Park-Ohio Holdings Corp. Annual Report 2008

FY2008 Annual Report · Park-Ohio Holdings Corp.

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T A B L E

O F

C O N T E N T S

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

Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Stockholders’ Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Park National Corporation Directors & Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Regional Map . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Directors:

Century National . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Citizens National . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Fairfield National. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Farmers and Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

First-Knox National . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

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

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

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

Second National . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Security National . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

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

Unity National . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Vision Bank – Alabama . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Vision Bank – Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Officers of Corporation & Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Financial Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

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

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

Financial Statements:

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

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

Consolidated Statements of Changes in Stockholders’ Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

1
1

T O

O U R

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

Net income for Park National Corporation (Park) for the past five
years was $13.7 million in 2008, $22.7 million in 2007, $94.1
million in 2006, $95.2 million in 2005 and $91.5 million in 2004.

Further, the economy slipped into a recession beginning in
December 2007. We do not know how long this one will last,
but like all previous recessions, this one too will be followed
by a recovery.

Diluted net income per share for the past five years was $.97,
$1.60, $6.74, $6.64 and $6.32 for the same years, respectively.

The reductions in net income in the last two years and the
related diluted net income per share were severe. There is a
quick explanation for the dramatic decreases cited above.

We acquired Vision Bancshares, Inc. (Vision) and its two bank
subsidiaries, both named Vision Bank, on March 9, 2007. The two
bank subsidiaries became bank subsidiaries of Park and their net
income (loss) has been included in Park’s net income from the
date of acquisition.

On July 20, 2007, the bank operations of the two Vision Banks
were consolidated under a single charter through the merger of
Vision Bank headquartered in Gulf Shores, Alabama with and into
Vision Bank headquartered in Panama City, Florida. Since that time,
Vision Bank operates under a Florida charter and has 18 branch
locations in Baldwin County, Alabama and across the Florida
panhandle including an office in Tallahassee, Florida.

The net loss at Vision Bank was $(81.2) million for 2008 and
$(60.7) million for 2007. By far, the largest component of Vision
Bank’s losses were charges for impaired goodwill which reduced
net income for Vision Bank and Park by $109 million in total for
both years. We’ve previously disclosed the accounting convention
for goodwill impairment charges. Vision Bank’s net income
excluding the impairment charges was a loss of $(26.2) million
in 2008 and a loss of $(6.6) million in 2007.

Excluding Vision Bank, Park’s net income for the past five years
was $94.9 million in 2008, $83.4 million in 2007, $94.1 million in
2006, $95.2 million in 2005 and $91.5 million in 2004.

So, the last two years have been filled with lessons, some more
painful than others. If there is any consolation, we remained
profitable in both years and continued our dividend payments.
Several large bank holding companies were unable to stay in
the black and in many cases, dividends were slashed.

Real estate market values began declining in mid-2007 following
the crash of the subprime lending market. We did not participate
in such lending, but property values began declining virtually
nationwide and have hardly slowed the descent since that time.

2
2

We decided late last year that it was in the best long-term
interests of our stockholders for Park National Corporation
to participate in the Troubled Assets Relief Program (TARP)
introduced by the U.S. Treasury Department in October, 2008. As
originally conceived and presented, the TARP included a piece
designed to add capital and shore up the financial services
industry. This piece was labeled the Capital Purchase Program
(CPP), and it was reserved exclusively for healthy institutions.

We concluded that, while financially healthy and well
capitalized without the capital infusion, if we did not participate,
the industry and especially those against which we compete would
be significantly better capitalized. We concluded that we should
accept the capital infusion and issue the preferred stock. Our
shareholders approved the recommendation and the money
was received on December 23, 2008. The $100 million capital
injection was a nice addition to our capital.

The original stated purpose of the TARP was to help restore
liquidity in financial markets and encourage banks to begin
lending again.

We were lending before receiving TARP funds, and we have done
so after receiving them. We reported that our loans
in Ohio increased in December, 2008 by $31 million, our
strongest growth for any month during 2008. Increased lending
opportunities have continued in the first two months of 2009 for
our Ohio banks and our Vision affiliates.

Loan balances for Park increased by $267.2 million in 2008,
6.3% above the year end balances in 2007. Reviewing past annual
shareholder reports since 2001, the increase in loans for 2008
was our strongest, excluding loan growth in past years resulting
from acquisitions. While many of our larger competitor banks
have severely curtailed lending, we have continued meeting the
lending needs of our communities.

We love serving our customers and it’s been refreshing to
welcome new loan and deposit customers to our banks in the
past several months. Many of our new customers found their
previous banking relationships had deteriorated, and they
welcome our service and attention.

T O

O U R

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

We clearly have enjoyed countless successes while working
diligently to reduce our exposure to troubled loans in Ohio,
Alabama and Florida. To borrow an analogy often cited, some-
times it’s hard to remember the goal is to drain the swamp when
we’re surrounded by alligators. But the swamp is being drained
because of the good work being done by associates in each of
our affiliates.

As we operate in Ohio, our Alabama and Florida community
banking associates remain committed to delivering extraordinary
service to the markets they serve. It is a challenge to maintain
a positive attitude while working through a myriad of problems
mostly caused by horrible conditions associated with the severe
economic downturn in their markets. We are pleased with their
continued commitment to work through problem loans while
taking advantage of opportunities to attract new customers.

We are fortunate to have associates throughout our entire
organization who understand our agenda. All of us remain
committed to working through these challenging economic
conditions. Some days may not be as much fun as they used to
be, but we know better days are before us. We remain optimistic.

We previously reported on how we planned to combine our
Ohio banks under one charter. That work was completed in the
third quarter of last year, on schedule and as planned, under
the direction of Brady Burt. It was a job well done.

Tim Lehman continues to lead Project EPS and we expect to have
all of our Ohio banks converted to a common and standardized
operating system by the end of 2009. There are a number of
initiatives within Project EPS that will yield greater efficiencies
and far better execution of best practices within each of our Ohio
banks. We remain on target with the agenda previously identified
as well as with operating efficiencies anticipated.

History tells us that in turbulent times, the companies that survive
and prosper are those with the best people who remain true to
their core principles. To that end, we want to thank our associates
for their tireless dedication to serving our customers, finding
ways to minimize losses on troubled loans in a very challenging
environment, implementing new technology and services while
continuing to move through the significant additional work load
brought on by Project EPS. We’ve asked our folks to step up,
and they have.

Late last year, we said farewell to Marv Stammen as the President
and Chief Executive Officer of our Second National affiliate in
Greenville, Ohio. Marv continues as director of Second National,
and is succeeded as president by John Swallow, a Second National
veteran who has worked closely with Marv for more than two
decades. Marv brought significant experience to Park since
Second National joined us in 2000. His enthusiasm, candor
and high community profile will be hard to replace. But he
made sure John is up to the task, and will be sure to keep
John on track (as will we!) as John leads the bank.

Bill McConnell reminds us that our job is never fully complete
until we’ve made sure our successor is in place. Marv carefully
prepared John and this serves as another example of opportunity
within our organization for professional growth.

