is a reserve for troubled debt
restructurings (“TDRs”) within the consumer loan portfolio. Management performs a
periodic evaluation to ensure the reserve calculated utilizing the statistical allocation
is consistent with a reserve calculated under Accounting Standards Codification (“ASC”)
310-10 - Receivables.

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In calculating the allowance for loan losses, management believes it is appropriate to
consider 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, 2018, 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 2010
through 2018 within the individual segments of the commercial and consumer loan
categories. The 108-month historical loss period captures all annual periods subsequent
to June 2009, the end of the most recent recession, thus encompassing the full
economic cycle to date.

The loss factor applied to Park’s consumer loan portfolio as of December 31, 2018
was based on the historical loss experience over the preceding 108 months, plus an
additional judgmental reserve, increasing the total allowance for loan loss coverage in
the consumer loan portfolio to approximately 1.87 years of historical losses, compared
to 1.92 years at December 31, 2017. Historical loss experience over the preceding 108
months for the consumer loan portfolio was 0.33% for 2018. Historical loss experience
over the preceding 96 months for the consumer loan portfolio was 0.34% for 2017.

The loss factor applied to Park’s commercial loan portfolio as of December 31, 2018 was
based on the historical loss experience over the preceding 108 months, plus additional
reserves for consideration of (1) a loss emergence period factor, (2) a loss migration
factor and (3) a judgmental or environmental loss factor. These additional reserves
increased the total allowance for loan loss coverage in the commercial loan portfolio to
approximately 3.39 years of historical losses at December 31, 2018, compared to 3.24
years at December 31, 2017. Historical loss experience over the preceding 108 months
for the commercial loan portfolio was 0.35% for 2018. Historical loss experience over
the preceding 96 months for the commercial loan portfolio was 0.37% for 2017. Park’s
commercial loans are individually risk graded. If loan downgrades occur, the probability
of default increases and accordingly management allocates a higher percentage reserve
to those accruing commercial loans graded special mention and substandard.

The judgmental increases discussed above incorporate management’s evaluation of
the impact of environmental qualitative factors which pose additional risks and assign
a component of the allowance for loan losses in consideration of these factors. Such
environmental factors include: national and local economic trends and conditions;
experience, ability and depth of lending management and staff; effects of any changes
in lending policies and procedures; and levels of, and trends in, consumer bankruptcies,
delinquencies, impaired loans and charge-offs and recoveries.

GAAP requires 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 credit scores; and (4) consideration of global cash
flows of financially sound guarantors that have previously supported loan payments.
The recorded investment is the 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, 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.

Loans acquired as part of the acquisition of NewDominion Bank were recorded at fair
value on the date of acquisition, July 1, 2018. An allowance is only established on
these NewDominion Bank loans as a result of credit deterioration post acquisition. As
of December 31, 2018, there was no allowance related to acquired NewDominion Bank
loans.

Troubled Debt Restructuring
Management classifies loans as TDRs when a borrower is experiencing financial
difficulty 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. A court’s discharge of a borrower’s debt in
a Chapter 7 bankruptcy is considered a concession when the borrower does not reaffirm
the discharged debt. TDRs are measured at the present value of estimated future cash
flows using the loan’s effective rate at inception, or if a TDR is considered to be a
collateral dependent loan, the loan is reported, net, at the fair value of the collateral.
Commercial TDRs are separately identified for impairment disclosures.

Premises and Equipment
Land is carried at cost and is not subject to depreciation. Premises and equipment
are carried 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

30 Years

3 to 12 Years

1 to 16 Years

Other Real Estate Owned (“OREO”)
Management transfers a loan to OREO at the time that Park takes deed/title to
the asset. OREO is initially recorded at fair value less anticipated selling costs (net
realizable value), establishing a new cost basis, 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. These assets are subsequently accounted for at the lower of
cost or fair value less costs to sell. Subsequent changes in the value of real estate are
classified as OREO valuation adjustments, are reported as adjustments to the carrying
amount of OREO and are recorded within “Other income.” In certain circumstances
where management believes the devaluation may not be permanent in nature, Park
utilizes a valuation allowance to record OREO devaluations, which is also expensed
through “Other income.” Costs relating to development and improvement of such
properties are capitalized (not in excess of fair value less estimated costs to sell) and
costs relating to holding the properties are charged to “Other expense”.

Foreclosed Assets
Foreclosed assets include non-real estate assets where Park, as creditor, has received
physical possession of a borrower’s assets, regardless of whether formal foreclosure
proceedings take place. Additionally, TDRs in which Park obtains one of more of the
debtor’s non-real estate assets in place of all or part of the receivable are accounted for
as foreclosed assets. Foreclosed assets are initially recorded as fair value less costs to
sell when acquired, establishing a new cost basis. Operating costs after acquisition are
expensed. As of December 31, 2018 and 2017, Park had $4.0 million and $5.5 million,
respectively, of foreclosed assets included within “Other assets.”

Mortgage Servicing Rights (“MSRs”)
When Park sells mortgage loans with MSRs retained, MSRs are recorded at fair value
with the income statement effect recorded in “Other service income.” Capitalized MSRs
are amortized in proportion to and over the period of the estimated future servicing
income of the underlying loan and are included within “Other service income”.

MSRs are assessed for impairment periodically, based on fair value, with any impairment
recognized through a valuation allowance. The fair value of MSRs 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 25 - Loan Servicing.)

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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 amortization of MSRs is netted against
loan servicing fee income, recorded in “Other service income”.

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. Goodwill is not
amortized to expense, but is subject to impairment tests 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 carrying 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 the performance of additional
analysis 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, not to exceed
the total goodwill allocated to the reporting unit.

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. At December 31,
2018, the goodwill remaining on Park’s Consolidated Balance Sheets consisted entirely
of goodwill at PNB. (See Note 8 - Goodwill and Other Intangible Assets and Note 28 -
Segment Information for operating segment results.)

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, 2018, the Company determined
that goodwill for PNB was not impaired. There have been no subsequent circumstances
or events triggering an additional evaluation.

Other intangible assets consist of core deposit intangibles and a trade name
intangible. Core deposit intangibles are amortized on an accelerated basis over a period
of ten years. The trade name intangible is an indefinite life assets and is not amortized
but rather is assessed, at least annually, for impairment.

Goodwill of $112.7 million and other intangible assets in the amount of $7.0 million
were recorded at December 31, 2018 and $72.3 million of goodwill was recorded at
each of December 31, 2017 and 2016. Goodwill and other intangible assets increased by
an aggregate amount of $48.0 million as a result of the acquisition of NewDominion on
July 1, 2018.

Consolidated Statements 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.

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. Management does not believe
there now are such matters that will have a material effect on the financial statements.

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 quarterly 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 to be held in treasury 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.

Dividend Restriction
Banking regulations require maintaining certain capital levels and may limit the
dividends paid by a bank to its parent holding company or by the parent holding
company to its shareholders. (See Note 23 - Dividend Restrictions and Note 27 - Capital
Ratios.)

Comprehensive Income
Comprehensive income consists of net income and other comprehensive income (loss).
Other comprehensive income (loss) includes unrealized gains and losses on debt
securities available for sale, and changes in the funded status of the Company’s defined
benefit pension plan, which are also recognized as separate components of equity.

Share-Based Compensation
Compensation cost is recognized for restricted stock units and stock awards issued to
employees and directors, respectively, based on the fair value of these awards at the
date of grant. The market price of Park’s common shares at the date of grant is used to
estimate the fair value of restricted stock units and stock awards. Compensation cost is
recognized on a straight-line basis over the required service period, generally defined
as the vesting period and is recorded in “Salaries” expense. (See Note 18 - Share-Based
Compensation.) The Company’s accounting policy is to recognize forfeitures as they
occur.

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.

Fair Value Measurement
Fair values of financial instruments are estimated using relevant market information
and other assumptions, as more fully disclosed in Note 26 - Fair Value. 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. The service cost
component of pension expense is recorded within “Employee benefits” on the
Consolidated Statements of Income. All other components of pension expense are
recorded within “Other components of net periodic benefit income” on the Consolidated
Statements of Income. Employee KSOP plan expense is the amount of matching
contributions to Park’s Employees Stock Ownership Plan. Deferred compensation and

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supplemental retirement plan expense allocates the benefits over years of service. (See
Note 19 - Benefit Plans.)

Earnings Per Common Share
Basic earnings per common share is net income 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
restricted stock unit awards. 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. (See Note 18 - Share-Based Compensation and Note 22 - Earnings
Per Common Share.)

ASU 2016-15 - Statement of Cash Flows (Topic 203): Classification of Certain Cash
Receipts and Cash Payments (a consensus of the Emerging Issues Task Force): In
August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 203):
Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging
Issues Task Force). This ASU provides guidance on eight specific cash flow issues
where then current GAAP was either unclear or did not include specific guidance. The
new guidance is effective for annual reporting periods, and interim reporting periods
within those annual periods, beginning after December 15, 2017. The adoption of this
guidance on January 1, 2018 did not have an impact on Park’s consolidated financial
statements. As such transactions arise, management will utilize the updated guidance in
providing disclosures within Park’s consolidated statements of cash flows.

Operating Segments
The Corporation is a financial holding company headquartered in Newark, Ohio. The
operating segments for the Corporation are its chartered national bank subsidiary, PNB
(headquartered in Newark, Ohio), SE Property Holdings, LLC (“SEPH”), and Guardian
Financial Services Company (“GFSC”).

2. Adoption of New Accounting Pronouncements and
Issued But Not Yet Effective Accounting Standards
The following is a summary of new accounting pronouncements impacting Park’s
consolidated financial statements, and issued but not yet effective accounting
standards:

Adoption of New Accounting Pronouncements
ASU 2014-09 - Revenue from Contracts with Customers (Topic 606): In May 2014,
the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue
from Contracts with Customers (Topic 606). This ASU creates a new topic, Topic 606,
to provide guidance on revenue recognition for entities that enter into contracts with
customers to transfer goods or services or enter into contracts for the transfer of
nonfinancial assets. The core principle of the guidance is that an entity should recognize
revenue to depict the transfer of promised goods or services to customers in an amount
that reflects the consideration to which the entity expects to be entitled in exchange
for those goods or services. Additional disclosures are required to provide quantitative
and qualitative information regarding the nature, amount, timing, and uncertainty
of revenue and cash flows arising from contracts with customers. The new guidance
is effective for annual reporting periods, and interim reporting periods within those
annual periods, beginning after December 15, 2017. The majority of the Company’s
revenues come from interest income and other sources, including loans, leases,
securities and derivatives, that are outside the scope of ASC 606. Certain services
that fall within the scope of ASC 606 are presented within “Other income” and are
recognized as revenue as the Company satisfies its obligation to the customer. Services
within the scope of ASC 606 include income from fiduciary activities, service charges
on deposit accounts, other service income, checkcard fee income, ATM fees, and gain
on sale of OREO, net. The adoption of this guidance on January 1, 2018 did not have
a material impact on Park’s consolidated financial statements. However, the adoption
of this standard resulted in additional disclosures beginning with the Quarterly Report
on 2018 Form 10-Q for the quarterly period ended March 31, 2018. Reference Note
30 - Revenue from Contracts with Customers, for further discussion on the Company’s
accounting policies for revenue sources within the scope of ASC 606.

ASU 2016-01 - Financial Instruments - Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities: In January 2016, the FASB
issued ASU 2016-01 - Financial Instruments - Overall (Subtopic 825-10): Recognition
and Measurement of Financial Assets and Financial Liabilities. Changes reflected in the
current GAAP model primarily affect the accounting for equity investments, financial
liabilities under the fair value option, and the presentation and disclosure requirements
for financial instruments. In addition, this ASU clarifies guidance related to the
valuation allowance assessment when recognizing deferred tax assets resulting from
unrealized losses on AFS securities. The new guidance is effective for annual reporting
periods and interim reporting periods within those annual periods, beginning after
December 15, 2017. The adoption of this guidance on January 1, 2018 resulted in a $1.9
million increase to beginning retained earnings and a $995,000 increase to beginning
accumulated other comprehensive loss. Further, beginning with the first quarter of
2018, Park’s fair value disclosures (See Note 26 - Fair Value), have incorporated the
revised disclosure requirements for financial investments.

ASU 2017-07 - Compensation - Retirement Benefits (Topic 715): Improving the
Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit
Cost: In March 2017, the FASB issued ASU 2017-07 - Compensation - Retirement
Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net
Periodic Postretirement Benefit Cost. This ASU requires that an employer report the
service cost component in the same line item or items as other compensation costs
arising from services rendered by the pertinent employees during the period. The other
components of net benefit cost are required to be presented in the income statement
separately from the service cost component. The new guidance is effective for annual
reporting periods, and interim reporting periods within those annual periods, beginning
after December 15, 2017. As a result of the adoption of this guidance on January 1, 2018,
all prior periods have been recast to separately record the service cost component and
other components of net benefit cost. For all periods presented, this resulted in an
increase in other income and an offsetting increase in other expense with no change to
net income. See Note 19 - Benefit Plans, for further details.

ASU 2017-09 - Compensation - Stock Compensation (Topic 718): Scope of
Modification Accounting: In May 2017, the FASB issued ASU 2017-09 - Compensation -
Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU amends
the guidance concerning which changes to the terms or conditions of a share-based
payment award require an entity to apply modification accounting under Topic 718. The
new guidance is effective for annual reporting periods, and interim reporting periods
within those annual periods, beginning after December 15, 2017. The adoption of this
guidance on January 1, 2018 did not impact Park’s consolidated financial statements.

ASU 2017-12 - Derivatives and Hedging (Topic 815): Targeted Improvements to
Accounting for Hedging Activities: In August 2017, the FASB issued ASU 2017-12 -
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging
Activities. This ASU amends the current guidance with the objective of improving the
financial reporting of hedging relationships to better portray the economic results
of an entity’s risk management activities in its financial statements. In addition, this
ASU amends the current guidance to simplify the application of the hedge accounting
guidance. The new guidance is effective for annual reporting periods, and interim
reporting periods within those annual periods, beginning after December 15, 2018. Early
adoption is permitted for interim or annual periods. The early adoption of this guidance
on July 1, 2018 did not have an impact on Park’s consolidated financial statements. Park
will apply this guidance to future transactions.

ASU 2018-02 - Income Statement - Reporting Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive
Income: In February 2018, the FASB issued ASU 2018-02 - Income Statement -
Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects
from Accumulated Other Comprehensive Income. This ASU allows a reclassification
from accumulated other comprehensive income to retained earnings for stranded tax
effects, resulting from the federal corporate income tax rate enacted under the Tax Cuts
and Jobs Act. The amount of the reclassification is the difference between the historical
federal corporate income tax rate and the newly-enacted 21% federal corporate
income tax rate. The guidance is effective for annual reporting periods, and interim
reporting periods within those annual periods, beginning after December 15, 2018. Early
adoption is permitted for interim or annual periods. The early adoption of this guidance
effective January 1, 2018 resulted in a $3.8 million increase to Park’s accumulated other
comprehensive loss and a $3.8 million increase to retained earnings.

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ASU 2018-03 - Technical Corrections and Improvements to Financial Instruments
- Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and
Financial Liabilities. In February 2018, the FASB issued ASU 2018-03 - Technical
Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities. This ASU
includes amendments that clarify certain aspects of the guidance issued in ASU 2016-
01. Park considered this clarification in determining the appropriate adoption of ASU
2016-01 effective as of January 1, 2018.

leases standard. Under this new transition method, an entity initially applies the new
leases standard at the adoption date and recognizes a cumulative-effect adjustment
to the opening balance of retained earnings for the period of adoption. Additionally,
this amendment provides lessors with a practical expedient, by class of asset, to not
separate nonlease components from the associated lease component and, instead, to
account for those components as a single component if certain criteria are met. Park
considered this clarification in determining the appropriate adoption of ASU 2016-02 on
January 1, 2019.

Issued But Not Yet Effective Accounting Standards
ASU 2016-02 - Leases (Topic 842): In February 2016, the FASB issued ASU 2016-02 -
Leases (Topic 842). This ASU will require all organizations that lease assets to recognize
on the balance sheet the assets and liabilities for the rights and obligations created by
those leases. Additional qualitative and quantitative disclosures will be required so that
users can understand more about the nature of an entity’s leasing activities. The new
guidance is effective for annual reporting periods and interim reporting periods within
those annual periods, beginning after December 15, 2018. The adoption of this guidance
on January 1, 2019 resulted in an approximate $11.0 million increase in assets and an
approximate $11.1 million increase in liabilities, but is not expected to have a material
impact on Park’s Consolidated Statements of Income.

ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments: In June 2016, FASB issued ASU 2016-13 -
Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments. The new guidance replaces the incurred loss model with an
expected loss model, which is referred to as the current expected credit loss (“CECL”)
model. The CECL model is applicable to the measurement of credit losses on financial
assets measured at amortized cost, including loan receivables, HTM debt securities,
and reinsurance receivables. It also applies to off-balance sheet credit exposures not
accounted for as insurance (loan commitments, standby letters of credit, financial
guarantees, and other similar instruments) and net investments in leases recognized by
a lessor. The CECL model requires an entity to estimate credit losses over the life of an
asset or off-balance sheet exposure. The new guidance is effective for annual reporting
periods and interim reporting periods within those annual periods, beginning after
December 15, 2019. Early adoption is permitted for annual reporting periods and interim
reporting periods within those annual periods, beginning after December 15, 2018.

Management is currently evaluating the impact of the adoption of this guidance on
Park’s consolidated financial statements. We anticipate that the adoption of the CECL
model will result in a material increase to Park’s allowance for loan losses. Management
has established a committee to oversee the implementation of the CECL model and is
currently in the process of evaluating segmentation and model selection. Management
plans to run our current allowance model and a CECL model concurrently beginning
with March 31, 2019 data..

ASU 2017-08 - Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20):
Premium Amortization on Purchased Callable Debt Securities: In March 2017, the FASB
issued ASU 2017-08 - Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-
20): Premium Amortization on Purchased Callable Debt Securities. This ASU amends the
amortization period for certain purchased callable debt securities held at a premium.
It shortens the amortization period for the premium to the earliest call date. Under
current GAAP, premiums on callable debt securities generally are amortized to the
maturity date. The new guidance is effective for annual reporting periods, and interim
reporting periods within those annual periods, beginning after December 15, 2018. The
adoption of this guidance on January 1, 2019 did not have a material impact on Park’s
consolidated financial statements.