Turmoil within our industry is unprecedented. The extraordinary
events of 2008 were so numerous that announced changes
became nearly routine by the end of September, 2008. Most
were hardly predictable. We frequently observe that what we’ve
witnessed, and in some cases experienced first-hand, could not
have been made up in advance.

2008 is history; turmoil and chaotic conditions brought us
opportunities from which we continue to benefit. We survived
last year and remain as determined as ever to prevail. The quality
of our associates and the support of our customers and share-
holders are appreciated like never before. We are open for
business and eager to greet the future.

C. Daniel DeLawder
Chairman

David L. Trautman
President

3
3

Percent
Change

–2.61%

–18.95%

9.03%

–40.26%

–10.67%

–39.38%

–9.07%

1.07%

–5.75%

8.76%

7.27%

6.33%

20.90%

11.87%

10.80%

—

F I N A N C I A L

H I G H L I G H T S

(Dollars in thousands, except per share data)

Earnings:

Total interest income

Total interest expense

Net interest income

Net income available to common shareholders (x)

Net income available to common shareholders

before impairment charge (a)(x)

Per Share:

Net income per common share – basic (x)

Net income per common share – diluted (x)

Net income per common share

before impairment charge – diluted (a)(x)

Cash dividends declared

Common book value (end of period)

At Year-End:
Total assets

Deposits

Loans

Investment securities

Total borrowings

Total stockholders’ equity

Ratios:

Return on average common equity (x)

Return on average common equity
before impairment charge (a)(x)

Return on average assets

Return on average assets before impairment charge (a)

Efficiency ratio before impairment charge

2008

$391,339

135,466

255,873

13,566

68,552

0.97

4.91

3.77

39.15

$7,070,720

4,761,750

4,491,337

2,059,051

1,554,754

642,663

2.40%

12.12%

0.20%

1.02%

52.59%

(x) Reported measure includes the impact of the preferred stock issued to the U.S. Treasury under the

Capital Purchase Program and uses net income available to common shareholders.

(a) Net income for the year has been adjusted for the impairment charge to goodwill. Net income before

impairment charge equals net income available to common shareholders for the year plus the impairment
charge to goodwill of $54,986 and $54,035 for 2008 and 2007, respectively.

Twelve Months Ended December 31 (In thousands, except per share data)

2008

Reconciliation of net income available to common shareholders to net income

available to common shareholders before impairment charge:

Net income available to common shareholders

Plus goodwill impairment charge

Net income available to common shareholders before impairment charge

Reconciliation of net income per share – diluted to net income per share –

diluted before impairment charge:
Net income per common share – diluted

Plus impairment charge to goodwill per share – diluted

Net income per common share before impairment charge – diluted

$13,566

54,986

$68,552

$0.97

3.94

$4.91

4
4

2007

$ 401,824

167,147

234,677

22,707

76,742

1.60

5.40

3.73

41.54

$6,501,102

4,439,239

4,224,134

1,703,103

1,389,727

580,012

3.67%

12.40%

0.37%

1.24%

55.21%

2007

$22,707

54,035

$76,742

$1.60

3.80

$5.40

S T O C K H O L D E R S ’

I N F O R M A T I O N

STOCK LISTING:

NYSE Alternext Symbol – PRK
CUSIP #700658107

GENERAL STOCKHOLDER INQUIRIES:

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

DIVIDEND REINVESTMENT PLAN:

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

DIRECT DEPOSIT OF DIVIDENDS:

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

STOCK TRANSFER AGENT AND REGISTRAR:

First-Knox National Bank, Division of The Park National Bank
Post Office Box 1270
One South Main Street
Mount Vernon, Ohio 43050-1270
800/837-5266 Ext. 5208

FORM 10-K:

All forms filed by the Corporation with the SEC (including our Form 10-K for 2008) are
available on our website by clicking on the Documents/SEC Filings section of the Investor
Relations page. These forms may also be obtained, without charge, by contacting the
Secretary as indicated above.

INTERNET ADDRESS:

www.parknationalcorp.com

E-MAIL:

David L. Trautman
dtrautman@parknationalbank.com

5
5

PARKNATIONAL

C O R P O R A T I O N

Park National Corporation

Board of Directors

Back Row: William A. Phillips - Chairman, Century National Bank; F.W. Englefield IV - President, Englefield, Inc.; Nicholas L. Berning - Owner, Berning Financial Consulting;
Rick R. Taylor - President, Jay Industries, Inc.

Middle Row: David L. Trautman - President; John J. O’Neill - Chairman, Southgate Corporation; Maureen Buchwald - Owner, Glen Hill Orchards, LLC; James J. Cullers - Sole
Proprietor, Mediation and Arbitration Services; C. Daniel DeLawder - Chairman

Front Row: Harry O. Egger - Vice Chairman; J. Gilbert Reese - Retired, Reese, Pyle, Drake & Meyer, P.L.L.; Lee Zazworsky - President, Mid State Systems, Inc.; William T.
McConnell - Chairman of the Executive Committee

Executive Officers

C. Daniel DeLawder

Chairman

David L. Trautman

President

William T. McConnell Chairman of the Executive Committee

John W. Kozak

Chief Financial Officer

Harry O. Egger

Vice Chairman

ParkNationalCorp.com

Santa RosaOkaloosaWaltonBayGulfEscambiaFloridaScope Aircraft FinanceGuardian Finance CompanyLeonConsolidated Computer Center and Park Title are headquartered in Newark, Ohio.AlabamaMobileBaldwinFultonWilliamsLucasHenryDefianceWoodOttawaSanduskySenecaHancockPutnamPauldingVan WertHardinAllenAuglaizeMercerWyandotCrawfordRichlandMarionMorrowKnoxDelawareLickingFranklinUnionLoganShelbyDarkeChampaignMiamiClarkGreeneMontgomeryPreblePickawayFayetteButlerRossPikeHighlandClintonWarrenHamiltonClermontBrownAdamsSciotoLawrenceGalliaJacksonMeigsVintonAthensHockingFairfieldPerryMuskingumMorganWashingtonMonroeBelmontGuernseyNobleCoshoctonHolmesHarrisonTuscarawasCarrollJeffersonErieHuronLorainMedinaAshlandWayneCuyahogaSummitStarkColumbianaMahoningPortageTrumbullAshtabulaGeaugaLakeCentury National BankCitizens National BankFairfield National BankFarmers BankFirst-Knox National BankPark National BankPark National Bank Southwest Ohio & Northern KentuckyRichland BankSecond National BankSecurity National BankUnited BankUnity National BankVision Bank AlabamaVision Bank Florida MadisonKentonCampbellBooneKentuckySSGGGGGGGGCentury National

Affiliate Board

Michael L. Bennett
The Longaberger
Company

Ronald A. Bucci
Stoneware Properties

Ward D. Coffman, III
Coffman Law Offices

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

Patrick L. Hennessey
P & D Transportation,
Inc.

Robert D. Kessler
Kessler Sign Company

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

Thomas M. Lyall
President

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

Don R. Parkhill
Jacobs, Vanaman
Agency, Inc.

William A. Phillips
Chairman

James L. Shipley
Miller-Lynn Insurance Service
and Smith-Brogan Insurance
Agency

Office Locations

Main Office - Zanesville
14 South Fifth Street

Athens*
898 East State Street

Coshocton*
100 Downtowner Plaza

Coshocton - Main Street*
639 Main Street

Dresden*
91 West Dave Longaberger Avenue

Logan*
61 North Market Street

Newcomerstown*
220 East State Street

Off-Site ATM Locations

New Concord*
1 West Main
Street

New Lexington*
206 North Main
Street

Zanesville - East*
1705 East Pike

Thomas L. Sieber
Retired Hospital
Administrator

Dr. Anne C. Steele
Muskingum College

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

Zanesville - Kroger*
3387 Maple Avenue

Zanesville - Lending Center*
505 Market Street

Zanesville - North*
1201 Brandywine Boulevard

Zanesville - North Military*
990 Military Road

Zanesville - South*
2127 Maysville Avenue

Zanesville - South Maysville*
2810 Maysville Pike

*Automated Teller Machine

Zanesville - Genesis HealthCare System
Bethesda Campus
2951 Maple Avenue

Zanesville - Genesis HealthCare System
Good Samaritan Campus
800 Forest Avenue

CenturyNationalBank.com

Citizens National

Affiliate Board

Rick Cole
Colepak, Inc.

Jeffrey A. Darding
President

William C. Fralick
Security National Bank

Scott Michael
Michael Farms, Inc.

Ralph Smucker
Smucker Insurance
Agency

James R. Wilson
Chairman and Retired
President

Office Locations

Main Office - Urbana*
1 Monument Square

Mechanicsburg*
2 South Main Street

North Lewisburg*
8 West Maple Street

Plain City
105 West Main Street

Urbana - Scioto Street*
828 Scioto Street

*Automated Teller Machine

Off-Site ATM Locations

Plain City - Shell
440 South Jefferson Street

Urbana - Champaign County
Community Center
1512 South US Highway 68

CitNatBk.com

FAIRFIELD
NATIONAL
BANK

DIVISION OF THE PARK NATIONAL BANK

Affiliate Board

Fairfield National

Charles P. Bird, Ph.D.
Ohio University

Leonard F. Gorsuch
Fairfield Homes, Inc.

Edward J. Gurile
Senior Vice President

Eleanor V. Hood
The Lancaster Festival

Jonathan W. Nusbaum,
M.D.
Retired Surgeon

S. Alan Risch
Risch Drug Stores, Inc.

Mina H. Ubbing
Fairfield Medical Center

Paul Van Camp
P.V.C. Limited

Stephen G. Wells
President

Office Locations

Main Office - Lancaster
143 West Main Street

Main Office Drive-Thru*
150 West Wheeling Street

Baltimore*
1301 West Market Street

Lancaster - East Main Street - Kroger*
1141 East Main Street

Pickerington - Central - Kroger*
1045 Hill Road North

Lancaster - Meijer*
2900 Columbus-Lancaster Road

Pickerington - North - Kroger*
7833 Refugee Road NW

Lancaster - Memorial Drive*
1280 North Memorial Drive

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

Canal Winchester - Kroger*
6095 Gender Road

Lancaster - Memorial Drive - Kroger*
1735 North Memorial Drive

*Automated Teller Machine

Lancaster - East Main*
1001 East Main Street

Lancaster - West Fair*
1001 West Fair Avenue

Off-Site ATM Locations

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

Lancaster - River View Surgery Center
2405 North Columbus Street

FairfieldNationalBank.com

Farmers and Savings

Affiliate Board

Patricia A. Byerly
Byerly Lindsey Funeral
Home

Timothy R. Cowen
Cowen Truck Line, Inc.

James S. Lingenfelter
President

Roger E. Stitzlein
Loudonville Farmers
Equity

Chris D. Tuttle
Amish Oak Furniture
Company, Inc.

Gordon E. Yance
First-Knox National
Bank

Office Locations

Main Office - Loudonville*
120 North Water Street

Ashland*
1161 East Main Street

Perrysville*
112 North Bridge Street

*Automated Teller Machine

Off-Site ATM Locations

Loudonville - Stake’s Short Stop
3052 State Route 3

FarmersAndSavings.com

First-Knox National

Affiliate Board

Maureen Buchwald
Glen Hill Orchards, LLC

James J. Cullers
Mediation and
Arbitration Services

Ronald J. Hawk
Danville Feed and
Supply, Inc.

William B. Levering
Levering
Management, Inc.

Noel C. Parrish
NOE, Inc.

Mark R. Ramser
Ohio Cumberland
Gas Co.

R. Daniel Snyder
Retired Director Snyder
Funeral Homes, Inc.

Roger E. Stitzlein
Loudonville Farmers
Equity

Gordon E. Yance
President

Office Locations

Main Office - Mount Vernon
One South Main Street

Millersburg*
225 North Clay Street

Bellville*
154 Main Street

Millersburg - Wal-Mart*
1640 South Washington Street

Centerburg*
35 West Main Street, Drawer F

Mount Gilead
17 West High Street

Danville*
4 South Market Street

Fredericktown*
137 North Main Street

Mount Gilead - Edison*
504 West High Street

Mount Vernon - Blackjack Road*
8641 Blackjack Road

Mount Vernon - Coshocton
Avenue*
810 Coshocton Avenue

Mount Vernon - Operations
Center
105 West Vine Street

*Automated Teller Machine

Off-Site ATM Locations

Fredericktown - Hot Rod’s
10103 Mount Gilead Road

Gambier - Kenyon College Bookstore
106 Gaskin Avenue

Howard - Apple Valley
21973 Coshocton Road

Mount Gilead - ATD Enterprises
Marathon
6154 State Route 95

Mount Vernon - Knox
Community Hospital
1330 Coshocton Road

Mount Gilead - Morrow County
Hospital
651 West Marion Road

Mount Vernon - Mount Vernon
Nazarene University
800 Martinsburg Road

Mount Vernon - Colonial City Lanes
110 Mount Vernon Avenue

Mount Vernon
11 West Vine Street

FirstKnox.com

1908

2008

PARK

NATIONAL BANK

Affiliate Board

The Park National Bank

Donna M. Alvarado
AGUILA International

C. Daniel DeLawder
Chairman

F.W. Englefield IV
Englefield, Inc.

John W. Kozak
Chief Financial Officer

William T. McConnell
Chairman of the
Executive Committee

Dr. Charles Noble, Sr.
Shiloh Missionary
Baptist Church

John J. O’Neill
Southgate Corporation

Robert E. O’Neill
Southgate Corporation

J. Gilbert Reese
Retired
Reese, Pyle, Drake &
Meyer, P.L.L.

David L. Trautman
President

Sarah Wallace
First Federal

Lee Zazworsky
Mid State Systems, Inc.