ASU 2018-10 - Codification Improvements to Topic 842, Leases: In July 2018, the
FASB issued ASU 2018-10 - Codification Improvements to Topic 842, Leases. This ASU
includes amendments that clarify certain aspects of the guidance issued in ASU 2016-
02. Park considered this clarification in determining the appropriate adoption of ASU
2016-02 on January 1, 2019.

ASU 2018-11 - Leases (Topic 842): Targeted Improvements: In July 2018, the FASB
issued ASU 2018-11 - Leases (Topic 842): Targeted Improvements. This ASU amends
the guidance in ASU 2016-02 which is not yet effective. The amendments in the ASU
provide entities with an additional (and optional) transition method to adopt the new

ASU 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework -
Changes to the Disclosure Requirements for Fair Value Measurement: In August
2018, the FASB issued ASU 2018-13 - Fair Value Measurement (Topic 820): Disclosure
Framework - Changes to the Disclosure Requirements for Fair Value Measurement.
This ASU modifies the disclosure requirements on fair value measurements in Topic
820, Fair Value Measurement by removing, modifying and adding certain requirements.
The amendments in this ASU are effective for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2019. Early adoption is permitted
upon issuance of this ASU. An entity is permitted to early adopt and remove or modify
disclosures upon issuance of the ASU and delay adoption of the additional disclosures
until their effective date. The adoption of this guidance will not have an impact on
Park’s consolidated financial statements, but will impact disclosures.

ASU 2018-14 - Compensation - Retirement Benefits - Defined Benefit Plans - General
(Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements
for Defined Benefit Plans: In August 2018, the FASB issued ASU 2018-14 - Disclosure
Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. These
amendments in this ASU modify the disclosure requirements for employers that sponsor
defined benefit pension or other postretirement plans by removing disclosures that are
no longer considered cost beneficial, clarifying the specific requirements of disclosures
and adding disclosure requirements identified as relevant. The amendments in this
ASU are effective for fiscal years ending after December 15, 2020. Early adoption is
permitted. The adoption of this guidance will not have an impact on Park’s consolidated
financial statements, but will impact disclosures.

ASU 2018-16 - Derivatives and Hedging (Topic 815): Inclusion of the Secured
Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark
Interest Rate for Hedge Accounting Purposes: In October 2018, the FASB issued ASU
2018-16 - Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight
Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate
for Hedge Accounting Purposes. The amendments in this ASU permit use of the OIS
rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes
under Topic 815 in addition to the interest rates on direct Treasury obligations of the
U.S. government (“UST”), the LIBOR swap rate, the OIS rate based on the Fed Funds
Effective Rate, and the SIFMA Municipal Swap Rate. The amendments in this ASU are
effective for fiscal years beginning after December 15, 2018, and interim periods within
those fiscal years. Early adoption is permitted. The adoption of this guidance on January
1, 2019 did not have an impact on Park’s consolidated financial statements.

ASU 2018-19 - Codification Improvements to Topic 326, Financial Instruments - Credit
Losses: In November 2018, the FASB issued ASU 2018-19 - Codification Improvements
to Topic 326, Financial Instruments - Credit Losses. The amendment in this ASU clarifies
that receivables arising from operating leases are not within the scope of Subtopic 326-
20. Impairment of receivables arising from operating leases should be accounted for in
accordance with Topic 842, Leases. Park will consider this clarification in determining
the appropriate adoption of ASU 2016-13, effective for annual reporting periods and
interim reporting periods within those annual periods, beginning after December 15,
2019.

ASU 2018-20 - Leases (Topic 842): Narrow - Scope Improvements for Lessors: In
December 2018, the FASB issued ASU 2018-20 - Leases (Topic 842): Narrow - Scope
Improvements for Lessors. The amendments in this ASU address the treatment of
certain sales taxes and other similar taxes, certain lessor costs and recognition of
variable payments for contracts with lease and nonlease components. Park considered
this clarification in determining the appropriate adoption of ASU 2016-02 on January 1,
2019.

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of $4.6 million associated with the NewDominion acquisition. Of this $4.6 million in
expense, $2.5 million is included within “Professional fees and services”, $2.0 million is
included within “Salaries”, and $78,000 is included within “Employee benefits” on the
consolidated statements of income.

Goodwill of $40.4 million arising from the acquisition consisted largely of synergies
and the cost savings resulting from the combining of the operations of PNB and
NewDominion. The goodwill is not deductible for income tax purposes as the
transaction was accounted for as a tax-free exchange.

The following table summarizes the consideration paid for NewDominion and the
amounts of the assets acquired and liabilities assumed at their fair value:

(In thousands)

Consideration

Cash

Park common shares

Previous 8.55% investment in NewDominion

Fair value of total consideration transferred

Recognized amounts of identifiable assets acquired and liabilities assumed

Cash and cash equivalents

Securities

Loans

Premises and equipment

Core deposit intangibles

Trade name intangible

Other assets

Total assets acquired

Deposits

Other liabilities

Total liabilities assumed

Net identifiable assets

Goodwill

$30,684

48,519

7,000

$86,203

$42,954

1,954

272,753

940

6,249

1,300

6,133

$332,283

284,231

2,254

286,485

45,798

$40,405

Park accounted for the NewDominion acquisition using the acquisition method of
accounting and accordingly, assets acquired, liabilities assumed and consideration
exchanged were recorded at estimated fair value on the acquisition date, in accordance
with FASB ASC Topic 805, Business Combinations.

The fair value of net assets acquired includes fair value adjustments to loans that
were not considered impaired as of the acquisition date. The fair value adjustments
were determined using discounted contractual cash flows. However, Park believes
that all contractual cash flows related to these loans will be collected. As such, these
loans were not considered impaired at the acquisition date and were not subject to the
guidance relating to purchased credit impaired loans, which have shown evidence of
credit deterioration since origination. Loans acquired that were not subject to these
requirements included non-impaired loans with a fair value and gross contractual
amounts receivable of $267.9 million and $273.7 million, respectively, on the date of
acquisition.

3. Organization
Park National Corporation is a financial holding company headquartered in Newark,
Ohio. Through PNB, Park is engaged in a general commercial banking and trust business,
primarily in Ohio and North Carolina, with the exception of nationwide aircraft loans
and nationwide asset-based lending to consumer finance companies. PNB operates
through eleven banking divisions with the Park National Bank Division headquartered
in Newark, Ohio, the Fairfield National Bank Division headquartered in Lancaster, Ohio,
the Richland Bank Division headquartered in Mansfield, Ohio, the Century National
Bank Division headquartered in Zanesville, Ohio, the First-Knox National Bank Division
headquartered in Mount Vernon, Ohio, the United Bank, N.A. Division headquartered in
Bucyrus, Ohio, the Second National Bank Division headquartered in Greenville, Ohio, the
Security National Bank Division headquartered in Springfield, Ohio, the Unity National
Bank Division headquartered in Piqua, Ohio, The Park National Bank of Southwest Ohio
& Northern Kentucky Division headquartered in Cincinnati, Ohio, and the NewDominion
Bank Division headquartered in Charlotte, North Carolina. A wholly-owned subsidiary of
Park, GFSC is a consumer finance company located in Central Ohio.

Through February 16, 2012, Park operated a second banking subsidiary, Vision Bank
(“Vision”), which was engaged in a general commercial banking business, primarily in
Baldwin County, Alabama and the panhandle of Florida. Promptly following the sale of
the Vision business to Centennial Bank (a wholly-owned subsidiary of HomeBanc Shares,
Inc.), Vision surrendered its Florida banking charter to the Florida Office of Financial
Regulation and became a non-bank Florida corporation. Vision (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 OREO that had previously been
transferred to SEPH from Vision. SEPH’s assets consist primarily of nonperforming loans
and OREO. This segment represents a run off portfolio of the legacy Vision assets.

All of PNB’s 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;
trust services; cash management; safe deposit operations; electronic funds transfers
and a variety of additional banking-related services. See Note 28 - Segment Information
for financial information on the Corporation’s operating segments.

4. Business Combinations
On July 1, 2018, NewDominion Bank, a North Carolina state-chartered bank
(“NewDominion”), merged with and into PNB, with PNB continuing as the surviving
entity pursuant to the Agreement and Plan of Merger and Reorganization (the
“NewDominion Merger Agreement”), dated as of January 22, 2018, by and among Park,
PNB, and NewDominion. In accordance with the NewDominion Merger Agreement,
NewDominion shareholders were permitted to make an election to receive for their
shares of NewDominion common stock either $1.08 in cash without interest (the cash
consideration) or 0.01023 of a Park common share, plus cash in lieu of any fractional
Park common share (the stock consideration). Based on the terms of the NewDominion
Merger Agreement, the aggregate consideration to be paid in the merger was subject
to proration and allocation procedures to ensure that 60 percent of the shares of
NewDominion common stock outstanding immediately prior to the completion of the
merger were exchanged for the stock consideration and that the remaining 40 percent
of the shares of NewDominion common stock outstanding immediately prior to the
completion of the merger were exchanged for the cash consideration, including, in
each case, shares of NewDominion common stock subject to NewDominion options and
restricted stock awards.

Purchase consideration consisted of 435,457 Park common shares, valued at $48.5
million, and $30.7 million in cash to acquire 91.45% of the outstanding shares of
NewDominion common stock. The remaining 8.55% of the outstanding shares of
NewDominion common stock were previously held by Park. Park recognized a gain of
$3.5 million as a result of the remeasuring to fair value of its 8.55% equity interest
in NewDominion held before the business combination. This non-taxable gain is
included in “Gain on equity securities, net” in the consolidated statements of income.
The acquisition is expected to provide additional revenue growth and geographic
diversification.

NewDominion’s results of operations were included in Park’s results beginning July 1,
2018. For the year ended December 31, 2018, Park recorded merger-related expenses

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The table below presents information with respect to the fair value of the NewDominion
acquired loans as well as their book balance at the acquisition date.

(In thousands)

Book Balance

Fair Value

Commercial, financial and agricultural

Commercial real estate

Construction real estate:

Commercial

Mortgage

Residential real estate:

Commercial

Mortgage

HELOC

Consumer

Purchased credit impaired

Total loans

$19,246

119,434

22,494

8,391

14,798

50,295

37,651

541

5,069

$19,138

117,638

22,235

8,111

14,797

48,714

36,688

539

4,893

$277,919

$272,753

The following table presents supplemental pro forma information as if the acquisition
had occurred at the beginning of 2017. The unaudited pro forma information includes
adjustments for interest income on loans and securities acquired, amortization of
intangibles arising from the transaction, depreciation expense on property acquired,
interest expense on deposits acquired, and the related tax effects. The pro forma
information is not necessarily indicative of the results of operations that would have
occurred had the transactions been effected on the assumed dates.

Park’s U.S. Government sponsored entities’ asset-backed securities consisted primarily of
15-year residential mortgage-backed securities and collateralized mortgage obligations
(“CMOs”). At December 31, 2018, the amortized cost of Park’s AFS mortgage-backed
securities was $705.3 million and there were no HTM mortgage-backed securities within
Park’s investment portfolio. At December 31, 2018, the amortized cost of Park’s AFS and
HTM CMOs was $323.6 million and $46.5 million, respectively.

The following table provides detail on investment securities with unrealized/
unrecognized losses aggregated by investment category and length of time the
individual securities had been in a continuous loss position at December 31, 2018 and
December 31, 2017:

Less than 12 Months

12 Months or Longer

Total

Unrealized/
Unrecognized
Losses

Fair
Value

Unrealized/
Unrecognized
Losses

Fair
Value

Unrealized/
Unrecognized
Losses

Fair
Value

$506,280

$5,998

$449,569

$19,917

$955,849

$25,915

$506,280

$5,998

$449,569

$19,917

$955,849

$25,915

$91,960

$1,095

$70,723

$1,577

$162,683

$2,672

32,656

838

6,931

165

39,587

1,003

$124,616

$1,933

$77,654

$1,742

$202,270

$3,675

(In thousands)

2018:

Debt Securities Available-for-Sale

U.S. Government sponsored entities’
asset-backed securities

Total

2018:

Debt Securities Held-to-Maturity

Obligations of states and political
subdivisions

U.S. Government sponsored entities’
asset-backed securities

Total

2017:

Twelve months ended December 31,

Debt Securities Available-for-Sale

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

U.S. Government sponsored entities’
asset-backed securities

Total

2017:

Debt Securities Held-to-Maturity

Obligations of states and political
subdivisions

U.S. Government sponsored entities’
asset-backed securities

$24,931

$70

$217,789

$2,210

$242,720

$2,280

236,924

2,786

318,797

5,343

555,721

8,129

$261,855

$2,856

$536,586

$7,553

$798,441

$10,409

$26,644

$194

$45,498

$519

$72,142

$713

7,331

—

7,331

Total

$33,975

$232

$45,498

$519

$79,473

$751

Management does not believe any individual unrealized/unrecognized loss as of
December 31, 2018 or 2017 represented an other-than-temporary impairment. The
unrealized/unrecognized losses on agency issued and non-agency issued 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 attributable to credit will be recognized in net income in
the period the other-than-temporary impairment is identified.

The amortized cost and estimated fair value of investments in debt securities at
December 31, 2018, are shown in the following table by contractual maturity, except for
asset-backed securities, which are shown as a single total, due to the unpredictability of
the timing in principal repayments.

(Dollars in thousands, except per share data)

Net interest income

Net income

Basic earnings per share

Diluted earnings per share

2018

$273,685

115,118

7.33

7.27

2017

$257,604

89,092

5.66

5.62

5. Investment Securities
The amortized cost and fair value of investment securities are shown in the following
tables. Management performs a quarterly evaluation of investment securities for
any other-than-temporary impairment. During 2018, 2017 and 2016, there were no
investment securities deemed to be other-than-temporarily impaired.

Investment securities at December 31, 2018 and December 31, 2017 were as follows:

(In thousands)

2018:

Debt Securities Available-for-Sale

Gross
Unrealized/
Unrecognized
Holding Gains

Gross
Unrealized/
Unrecognized
Holding Losses

Amortized
Cost

Estimated
Fair Value

U.S. Government sponsored entities’ asset-backed securities

$1,028,883

Total

2018:

Debt Securities Held-to-Maturity

$1,028,883

$453

$25,915

$1,003,421

$25,915

$1,003,421

Obligations of states and political subdivisions

$305,278

$3,202

$2,672

$305,808

U.S. Government sponsored entities’ asset-backed securities

46,530

1,003

45,614

Total

2017:

$351,808

$3,289

$3,675

$351,422

Debt Securities Available-for-Sale

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

$245,000

$—

$2,280

$242,720

U.S. Government sponsored entities’ asset-backed securities

852,645

4,645

8,129

849,161

Total

2017:

Debt Securities Held-to-Maturity

$1,097,645 $4,645

$10,409

$1,091,881

Obligations of states and political subdivisions

$300,412 $6,575

$713

$306,274

U.S. Government sponsored entities’ asset-backed securities

56,785

758

57,505

Total

$357,197 $7,333

$751

$363,779

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Amortized
Cost

Estimated
Fair Value

Tax
Equivalent
Yield1

6. Loans
The composition of the loan portfolio, by class of loan, as of December 31, 2018 and
December 31, 2017 was as follows:

Loan
Balance

Accrued Interest
Receivable

Recorded
Investment

(In thousands)

Debt Securities Available-for-Sale

U.S. Government sponsored entities’ asset-
backed securities

Debt Securities Held-to-Maturity

Obligations of states and political subdivisions

Due five through ten years

Due greater than ten years

Total

U.S. Government sponsored entities’ asset-
backed securities

$1,028,883

$1,003,421

2.35%

$4,036

$3,987

301,242

301,821

$305,278

$305,808

3.04%

3.69%

3.68%

$46,530

$45,614

2.83%

1The tax equivalent yield for obligations of states and political subdivisions includes the effects of a taxable
equivalent adjustment using a 21% federal corporate income tax rate.

At December 31, 2018, investment securities with an amortized cost of $332 million
were pledged for government and trust department deposits, $280 million were
pledged to secure repurchase agreements and $22 million were pledged as collateral
for FHLB advance borrowings. At December 31, 2017, investment securities with an
amortized cost of $317 million were pledged for government and trust department
deposits, $215 million were pledged to secure repurchase agreements and $25 million
were pledged as collateral for FHLB advance borrowings.

At December 31, 2018, 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 2018, Park sold certain AFS debt securities with a book value of $245.0 million
at a gross loss of $2.6 million, sold certain AFS debt securities with a book value of $2.0
million at a gross gain of $60,000, and sold certain HTM debt securities with a book
value of $7.4 million at a gross gain of $0.3 million. These HTM debt securities had been
paid down by 96.3% of the principal outstanding at acquisition. During 2017, Park sold
certain equity securities with a book value of $444,000 at a gain of $1.8 million. No
investment securities were sold during 2016.

Other investment securities (as shown on the Consolidated Balance Sheets) consist
of stock investments in the FHLB, the FRB and equity securities. The FHLB and FRB
restricted stock investments are carried at their redemption value. Equity securities
with a readily determinable fair value are carried at fair value. Beginning on January 1,
2018, with the adoption of ASU 2016-01, changes in fair value are included in other
income on the Consolidated Statements of Income as opposed to in accumulated other
comprehensive loss on the Consolidated Balance Sheets. Equity securities without
a readily determinable fair value are recorded at cost, minus impairment, if any, plus
or minus changes resulting from observable price changes in orderly transactions
(“modified cost”).