Office Locations

Main Office - Newark*
50 North Third Street

Johnstown*
60 West Coshocton Street

Pataskala - Kroger**
350 East Broad Street

Columbus
140 East Town Street, Suite 1010

Kirkersville
177 East Main Street

Reynoldsburg - Kroger*
8460 Main Street

Gahanna - Kroger*
1365 Stoneridge Drive

Granville*
119 East Broadway

Heath - Southgate*
567 Hebron Road

Heath - 30th Street*
800 South 30th Street

Hebron*
103 East Main Street

Newark - Deo Drive - Kroger*
245 Deo Drive

Utica*
33 South Main Street

Newark - Dugway*
1495 Granville Road

Newark - Eastland*
1008 East Main Street

Newark - McMillen*
1633 West Main Street

Newark - 21st Street*
990 North 21st Street

Worthington*
7140 North High Street

Operations Center
21 South First Street

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

Off-Site ATM Locations

Granville - Denison University
Slayter Hall

Newark - Licking Memorial Hospital
1320 West Main Street

Reynoldsburg - Kroger
6962 East Main Street

Hebron - Kroger
600 East Main Street

Newark - OSU-N/COTC Campus
1179 University Drive

ParkNationalBank.com

Park National Bank of Southwest Ohio &

Northern Kentucky

Affiliate Board

Nicholas L. Berning
Berning Financial
Consulting

Thomas J. Button
The Park National Bank

K. Douglas Compton
President

Daniel L. Earley
Chairman
Retired President

Martin J. Grunder, Jr.
Grunder Landscaping Co

Richard W. Holmes
Retired
PricewaterhouseCoopers LLP

Larry H. Maxey
Synchronic Business Solutions

Eastgate - bigg’s*
4450 Eastgate Boulevard

Eastgate Mall*
4609 Eastgate Boulevard

Owensville*
5100 State Route 132

Springboro*
720 Gardner Road

Florence
600 Meijer Drive, Suite 303

West Chester*
8366 Princeton-Glendale Road

Milford*
25 Main Street

New Richmond
100 Western Avenue

*Automated Teller Machine

Office Locations

Main Office - Milford
400 TechneCenter Drive

Amelia - Main Street*
5 West Main Street

Amelia - Ohio Pike*
1187 Ohio Pike

Anderson*
1075 Nimitzview Drive

Dayton
7887 Washington Village Drive,
Suite 310

Off-Site ATM Locations

New Richmond - Berry Pharmacy
1041 Old US 52

BankWithPark.com

Richland Bank

Affiliate Board

Ronald L. Adams
Retired
DAI Emulsions, Inc.

Mark Breitinger
Milark Industries

Michael L. Chambers
J & B Acoustical

Benjamin A. Goldman
Retired
Superior Building Services

David J. Gooch
President

Timothy J. Lehman
Chairman of the Board

Grant E. Milliron
Milliron Industries

Shirley Monica
S.S.M. Inc.

Linda H. Smith
Ashwood LLC

Rick R. Taylor
Jay Industries, Inc.

Office Locations

Main Office - Mansfield*
3 North Main Street

Butler*
85 Main Street

Lexington*
276 East Main Street

Mansfield - Ashland Road*
797 Ashland Road

Mansfield - Cook Road*
460 West Cook Road

Mansfield - Lexington Avenue -
Kroger*
1500 Lexington Avenue

Mansfield - Madison - Kroger*
1060 Ashland Road

Mansfield - West Park*
1255 Park Avenue West

Ontario*
325 North Lexington-Springmill
Road

Mansfield - Marion Avenue*
50 Marion Avenue

Shelby - Mansfield Avenue*
155 Mansfield Avenue

Mansfield - Springmill*
889 North Trimble Road

*Automated Teller Machine

Off-Site ATM Locations

Mansfield - Kroger
1240 Park Avenue West

Mansfield - McDonald’s Restaurant
State Route 13 and I-71
25 West Hanley Road

RichlandBank.com

Second National

Affiliate Board

Tyeis Baker-Baumann
Rebsco, Inc.

Wayne Deschambeau
Wayne Hospital

Neil J. Diller
Cooper Farms, Inc.

Jeff Hittle
Hittle Pontiac-Cadillac-
GMC Dealership

Wesley M. Jetter
Ft. Recovery Industries

Marvin J. Stammen
Retired
Second National Bank

John Swallow
President

Greenville - Brethren
Retirement Community
750 Chestnut Street

Greenville - North*
1302 Wagner Avenue

Greenville - Wal-Mart
Supercenter Store*
1501 Wagner Avenue

Versailles*
101 West Main Street

Greenville - Third and Walnut*
175 East Third Street

*Automated Teller Machine

Office Locations

Main Office - Greenville
499 South Broadway

Arcanum - Downtown
1 West George Street

Arcanum - North*
603 North Main Street

Ft. Recovery*
117 North Wayne Street

Off-Site ATM Locations

Greenville - Whirlpool Corporation
1701 Kitchenaid Way

SecondNational.com

Security National

Affiliate Board

R. Andrew Bell
Consolidated Insurance
Company

Harry O. Egger
Chairman and Retired
President

William C. Fralick
President

Larry E. Kaffenbarger
Kaffenbarger Truck
Equipment Company

Thomas P. Loftis
Midland Properties, Inc.

Dr. Karen E. Rafinski
Clark State Community
College

Chester L. Walthall
Heat-Treating, Inc.

Robert A. Warren
Hauck Bros., Inc.

Office Locations

Main Office - Springfield*
40 South Limestone Street

New Carlisle*
201 North Main Street

Springfield - North Limestone*
1756 North Limestone Street

Enon*
3680 Marion Drive

New Carlisle - Park Layne*
2035 South Dayton-Lakeview Road

Springfield - Northridge*
1600 Morefield Road

Jamestown*
82 West Washington Street

South Charleston*
102 South Chillicothe Street

Springfield - Western*
920 West Main Street

Jeffersonville*
2 South Main Street

Medway
130 West Main Street

Springfield - Derr Road - Kroger*
2989 Derr Road

Xenia Downtown*
161 East Main Street

Springfield - East Main*
2730 East Main Street

Xenia Plaza*
82 North Allison Avenue

Off-Site ATM Locations

Springfield
2051 North Bechtle Avenue

Springfield - Mercy Medical Center
1343 North Fountain Boulevard

Springfield - Clark County
Fairgrounds - Champions Center
4122 Layboune Road

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

Springfield - Clark State
Community College
570 East Leffel Lane

Springfield - Wittenberg University
- Student Center
738 Woodlawn Avenue

*Automated Teller Machine

Springfield - Wittenberg
University - HPER Center
250 Bill Edwards Drive

SecurityNationalBank.com

United Bank

Affiliate Board

James J. Kennedy
Ohio Mutual
Insurance Group

Michele McElligott
Pigman, Brown,
McElligott Ltd.

Kenneth A. Parr, Jr.
Parr Insurance
Agency, Inc.

Douglas M. Schilling
Schilling Graphics, Inc.

Donald R. Stone
President

Douglas Wilson
Rindfuss Realty

Office Locations

Main Office - Bucyrus*
401 South Sandusky Avenue

Galion*
8 Public Square

Marion
685 Delaware Avenue

Prospect*
105 North Main Street

Waldo
133 North Marion Street

Marion - Wal-Mart Super Center*
1546 Marion-Mt. Gilead Road

*Automated Teller Machine

Caledonia*
140 East Marion Street

Crestline*
245 North Seltzer Street

Off-Site ATM Locations

Bucyrus - East Pointe Shopping Center
211 Stetzer Road South

UnitedBankOhio.com

Unity National

Affiliate Board

Dr. Richard N. Adams
Representative of Ohio
General Assembly

Tamara Baird-Ganley
Baird Funeral Home

Michael C. Bardo
Hartzell Industries, Inc.

John A. Brown
President

Thomas E. Dysinger
Dysinger & Associates,
LLC

Dr. Douglas D. Hulme
Oakview Veterinary
Hospital

Timothy Johnston
Self-employed
Consultant

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

Office Locations

Main Office - Piqua*
215 North Wayne Street

Piqua - Wal-Mart*
1300 East Ash Street

Troy - Wal-Mart*
1801 West Main Street

Administrative Office - Piqua
212 North Main Street

Tipp City*
1176 West Main Street

*Automated Teller Machine

Piqua - Sunset*
1603 Covington Avenue

Troy
1314 West Main Street

Off-Site ATM Locations

Troy - Upper Valley Medical Center
3130 North Dixie Highway

UnityNationalBk.com

Vision Bank - Alabama

Affiliate Board

Gordon Barnhill
Barnhill Land &
Real Estate

B. J. Blanchard
Real Estate Developer

Andrew Braswell
Vision Bank

C. Daniel DeLawder
Park National Corporation

John B. Foley, IV
Cunningham, Foley &
Barnes

Joey W. Ginn
Chairman

Anthony Kaiser
Meyer Real Estate -
Gulf Shores

Kevin Leeser, CPA
O’Sullivan Creel, LLP

Henry N. Lyda, III
Retired
University of Alabama

Robert S. McKean
Retired
Vision Bank

Christopher S. McManus
D.M.D.
Baldwin County
Endodontics, PC

Katherine A. Monroe
Wachovia Securities

Office Locations

Main Office - Gulf Shores*
2201 West First Street

Fairhope*
218 North Greeno Road

Daphne*
28720 US Highway 98

Elberta*
24989 State Street

Foley*
501 South McKenzie Street

Orange Beach*
25051 Canal Road

Off-Site ATM Locations

James R. Owen, Jr.
Gulf Shores Title
Co., Inc.

Daniel Scarbrough, MD
Community Health
Systems

Point Clear*
17008 Scenic Highway 98

Robertsdale
22245-3A Highway 59

*Automated Teller Machine

Foley - McDonald’s
1010 South McKenzie Street

Orange Beach - Lester’s
24821 Canal Road

Point Clear - Grand Hotel
1 Grand Boulevard

Gulf Shores - McDonald’s
2000 Gulf Shores Parkway

Orange Beach - Sam’s
27123 Canal Road

VisionBank.net

Vision Bank - Florida

Affiliate Board

Dr. James D. Campbell, Sr.
James D. Campbell,
D.D.S., M.S.

William A. Cathey
Cathey’s Hardware

C. Daniel DeLawder
Park National Corporation

Joey W. Ginn
Chairman

Charles S. Isler, III
Isler, Sombathy & Sombathy,
P A, Attorneys at law

Patrick Koehnemann
Koehnemann
Construction, Inc.

Lana Jane Lewis-Brent
Paul Brent
Designer, Inc.

Robert S. McKean
Retired
Vision Bank

Jimmy Patronis, Jr.
Captain Anderson’s
Restaurant

Jack B. Prescott
Retired
Smurfitt-Stone Container

Ralph Rish
Preble-Rish, Inc.