(In thousands)

2018:

Commercial, financial
and agricultural*

$1,072,786

Commercial real estate*

1,283,045

Construction real estate:

Commercial

Mortgage

Installment

Residential real estate:

Commercial

Mortgage

HELOC

Installment

Consumer

Leases

Total loans

2017:

Commercial, financial
and agricultural

175,300

70,541

2,433

429,730

1,134,278

215,283

14,327

1,292,136

2,273

$5,692,132

$1,053,453

Commercial real estate*

1,167,607

Construction real estate:

Commercial

Mortgage

Installment

Residential real estate:

Commercial

Mortgage

HELOC

Installment

Consumer

Leases

Total loans

125,389

52,203

3,878

393,094

1,110,426

203,178

18,526

1,241,736

2,993

$5,372,483

$4,603

4,750

801

151

1,150

1,227

1,159

3,756

$17,666

$4,413

4,283

401

133

1,029

1,516

974

3,808

$16,659

$1,077,389

1,287,795

176,101

70,692

2,440

430,880

1,135,505

216,442

14,363

1,295,892

2,299

$5,709,798

$1,057,866

1,171,890

125,790

52,336

3,891

394,123

1,111,942

204,152

18,579

1,245,544

3,029

$5,389,142

The carrying amount of other investment securities at December 31, 2018 and 2017 was
as follows:

*Included within commercial, financial and agricultural loans and commercial real estate loans is an immaterial
amount of consumer loans that were not broken out by class.

(In thousands)

FHLB stock

FRB stock

Equity investments carried at fair value

Equity investments carried at cost/modified cost1

December 31,
2018

December 31,
2017

$43,388

$50,086

8,225

1,649

2,589

8,225

1,935

3,500

Total other investment securities

$55,851

$63,746

1There have been no impairments, downward adjustments, or upward adjustments made to equity investments
carried at modified cost.

For the year ended December 31, 2018, $287,000 of unrealized losses were recorded
within “Gain on equity securities, net” on the Consolidated Statements of Income. An
additional $3.5 million gain recorded within “Gain on equity securities, net” on the
Consolidated Statements of Income for the year ended December 31, 2018 relates to
Park’s 8.55% investment in NewDominion which was held at December 31, 2017. See
Note 4 - Business Combinations.

Loans are shown net of deferred origination fees, costs and unearned income of
$12.5 million at December 31, 2018 and of $12.2 million at December 31, 2017, which
represented a net deferred income position in both years. At December 31, 2018,
loans included a purchase accounting adjustment of $4.4 million, which represented
a net deferred income position. This fair market value adjustment is expected to be
recognized into interest income on a level yield basis over the remaining expected life
of the loans.

Overdrawn deposit accounts of $2.3 million and $1.9 million had been reclassified to
loans at December 31, 2018 and 2017, respectively, and are included in the commercial,
financial and agricultural loan class above.

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The following table provides additional information regarding those nonaccrual and
accruing TDR loans that are individually evaluated for impairment and those collectively
evaluated for impairment as of December 31, 2018 and December 31, 2017.

Nonaccrual and
Accruing TDRs

Loans Individually
Evaluated for
Impairment

Loans Collectively
Evaluated for
Impairment

Credit Quality
The following table presents the recorded investment in nonaccrual loans, accruing
TDRs, and loans past due 90 days or more and still accruing by class of loan as of
December 31, 2018 and December 31, 2017:

Nonaccrual
Loans

Accruing
TDRs

Loans Past
Due 90 Days
or More and
Accruing

Total
Nonperforming
Loans

(In thousands)

2018:

Commercial, financial and
agricultural

$14,998

$196

Commercial real estate

25,566

2,860

$10

—

1,124

1,115

$2,302

$15,204

28,426

1,866

2,732

27,116

3,195

1,541

5,335

$85,478

1,866

—

2,610

16,892

2,158

468

3,377

—

122

9,100

1,028

1,049

843

$67,954

$15,222

Construction real estate:

Commercial

Mortgage

Installment

Residential real estate:

Commercial

Mortgage

HELOC

Installment

Consumer

Total loans

2017:

Commercial, financial and
agricultural

$16,773

$1,291

$—

$18,064

Commercial real estate

12,979

5,163

Construction real estate:

Commercial

Mortgage

Installment

Residential real estate:

Commercial

Mortgage

HELOC

Installment

Consumer

Total loans

986

18,835

16,841

1,593

586

3,403

338

—

224

10,766

1,025

616

662

$72,056

$20,177

—

568

1,256

$1,845

18,142

1,324

100

19,059

28,175

2,632

1,209

5,321

$94,078

(In thousands)

2018:

Commercial, financial
and agricultural

Commercial real estate

Construction real estate:

Commercial

Mortgage

Installment

Residential real estate:

Commercial

Mortgage

HELOC

Installment

Consumer

$15,194

28,426

1,866

2,732

25,992

3,186

1,517

4,220

$15,120

28,426

1,866

—

2,732

—

Total loans

$83,176

$48,144

2017:

Commercial, financial
and agricultural

$18,064

Commercial real estate

18,142

Construction real estate:

Commercial

Mortgage

Installment

Residential real estate:

Commercial

Mortgage

HELOC

Installment

Consumer

Total loans

1,324

100

19,059

27,607

2,618

1,202

4,065

$18,039

18,142

1,324

19,059

—

$74

—

25,992

3,186

1,517

4,220

$35,032

$25

100

27,607

2,618

1,202

4,065

$35,669

$92,233

$56,564

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

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The following table presents loans individually evaluated for impairment by class of loan
as of December 31, 2018 and December 31, 2017.

Unpaid
Principal
Balance

Recorded
Investment

Allowance for
Loan Losses
Allocated

Interest income on nonaccrual loans individually evaluated for impairment is recognized
on a cash basis only when Park expects to receive the entire recorded investment of the
loan. Interest income on accruing TDRs individually evaluated for impairment continues
to be recorded on an accrual basis. The following tables present the average recorded
investment and interest income recognized subsequent to impairment on loans
individually evaluated for impairment as of and for the years ended December 31, 2018,
2017, and 2016:

(In thousands)

2018:

With no related allowance recorded

Commercial, financial and agricultural

Commercial real estate

Construction real estate:

Commercial

Residential real estate:

Commercial

With an allowance recorded

Commercial, financial and agricultural

Commercial real estate

Construction real estate:

Commercial

Residential real estate:

Commercial

Total

2017:

With no related allowance recorded

Commercial, financial and agricultural

Commercial real estate

Construction real estate:

Commercial

Residential real estate:

Commercial

With an allowance recorded

Commercial, financial and agricultural

Commercial real estate

Construction real estate:

Commercial

Residential real estate:

Commercial

Total

$8,999

26,663

$3,713

26,213

4,679

1,866

2,691

2,374

13,736

2,255

11,407

2,213

—

358

$59,381

358

$48,144

$19,899

18,974

$14,704

18,060

2,788

1,324

19,346

19,012

$—

—

(In thousands)

Commercial, financial and agricultural

Commercial real estate

Construction real estate:

Commercial

2,169

Residential real estate:

Commercial

Consumer

Total

—

$2,273

(In thousands)

Commercial, financial and agricultural

$—

—

Commercial real estate

Construction real estate:

Commercial

Residential real estate:

Commercial

Consumer

Total

Year ended December 31, 2018

Recorded Investment
as of
December 31, 2018

Average
Recorded
Investment

Interest
Income
Recognized

$15,120

28,426

$21,000

23,024

1,866

1,709

2,732

—

5,308

—

$695

1,047

114

—

$48,144

$51,041

$1,890

Year ended December 31, 2017

Recorded Investment
as of
December 31, 2017

Average
Recorded
Investment

Interest
Income
Recognized

$18,039

18,142

$23,154

21,692

1,324

1,729

19,059

—

$56,564

20,490

$963

903

778

—

$67,070

$2,708

Year ended December 31, 2016

5,394

137

—

3,335

681

—

$66,585

$56,564

$684

(In thousands)

Commercial, financial and agricultural

Commercial real estate

Construction real estate:

Commercial

Residential real estate:

Commercial

Consumer

Total

Recorded
Investment as of
December 31, 2016

Average
Recorded
Investment

Interest
Income
Recognized

$20,624

24,474

$26,821

22,828

$885

884

2,226

5,503

23,102

—

$70,426

24,341

$79,496

2,942

—

$4,777

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,
2018 and December 31, 2017, there were $8.8 million and $7.9 million, respectively,
of partial charge-offs on loans individually evaluated for impairment with no related
allowance recorded and $2.4 million and $2.1 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, 2018 and 2017, of $2.3 million and $0.7
million, respectively. These loans with specific reserves had a recorded investment of
$14.0 million and $3.5 million as of December 31, 2018 and 2017, respectively.

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The following tables present the aging of the recorded investment in past due loans as
of December 31, 2018 and December 31, 2017 by class of loan.

Past Due,
Nonaccrual
Loans and
Loans Past
Due 90 Days
or More and
Accruing1

Accruing
Loans
Past Due
30-89
Days

Total
Past
Due

Total
Current2

Total
Recorded
Investment

$4,786

$1,375

$6,161

$1,071,228

$1,077,389

(In thousands)

December 31, 2018:

Commercial, financial and
agricultural

Commercial real estate

780

3,584

4,364

1,283,431

1,287,795

Construction real estate:

Commercial

Mortgage

Installment

Residential real estate:

Commercial

Mortgage

HELOC

Installment

Consumer

Leases

—

133

683

13,210

620

155

9,524

—

1,635

174,466

176,101

1,104

8,553

907

274

153

70,539

2,393

70,692

2,440

1,787

429,093

430,880

21,763

1,113,742

1,135,505

1,527

429

214,915

216,442

13,934

14,363

2,131

11,655

1,284,237

1,295,892

—

2,299

Total loans

$29,919

$19,602

$49,521

$5,660,277

5,709,798

1Includes an aggregate of $2.3 million of loans past due 90 days or more and accruing. The remaining are past
due, nonaccrual loans.

²Includes an aggregate of $50.7 million of nonaccrual loans which are current in regards to contractual
principal and interest payments.

Credit Quality Indicators
Management utilizes past due information as a credit quality indicator across the
loan portfolio. Past due information as of December 31, 2018 and 2017 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 on a scale from 1 to 8. Credit grades are continuously monitored
by the responsible 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 that are pass-rated (graded a 1 through a 4) are considered to be of acceptable
credit risk. Commercial loans graded a 5 (special mention) are considered to be watch
list credits and a higher loan loss reserve percentage is allocated to these loans. Loans
classified as special mention have potential weaknesses that require management’s
close attention. If left uncorrected, these potential weaknesses may result in
deterioration of the repayment prospects for the loan or of Park’s credit position at
some future date. Commercial loans graded a 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
are inadequately protected by the current sound worth and paying capacity of the
obligor or the value 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 Park will sustain some loss if
the deficiencies are not corrected. Commercial loans graded a 7 (doubtful) are shown
as nonaccrual and Park generally charges these loans down to their fair value by
taking a partial charge-off or recording a specific reserve. Loans classified as doubtful
have all the weaknesses inherent in those classified as substandard with the added
characteristic that the weaknesses make collection or liquidation in full, on the basis
of currently existing facts, conditions, and values, highly questionable and improbable.
Certain 6-rated loans and all 7-rated loans are placed on nonaccrual status and 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 following tables present the recorded investment by loan grade at December 31,
2018 and December 31, 2017 for all commercial loans:

Past Due,
Nonaccrual
Loans and
Loans Past
Due 90 Days
or More and
Accruing1

Accruing
Loans
Past Due
30-89 Days

(In thousands)

December 31, 2017:

Commercial, financial and
agricultural

Commercial real estate

Construction real estate:

Commercial

Mortgage

Installment

Residential real estate:

Commercial

Mortgage

HELOC

Installment

Consumer

Leases

Total
Past
Due

Total
Current2

Total
Recorded
Investment

(In thousands)

5 Rated

6 Rated

Nonaccrual
and Accruing
TDRs

Purchased
Credit
Impaired1

Pass
Rated

Recorded
Investment

$145

$1,043

$1,188

$1,056,678

$1,057,866

December 31, 2018:

Commercial, financial and
agricultural*

$11,509

$444

$15,194

$148

$1,050,094

$1,077,389

2,360

3,216

1,168,674

1,171,890

Commercial real estate*

2,707

125,761

125,790

Commercial

1,560

Construction real estate:

856

256

11,515

616

239

—

1,586

9,232

876

253

256

52,080

3,818

52,336

3,891

1,602

392,521

394,123

20,747

1,091,195

1,111,942

1,492

492

202,660

18,087

204,152

18,579

11,515

2,407

13,922

1,231,622

1,245,544

—

3,029

—

28,426

3,059

1,253,603

1,287,795

1,866

503

172,172

176,101

2,732

—

251

—

427,584

430,880

2,299

Residential real estate:

Commercial

Leases

Total commercial
loans

272

—

$16,048

$485

$48,218

$3,961

$2,905,752

$2,974,464

*Included within commercial, financial and agricultural loans and commercial real estate loans is an immaterial
amount of consumer loans that were not broken out by class.

1Excludes loans acquired with deteriorated credit quality which are nonaccrual or TDRs due to additional
credit deterioration or modification post acquisition. These loans had a recorded investment of $475,000 at
December 31, 2018.

Total loans

$25,241

$17,776

$43,017

$5,346,125

$5,389,142

1Includes an aggregate of $1.8 million of loans past due 90 days or more and accruing. The remaining are past
due, nonaccrual loans.

²Includes an aggregate of $56.1 million of nonaccrual loans which are current in regards to contractual
principal and interest payments.

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Quarterly, management reviews renewals/modifications of loans previously identified
as TDRs to consider if it is appropriate to remove the TDR classification. If the borrower
is no longer experiencing financial difficulty and the renewal/modification does not
contain a concessionary interest rate or other concessionary terms and the terms of
the renewal/modification are considered to be market terms based on the current risk
characteristics of the borrower, management considers the potential removal of the TDR
classification. If deemed appropriate, the TDR classification is removed as the borrower
has complied with the terms of the loan at the date of the renewal/modification and
there was a reasonable expectation that the borrower would continue to comply with
the terms of the loan subsequent to the date of the renewal/modification. The majority
of these TDRs were originally considered restructurings in a prior year as a result of a
renewal/modification with an interest rate that was not commensurate with the risk of
the underlying loan at the time of the renewal/modification. During the years ended
December 31, 2018 and 2017, Park removed the TDR classification on $2.4 million and
$0.5 million, respectively, of loans that met the requirements discussed above.

At December 31, 2018 and 2017, there were $24.6 million and $38.5 million,
respectively, of TDRs included in the nonaccrual loan totals. At December 31, 2018
and 2017, $19.2 million and $32.4 million, respectively, of these nonaccrual TDRs were
performing in accordance with the terms of the restructured note. As of December 31,
2018 and 2017, loans with a recorded investment of $15.2 million and $20.2 million,
respectively, were included in accruing TDR loan totals. Management will continue
to review the restructured loans and may determine it appropriate to move certain
nonaccrual TDRs to accrual status in the future.

At December 31, 2018 and 2017, Park had commitments to lend $0.3 million and $1.3
million, respectively, of additional funds to borrowers whose outstanding loan terms
had been modified in a TDR.

The specific reserve related to TDRs at December 31, 2018 and 2017 was $1.2 million
and $0.5 million, respectively. Modifications made in 2017 and 2018 were largely the
result of renewals and 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 $0.2 million were recorded
during the year ended December 31, 2018, as a result of TDRs identified in the 2018
year. Additional specific reserves of $0.3 million were recorded during the year ended
December 31, 2017 as a result of TDRs identified in the 2017 year. Additional specific
reserves of $1.0 million were recorded during the year ended December 31, 2016 as a
result of TDRs identified in the 2016 year.

The terms of certain other loans were modified during the years ended December 31,
2018 and 2017 that did not meet the definition of a TDR. Substandard commercial
loans modified during the years ended December 31, 2018 and 2017 which did not meet
the definition of a TDR had a total recorded investment of $368,000 and $106,000,
respectively. The renewal/modification of these loans: (1) resulted in a delay in a
payment that was considered to be insignificant, or (2) 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.
Consumer loans modified during 2018 which did not meet the definition of a TDR had
a total recorded investment as of December 31, 2018 of $20.9 million. Consumer loans
modified during 2017 which did not meet the definition of a TDR had a total recorded
investment as of December 31, 2017 of $8.9 million. Many of these loans were to
borrowers who were not experiencing financial difficulties but who were looking to
reduce their cost of funds.

(In thousands)

5 Rated

6 Rated

Nonaccrual
and Accruing
TDRs

Purchased
Credit
Impaired

Pass
Rated

Recorded
Investment

December 31, 2017:

Commercial, financial and
agricultural*

$17,272

$153

$18,064

$—

$1,022,377

$1,057,866

Commercial real estate*

5,322

457

18,142

Construction real estate:

Commercial

Residential real estate:

Commercial

Leases

Total commercial
loans

278

216

—

1,324

19,059

—

1,147,969

1,171,890

124,188

125,790

374,847

394,123

3,029

$23,088

$611

$56,589

$—

$2,672,410

$2,752,698

*Included within commercial, financial and agricultural loans and commercial real estate loans is an immaterial
amount of consumer loans that were not broken out by class.

Purchased Credit Impaired (“PCI”) Loans
In conjunction with the NewDominion acquisition, Park acquired loans with a book value
of $277.9 million as of July 1, 2018. These loans were recorded at the initial fair value of
$272.8 million.

Loans acquired with deteriorated credit quality with a book value of $5.1 million were
recorded at the initial fair value of $4.9 million. The carrying amount of loans acquired
with deteriorated credit quality at December 31, 2018 was $4.4 million, while the
outstanding customer balance was $4.6 million. At December 31, 2018, no allowance for
loan losses had been recognized related to the acquired impaired loans.

The following table provides changes in accretable discount for loans acquired with
deteriorated credit quality:

(in thousands)

December 31, 2018 December 31, 2017

For the Year Ended

Balance at the beginning of the period

Acquisitions

Reductions due to change in projected cash flows

Reclass from non-accretable difference

Transfers out

Accretion

Balance at end of period

$—

176

—

$144

$—

—

$—

TDRs
Management classifies loans as TDRs when a borrower is experiencing financial
difficulties and Park has granted a concession to the borrower as part of a modification
or in the loan renewal process. 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 in accordance with 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. A court’s discharge of a borrower’s debt in
a Chapter 7 bankruptcy is considered a concession when the borrower does not reaffirm
the discharged debt.