John S. Robbins
Vision Bank

Office Locations

Jerry F. Sowell, Jr., CPA
Segers Sowell Stewart &
Johnson, PA

Dr. James Strohmenger
Bay Radiology
Associates

Kim Styles-DiBacco
Styles Designs

Main Office - Panama City*
2200 Stanford Road

Panama City Beach - Beckrich*
559 Beckrich Road

Destin*
1021 Highway 98 East, Suite A

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

Navarre*
8524 Navarre Parkway

St. Joe Beach*
8134 West Highway 98

Tallahassee
1414 North Piedmont Way,
Suite 100

Wewahitchka*
125 North Highway 71

*Automated Teller Machine

Panama City Beach*
16901 Panama City Beach Parkway

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

VisionBank.net

Officers

Park National Corporation

C. Daniel DeLawder
Chairman

Harry O. Egger
Vice Chairman

Century National

John W. Kozak
Chief Financial Officer

David Trautman
President

William T. McConnell
Chairman of the Executive Committee

William A. Phillips
Chairman

Bruce D. Kolopajlo
Vice President

M. Rick Knox
Assistant Vice President

Thomas M. Lyall
President

Mark A. Longstreth
Vice President

Susan A. Lasure
Assistant Vice President

Patrick L. Nash
Executive Vice President

James R. Merry
Vice President

Karen D. Lowe
Assistant Vice President

James C. Blythe
Senior Vice President

Rebecca R. Porteus
Vice President

Terri L. Sidwell
Assistant Vice President

Jody D. Spencer
Vice President and
Trust Officer

Thomas N. Sulens
Vice President

Carol S. Tolson
Vice President

Joseph P. Allen
Assistant Vice President

Ann M. Gildow
Assistant Vice President

Theresa M. Gilligan
Assistant Vice President

Cynthia J. Snider
Assistant Vice President

Stephen A. Haren
Banking Officer

Diana F. McCloy
Banking Officer

Rebecca A. Palmerton
Banking Officer

Amy M. Pinson
Banking Officer

Jesse M. Rollins
Banking Officer

Victoria M. Thomas
Banking Officer

Barbara A. Gibbs
Senior Vice President

John W. Imes
Senior Vice President

Michael F. Whiteman
Senior Vice President

Brian E. Hall
Vice President

Janice A. Hutchison
Vice President

Jeffrey C. Jordan
Vice President

Brian G. Kaufman
Vice President

Citizens National

Jeffrey A. Darding
President

David A. Snyder
Vice President

Rick L. McClain
Assistant Vice President

Timothy L. Bunnell
Senior Vice President

Loretta George
Assistant Vice President

Jenny L. Ward
Banking Officer and
Auditor

Douglas J. Wells
Banking Officer

Sherry A. Ziemer
Banking Officer

Molly J. Allen
Administrative Officer

Katherine M. Barclay
Administrative Officer
and Trust Officer

Teresa A. Hennessy
Administrative Officer

Paula L. Meadows
Administrative Officer

Saundra W. Pritchard
Administrative Officer

Beth A. Stillwell
Administrative Officer

Susan L. Summers
Administrative Officer

Officers

Fairfield National

Stephen G. Wells
President

Donna M. Cotterman
Assistant Vice President

Janet K. Cochenour
Banking Officer

Tara L. Craaybeek
Administrative Officer

Edward J. Gurile
Senior Vice President

Sabrena McClure
Assistant Vice President

Melissa J. McMullen
Banking Officer

Dusty J. Miller
Administrative Officer

Thomas L. Kokensparger
Senior Vice President and
Trust Officer

Richard E. Baker
Vice President

Daniel R. Bates
Vice President

Timothy D. Hall
Vice President

Linda M. Harris
Vice President

Scott Reed
Assistant Vice President

Trudy M. Reeb
Banking Officer

Laura Tussing
Assistant Vice President
and Trust Officer

Sandra Uhl
Assistant Vice President

Brooke Taley
Banking Officer

Tina Taley
Banking Officer

Molly S. Bates
Banking Officer

Linda B. Boch
Banking Officer

Sharon L. Brown
Administrative Officer

Donna K. Bruce
Administrative Officer

Grace R. Cline
Administrative Officer

Cynthia A. Moore
Administrative Officer

Mareion A. Royster
Administrative Officer
and Trust Officer

Kim I. Sheldon
Administrative Officer

Loretta Swyers
Administrative Officer

Heather N. Wiley
Administrative Officer

Farmers and Savings

James S. Lingenfelter
President

Hal D. Sheaffer
Vice President

Barbara J. Young
Assistant Vice President

Ronald D. Flowers
Administrative Officer

Kenneth G. Gosche
Senior Vice President

Wayne D. Young
Vice President

Sharon E. Blubaugh
Vice President

Gregory A. Henley
Assistant Vice President

First-Knox National

Michael C. Bandy
Administrative Officer
and Trust Officer

Brian R. Hinkle
Administrative Officer

Gordon E. Yance
President

Mark P. Leonard
Senior Vice President

W. Douglas Leonard
Senior Vice President

Vickie A. Sant
Senior Vice President

Robert E. Boss
Vice President

James E. Brinker
Vice President

Cheri L. Butcher
Vice President and
Trust Officer

Cynthia L. Higgs
Vice President

Julie A. Leonard
Vice President

Jesse L. Marlow
Vice President

Todd P. Vermilya
Vice President

Barbara A. Barry
Assistant Vice President

James W. Hobson
Assistant Vice President

Phyllis D. Colopy
Banking Officer

Debra E. Holiday
Assistant Vice President

Patti J. Frazee
Banking Officer

R. Edward Kline
Assistant Vice President

Todd A. Geren
Banking Officer

Gregory M. Roy
Assistant Vice President

James S. Meyer
Banking Officer

Jerry D. Simon
Assistant Vice President

Sherry L. Snyder
Banking Officer

Joan M. Stout
Assistant Vice President

Rea D. Wirt
Banking Officer

Mark D. Blanchard
Banking Officer

Wendi M. Fowler
Trust Officer

Officers

First-Knox National (continued)

Dusty C. Au
Administrative Officer

Lance E. Dill
Administrative Officer

Lisa M. Jones
Administrative Officer

Nicole L. Mack
Administrative Officer

Heather A. Brayshaw
Administrative Officer

Deborah S. Dove
Administrative Officer

Erin C. Kelty
Administrative Officer

Paulina S. McQuigg
Administrative Officer

Robert T. Brooke
Administrative Officer

Monica L. Hiller
Administrative Officer

Jeffrey A. Kinney
Administrative Officer

Julie M. Chester
Administrative Officer

Kassandra L. Hoeflich
Administrative Officer

Carol A. Lewis
Administrative Officer

Deborah J. Daniels
Administrative Officer

Dave E. Humphrey
Administrative Officer

Mary A. Loyd
Administrative Officer

Guardian Finance Company

Earl W. Osborne
President

Charles L. Harris
Administrative Officer

Valerie Morgan
Administrative Officer

Matthew R. Marsh
Vice President

Tracy Morgan
Administrative Officer

Mary E. Parsell
Administrative Officer

The Park National Bank
C. Daniel DeLawder
Chairman

Jeffrey A. Wilson
Senior Vice President and
Auditor

David L. Trautman
President

William T. McConnell
Chairman of the
Executive Committee

Thomas J. Button
Senior Vice President

Thomas M. Cummiskey
Senior Vice President
and Trust Officer

Lynn B. Fawcett
Senior Vice President

William R. Wilson
Senior Vice President

Brady T. Burt
Vice President

James M. Buskirk
Vice President and
Trust Officer

Peter G. Cassanos
Vice President

Cynthia H. Crane
Vice President

John W. Kozak
Senior Vice President and
Chief Financial Officer

Kathleen O. Crowley
Vice President and
Auditor

Timothy J. Lehman
Senior Vice President

Laura B. Lewis
Senior Vice President

Cheryl L. Snyder
Senior Vice President

Joan L. Franks
Vice President

John S. Gard
Vice President and
Trust Officer

Jeffrey C. Gluntz
Vice President

Scott C. Green
Vice President

Damon P. Howarth
Vice President and
Trust Officer

Daniel L. Hunt
Vice President

Steven J. Klein
Vice President

Teresa M. Kroll
Vice President

Edward D. Lewis
Vice President

Lydia E. Miller
Vice President

Terry C. Myers
Vice President and
Trust Officer

Karen K. Rice
Vice President

David J. Rohde
Vice President

David F. Romes
Vice President

Ralph H. Root III
Vice President

Alan C. Rothweiler
Vice President

Christine S. Schneider
Vice President

Michael R. Shannon
Vice President

Robert G. Springer
Vice President

Julie L. Strohacker
Vice President and
Trust Officer

Adam T. Stypula
Vice President

Erin E. Tschanen
Vice President

Paul E. Turner
Vice President

Stanley A. Uchida
Vice President

John B. Uible
Vice President and
Trust Officer

Officers

The Park National Bank (continued)
Thomas A. Underwood
Vice President

Brenda L. Kutan
Assistant Vice President

Dixie C. Brown
Banking Officer

Rick H. Langley
Assistant Vice President

Beverly Clark
Trust Officer

Brian S. Urquhart
Vice President

Bradden E. Waltz
Vice President

Craig M. Larson
Assistant Vice President

Amanda K. Evans
Banking Officer

Larry M. Bailey
Administrative Officer

David B. Armstrong
Administrative Officer

Beth A. Atkinson
Administrative Officer

Charles Wigton III
Vice President and Trust
Officer

Carl H. Mayer
Assistant Vice President
and Auditor

Christa D. Wright
Vice President

Michael D. McDonald
Assistant Vice President

Renee Baker
Assistant Vice President

Brent A. Barnes
Assistant Vice President
and Auditor

Ronald C. McLeish
Assistant Vice President
and Trust Officer

Ryan E. Mills
Assistant Vice President

Gail A. Blizzard
Assistant Vice President

Jennifer L. Morehead
Assistant Vice President

Gregory M. Rhoads
Assistant Vice President

Rebecca K. Rodeniser
Assistant Vice President

Brian E. Smith
Assistant Vice President

Melinda S. Smith
Assistant Vice President

Robin L. Stein
Assistant Vice President

Maryann Thornton
Assistant Vice President

Sandy S. Travis
Assistant Vice President

Berkley C. Tuggle Jr.
Assistant Vice President

Carol S. Whetstone
Assistant Vice President
and Trust Officer

Sharon L. Bolen
Assistant Vice President

Rebecca A. Brownfield
Assistant Vice President

Alice M. Browning
Assistant Vice President

Amber L. Cummins
Assistant Vice President
and Trust Officer

Catherine J. Evans
Assistant Vice President

Brenda Frakes
Assistant Vice President

Judith A. Franklin
Assistant Vice President

Ned E. Harter
Assistant Vice President

Timothy J. Holt
Assistant Vice President

Dennis J. Kabelac
Assistant Vice President
and Auditor

Tony L. Kendziorski
Assistant Vice President

Jill S. Evans
Banking Officer

Kristie L. Green
Trust Officer

David W. Hardy
Banking Officer

Louise A. Harvey
Banking Officer

Alice M. Keefe
Banking Officer

Candy J. Lehman
Trust Officer

Bethany B. Lewis
Banking Officer

Douglas B. Marston
Banking Officer

Julia McCormack
Banking Officer

Eric M. Baker
Administrative Officer

Danielle A.M. Burns
Administrative Officer

Patricia S. Carr
Administrative Officer

Brad G. Chance
Administrative Officer

Nathan T. Cook
Administrative Officer

Dirk J. Dusthimer
Administrative Officer

Jerrod F. Gambs
Administrative Officer

Brad D. Gard
Administrative Officer

Christopher J. Helms
Administrative Officer

Kimberly G. McDonough
Banking Officer

Chris R. Hiner
Administrative Officer

Cindy A. Neely
Banking Officer

Diane M. Oberfield
Banking Officer

Sherri L. Pembrook
Banking Officer

Charles F. Schultz
Banking Officer

Angie D. Treadway
Banking Officer

Cynthia Hollis
Administrative Officer

Cynthia L. Kissel
Administrative Officer

Kristyn S. Mentzer
Administrative Officer

April R. Orr
Administrative Officer

Jeffrey A. Pillow
Administrative Officer

Mark D. Ridenbaugh
Administrative Officer

Leda J. Rutledge
Administrative Officer

Barbara A. Wilson
Assistant Vice President

Rose M. Wilson
Banking Officer

J. Bradley Zellar
Assistant Vice President
and Trust Officer

Kathy L. Allen
Administrative Officer

Officers

Park National Bank (continued)