Certain loans which were modified during the years ended December 31, 2018 and
December 31, 2017 did not meet the definition of a TDR as the modification was a
delay in a payment that was considered to be insignificant. Management considers a
forbearance period of up to three months or a delay in payment of up to 30 days to be
insignificant. TDRs may be classified as accruing if the borrower has been current for a
period of at least six months with respect to loan payments and management expects
that the borrower will be able to continue to make payments in accordance with the
terms of the restructured note. Management reviews all accruing TDRs quarterly to
ensure payments continue to be made in accordance with the modified terms.

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The following tables detail the number of contracts modified as TDRs during the years
ended December 31, 2018, 2017 and 2016 as well as the recorded investment of these
contracts at December 31, 2018, 2017, and 2016. The recorded investment pre- and
post-modification is generally the same due to the fact that Park does not typically
forgive principal.

(In thousands)

Year ended December 31, 2018:

Commercial, financial and agricultural

Commercial real estate

Construction real estate:

Commercial

Mortgage

Installment

Residential real estate:

Commercial

Mortgage

HELOC

Installment

Consumer

Total loans

Year ended December 31, 2017:

Commercial, financial and agricultural

Commercial real estate

Construction real estate:

Commercial

Mortgage

Installment

Residential real estate:

Commercial

Mortgage

HELOC

Installment

Consumer

Total loans

Year ended December 31, 2016:

Commercial, financial and agricultural

Commercial real estate

Construction real estate:

Commercial

Mortgage

Installment

Residential real estate:

Commercial

Mortgage

HELOC

Installment

Consumer

Total loans

Number of
Contracts Accruing Nonaccrual

Recorded
Investment

—

283

392

$28

414

—

842

558

459

204

$2,569

$829

3,172

$857

3,586

—

363

854

1,249

$6,622

—

417

1,696

644

528

1,453

$9,191

—

309

426

—

293

405

$945

1,050

$2,770

313

$3,715

1,363

—

144

888

474

251

171

$3,923

—

486

1,359

102

1,121

$6,202

—

630

2,247

576

294

1,292

$10,125

$191

3,844

$8,450

2,537

$8,641

6,381

—

114

104

102

184

1,143

—

1,033

2,292

178

994

—

1,122

2,406

282

105

1,178

$4,628

$16,630

$21,258

Of those loans which were modified and determined to be a TDR during the year ended
December 31, 2018, $0.5 million were on nonaccrual status as of December 31, 2017.
Of those loans which were modified and determined to be a TDR during the year ended
December 31, 2017, $1.8 million were on nonaccrual status as of December 31, 2016.
Of those loans which were modified and determined to be a TDR during the year ended
December 31, 2016, $9.4 million were on nonaccrual status as of December 31, 2015.

The following table presents the recorded investment in financing receivables which
were modified as TDRs within the previous 12 months and for which there was a
payment default during the year ended December 31, 2018, December 31, 2017, and
December 31, 2016. For this table, a loan is considered to be in default when it becomes
30 days contractually past due under the modified terms. The additional allowance for
loan loss resulting from the defaults on TDR loans was immaterial.

Year ended
December 31, 2018

Year ended
December 31, 2017

Year ended
December 31, 2016

Number of
Contracts

Recorded
Investment

Number of
Contracts

Recorded
Investment

Number of
Contracts

Recorded
Investment

—

$104

—

518

636

—

$1,319

—

$—

—

117

467

194

—

375

—

$1,235

—

$419

843

—

848

1,201

—

484

—

$3,798

(In thousands)

Commercial, financial and
agricultural

Commercial real estate

Construction real estate:

Commercial

Mortgage

Installment

Residential real estate:

Commercial

Mortgage

HELOC

Installment

Consumer

Leases

Total loans

Of the $1.3 million in modified TDRs which defaulted during the year ended
December 31, 2018, $86,000 were accruing loans and $1.2 million were nonaccrual
loans. Of the $1.2 million in modified TDRs which defaulted during the year ended
December 31, 2017, $180,000 were accruing loans and $1.1 million were nonaccrual
loans. Of the $3.8 million in modified TDRs which defaulted during the year ended
December 31, 2016, $111,000 were accruing loans and $3.7 million were nonaccrual
loans.

Certain of the Corporation’s executive officers, directors and related entities of
directors are loan customers of PNB. As of December 31, 2018 and 2017, credit
exposure aggregating approximately $35.9 million and $42.1 million, respectively, was
outstanding to such parties. Of this total exposure, approximately $25.9 million and
$31.1 million was outstanding at December 31, 2018 and 2017, respectively, with the
remaining balance representing available credit. During 2018, new loans and advances
on existing loans were made to these executive officers, directors and related entities
of directors totaling $1.4 million and $4.9 million, respectively. These extensions of
credit were offset by principal payments of $11.5 million. During 2017, new loans and
advances on existing loans were $1.6 million and $11.4 million, respectively. These
extensions of credit were offset by principal payments of $11.4 million.

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N O T E S T O CO N S O L I DAT E D FI N A N C I A L S TAT E M E N T S

7. Allowance for Loan Losses
The allowance for loan losses is that amount management believes is adequate to
absorb probable incurred credit losses in the loan portfolio based on management’s
evaluation of various factors including the overall growth in the loan portfolio, an
analysis of individual loans, prior and current loss experience, and current economic
conditions. A provision for loan losses is charged to operations based on management’s
periodic evaluation of these and other pertinent factors as discussed within Note 1 -
Summary of Significant Accounting Policies.

Loss factors are reviewed quarterly and updated at least annually to reflect recent loan
loss history and incorporate current risk and trends which may not be recognized in
historical data. The following are factors management reviews on a quarterly or annual
basis.

•

Loss Emergence Period Factor: At least annually, 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 from the
probable occurrence of a loss event to the credit being moved to nonaccrual. If
the loss emergence period for any commercial loan segment is greater than one
year, management applies additional general reserves to all performing loans
within that segment of the commercial loan portfolio. The loss emergence period
was last updated in the fourth quarter of 2018.

Loss Migration Factor: Park’s commercial loans are individually risk graded. If
loan downgrades occur, the probability of default increases, and accordingly,
management allocates a higher percentage reserve to those accruing commercial
loans graded special mention and substandard. Annually, management calculates
a loss migration factor for each commercial loan segment for special mention
and substandard credits based on a review of losses over the period of time a
loan takes to migrate from pass-rated to impaired. The loss migration factor was
last updated in the fourth quarter of 2018.

The activity in the allowance for loan losses for the years ended December 31, 2018,
2017, and 2016 is summarized in the following tables.

Year ended December 31, 2018

Commercial,
financial and
agricultural

Commercial
real estate

Construction
real estate

Residential
real estate Consumer Leases

Total

(In thousands)

Allowance for credit losses:

Beginning balance

$15,022

$9,601

$4,430

$9,321

$11,614

Charge-offs

Recoveries

Net charge-offs
(recoveries)

Provision (Recovery)

2,796

(1,221)

1,575

3,330

281

(272)

176

441

9,962

(712)

(844)

(4,078)

(640)

(403)

5,884

(607)

(993)

6,043

Ending balance

$16,777

$9,768

$4,463

$8,731

$11,773

$—

—

(4)

$—

$49,988

13,552

(7,131)

6,421

7,945

$51,512

Year ended December 31, 2017

Commercial,
financial and
agricultural

Commercial
real estate

Construction
real estate

Residential
real estate Consumer Leases

Total

(In thousands)

Allowance for credit losses:

Beginning balance

$13,434

$10,432

$5,247

$10,958

$10,553

$—

$50,624

Charge-offs

Recoveries

Net charge-offs
(recoveries)

Provision (Recovery)

6,017

(809)

5,208

6,796

1,798

(810)

988

157

105

1,208

10,275

(2,124)

(1,863)

(4,603)

(2,019)

(655)

5,672

(2,836)

(2,292)

6,733

Ending balance

$15,022

$9,601

$4,430

$9,321

$11,614

—

(1)

$—

19,403

(10,210)

9,193

8,557

$49,988

Year ended December 31, 2016

Commercial,
financial and
agricultural

Commercial
real estate

Construction
real estate

Residential
real estate Consumer Leases

Total

(In thousands)

Allowance for credit losses:

Beginning balance

$13,694

$9,197

$8,564

$13,514

$11,524

Charge-offs

Recoveries

Net charge-offs
(recoveries)

5,786

412

1,436

3,014

10,151

(1,259)

(3,671)

(8,559)

(2,446)

(4,094)

(1)

(20,030)

4,527

(3,259)

(7,123)

568

6,057

Provision (Recovery)

4,267

(2,024)

(10,440)

(1,988)

5,086

—

$56,494

20,799

(1)

(2)

769

(5,101)

Ending balance

$13,434

$10,432

$5,247

$10,958

$10,553

$— $50,624

Loans collectively evaluated for impairment in the following tables include all
performing loans at December 31, 2018 and 2017, as well as nonperforming loans
internally classified as consumer loans. Nonperforming consumer loans are not typically
individually evaluated for impairment, but receive a portion of the statistical allocation
of the allowance for loan losses. Loans individually evaluated for impairment include all
impaired loans internally classified as commercial loans at December 31, 2018 and 2017,
which are evaluated for impairment in accordance with GAAP (see Note 1 - Summary of
Significant Accounting Policies).

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The composition of the allowance for loan losses at December 31, 2018 and 2017 was as follows:

N O T E S T O CO N S O L I DAT E D FI N A N C I A L S TAT E M E N T S

Commercial,
financial, and
agricultural

Commercial
real estate

Construction
real estate

Residential
real estate

Consumer

Leases

Total

Year Ended December 31, 2018

(In thousands)

Allowance for loan losses:

Ending allowance balance attributed to loans:

Individually evaluated for impairment

Collectively evaluated for impairment

Acquired with deteriorated credit quality

$2,169

14,608

—

$86

9,682

—

$—

4,463

—

$18

8,713

—

$—

11,773

—

Total ending allowance balance

$16,777

$9,768

$4,463

$8,731

$11,773

Loan balance:

Loans individually evaluated for impairment

$15,119

$28,418

$1,866

$2,732

$—

Loans collectively evaluated for impairment

1,057,520

1,251,579

245,909

1,790,637

1,292,136

Loans acquired with deteriorated credit quality1

147

3,048

499

249

—

$—

—

$—

2,273

—

$2,273

49,239

—

$51,512

$48,135

5,640,054

3,943

Total ending loan balance

$1,072,786

$1,283,045

$248,274

$1,793,618

$1,292,136

$2,273

$5,692,132

Allowance for loan losses as a percentage of loan balance:

Loans individually evaluated for impairment

Loans collectively evaluated for impairment

Loans acquired with deteriorated credit quality

Total

Recorded investment:

14.35%

1.38%

—%

1.56%

0.30%

0.77%

—%

0.76%

—%

1.81%

—%

1.80%

0.66%

0.49%

—%

0.49%

—%

0.91%

—%

0.91%

Loans individually evaluated for impairment

$15,120

$28,426

$1,866

$2,732

$—

Loans collectively evaluated for impairment

1,062,121

1,256,310

246,864

1,794,207

1,295,892

Loans acquired with deteriorated credit quality1

148

3,059

503

251

—

—%

$—

2,299

—

4.72%

0.87%

—%

0.90%

$48,144

5,657,693

3,961

Total ending recorded investment

$1,077,389

$1,287,795

$249,233

$1,797,190

$1,295,892

$2,299

$5,709,798

1Excludes loans acquired with deteriorated credit quality which are individually evaluated for impairment due to additional credit deterioration post acquisition. These loans had a balance of $475,000, a recorded investment of
$475,000, and zero allowance as of December 31, 2018.

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N O T E S T O CO N S O L I DAT E D FI N A N C I A L S TAT E M E N T S

Commercial,
financial, and
agricultural

Commercial
real estate

Construction
real estate

Residential
real estate

Consumer

Leases

Total

Year Ended December 31, 2017

(In thousands)

Allowance for loan losses:

Ending allowance balance attributed to loans:

Individually evaluated for impairment

Collectively evaluated for impairment

Total ending allowance balance

Loan balance:

$681

14,341

$15,022

9,599

$9,601

$—

4,430

$4,430

$1,322

180,148

9,320

$9,321

$—

11,614

$11,614

$19,058

$—

1,706,166

1,241,736

$—

—

$—

2,993

$684

49,304

$49,988

$56,545

5,315,938

Loans individually evaluated for impairment

$18,034

$18,131

Loans collectively evaluated for impairment

1,035,419

1,149,476

Total ending loan balance

$1,053,453

$1,167,607

$181,470

$1,725,224

$1,241,736

$2,993

$5,372,483

Allowance for loan losses as a percentage of loan balance:

Loans individually evaluated for impairment

Loans collectively evaluated for impairment

Total

Recorded investment:

3.78%

1.39%

1.43%

0.01%

0.84%

0.82%

—%

2.46%

2.44%

0.01%

0.55%

0.54%

—%

0.94%

Loans individually evaluated for impairment

$18,039

$18,142

Loans collectively evaluated for impairment

1,039,827

1,153,748

$1,324

180,693

$19,059

$—

1,709,737

1,245,544

—%

$—

3,029

1.21%

0.93%

$56,564

5,332,578

Total ending recorded investment

$1,057,866

$1,171,890

$182,017

$1,728,796

$1,245,544

$3,029

$5,389,142

8. Goodwill and Other Intangibles Assets
The following table shows the activity in goodwill and other intangible assets for the
year ended December 31, 2018.

(In thousands)

December 31, 2017

Acquired goodwill and other intangible assets

Amortization

December 31, 2018

Goodwill

$72,334

40,405

—

Other
Intangibles

$—

7,549

578

Total

$72,334

47,954

578

$112,739

$6,971

$119,710

Goodwill impairment exists when a reporting unit’s carrying value exceeds its fair
value. At April 1, 2018, the Company’s reporting unit, PNB, had positive equity and the
Company elected to perform a qualitative assessment to determine if it was more likely
than not that the fair value of the reporting unit exceeded its carrying value, including
goodwill. The qualitative assessment indicated that it was more likely than not that the
fair value of the reporting unit exceeded its carrying value, resulting in no impairment.
There have been no subsequent circumstances or events triggering an additional
evaluation.

Acquired Intangible Assets
The following table shows the balance of acquired intangible assets as of December 31,
2018. Park had no acquired intangible assets as of December 31, 2017.

(In thousands)

Other intangible assets:

Core deposit intangibles

Trade name intangible

Total

2018

Gross Carrying
Amount

Accumulated
Amortization

$6,249

1,300

$7,549

$578

—

$578

Core deposit intangibles are being amortized, on an accelerated basis, over a period of
ten years. The trade name intangible is an indefinite life asset and is not amortized,
but rather is assessed, at least annually, for impairment. Amortization expense was
$578,000 for the year ended December 31, 2018. There was no amortization expense
during 2017.

The following is a schedule of estimated amortization expense for each of the next five
years:

(In thousands)

2019

2020

2021

2022

2023

Total

$1,234

1,149

869

629

521

9. Loans Held for Sale
Mortgage loans held for sale are carried at their fair value. Mortgage loans held for
sale were $4.2 million and $4.1 million at December 31, 2018 and 2017, respectively.
These amounts are included on the Consolidated Balance Sheets and in the residential
real estate loan segments in Note 6 - Loans and Note 7 - Allowance for Loan Losses.
The contractual balance was $4.1 million at both December 31, 2018 and 2017. The
gain expected upon sale was $60,000 and $55,000 at December 31, 2018 and 2017,
respectively. None of these loans were 90 days or more past due or on nonaccrual status
as of December 31, 2018 or 2017.

During 2018, Park transferred certain non-performing loans held for investment, with
a book balance of $174,000, to the loans held for sale portfolio, and subsequently
completed the sale of these non-performing loans held for sale, recognizing a net gain
on sale of $2.8 million. No non-performing loans were held for sale or sold during 2017
or 2016.

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10. Foreclosed and Repossessed Assets
The carrying amount of foreclosed properties held at December 31, 2018 and December
31, 2017 are listed below, as well as the recorded investment of loans secured by
residential real estate properties for which formal foreclosure proceedings were in
process at those dates.

December 31, (In thousands)

OREO:

Commercial real estate

Construction real estate

Residential real estate

Total OREO

Loans in process of foreclosure:

Residential real estate

2018

$2,359

1,108

836

$4,303

$2,346

2017

$7,888

4,852

1,450

$14,190

$2,948

In addition to real estate, Park may also repossess different types of collateral. As of
December 31, 2018 and December 31, 2017, Park had $4.0 million and $5.5 million in
other repossessed assets which are included in “Other Assets” on the Consolidated
Balance Sheet. As of December 31, 2018, this asset largely consisted of an aircraft
acquired as part of a loan workout. As of December 31, 2017, this asset largely consisted
of lease receivables acquired as part of a loan workout.

11. 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

2018

2017

$20,062

$19,603

79,706

65,659

4,791

77,711

55,799

3,273

$170,218

$156,386

(110,447)

(100,485)

$59,771

$55,901

Depreciation expense amounted to $8.6 million, $8.6 million and $8.4 million for the
years ended December 31, 2018, 2017 and 2016, respectively.

The Corporation leases certain premises and equipment accounted for as operating
leases. The following is a schedule of the future minimum rental payments, before
considering renewals, required for the next five years under such leases with initial
terms in excess of one year:

(In thousands)

2019

2020

2021

2022

2023

Thereafter

Total

$2,839

2,072

1,653

1,576

1,420

810

$10,370

Rent expense for Park was $2.4 million, $2.0 million and $2.1 million, for the years
ended December 31, 2018, 2017 and 2016, respectively.

12. Investments in Qualified Affordable Housing
Park makes certain equity investments in various limited partnerships that sponsor
affordable housing projects. The purposes of these investments are to achieve a
satisfactory return on capital, help create affordable housing opportunities, and assist
the Company to achieve our goals associated with the Community Reinvestment Act.

As permitted by ASU 2014-01, Accounting for Investments in Qualified Affordable
Housing Projects, Park has elected the proportional amortization method of accounting.
Under the proportional amortization method, amortization expense and tax benefits are
recognized through the provision for income taxes.

The table below details the balances of Park’s affordable housing tax credit investments
and related unfunded commitments as of December 31, 2018 and 2017.

December 31, (In thousands)

Affordable housing tax credit investments

Unfunded commitments

2018

$50,347

22,282

2017

$49,669

14,282

Commitments are funded when capital calls are made by the general partner. Park
expects that the commitments as of December 31, 2018 will be funded between 2019
and 2029.

During the years ended December 31, 2018, 2017 and 2016, Park recognized
amortization expense of $7.3 million, $10.3 million and $7.3 million, respectively, which
was included within the provision for income taxes. Included in the $10.3 million of
amortization expense during the year ended December 31, 2017 was $3.1 million in
accelerated amortization as a result of tax reform as discussed in Note 20 - Income
Taxes. This reflects an overall reduction in the total projected tax benefits of the
affordable housing tax credit investments as a result of the reduction in the federal
corporate income tax rate to 21%. For the years ended December 31, 2018, 2017 and
2016, Park recognized tax credits and other benefits from its affordable housing tax
credit investments of $9.0 million, $9.4 million and $9.4 million, respectively.

13. Deposits
At December 31, 2018 and 2017, non-interest bearing and interest bearing deposits
were as follows:

December 31 (In thousands)

Non-interest bearing

Interest bearing

Total

2018

2017

$1,804,881

$1,633,941

4,455,979

4,183,385

$6,260,860

$5,817,326

At December 31, 2018, the maturities of time deposits were as follows:

(In thousands)

2019

2020

2021

2022

2023

After 5 years

Total

$670,674

248,938

55,873

47,190

20,405

$1,043,177

At December 31, 2018 and 2017, respectively, Park had approximately $19.7 million and
$24.9 million of deposits received from executive officers, directors and related entities
of directors.

Time deposits that meet or exceed the FDIC Insurance limit of $250,000 at December
31, 2018 and 2017 were $62.9 million and $38.5 million, respectively.

14. Repurchase Agreement Borrowings
Securities sold under agreements to repurchase (“repurchase agreements”) with
customers represent funds deposited by customers, generally on an overnight basis, that
are collateralized by investment securities owned by Park. Repurchase agreements are
included in short-term borrowings on the Consolidated Balance Sheets.

All repurchase agreements are subject to the terms and conditions of repurchase/
security agreements between Park and the client and are accounted for as secured
borrowings. Park’s repurchase agreements consist of customer accounts and securities
which are pledged on an individual security basis.

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At December 31, 2018 and December 31, 2017, Park’s repurchase agreement
borrowings totaled $165 million and $183 million, respectively. These borrowings were
collateralized with U.S. government and agency securities with a fair value of $272
million and $213 million at December 31, 2018 and December 31, 2017, respectively.
Declines in the value of the collateral would require Park to pledge additional securities.
As of December 31, 2018 and December 31, 2017, Park had $933 million and $975
million, respectively, of available unpledged securities.

The following table presents the carrying value of Park’s repurchase agreements by
remaining contractual maturity and collateral pledged at December 31, 2018 and
December 31, 2017:

(In thousands)

Remaining Contractual Maturity of the Agreements

December 31, 2018

U.S. government and agency
securities

Overnight
and
Continuous

Up to
30 days

30 - 90
days

Greater
than
90 days

Total

$164,966

$—

$164,966

(In thousands)

Remaining Contractual Maturity of the Agreements

December 31, 2017

U.S. government and agency
securities

Overnight and
Continuous

Up to
30 days

30 - 90
days

Greater than
90 days

Total

$182,185

$—

$1,104

$183,289

See Note 15 - Short-Term Borrowings for additional information related to repurchase
agreements.

2018 and 2017, $1,646 million and $1,789 million, respectively, of commercial real
estate and residential mortgage loans were pledged under a blanket agreement to the
FHLB by PNB. See Note 14 - Repurchase Agreement Borrowings for information related
to investment securities collateralizing repurchase agreements.

16. Long-Term Debt
Long-term debt is listed below:

December 31,

(In thousands)

Total Federal Home Loan Bank advances
by year of maturity:

2018

2019

2020

2021

2022

2023

Thereafter

Total

2018

2017

Outstanding
Balance

Average
Rate

Outstanding
Balance

Average
Rate

$—

—% $150,000

100,000

1.92%

100,000

50,000

2.04%

50,000

100,000

50,000

1.96%

3.01%

100,000

—

2.04%

1.92%

2.04%

1.96%

—%

100,000

3.40%

100,000

3.40%

—

—%

—

—%

400,000

2.45%

500,000

2.27%

On November 30, 2012, Park restructured $300 million in repurchase agreements at
a rate of 1.75%. As part of this restructuring, Park paid a prepayment penalty of $25
million. The penalty was 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 3.55%. The entire $25 million prepayment
penalty had been amortized by December 31, 2017.

15. Short-Term Borrowings
Short-term borrowings were as follows:

December 31 (In thousands)

Securities sold under agreements to repurchase

FHLB advances

Total short-term borrowings

2018

2017

$164,966

$183,289

57,000

208,000

$221,966

$391,289

On November 21, 2014, Park restructured $50.0 million in FHLB advances at a rate of
1.25%. As part of this restructuring, Park paid a prepayment penalty of $3.2 million. The
penalty was amortized as an adjustment to interest expense over the remaining term
of the advances using the effective interest method, resulting in an effective interest
rate of 3.52%. The entire $3.2 million prepayment penalty had been amortized by
December 31, 2017.

The outstanding balances for all short-term borrowings as of December 31, 2018 and
2017 and the weighted-average interest rates as of and paid during each of the years
then ended were as follows:

On October 20, 2016, Park prepaid $50.0 million of FHLB advances, incurring a $5.6
million prepayment penalty recognized within other expense on the Consolidated
Statements of Income for the year ended December 31, 2016. These advances had an
interest rate of 3.15% and a maturity date of November 13, 2023.

Repurchase
Agreements

FHLB
Advances

Park had no long-term debt at December 31, 2018 with a contractual maturity longer
than five years.

(In thousands)

2018

Ending balance

Highest month-end balance

Average daily balance

Weighted-average interest rate:

As of year-end

Paid during the year

2017

Ending balance

Highest month-end balance

Average daily balance

Weighted-average interest rate:

As of year-end

Paid during the year

$164,966

199,729

172,774

0.49%

0.42%

$183,289

230,905

205,269

0.41%

0.35%

$57,000

256,000

44,553

2.45%

1.95%

$208,000

208,000

23,924

1.64%

1.16%

At December 31, 2018 and 2017, FHLB advances were collateralized by investment
securities owned by PNB and by various loans pledged under a blanket agreement by
PNB. At December 31, 2018 and 2017, $22 million and $25 million, respectively, of
investment securities were pledged as collateral for FHLB advances. At December 31,
2018 and 2017, $1,646 million and $1,789 million, respectively, of commercial real
estate and residential mortgage loans were pledged under a blanket agreement to the
FHLB by PNB.

17. Subordinated Notes
As part of the acquisition of Vision’s parent bank holding company (“Vision Parent”)
on March 9, 2007, Park became the successor to Vision Parent 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 Parent formed a wholly-owned Delaware statutory
business trust, Vision Bancshares Trust I (“Trust I”), which issued $15.0 million of Trust
I’s floating rate preferred securities (the “Trust Preferred Securities”) to institutional
investors. These Trust Preferred Securities qualify as Tier I capital under FRB 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

During 2017 and 2018, outstanding FHLB advances were collateralized by investment
securities owned by PNB and by various loans pledged under a blanket agreement by
PNB. At December 31, 2018 and 2017, $22 million and $25 million, respectively, of
investment securities were pledged as collateral for FHLB advances. At December 31,

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as treasury shares, including common shares purchased in the open market or in private
transactions. At December 31, 2018, 127,200 common shares were available for future
grants under the 2017 Non-Employee Directors LTIP.

The 2017 Employees LTIP and the 2017 Non-Employee Directors LTIP have replaced
the provisions of the 2013 Incentive Plan with respect to the grant of future awards.
As a result of the approval of the 2017 Employees LTIP and the 2017 Non-Employee
Directors LTIP, Park will not grant any additional awards under the 2013 Incentive Plan
after April 24, 2017. Awards made under the 2013 Incentive Plan prior to April 24, 2017
will remain in effect in accordance with their respective terms.

During 2018 and 2017, Park granted 11,650 and 11,150 common shares, respectively,
to directors of Park and to directors of PNB (and its divisions) under the 2017 Non-
Employee Directors LTIP. During 2016, Park granted 9,950 common shares to directors
of Park and to directors of PNB (and its divisions) under the 2013 Incentive Plan. The
common shares granted to directors were not subject to a vesting period and resulted
in expense of $1.1 million, $1.2 million, and $950,000 in 2018, 2017, and 2016,
respectively, which is included in professional fees and services on the Consolidated
Statements of Income.

During 2018, the Compensation Committee of the Board of Directors of Park granted
awards of PBRSUs, under the 2017 Employees LTIP, covering an aggregate of 48,053
common shares to certain employees of Park and its subsidiaries. Additionally, on July
1, 2018, Park granted 13,637 time-based restricted stock units (“TBRSUs”) to certain
NewDominion employees. During 2017 and 2016, the Compensation Committee of the
Board of Directors of Park granted awards of PBRSUs covering an aggregate of 45,788
common shares and 41,550 common shares, respectively, under the 2013 Incentive
Plan, to certain employees of Park and its subsidiaries. The number of PBRSUs earned
or settled will depend on the level of achievement with respect to certain performance
criteria and are also subject to service-based vesting requirements. The number of
TBRSUs earned or settled are subject to service-based vesting.

A summary of changes in the common shares subject to nonvested PBRSUs and TBRSUs
for the years ended December 31, 2018 and 2017 follows:

Common shares subject
to PBRSUs and TBRSUs

Nonvested at January 1, 2017

Granted

Vested

Forfeited

Adjustment for performance conditions of PBRSUs1

Nonvested at January 1, 2018

Granted

Vested

Forfeited

Adjustment for performance conditions of PBRSUs1

Nonvested at December 31, 20182

85,425

45,788

(9,674)

(3,021)

(1,802)

116,716

61,690

(18,800)

(4,655)

(2,320)

152,631

1The number of PBRSUs earned depends on the level of achievement with respect to certain performance
criteria. Adjustment herein represents the difference between the maximum number of common shares which
could be earned and the actual number earned for those PBRSUs as to which the performance period was
completed.

2Nonvested amount herein represents the maximum number of nonvested PBRSUs and TBRSUs. As of December
31, 2018, 140,134 PBRSUs and TBRSUs are expected to vest.

rate based on three-month LIBOR plus 148 basis points. The junior subordinated
notes 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 junior
subordinated notes in December 2035, or upon earlier redemption as provided in the
junior subordinated notes. Since December 30, 2010 Park has had the right to redeem
the junior subordinated notes purchased by Trust I in whole or in part. As specified
in the indenture, if the junior subordinated notes are redeemed prior to maturity, the
redemption price will be the principal amount, plus any unpaid accrued interest. In
accordance with GAAP, Trust I is not consolidated with Park’s financial statements, but
rather the subordinated notes are reflected as a liability.

On 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 were intended to qualify as Tier 2 capital
under applicable rules and regulations of the FRB. The 2012 Notes could not be prepaid
in any amount prior to April 21, 2017; however, subsequent to that date, Park could
prepay, without penalty, all or a portion of the principal amount outstanding. On April
24, 2017, Park prepaid in full the $30 million outstanding aggregate principal amount
of the 2012 Notes, plus accrued interest on the 2012 Notes in the aggregate amount of
$140,000.

18. Share-Based Compensation
The Park National Corporation 2013 Long-Term Incentive Plan (the “2013 Incentive
Plan”) was adopted by the Board of Directors of Park on January 28, 2013 and was
approved by Park’s shareholders at the Annual Meeting of Shareholders on April 22,
2013. The 2013 Incentive Plan made equity-based awards and cash-based awards
available for grant to participants in the form of incentive stock options, nonqualified
stock options, stock appreciation rights (“SARs”), restricted common shares (“Restricted
Stock”), restricted stock unit awards that may be settled in common shares, cash or a
combination of the two (“Restricted Stock Units”), unrestricted common shares (“Other
Stock-Based Awards”) and cash-based awards. Under the 2013 Incentive Plan, 600,000
common shares were authorized to be delivered in connection with grants under the
2013 Incentive Plan. The common shares to be delivered under the 2013 Incentive Plan
are to consist of either common shares currently held or common shares subsequently
acquired by Park as treasury shares, including common shares purchased in the open
market or in private transactions. At December 31, 2018, there were 92,404 common
shares subject to Performance-Based Restricted Stock Units (“PBRSUs”) granted under
the 2013 Incentive Plan.

The Park National Corporation 2017 Long-Term Incentive Plan for Employees (the
“2017 Employees LTIP”) was adopted by the Board of Directors of Park on January 23,
2017 and was approved by Park’s shareholders at the Annual Meeting of Shareholders
on April 24, 2017. The 2017 Employees LTIP makes equity-based awards and cash-
based awards available for grant to participants in the form of incentive stock options,
nonqualified stock options, SARs, Restricted Stock, Restricted Stock Units, Other
Stock-Based Awards and cash-based awards. Under the 2017 Employees LTIP, 750,000
common shares are authorized to be delivered in connection with grants under the 2017
Employees LTIP. The common shares to be delivered under the 2017 Employees LTIP
are to consist of either common shares currently held or common shares subsequently
acquired by Park as treasury shares, including common shares purchased in the open
market or in private transactions. At December 31, 2018, 689,773 common shares were
available for future grants under the 2017 Employee LTIP.

The Park National Corporation 2017 Long-Term Incentive Plan for Non-Employee
Directors (the “2017 Non-Employee Directors LTIP”) was adopted by the Board of
Directors of Park on January 23, 2017 and was approved by Park’s shareholders at the
Annual Meeting of Shareholders on April 24, 2017. The 2017 Non-Employee Directors
LTIP makes equity-based awards and cash-based awards available for grant to
participants in the form of nonqualified stock options, SARs, Restricted Stock, Restricted
Stock Units, Other Stock-Based Awards, and cash-based awards. Under the 2017
Non-Employee Directors LTIP, 150,000 common shares are authorized to be delivered
in connection with grants under the 2017 Non-Employee Directors LTIP. The common
shares to be delivered under the 2017 Non-Employee Directors LTIP are to consist of
either common shares currently held or common shares subsequently acquired by Park

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On March 31, 2018, an aggregate of 18,800 of the PBRSUs granted in 2014 and 2015
vested in full due to the level of achievement with respect to certain performance
criteria and the satisfaction of the service-based vesting requirement. A total of 5,879
common shares were withheld to satisfy employee income tax withholding obligations.
This resulted in a net number of 12,921 common shares being issued to employees of
Park. On March 31, 2017, 9,674 PBRSUs granted in 2014 vested in full due to the level
of achievement with respect to certain performance criteria and the satisfaction of the
service-based vesting requirement. A total of 3,293 common shares were withheld to
pay employee income taxes. This resulted in a net number of 6,381 common shares
being issued to employees of Park.

Share-based compensation expense of $4.0 million, $2.7 million and $1.9 million was
recognized for the years ended December 31, 2018, 2017 and 2016, respectively, related
to PBRSU and TBRSU awards to employees. The following table details expected
additional share-based compensation expense related to PBRSUs and TBRSUs currently
outstanding:

(In thousands)

2019

2020

2021

2022

Total

$3,580

2,390

1,010

223

$7,203

19. 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.

There was no pension contribution in 2018. During 2017, management contributed
$15.0 million, all of which was deductible on the 2017 tax return. There is no
contribution expected in 2019.

Using accrual measurement dates of December 31, 2018 and 2017, plan assets and
benefit obligation activity for the Pension Plan are listed below:

(In thousands)

Change in fair value of plan assets

Fair value at beginning of measurement period

Actual return on plan assets

Employer contributions

Benefits paid

Fair value at end of measurement period

Change in benefit obligation

2018

2017

$195,735

$167,047

(8,118)

—

(10,540)

21,573

15,000

(7,885)

$177,077

195,735

Projected benefit obligation at beginning of measurement period

$138,698

$114,455

Service cost

Interest cost

Actuarial (gain) loss

Benefits paid

6,547

5,236

(16,413)

(10,540)

5,270

5,085

21,773

(7,885)

Projected benefit obligation at the end of measurement period

$123,528

$138,698

Funded status at end of year
(fair value of plan assets less benefit obligation)

$53,549

$57,037

The change in the actuarial (gain) loss from an actuarial loss of $21.8 million as of
December 31, 2017 to an actuarial gain of $16.4 million as of December 31, 2018,
was the result of changes in actuarial assumptions partially offset by lower than
projected returns on pension plan assets during 2018. Changes in actuarial assumptions
included a change in the discount rate from 3.89% to 4.60% as well as a change in
the generational mortality improvement projection scale from scale MP-2017 to scale
MP-2018.

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

remaining balance

Total

Percentage of Plan Assets

Target Allocation

2018

2017

50% - 100%

82%

18%

100%

79%

21%

100%

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 used to measure the benefit
obligation was 7.00% at both December 31, 2018 and December 31, 2017. 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 $104.9 million and $116.0
million at December 31, 2018 and 2017, 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, 2018 and
2017, the fair value of the 115,800 common shares held by the Pension Plan was $9.8
million, or $84.95 per share and $12.0 million, or $104.00 per share, respectively.

The weighted average assumptions used to determine benefit obligations at
December 31, 2018, 2017 and 2016 were as follows:

Discount rate

Rate of compensation increase

Under age 30

Ages 30-39

Ages 40-49

Ages 50 and over

2018

4.60%

2017

3.89%

2016

4.58%

10.00%

6.00%

4.00%

3.00%

6.00%

4.00%

3.00%

6.00%

4.00%

3.00%

The estimated future pension benefit payments reflecting expected future service for
the next ten years are shown below (in thousands):

2019

2020

2021

2022

2023

2024-2028

Total

$8,428

8,733

9,787

10,324

9,698

51,726

$98,696

The following table shows ending balances of accumulated other comprehensive loss at
December 31, 2018 and 2017.

(In thousands)

Prior service cost

Net actuarial loss

Total

Deferred taxes

Disparate tax effect1

2018

$—

(37,560)

7,888

—

2017

$—

(33,799)

7,098

3,175

Accumulated other comprehensive loss

$(29,672)

$(23,526)

1In accordance with U.S. GAAP, Park revalued the deferred tax asset related to net actuarial loss upon
the enactment of the Tax Cuts and Jobs Act on December 22, 2017. U.S. GAAP does not allow for a similar
revaluation of accumulated other comprehensive loss, resulting in a disparate tax effect. Park adopted ASU
2018-02 on January 1, 2018, which allows for the reclassification of the disparate tax effect to retained
earnings.

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Salary Deferral Plan
The Corporation has a voluntary salary deferral plan (the Corporation’s Employees Stock
Ownership 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
$3.0 million, $1.3 million, and $1.3 million for 2018, 2017 and 2016, respectively.

Supplemental Executive Retirement Plan
The Corporation has entered into Supplemental Executive Retirement Plan Agreements
(the “SERP Agreements”) with certain key officers of the Corporation and its subsidiaries
which provide defined pension benefits in excess of limits imposed by federal income
tax law. The accrued benefit cost for the SERP Agreements totaled $10.3 million and
$9.9 million for 2018 and 2017, respectively. The expense for the Corporation was $1.0
million for 2018, $1.7 million for 2017 and $1.5 million for 2016.

20. Income Taxes
Deferred income taxes were recorded at a federal corporate income tax rate of 35% at
December 31, 2016. On December 22, 2017, “H.R.1,” known as the “Tax Cuts and Jobs
Act”, was signed into law. Among other things, the Tax Cuts and Jobs Act permanently
lowered the corporate federal corporate income tax rate to 21% from the then existing
maximum rate of 35%, effective January 1, 2018. As a result of the reduction of the
federal corporate income tax rate to 21%, U.S. GAAP required companies to revalue
certain tax-related assets and liabilities as of the date of enactment, with the resulting
tax effects accounted for in the reporting period of enactment. This revaluation
impacted Park’s net deferred tax liabilities and qualified affordable housing tax credit
investments. This revaluation resulted in a $1.9 million tax benefit as a result of the
revaluation of Park’s net deferred tax liabilities offset by $3.1 million in tax expense
as a result of the accelerated amortization of qualified affordable housing tax credit
investments. The net effect of the Tax Cuts and Jobs Act was an increase to federal
income tax expense at Park of $1.2 million in the fourth quarter of 2017.

Also on December 22, 2017, the U.S. Securities and Exchange Commission (“SEC”)
released Staff Accounting Bulletin No. 118 (“SAB 118”) to address any uncertainty
or diversity of views in practice in accounting for the income tax effects of the Act
in situations where a registrant does not have the necessary information available,
prepared, or analyzed in reasonable detail to complete this accounting in the reporting
period that includes the enactment date. SAB 118 allowed for a measurement period
not to extend beyond one year from the Act’s enactment date to complete the necessary
accounting.

As of December 31, 2017, management recorded provisional amounts of deferred
income taxes using reasonable estimates in one area where information necessary to
complete the accounting was not available, prepared, or analyzed. Park’s deferred tax
liability for temporary differences associated with equity investments in partnerships
was awaiting receipt of Schedules K-1 from outside preparers, which was necessary to
determine our 2017 tax impact from these investments.

Management made no adjustments to deferred tax assets representing future
deductions for accrued compensation that may be subject to new limitations under
Internal Revenue Code Section 162(m) which, generally, limits the annual deduction for
certain compensation paid to certain employees to $1.0 million.

All of these matters were finalized in 2018 with no material impact to the Corporation’s
federal income tax expense.

Using actuarial measurement dates of December 31 for 2018, 2017 and 2016,
components of net periodic benefit income and other amounts recognized in other
comprehensive income were as follows:

(In thousands)

2018

2017

2016

Components of net periodic benefit income and other
amounts recognized in other comprehensive income (loss)

Affected Line Item
in the Consolidated
Statements of Income

$(6,547)

$(5,270)

$(5,055)

Employee benefits

Service cost

Interest cost

(5,236)

(5,085)

(4,869)

Other components of net
periodic benefit income

Expected return on plan assets

13,417

11,455

10,950

Recognized net actuarial loss

(1,361)

(576)

(773)

Net periodic benefit income

$273

$524

Net (loss) gain

$(5,122)

$(11,698)

Amortization of net loss

1,361

576

$253

$168

773

Total recognized in other
comprehensive income (loss)

Total recognized in net benefit
income and other comprehensive
income (loss)

(3,761)

(11,122)

941

$(3,488)

$(10,598)

$1,194

There are no estimated prior service costs for the Pension Plan to be amortized from
accumulated other comprehensive loss into net periodic benefit cost over the next
fiscal year. The estimated net actuarial loss expected to be recognized in the next fiscal
year is $1.9 million.

The weighted average assumptions used to determine net periodic benefit income for
the years ended December 31, 2018, 2017 and 2016 are listed below:

Discount rate

Rate of compensation increase

Under age 30

Ages 30-39

Ages 40-49

Ages 50 and over

Expected long-term return on plan assets

2018

3.89%

2017

4.58%

2016

4.88%

10.00%

6.00%

4.00%

3.00%

7.00%

6.00%

4.00%

3.00%

7.00%

6.00%

3.00%

7.25%

The Pension Plan maintains cash in a PNB savings account. The Pension Plan cash
balance was $2.0 million at December 31, 2018.

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 advantageous 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 fair value of Pension Plan assets
at December 31, 2018 was $177.1 million. At December 31, 2018, $147.1 million of
equity investments and cash in the Pension Plan were categorized as Level 1 inputs;
$30.0 million of Pension Plan investments in corporate (U.S. large cap), U.S. Government
sponsored entity bonds and marketable CD’s were categorized as Level 2 inputs, as
fair value was based on quoted market prices of comparable instruments; and no
investments were categorized as Level 3 inputs. The fair value of Pension Plan assets
was $195.7 million at December 31, 2017. At December 31, 2017, $169.6 million of
investments in the Pension Plan were categorized as Level 1 inputs; $26.1 million were
categorized as Level 2; and no investments were categorized as Level 3.

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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 components 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 – Pension plan

Accumulated other comprehensive loss – Unrealized losses on securities

Deferred compensation

OREO valuation adjustments

Net deferred loan fees

Deferred contract bonus

Nonvested equity-based compensation

Fixed assets

Net operating loss (“NOL”) carryforward

Other

Total deferred tax assets

Deferred tax liabilities:

Deferred investment income

Pension plan

MSRs

Partnership adjustments

Purchase accounting adjustments

Other

Total deferred tax liabilities

Net deferred tax asset (liability)

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

December 31, (In thousands)

2018

2017

2016

Currently payable

Federal

State

Amortization of qualified affordable housing projects

Deferred

Federal

State

Total

$12,700

$20,660

$28,879

352

7,322

481

–

10,278

3,289

–

7,300

581

–

$20,912

$34,227

$36,760

The following is a reconciliation of income tax expense to the amount computed at the
statutory federal corporate income tax rate of 21% for the year ended December 31,
2018, and 35% for the years ended December 31, 2017 and 2016.

Statutory federal corporate tax rate

Changes in rates resulting from:

2018

2017

2016

21.0%

35.0%

2018

2017

$10,818

$10,498

7,888

5,347

2,896

1,028

1,221

556

1,567

206

4,663

824

7,098

946

2,744

1,327

1,115

645

1,069

877

–

1,230

$37,014

$27,549

Tax exempt interest income, net of disallowed interest

(1.8)% (2.8)%

(1.3)%

6,120

19,133

2,137

630

769

210

6,120

19,076

2,034

460

166

198

Bank owned life insurance

Investments in qualified affordable housing projects,
net of tax benefits

KSOP dividend deduction

Impact of the Tax Cuts and Jobs Act1

Non-taxable gain on NewDominion common stock

Other

$28,999

$28,054

Effective tax rate

(1.1)%

(1.4)%

(1.2)%

(1.3)%

(1.9)%

(1.7)%

(0.6)% (1.0)%

(1.0)%

—

1.0%

0.6%

0.3%

—

0.1%

15.9%

28.9%

29.9%

$8,015

$(505)

As of December 31, 2018, Park had a net deferred tax asset balance related to federal
NOL carryforwards of approximately $4.1 million, which expire at various dates
from 2031-2039. Park also had a net deferred tax asset balance related to state NOL
carryforwards of approximately $0.6 million, which expire at various dates from 2030-
2039.

Park performs an analysis to determine if a valuation allowance against deferred tax
assets is required in accordance with GAAP. Management has determined that it is not
required to establish a valuation allowance against the December 31, 2018 or 2017
deferred tax assets in accordance with GAAP since it is more likely than not that the
deferred tax asset will be fully utilized in future periods.

1As a result of the reduction of the federal corporate income tax rate to 21%, U.S. GAAP required companies
to re-value certain tax-related assets and liabilities as of the date of enactment, with the resulting tax effects
accounted for in the reporting period of enactment. This re-valuation resulted in a $1.9 million tax benefit as
a result of the revaluation of Park’s net deferred tax liabilities and $3.1 million in tax expense as a result of
accelerated amortization of qualified affordable housing tax credit investments. The net effect of the Tax Cuts
and Jobs Act was an increase to federal income tax expense at Park of $1.2 million.

Park and its subsidiaries do not pay state income tax to the state of Ohio, but pay
a franchise tax based on equity. The franchise tax expense is included in “State tax
expense” on Park’s Consolidated Statements of Income. Park is also subject to state
income tax in various states, including the state of North Carolina. State income tax
expense is included in “Income taxes” on Park’s Consolidated Statements of Income.
Park’s 2018 state income tax expense was $409,000.

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Unrecognized Tax Benefits
The following is a reconciliation of the beginning and ending amount of unrecognized
tax benefits.

21. Accumulated Other Comprehensive Loss
Other comprehensive income (loss) components, net of income tax, are shown in the
following table for the years ended December 31, 2018, 2017 and 2016.

(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

2018

$664

781

—

(229)

$1,226

2017

$633

117

—

(9)

(77)

$664

2016

$558

117

—

(80)

$633

The amount of unrecognized tax benefits that, if recognized, would favorably affect the
effective income tax rate in the future periods at December 31, 2018, 2017 and 2016
was $1.1 million, $506,000 and $482,000, respectively. Park does not expect the total
amount of unrecognized tax benefits to significantly increase or decrease during the
next year.

The expense related to interest and penalties recorded on unrecognized tax benefits
in the Consolidated Statements of Income for the years ended December 31, 2018,
2017, and 2016 was $79,500, $3,500, and $1,500, respectively. The amount accrued for
interest and penalties at December 31, 2018, 2017 and 2016 was $153,500, $74,000 and
$70,500, respectively.

Park and its subsidiaries are subject to U.S. federal income tax and income tax in
various state jurisdictions. The Corporation is subject to routine audits of tax returns
by the Internal Revenue Service and states in which we conduct business. No material
adjustments have been made on closed federal and state tax audits. Generally, all tax
years ended prior to December 31, 2015 are closed to examination by federal and state
taxing authorities.

Year ended December 31,
(In thousands)

Beginning balance at January 1, 2018,
as previously presented

Changes
in Pension
Plan assets
and benefit
obligations

Unrealized
gains and
losses on AFS
debt securities

Total

$(23,526)

$(2,928)

$(26,454)

Cumulative effect of change in accounting principle for
marketable equity securities, net of tax

Beginning balance at January 1, 2018, as adjusted

Reclassification of disproportionate income tax effects

—

(23,526)

(3,175)

(995)

(3,923)

(631)

(995)

(27,449)

(3,806)

Net current period activity

Other comprehensive loss before reclassifications

(4,046)

(17,586)

(21,632)

Amounts reclassified from accumulated other
comprehensive loss

1,075

2,024

3,099

Net current period other comprehensive loss

(2,971)

(15,562)

(18,533)

Ending balance at December 31, 2018

$(29,672)

$(20,116)

$(49,788)

Beginning balance at January 1, 2017

$(14,740)

$(3,005)

$(17,745)

Other comprehensive (loss) gain before reclassifications

(9,241)

1,261

Amounts reclassified from accumulated other
comprehensive loss

455

(1,184)

Net current period other comprehensive (loss) income

(8,786)

Ending balance at December 31, 2017

$(23,526)

$(2,928)

Beginning balance at January 1, 2016

$(15,351)

Other comprehensive gain (loss) before reclassifications

Amounts reclassified from accumulated other
comprehensive loss

Net current period other comprehensive income (loss)

109

502

611

$(292)

(2,713)

—

502

(2,713)

(2,102)

(7,980)

(729)

(8,709)

$(26,454)

$(15,643)

(2,604)

Ending balance at December 31, 2016

$(14,740)

$(3,005)

$(17,745)

The following table provides information concerning amounts reclassified out of
accumulated other comprehensive loss for the years ended December 31, 2018, 2017
and 2016:

(In thousands)

Amortization of defined benefit pension items

Amount Reclassified
from Accumulated Other
Comprehensive Loss
2017

2016

2018

Affected Line Item in
the Consolidated
Statements of Income

Amortization of net loss

$1,361

$576

$773

Employee benefits

Income before income taxes

Income taxes

1,361

286

576

121

773

271

Income before income taxes

Income taxes

Net of income tax

$1,075

$455

$502

Net income

Unrealized gains & losses on available for sale
securities

Loss (gain) on the sale of investment
securities

$2,562

$(1,821)

$—

Net (loss) gain on the sale
of investment securities

Income before income taxes

2,562

(1,821)

— Income before income taxes

Income taxes

538

(637)

— Income taxes

Net of income tax

$2,024

$(1,184)

$— Net income

22. 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 PBRSUs and TBRSUs.

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The following table sets forth the computation of basic and diluted earnings per
common share:

Year ended December 31
(In thousands, except share data)

2018

2017

2016

Numerator:

Net income

Denominator:

$110,387

$84,242

$86,135

Weighted-average common shares outstanding

15,488,982

15,295,573

15,332,553

Effect of dilutive PBRSUs and TBRSUs

122,507

94,779

72,607

Weighted-average common shares outstanding
adjusted for the effect of dilutive PBRSUs and
TBRSUs

Earnings per common share:

Basic earnings per common share

Diluted earnings per common share

15,611,489

15,390,352

15,405,160

$7.13

$7.07

$5.51

$5.47

$5.62

$5.59

Park awarded 48,053, 45,788 and 41,550 PBRSUs to certain employees during the years
ended December 31, 2018, 2017 and 2016, respectively.

On July 1, 2018, Park issued 435,457 common shares to complete its acquisition of
NewDominion and granted 13,637 TBRSUs to NewDominion employees. These common
shares are included in average common shares outstanding beginning on that date.

During the years ended December 31, 2018 and 2017, Park repurchased 50,000 and
70,000 common shares, respectively, to fund the PBRSUs, TBRSUs and common shares
awarded to directors of Park and to directors of PNB (and its divisions). No common
shares were repurchased during 2016.

23. 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, 2018, approximately
$86.2 million of the total shareholders’ equity of PNB was available for the payment of
dividends to the Corporation, without approval by the applicable regulatory authorities.

24. 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. 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

2018

$1,012,820

13,334

2017

$893,205

13,421

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, Kentucky and North Carolina with exception of
nationwide aircraft loans and nationwide asset based lending to consumer finance
companies. The Corporation evaluates each customer’s creditworthiness on a case-by-
case basis. The amount of collateral obtained, if deemed necessary by the Corporation

upon extension of credit, is based on management’s credit evaluation of the customer.
Collateral held varies but may include accounts receivable, inventory, property, plant
and equipment, and income-producing commercial properties.

Although the Corporation has a diversified loan portfolio, a substantial portion of the
borrowers’ ability to honor their contracts is dependent upon the economic conditions
in each borrower’s geographic location and industry.

25. Loan Servicing
Park serviced sold mortgage loans of $1,389 million at December 31, 2018, compared
to $1,371 million at December 31, 2017 and $1,330 million at December 31, 2016. At
December 31, 2018, $2.5 million of the sold mortgage loans were sold with recourse
compared to $3.0 million at December 31, 2017 and $4.1 million at December 31, 2016.
Management closely monitors the delinquency rates on the mortgage loans sold with
recourse. As of December 31, 2018 and 2017, management had established a reserve of
$60,000 and $270,000, respectively, to account for future loan repurchases.

When Park sells mortgage loans with servicing rights retained, servicing rights are
initially recorded at fair value. Park selected the “amortization method” as permissible
within U.S. GAAP, whereby the servicing rights capitalized are amortized in proportion
to and over the period of estimated future servicing income of the underlying loan. At
the end of each reporting period, the carrying value of MSRs is assessed for impairment
with a comparison to fair value. MSRs are carried at the lower of their amortized cost
or fair value. The amortization of MSRs is included within other service income in the
Consolidated Statements of Income.

Activity for MSRs and the related valuation allowance follows:

December 31 (In thousands)

2018

2017

2016

MSRs:

Carrying amount, net, beginning of year

Additions

Amortization

Change in valuation allowance

$9,688

1,591

(1,499)

398

$9,266

1,941

(1,624)

105

$9,008

2,286

(1,835)

(193)

Carrying amount, net, end of year

$10,178

$9,688

$9,266

Valuation allowance:

Beginning of year

Change in valuation allowance

End of year

$630

(398)

$232

$735

(105)

$630

$542

193

$735

The fair value of MSRs was $11.0 million and $9.7 million at December 31, 2018 and
2017, respectively. The fair value of MSRs at December 31, 2018 was established using
a discount rate of 12% and constant prepayment speeds ranging from 4.80% to 17.82%.
The fair value of MSRs at December 31, 2017 was established using a discount rate of
13% and constant prepayment speeds ranging from 6.54% to 17.10%.

Servicing fees included in other service income were $3.6 million, $3.5 million and $3.4
million for the years ended December 31, 2018, 2017 and 2016, respectively.

26. Fair Value
The fair value hierarchy requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. The three levels of
inputs that Park uses to measure fair value are as follows:

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

• Level 2: Level 1 inputs for assets or liabilities that are not actively traded.

Also consists of an observable market price for a similar asset or liability. This
includes the use of “matrix pricing” to value debt securities absent the exclusive
use of quoted prices.

• Level 3: Consists of unobservable inputs that are used to measure fair value

when observable market inputs are not available. This could include the use of
internally developed models, financial forecasting and similar inputs.

Fair value is defined as the price that would be received to sell an asset or paid to
transfer a liability (exit price) in the principal or most advantageous market for the

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asset or liability in an orderly transaction 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 typically based on the fair value of the underlying collateral,
which is estimated through third-party appraisals in accordance with Park’s valuation
requirements under its commercial and real estate loan policies.

Assets and Liabilities Measured at Fair Value on a Recurring Basis:

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

Mortgage loans held for sale: Mortgage loans held for sale are carried at their fair
value. Mortgage loans held for sale are estimated using security prices for similar
product types and, therefore, are classified in Level 2.

The table below is a reconciliation of the beginning and ending balances of the Level
3 inputs for the years ended December 31, 2018 and 2017, for financial instruments
measured on a recurring basis and classified as Level 3:

Level 3 Fair Value Measurements

Equity Securities

Fair Value Swap

(In thousands)

Balance at January 1, 2018

Total Gains (Losses)

Included in other income

Fair Value Measurements at December 31, 2018 using:

Balance at December 31, 2018

(In thousands)

Level 1

Level 2

Level 3

Balance at
December 31, 2018

Assets

Investment securities:

U.S. Government sponsored
entities’ asset-backed securities

$—

$1,003,421

$—

$1,003,421

Transfers out of Level 31

Balance at January 1, 2017

Total Gains (Losses)

Included in other comprehensive income

Purchases, sales, issuances and settlements, other, net

Balance at December 31, 2017

$417

$424

$790

(346)

(33)

$417

$(226)

—

$(226)

—

$(226)

Equity securities

1,225

—

424

Mortgage loans held for sale

Mortgage IRLCs

Liabilities

Fair value swap

—

$—

4,158

—

$—

$226

1,649

4,158

$226

Fair Value Measurements at December 31, 2017 using:

(In thousands)

Level 1 Level 2

Level 3

Balance at
December 31, 2017

Assets

Investment securities:

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

$— $242,720

$—

$242,720

U.S. Government sponsored entities’
asset-backed securities

—

849,161

Equity securities

1,518

Mortgage loans held for sale

Mortgage IRLCs

Liabilities

Fair value swap

—

4,148

—

417

—

226

849,161

1,935

4,148

226

There were no transfers between Level 1 and Level 2 during 2018 or 2017.
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 Company 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 (Level 1). If quoted market prices are not available,
fair values are based on quoted market prices of comparable instruments (Level
2). For securities where quoted prices or market prices of similar securities are not
available, fair values are calculated using discounted cash flows (Level 3).

Fair value swap: The fair value of the swap agreement entered into with the
purchaser of the Visa Class B shares represents an internally developed estimate of
the exposure based upon probability-weighted potential Visa litigation losses.

Mortgage Interest Rate Lock Commitments (IRLCs): Mortgage IRLCs are based on
current secondary market pricing and are classified as Level 2.

1Transferred from Level 3 to Level 1 as the result of a quoted market price becoming available.

Assets and Liabilities Measured at Fair Value 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. Collateral dependent 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 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.
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 independent valuations are
obtained annually for all impaired loans in accordance with Company policy.

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 OREO are performed
by licensed appraisers. Appraisals are generally obtained to support the fair value of
collateral. In general, there are three types of appraisals received by the Company: real
estate appraisals, income approach appraisals, and lot development loan appraisals.
These are discussed below:

• 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

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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% is based on
historical discounts to appraised values on sold OREO properties.

•

Income approach appraisals typically incorporate the annual net operating
income of the business divided by an appropriate capitalization rate, as
determined by the appraiser. Management generally applies a 15% discount to
income approach appraised values which management expects will cover all
disposition costs (including selling costs).

Fair Value Measurements at December 31, 2017 Using:

(In thousands)

Level 1 Level 2

Level 3

Balance at
December 31, 2017

Impaired loans recorded at fair value:

Commercial real estate

Construction real estate

Residential real estate

Total impaired loans recorded at fair value

$—

—

$—

$2,735

—

127

712

$—

$3,574

• Lot development loan appraisals are typically performed using a discounted

MSRs

$— $7,316

$—

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.

OREO recorded at fair value:

Commercial real estate

Construction real estate

Residential real estate

—

2,295

3,204

1,021

127

712

$3,574

$7,316

2,295

3,204

1,021

$6,520

Other repossessed assets: Other repossessed assets are initially recorded at fair value
less costs to sell when acquired. The carrying value of other repossessed assets 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. As of
December 31, 2018, other repossessed assets largely consisted of aircraft acquired
as part of a loan workout. Fair value is based on Aircraft Bluebook and VREF Aircraft
Value Reference values based on the model of aircraft and adjustments for flight
hours, features and other variables. Such adjustments result in a Level 3 classification
of the inputs for determining fair value. As of December 31, 2017, other repossessed
assets largely consisted of lease receivables acquired as part of a loan workout. These
receivables were initially recorded at fair value less costs to sell establishing a new cost
basis and were not recorded as fair value as of December 31, 2017.

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 tables present assets and liabilities measured at fair value on a
nonrecurring basis. Collateral dependent impaired loans are carried at fair value if they
have been charged down to fair value or if a specific valuation allowance has been
established. As of December 31, 2018, there were no PCI loans carried at fair value. A
new cost basis is established at the time a property is initially recorded in OREO. OREO
properties are carried at fair value if a devaluation has been taken to the property’s
value subsequent to the initial measurement.

Fair Value Measurements at December 31, 2018 Using:

(In thousands)

Level 1 Level 2

Level 3

Balance at
December 31, 2018

Impaired loans recorded at fair value:

Commercial real estate

Construction real estate

Residential real estate

Total impaired loans recorded at fair value

MSRs

OREO:

Commercial real estate

Construction real estate

Residential real estate

Total OREO recorded at fair value

Other repossessed assets

$—

—

$—

—

$—

$4,059

—

1,635

705

$—

$6,399

$1,169

$—

—

$—

2,295

729

650

$3,674

$3,464

$4,059

1,635

705

$6,399

$1,169

2,295

729

650

$3,674

$3,464

Total OREO recorded at fair value

$—

$6,520

The table below provides additional detail on those impaired loans which are recorded
at fair value as well as the remaining impaired loan portfolio not included above. The
remaining impaired loans consist of loans which are not collateral dependent as well as
loans carried at cost as the fair value of the underlying collateral or the present value
of expected future cash flows on each of the loans exceeded the book value for each
respective credit.

Recorded
Investment

Prior
Charge-Offs

Specific
Valuation
Allowance

Carrying
Balance

(In thousands)

Year ended December 31, 2018:

Impaired loans recorded at fair value

Remaining impaired loans

$6,503

41,641

$3,630

7,616

$104

2,169

Total impaired loans

$48,144

$11,246

$2,273

Year ended December 31, 2017:

Impaired loans recorded at fair value

Remaining impaired loans

Total impaired loans

$3,577

52,987

$2,780

7,260

$56,564

$10,040

681

$684

$6,399

39,472

$45,871

$3,574

52,306

$55,880

The (expense) income from credit adjustments related to impaired loans carried at fair
value for the years ended December 31, 2018, 2017 and 2016 was $(0.4) million, $(1.6)
million, and $0.9 million, respectively.

MSRs totaled $10.2 million at December 31, 2018. Of this $10.2 million MSR carrying
balance, $1.2 million was recorded at fair value and included a valuation allowance of
$0.2 million. The remaining $9.0 million was recorded at cost, as the fair value exceeded
cost at December 31, 2018. At December 31, 2017, MSRs totaled $9.7 million. Of this
$9.7 million MSR carrying balance, $7.3 million was recorded at fair value and included
a valuation allowance of $0.6 million. The remaining $2.4 million was recorded at cost,
as the fair value exceeded cost at December 31, 2017. The income (expense) related to
MSRs carried at fair value for the years ended December 31, 2018, 2017 and 2016 was
$0.4 million, $0.1 million and $(0.2) million, respectively.

Total OREO held by Park at December 31, 2018 and 2017 was $4.3 million and
$14.2 million, respectively. Approximately 85% and 46% of OREO held by Park at
December 31, 2018 and 2017, respectively, was carried at fair value due to fair value
adjustments made subsequent to the initial OREO measurement. At December 31, 2018
and 2017, OREO held at fair value, less estimated selling costs, amounted to $3.7 million
and $6.5 million, respectively. The net expense related to OREO fair value adjustments
was $0.5 million, $0.5 million and $0.6 million for the years ended December 31, 2018,
2017 and 2016, respectively.

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Other repossessed assets totaled $4.0 million at December 31, 2018, of which $3.5
million were recorded at fair value. Other repossessed asset totaled $5.5 million at
December 31, 2017, none of which were recorded at fair value. The net expense related
to other repossessed asset fair value adjustments was $269,000 for the year ended
December 31, 2018. There was no expense related to fair value adjustments on other
repossessed assets during either 2017 or 2016.

The following tables present quantitative information about Level 3 fair value
measurements for financial instruments measured at fair value on a non-recurring basis
at December 31, 2018 and December 31, 2017:

Fair
Value

Valuation
Technique

Unobservable
Input(s)

Range
(Weighted Average)

(In thousands)

December 31, 2018

Impaired loans:

Commercial real estate

$4,059

Sales comparison
approach

Adj to comparables

0.0% - 107.5% (31.1%)

Income approach

Capitalization rate

9.5% - 10.8% (10.6%)

Assets Measured at Net Asset Value:
The adoption of ASU 2016-01 on January 1, 2018 required Park to evaluate the
accounting for equity investments, including those previously held at cost. Under the
new guidance, Park determined that its portfolio of equity investments in limited
partnerships which provide mezzanine funding (“Partnership Investments”) should
be valued using the net asset value (“NAV”) practical expedient in accordance with
ASC 820. The adoption of this guidance on January 1, 2018, resulted in a $1.2 million
increase to Partnership Investments, which are included within other assets on the
Consolidated Balance Sheets, and a $922,000 increase to beginning retained earnings.

As of December 31, 2018 and December 31, 2017, Park had Partnerships Investments
with a NAV of $11.0 million and $8.8 million, respectively. As of December 31, 2018 and
December 31, 2017, Park had $6.1 million and $7.2 million in unfunded commitments
related to these Partnership Investments. For the year ended December 31, 2018, Park
had recognized $1.4 million in income related to these Partnership Investments.

The fair value of financial instruments at December 31, 2018 and December 31, 2017,
was as follows:

Cost approach

Sales comparison
approach

Accumulated
depreciation

4.2% - 90.1% (11.0%)

Fair Value Measurements at December 31, 2018

Adj to comparables

5.0% - 90.0% (26.1%)

Adj to comparables

0.0% - 40.0% (13.2%)

(In thousands)

Financial assets:

Carrying
value

Level 1

Level 2

Level 3

Cash and money market instruments

$167,214 $167,214

$—

Income approach

Capitalization rate

10.5% (10.5%)

Investment securities1

1,355,229

—

1,354,843

Construction real estate

$1,635

Residential real estate

$705

Other real estate owned:

Commercial real estate

$2,295

Sales comparison
approach

Adj to comparables

0.9% - 68.4% (34.7%)

Mortgage loans held for sale

Income approach

Capitalization rate

13.0% (13.0%)

Construction real estate

$729

Residential real estate

$650

Sales comparison
approach

Adj to comparables

0.0% - 45.0% (21.7%)

Adj to comparables

30.4% - 54.6% (42.5%)

Other investment securities2

1,649

1,225

4,158

6,399

5,629,976

$5,640,620

—

Mortgage IRLCs

Impaired loans carried at fair value

Other loans, net3

Loans receivable, net

Financial liabilities:

Time deposits

Other

$1,043,177

$—

$1,044,620

1,267

—

December 31, 2017

Impaired loans:

Commercial real estate

$2,735

Sales comparison
approach

Cost approach

Sales comparison
approach

Construction real estate

$127

Residential real estate

$712

Other real estate owned:

Adj to comparables

0.0% - 90.0% (22.7%)

Total deposits

$1,044,444

$1,267

$1,044,620

Income approach

Capitalization rate

9.0% - 11.0% (9.9%)

Short-term borrowings

$221,966

$—

$221,966

Accumulated
depreciation

90.1% (90.1%)

Long-term debt

Subordinated notes

400,000

15,000

—

400,203

12,959

Adj to comparables

0.0% - 4.8% (2.4%)

Derivative financial instruments:

Adj to comparables

0.3% - 33.0% (12.5%)

1Includes AFS debt securities and HTM debt securities.

Fair value swap

$226

$—

$226

Income approach

Capitalization rate

10.5% (10.5%)

2Excludes FHLB stock and FRB stock which are carried at their respective redemption values. Additionally,
excludes investment securities accounted for at modified cost, as these investment securities do not have a
readily determinable fair value.

3Fair value calculated using an exit price notion consistent with Topic 820, Fair Value Measurement.

Total fair
value

$167,214

1,354,843

1,649

4,158

6,399

$—

—

424

—

6,399

—

4,158

—

5,570,136

$4,245

$5,576,535

$5,580,780

$—

—

$—

—

1,044,620

1,267

$1,045,887

$221,966

400,203

12,959

Commercial real estate

$2,295

Sales comparison
approach

Adj to comparables

0.9% - 68.4% (34.7%)

Construction real estate

$3,204

Residential real estate

$1,021

Income approach

Capitalization rate

13.0% (13.0%)

Sales comparison
approach

Bulk sale
approach

Sales comparison
approach

Adj to comparables

0.0% - 90.0% (24.5%)

Discount rate

15.0% (15.0%)

Adj to comparables

1.2% - 79.7% (31.8%)

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Fair Value Measurements at December 31, 2017

(In thousands)

Financial assets:

Carrying
value

Level 1

Level 2

Level 3

Cash and money market instruments

$169,112

$—

Investment securities1

1,449,078

—

1,455,660

Other investment securities2

Loans held for sale

Mortgage IRLCs

Impaired loans carried at fair value

1,935

4,148

3,574

Other loans, net

5,314,679

1,518

—

4,148

—

$—

—

417

—

3,574

Total fair
value

$169,112

1,455,660

1,935

4,148

3,574

5,247,021

Loans receivable, net

$5,322,495

$—

$4,242 $5,250,595

$5,254,837

Financial liabilities:

Time deposits

Other

Total deposits

$1,033,476

$—

$1,035,093

1,269

—

$1,034,745

$1,269

$1,035,093

Short-term borrowings

$391,289

$—

$391,289

Long-term debt

Subordinated notes

500,000

15,000

—

504,503

13,370

Derivative financial instruments:

$—

—

$—

—

$1,035,093

1,269

$1,036,362

$391,289

504,503

13,370

Fair value swap

$226

$—

$226

1Includes AFS debt securities and HTM debt securities.

27. Capital Ratios
Financial institution regulators have established guidelines for minimum capital ratios
for banks, thrifts and bank holding companies. During the first quarter of 2015, Park
adopted the Basel III regulatory capital framework as approved by the federal banking
agencies. The adoption of this framework modified the calculation of the various capital
ratios, added an additional ratio, common equity tier 1, and revised the adequately and
well-capitalized thresholds under the prompt corrective action regulations applicable
to PNB. Additionally, under this framework, in order to avoid limitations on capital
distributions, including dividend payments and stock repurchases, Park must hold a
capital conservation buffer above the adequately capitalized risk-based capital ratios.
The capital conservation buffer began to phase in starting on January 1, 2016 at 0.625%
and effective January 1, 2019, was fully phased in at 2.50%. The capital conservation
buffer was 1.875% for 2018 and 1.25% for 2017. The amounts shown below as the
adequately capitalized ratio plus capital conservation buffer includes the fully phased-
in 2.50% buffer. The Federal Reserve Board also adopted requirements Park must
maintain to be deemed “well-capitalized” and to remain a financial holding company

Each of PNB and Park met each of the well-capitalized ratio guidelines applicable to it
at December 31, 2018. The following table indicates the capital ratios for PNB and Park
at December 31, 2018 and 2017.

As of December 31, 2018:

PNB

Park

Adequately capitalized ratio

Adequately capitalized ratio plus
capital conservation buffer

Well-capitalized ratio - PNB

Well-capitalized ratio - Park

As of December 31, 2017:

PNB

Park

Adequately capitalized ratio

Adequately capitalized ratio plus
capital conservation buffer

Leverage

Tier 1
Risk-Based

Common
Equity Tier 1

Total
Risk-Based

8.29%

10.04%

4.00%

11.01%

13.30%

6.00%

11.01%

13.04%

4.50%

12.30%

14.19%

8.00%

4.00%

8.50%

7.00%

10.50%

5.00%

N/A

8.00%

6.00%

6.50%

N/A

10.00%

7.36%

9.44%

4.00%

10.35%

13.22%

6.00%

10.35%

12.94%

4.50%

11.60%

14.14%

8.00%

4.00%

8.50%

7.00%

10.50%

Well-capitalized ratio - PNB

Well-capitalized ratio - Park

5.00%

N/A

8.00%

6.00%

6.50%

N/A

10.00%

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The following table reflects various measures of capital for Park and PNB:

N O T E S T O CO N S O L I DAT E D FI N A N C I A L S TAT E M E N T S

Actual Amount

Ratio

Amount

Ratio

Amount

Ratio

To Be Adequately Capitalized

To Be Well-Capitalized

(In thousands)

At December 31, 2018:

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

Common Equity Tier 1 (to risk-weighted assets)

PNB

Park

At December 31, 2017:

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

Common Equity Tier 1 (to risk-weighted assets)

PNB

Park

$709,101

826,006

$634,909

774,369

$634,909

774,369

$634,909

759,369

$628,440

775,867

$560,530

725,221

$560,530

725,221

$560,530

710,221

28. Segment Information
The Corporation is a financial holding company headquartered in Newark, Ohio. The
operating segments for the Corporation are PNB, SEPH and GFSC.

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 performance, 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: (i) discrete
financial information is available for each operating segment and (ii) the segments are
aligned with internal reporting to Park’s Chief Executive Officer and President, who is
the chief operating decision-maker.

$461,293

465,732

$345,970

349,299

$306,485

308,397

$259,478

261,975

$433,406

438,981

$325,054

329,235

$304,722

307,441

$243,791

246,927

8.00%

6.00%

4.00%

4.50%

8.00%

6.00%

4.00%

4.50%

$576,617

582,166

10.00%

$461,293

349,299

$383,106

N/A

$374,801

N/A

8.00%

6.00%

5.00%

N/A

6.50%

N/A

$541,757

548,726

10.00%

$433,406

329,235

$380,903

N/A

$352,142

N/A

8.00%

6.00%

5.00%

N/A

6.50%

N/A

12.30%

14.19%

11.01%

13.30%

8.29%

10.04%

11.01%

13.04%

11.60%

14.14%

10.35%

13.22%

7.36%

9.44%

10.35%

12.94%

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Operating results for the year ended December 31, 2018 (In thousands)

N O T E S T O CO N S O L I DAT E D FI N A N C I A L S TAT E M E N T S

Net interest income

Provision for (recovery of) loan losses

Other income

Other expense

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

Balances at December 31, 2018:

Assets

Loans

Deposits

Operating results for the year ended December 31, 2017 (In thousands)

Net interest income

Provision for (recovery of) loan losses

Other income

Other expense

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

Balances at December 31, 2017:

Assets

Loans

Deposits

Operating results for the year ended December 31, 2016 (In thousands)

Net interest income (loss)

Provision for (recovery of) loan losses

Other income

Other expense

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

Balances at December 31, 2016:

Assets

Loans

Deposits

PNB

$258,547

7,569

88,981

206,843

133,116

23,644

$109,472

$7,753,848

5,671,173

6,334,796

PNB

$235,243

9,898

82,742

185,891

122,196

34,881

$87,315

$7,467,851

5,339,255

5,896,676

PNB

$227,576

2,611

79,959

182,718

122,206

37,755

$84,451

$7,389,538

5,234,828

5,630,199

GFSC

$5,048

1,328

187

3,245

662

141

$521

$31,388

32,664

4,142

GFSC

$5,839

1,917

103

3,099

926

666

$260

$32,077

33,385

3,449

GFSC

$5,874

1,887

4,515

(471)

(164)

$(307)

$32,268

32,661

3,809

SEPH

$2,611

(952)

5,900

4,049

5,414

1,137

All Other

$692

—

6,033

14,618

(7,893)

(4,010)

Total

$266,898

7,945

101,101

228,755

131,299

20,912

$4,277

$(3,883)

$110,387

$8,428

1,636

—

SEPH

$2,089

(3,258)

519

5,367

499

1,375

$(876)

$24,902

10,891

—

SEPH

$4,774

(9,599)

3,068

7,367

10,074

3,526

$6,548

$25,342

12,354

$10,644

(13,341)

(78,078)

All Other

$588

—

3,065

8,805

(5,152)

(2,695)

$(2,457)

$12,790

(11,048)

(82,799)

All Other

$(138)

—

955

9,731

(8,914)

(4,357)

$(4,557)

$20,438

(7,986)

—

(112,052)

$7,804,308

5,692,132

6,260,860

Total

$243,759

8,557

86,429

203,162

118,469

34,227

$84,242

$7,537,620

5,372,483

5,817,326

Total

$238,086

(5,101)

84,039

204,331

122,895

36,760

$86,135

$7,467,586

5,271,857

5,521,956

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

N O T E S T O CO N S O L I DAT E D FI N A N C I A L S TAT E M E N T S

(In thousands)

2018:

Net Interest
Income

Depreciation
Expense

Other
Expense

Income
Taxes

Assets

Deposits

Totals for reportable segments

$266,206

$8,585

$205,552

$24,922

$7,793,664

$6,338,938

Elimination of intersegment items

Parent Co. totals - not eliminated

Totals

2017:

1,275

(583)

—

$266,898

$8,585

—

14,618

$220,170

—

(4,010)

$20,912

(16,521)

27,165

(78,078)

—

$7,804,308

$6,260,860

Totals for reportable segments

$243,171

$8,644

$185,713

$36,922

$7,524,830

$5,900,125

Elimination of intersegment items

Parent Co. totals - not eliminated

Totals

2016:

1,500

(912)

—

8,805

$243,759

$8,644

$194,518

—

(2,695)

$34,227

(14,679)

27,469

(82,799)

—

$7,537,620

$5,817,326

Totals for reportable segments

$238,224

$8,396

$186,204

$41,117

$7,447,148

$5,634,008

Elimination of intersegment items

Parent Co. totals - not eliminated

2,164

(2,302)

—

9,731

Totals

$238,086

$8,396

$195,935

—

(4,357)

$36,760

(9,204)

29,642

(112,052)

—

$7,467,586

$5,521,956

2018

2017

Total income

29. 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.

Cash represents non-interest bearing deposits with PNB. Net cash provided by operating
activities reflects cash payments (received from subsidiaries) for income taxes of $3.9
million, $3.3 million and $4.4 million in 2018, 2017 and 2016, respectively.

Condensed Balance Sheets
December 31, 2018 and 2017

(In thousands)

Assets:

Cash

Investment in subsidiaries

Debentures receivable from PNB

Other investments

Other assets

Total assets

Liabilities:

Subordinated notes

Other liabilities

Total liabilities

Total shareholders’ equity

Total liabilities and shareholders’ equity

$75,094

727,773

25,000

1,165

25,972

$79,452

645,287

25,000

1,398

26,838

$855,004

$777,975

15,000

7,498

22,498

832,506

$855,004

15,000

6,874

21,874

756,101

$777,975

Condensed Statements of Income
for the years ended December 31, 2018, 2017 and 2016

(In thousands)

Income:

2018

2017

2016

Dividends from subsidiaries

$100,000

$60,000

Interest and dividends

Gain on sale of investment securities

Other

Expense:

Interest expense

Other, net

Total expense

Income before income taxes and equity in
undistributed income of subsidiaries

1,275

—

6,068

1,500

1,821

1,405

2,164

—

1,081

107,343

64,726

63,245

617

14,619

15,236

1,073

8,805

9,878

2,429

9,730

12,159

92,107

54,848

51,086

Income tax benefit

4,010

2,695

4,357

Income before equity in undistributed income
of subsidiaries

96,117

57,543

55,443

Equity in undistributed income of subsidiaries

14,270

26,699

30,692

Net income

$110,387

$84,242

$86,135

Other comprehensive loss1

(18,533)

(8,709)

(2,102)

Comprehensive income

$91,854

$75,533

$84,033

1See Consolidated Statements of Comprehensive Income for other comprehensive loss detail.

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30. Revenue from Contracts with Customers
The Company adopted ASC 606 using the modified retrospective method applied to all
contracts not completed as of January 1, 2018. Results for reporting periods beginning
on and after January 1, 2018 are presented under ASC 606 while prior period amounts
continue to be reported in accordance with legacy GAAP. The adoption of ASC 606 did
not result in a change to the accounting for any of the in-scope revenue streams; as
such, no cumulative effect adjustment was recorded.

All of Park’s revenue from contracts with customers within the scope of ASC 606 is
recognized within “Other income” in the Consolidated Statements of Income. The
following table presents Park’s sources of other income by revenue stream and
operating segment for the years ended December 31, 2018, December 31, 2017 and
December 31, 2016.

Year Ended December 31, 2018

Revenue by Operating Segment
(in thousands)

Income from fiduciary activities

PNB

GFSC

SEPH

All
Other

Total

Personal trust and agency accounts

$8,495

$—

$8,495

N O T E S T O CO N S O L I DAT E D FI N A N C I A L S TAT E M E N T S

Statements of Cash Flows
for the years ended December 31, 2018, 2017 and 2016

(In thousands)

Operating activities:

Net income

2018

2017

2016

$110,387

$84,242

$86,135

Adjustments to reconcile net income to net cash
provided by operating activities:

Undistributed income of subsidiaries

(14,270)

(26,699)

(30,692)

Compensation expense for issuance of treasury
shares to directors

Share-based compensation expense

Realized net investment security gains

Gain on equity securities, net

(Increase) decrease in other assets

(Decrease) increase in other liabilities

Net cash provided by operating activities

Investing activities:

1,109

3,954

—

(3,267)

(2,073)

(163)

95,677

Proceeds from sales of securities

—

2,265

Outlays for business acquisitions

(30,684)

1,241

950

2,701

(1,821)

—

205

475

60,344

—

1,864

—

(3,425)

(2,524)

52,308

—

15,000

—

Repayment of investments in and advances to
subsidiaries

Other, net

Net cash (used in) provided by investing
activities

Financing activities:

Cash dividends paid

Repayment of subordinated notes

Repurchase of treasury shares

Cash payment for fractional shares

Value of common shares withheld to pay
employee income taxes

(30,624)

2,265

15,000

Other

(63,013)

(57,493)

(57,653)

—

(30,000)

(5,784)

(7,378)

(4)

(610)

(6)

(347)

—

(4)

—

Other service income1

Credit card

HELOC

Installment

Real estate

Commercial

Checkcard fee income

Employee benefit and retirement-related
accounts

Investment management and investment
advisory agency accounts

Other

Service charges on deposit accounts

Non-sufficient funds (NSF) fees

Demand deposit account (DDA) charges

Net cash used in financing activities

(69,411)

(95,224)

(57,657)

Bank owned life insurance income2

(Decrease) increase in cash

Cash at beginning of year

Cash at end of year

(4,358)

79,452

(32,615)

9,651

ATM fees

112,067

102,416

OREO valuation adjustments2

$75,094

$79,452

$112,067

Gain on the sale of OREO, net

Net loss on the sale of investment
securities2

(Loss) gain on equity securities, net2

Other components of net periodic pension
benefit income2

Gain on the sale of non-performing loans2

Miscellaneous3

Total other income

6,863

9,352

1,583

7,483

3,310

668

—

2,212

471

243

9,079

1,153

17,317

4,903

1,978

(272)

1,440

(2,271)

(53)

6,609

660

7,758

—

1,081

—

(219)

2,795

—

136

2,166

—

1,912

—

6,863

9,352

1,583

7,483

3,310

668

2,239

471

243

9,079

2,234

17,317

6,815

1,978

(491)

4,235

(2,271)

3,266

3,213

—

6,820

2,826

8,639

(59)

855

$88,981

$187

$5,900

$6,033

$101,101

1 Of the $14.3 million of revenue included within “Other service income”, approximately $5.5 million is within
the scope of ASC 606, with the remaining $8.8 million consisting primarily of residential real estate loan fees
which are out of scope.

2Not within the scope of ASC 606.

3“Miscellaneous” income includes brokerage income, safe deposit box rentals, and miscellaneous bank fees
totaling $8.6 million, all of which are within the scope of ASC 606.

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N O T E S T O CO N S O L I DAT E D FI N A N C I A L S TAT E M E N T S

Year Ended December 31, 20174

Revenue by Operating Segment
(in thousands)

Income from fiduciary activities

PNB

GFSC

SEPH

All
Other

Total

Year Ended December 31, 20164

Revenue by Operating Segment
(in thousands)

Income from fiduciary activities

PNB

GFSC

SEPH

All
Other

Total

Personal trust and agency accounts

$7,752

$—

—$

$7,752

Personal trust and agency accounts

$7,101

$—

$7,101

Employee benefit and retirement-related
accounts

Investment management and investment
advisory agency accounts

Other

Service charges on deposit accounts

Non-sufficient funds (NSF) fees

Demand deposit account (DDA) charges

Other

Other service income1

Credit card

HELOC

Installment

Real estate

Commercial

Checkcard fee income

Bank owned life insurance income2

ATM fees

OREO valuation adjustments2

Gain on the sale of OREO, net

Net gain on sale of investment securities2

Other components of net periodic pension
benefit income2

Miscellaneous3

Total other income

6,234

8,386

1,363

8,122

3,847

684

—

1,987

(6)

474

387

8,974

1,118

15,798

4,441

2,253

(458)

239

—

5,616

5,525

—

193

—

115

164

—

417

—

6,234

8,386

1,363

8,122

3,847

684

1,981

478

387

9,005

1,311

15,798

4,858

2,253

(458)

251

Employee benefit and retirement-related
accounts

Investment management and investment
advisory agency accounts

Other

Service charges on deposit accounts

Non-sufficient funds (NSF) fees

Demand deposit account (DDA) charges

Other

Other service income1

Credit card

HELOC

Installment

Real estate

Commercial

Checkcard fee income

Bank owned life insurance income2

ATM fees

OREO valuation adjustments2

Gain on the sale of OREO, net

1,821

Other components of net periodic pension
benefit income2

—

5,794

Miscellaneous3

5,432

7,693

1,174

8,970

3,932

1,357

1,584

453

638

9,319

739

15,057

3,913

2,268

(583)

257

5,156

5,499

—

(1)

—

1,681

—

(18)

1,066

240

827

6,562

Total other income

$79,959

$57

$3,068

—

425

—

530

$955

5,432

7,693

1,174

8,970

3,932

1,357

1,584

458

638

9,319

2,420

15,057

4,338

2,268

(601)

1,323

5,308

6,268

$84,039

$82,742

$103

$519

$3,065

$86,429

1Of the $13.2 million of revenue included within “Other service income”, approximately $4.4 million is within
the scope of ASC 606, with the remaining $8.8 million consisting primarily of residential real estate loan fees
which are out of scope.

2Not within the scope of ASC 606.

3“Miscellaneous” income includes brokerage income, safe deposit box rentals, and miscellaneous bank fees
totaling $6.6 million, all of which are within the scope of ASC 606.

4The Corporation elected the modified retrospective approach of adoption; therefore, prior period balances are
presented under legacy GAAP and may not be comparable to current year presentation.

1Of the $14.4 million of revenue included within “Other service income”, approximately $5.4 million is within
the scope of ASC 606, with the remaining $9.0 million consisting primarily of residential real estate loan fees
which are out of scope.

2Not within the scope of ASC 606.

3“Miscellaneous” income includes brokerage income, safe deposit box rentals, and miscellaneous bank fees
totaling $6.3 million, all of which are within the scope of ASC 606.

4The Corporation elected the modified retrospective approach of adoption; therefore, prior period balances are
presented under legacy GAAP and may not be comparable to current year presentation.

A description of Park’s material revenue streams accounted for under ASC 606 follows:

Income from fiduciary activities (Gross): Park earns fiduciary fee income and
investment brokerage fees from its contracts with trust customers for various fiduciary
and investment-related services. These fees are earned over time as the Company
provides the contracted monthly and quarterly services and are generally assessed
based on the market value of the trust assets.

Service charges on deposit accounts and ATM fees: The Corporation earns fees from its
deposit customers for transaction-based, account maintenance, and overdraft services.
Transaction-based fees, which include services such as ATM use fees, stop payment
charges, statement rendering, and ACH fees, are recognized at the time the transaction
is executed as that is the point in time the Corporation fulfills the customer’s request.
Account maintenance fees, which relate primarily to monthly maintenance, are generally
recognized at the end of the month, representing the period over which the Corporation
satisfies the performance obligation. Overdraft fees are recognized at the point in
time that the overdraft occurs. Service charges on deposits are withdrawn from the
customer’s account balance.

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N O T E S T O CO N S O L I DAT E D FI N A N C I A L S TAT E M E N T S

Other service income: Other service income includes income from 1) the sale and
servicing of loans sold to the secondary market, 2) incentive income from third-
party credit card issuers, and 3) loan customers for various loan-related activities
and services. These fees are generally recognized at a point in time following the
completion of a loan sale or related service activity.

Checkcard fee income: Park earns interchange fees from checkcard cardholder
transactions conducted primarily through the Visa payment network. Interchange fees
from cardholder transactions represent a percentage of the underlying transaction value
and are recognized daily, net of card network fees, concurrently with the transaction
processing services provided to the cardholder.

Gain on sale of OREO, net: The Corporation records a gain or loss from the sale of OREO
when control of the property transfers to the buyer, which generally occurs at the time
of delivery of an executed deed. When Park finances the sale of OREO to the buyer, the
Corporation assesses whether the buyer is committed to perform the buyer’s obligation
under the contract and whether collectability of the transaction price is probable. Once
these criteria are met, the OREO asset is derecognized and the gain or loss on sale is
recorded upon the transfer of control of the property to the buyer. In determining the
gain or loss on the sale, the Corporation adjusts the transaction price and related gain
(loss) on sale if a significant financing component is present.

31. Subsequent Events
On September 12, 2018, Park and CAB Financial Corporation, a South Carolina
corporation (“CABF”), entered into an Agreement and Plan of Merger and Reorganization
(the “CABF Merger Agreement”), pursuant to which CABF will merge with and into Park
(the “CABF Merger”). Following the CABF Merger, CABF’s wholly-owned bank subsidiary,
Carolina Alliance Bank, will merge with and into PNB, with PNB as the surviving bank.
Subject to the terms and conditions of the CABF Merger Agreement, at the effective
time of the CABF Merger (the “ CABF Effective Time”), CABF shareholders will receive,
for each share of CABF’s common stock, $1.00 par value per share, (i) $3.80 in cash and
(ii) 0.1378 of Park’s common shares (the “CABF Merger Consideration”).

At the CABF Effective Time, CABF stock options with an exercise price of less than
$19.00 will be canceled and converted into the right to receive the CABF Merger
Consideration. CABF stock options with an exercise price of $19.00 or more will be
assumed and converted into an option to purchase Park common shares, on the same
terms and conditions as were applicable under such CABF stock option. At the CABF
Effective Time, CABF restricted stock awards will fully vest (with any performance-
based vesting condition deemed satisfied) and will be canceled and converted
automatically into the right to receive CABF Merger Consideration.

On January 14, 2019, the shareholders of CABF voted in favor of approving the CABF
Merger. The CABF Merger is expected to close early in the second quarter of 2019.

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