Ruth Y. Sawyer
Administrative Officer

Lisa E. Stranger
Administrative Officer

Alice M. Schlaegel
Administrative Officer

Lori B. Tabler
Administrative Officer

Emila S. Smith
Administrative Officer

Debra A. Tackett
Administrative Officer

Lori L. Torrens
Administrative Officer
and Auditor

Mark A. Travis
Administrative Officer

Ginger R. Varner
Administrative Officer

Ronda M. Welsh
Administrative Officer

Judy L. Young
Administrative Officer

Park National Bank Southwest Ohio & Northern Kentucky

Doug Compton
President

Kim J. Male
Vice President

Peggy A. Beckett
Assistant Vice President

Louis J. Prabell
Assistant Vice President

Edward L. Brady
Senior Vice President

John R. Nienaber
Vice President

Jay F. Berliner
Assistant Vice President

John L. Schuermann
Assistant Vice President

Jennifer K. Fischer
Senior Vice President

Daniel H. Turben
Vice President

Jill A. Brewer
Assistant Vice President

Sam DeBonis
Banking Officer

Erick K. Harback
Senior Vice President

Ginger L. Vining
Vice President

Mary M. Demaree
Assistant Vice President

Jason O. Verhoff
Administrative Officer

Michael J. Jacunski
Senior Vice President

Joseph A. Wagner
Vice President

Christopher E. Huffman
Assistant Vice President

Jonathan A. Waldo
Administrative Officer

David B. Briggs
Vice President

Jason D. Hughes
Vice President

Richland Bank

John F. Winkler II
Vice President and
Trust Officer

James E. Hyson
Assistant Vice President

Cyndy H. Wright
Administrative Officer

R. Kathy Johnson
Assistant Vice President

David J. Gooch
President

Carol A. Michaels
Vice President

Sheryl L. Smith
Assistant Vice President

Barbara L. Schopp
Banking Officer

Donald R. Harris Jr.
Senior Vice President

Michael D. Volz
Vice President

Rebecca J. Toomey
Assistant Vice President

Daniel A. Shrimplin
Banking Officer

Katharine J. Barré
Vice President

Edward F. Adams
Assistant Vice President

Linda M. Whited
Assistant Vice President

Carol L. Davis
Administrative Officer

Gary A. Bobst
Vice President

Jerrold J. Coon
Vice President

Charla A. Irvin
Vice President and
Trust Officer

Michael A. Jefferson
Vice President

Mark F. Kiamy
Vice President and Auditor

Edward A. Brauchler
Assistant Vice President

Sandra S. Brodbeck
Banking Officer

Kathleen A. Spidel
Administrative Officer

Jimmy D. Burton
Assistant Vice President

John Q. Cleland
Banking Officer

Edward E. Duffey
Assistant Vice President

Susan A. Fanello
Assistant Vice President

Barbara A. Miller
Assistant Vice President

J. Stephen McDonald
Banking Officer and
Trust Officer

Jeffrey A. Parton
Banking Officer

Alexander M. Rocks
Banking Officer

Deborah A. Sweet
Administrative Officer

Andrew C. Waldruff
Administrative Officer

Officers

Scope Aircraft Finance

Robert N. Kent Jr.
President

Charles W. Sauter
Vice President

Second National

John E. Swallow
President

Gene A. Rismiller
Vice President

Eric J. McKee
Assistant Vice President

Debby J. Folkerth
Administrative Officer

Steven C. Badgett
Executive Vice President

Daniel G. Schmitz
Vice President

Vicki L. Neff
Assistant Vice President

Diana L. Gilmore
Administrative Officer

C. Russell Badgett
Vice President

Kimberly A. Baker
Assistant Vice President

Cynthia J. Riffle
Assistant Vice President

Cheryl A. Goubeaux
Administrative Officer

Jerome F. Bey III
Vice President

Marie A. Boas
Vice President

Thomas J. Lawson
Vice President

Linda K. Newbauer
Vice President

Gerald O. Beatty
Assistant Vice President

Alexa J. Roth
Assistant Vice President

Gregory P. Schwartz
Administrative Officer

D. Todd Durham
Assistant Vice President
and Trust Officer

Joy D. Greer
Assistant Vice President

Shane D. Stonebraker
Assistant Vice President

Deborah A. Smith
Administrative Officer

Brian A. Wagner
Assistant Vice President

Harvey B. Hole III
Banking Officer

Security National Bank

William C. Fralick
President

Thomas L. Miller
Vice President

Mark B. Robertson
Assistant Vice President

Rachel M. Brewer
Trust Officer

Thomas A. Goodfellow
Senior Vice President

Thomas C. Ruetenik
Vice President

Gary J. Seitz
Assistant Vice President

Edward A. Davidson
Administrative Officer

Andrew J. Irick
Senior Vice President

Michael B. Warnecke
Vice President

Darlene S. Williams
Assistant Vice President

Margaret A. Horstman
Administrative Officer

Margaret L. Foley
Vice President and
Trust Officer

Mary L. Goddard
Vice President

Teresa D. Hoyt
Vice President

James A. Kreckman
Vice President and
Trust Officer

James E. Leathley
Vice President

Simmie Annandale-King
Assistant Vice President

Sharon K. Boysel
Assistant Vice President

Margaret A. Chapman
Assistant Vice President
and Auditor

Terri L. Wyatt
Assistant Vice President
and Trust Officer

Tamara L. Augustine
Banking Officer

Teresa L. Belliveau
Banking Officer

Connie P. Craig
Assistant Vice President

Catherine L. Hill
Trust Officer

Steven B. Duelley
Assistant Vice President

Thomas B. Keehner
Banking Officer

Marcia L. Lyons
Assistant Vice President

Patrick K. Rastatter
Banking Officer

JoAnna S. Jaques
Administrative Officer

Mark D. Klinger
Administrative Officer

Rita A. Riley
Administrative Officer

Anne M. Robinette
Administrative Officer

Jeffrey B. Sanders
Administrative Officer

Officers

United Bank

Donald R. Stone
President

James W. Chapman
Assistant Vice President

Stephen L. Schafer
Assistant Vice President

Wanda S. Massey
Banking Officer

James A. Carr
Senior Vice President

Floyd J. Farmer
Assistant Vice President

Anne K. Spreng
Assistant Vice President

James A. DeSimone
Administrative Officer

Scott E. Bennett
Assistant Vice President

Matthew E. Bickert
Assistant Vice President

Unity National
John A. Brown
President

Richard D. Hancock
Assistant Vice President
and Trust Officer

Monica L. Finney
Banking Officer

David J. Lauthers
Banking Officer

Jennifer J. Kuns
Administrative Officer

Barbara D. McCullough
Administrative Officer

Stephen W. Vallo
Vice President

James R. Stubbs
Assistant Vice President

Douglas R. Eakin
Administrative Officer

Brett A. Baumeister
Senior Vice President

Frank W. Wagner II
Vice President

Carol L. Van Culin
Assistant Vice President

Lisa L. Feeser
Administrative Officer

G. Dwayne Cooper
Vice President

Dean F. Brewer
Assistant Vice President

Vivian J. Bausman
Administrative Officer

Kathy M. Sherman
Administrative Officer

David S. Frey
Vice President

Nathan E. Counts
Assistant Vice President

Vicki L. Burke
Trust Officer

Vision Bank - Alabama

Joey Ginn
Chairman

Lyndsay Job
Senior Vice President

Geneie Scheer
Vice President

Diane Anderson
President

James Kirkland
Senior Vice President

Doug Sizemore
Vice President

Jessica Lopez
Assistant Vice President

Wendy Stacks
Assistant Vice President

Scott Taylor
Assistant Vice President

Alodia Wimpee
Assistant Vice President

Deborah Ard
Banking Officer

Joshua Mims
Banking Officer

Judy Smith
Vice President

Elizabeth Stone
Vice President

Laura Welch
Vice President

Rhonda Willis
Vice President

Lauren Dango
Assistant Vice President

Mary Alice Neyhart
Banking Officer

Janet Ellis
Assistant Vice President

Amy Palmer
Banking Officer

Holly Floyd
Assistant Vice President

Cynthia Paul
Banking Officer

Michelle Kinne
Assistant Vice President

Paige Shoemaker
Banking Officer

Andrew Braswell
Executive Vice President

Tommy Files
Executive Vice President

Darrell Melton
Executive Vice President

Siri Albright
Senior Vice President

Diane Floyd
Senior Vice President

Scott Hardee
Senior Vice President

Karen Harmon
Senior Vice President

George Hawthorne
Senior Vice President

Julie Ralph
Senior Vice President
and Trust Officer

Debra Schmidt
Senior Vice President

Christie Barkley
Vice President

Patricia Campbell
Vice President

Robin Fly
Vice President

Bernard Fogarty
Vice President

Gregory Gontarski
Vice President

William Legrone
Vice President

Officers

Vision Bank - Alabama (continued)

Alina Smith
Banking Officer

Bonita York
Banking Officer

Vision Bank - Florida

Joey Ginn
Chairman

John Whitlock
President

Kyle Adkison
Vice President

Jerry Gaskin
Executive Vice President

Owen Ayers III
Vice President

Carolyn Husband
Executive Vice President

Jeremy Bennett
Vice President

William Lloyd
Executive Vice President

Joan Cleckley
Vice President

Diane Floyd
Senior Vice President

Debbie Driskell
Vice President

Colleen Friesen
Senior Vice President

Chuck Isler
Senior Vice President

Laura Helms
Vice President

Jim Hood
Vice President

John Robbins
Senior Vice President

Scott Robertson
Vice President

Dyan Spurling
Vice President

Cindy Stephens
Vice President

Leslie Welsch
Vice President

Johanna White
Vice President

Jennifer Woods
Vice President

Shawn Pitts
Assistant Vice President

Tammi Smith
Assistant Vice President

Deborah Thompson
Assistant Vice President

Linda Jo Chumney
Banking Officer

Kimberely DePaepe
Banking Officer

Amber Golden
Banking Officer

Karen Fontaine
Assistant Vice President

Terri Little
Banking Officer

John Morgan
Assistant Vice President

Donald Summers
Banking Officer

Anita Mayer
Senior Vice President

Teresa Hugghins
Vice President

Lisa Nicholas
Assistant Vice President

Alisha Mason
Auditor

James Norton
Senior Vice President
and Trust Officer

Joseph Pelter II
Vice President

Chelly Picone
Assistant Vice President

F I N A N C I A L

R E V I E W

F I N A N C I A L

R E V I E W

This financial review presents management’s discussion and analysis of the
financial condition and results of operations for Park National Corporation
(“Park” or the “Corporation”). This discussion should be read in conjunction
with the consolidated financial statements and related notes and the five-year
summary of selected financial data. Management’s discussion and analysis
contains forward-looking statements that are provided to assist in the
understanding of anticipated future financial performance. Forward-looking
statements provide current expectations or forecasts of future events and are
not guarantees of future performance. The forward-looking statements are
based on management’s expectations and are subject to a number of risks
and uncertainties. Although management believes that the expectations reflected
in such forward-looking statements are reasonable, actual results may differ
materially from those expressed or implied in such statements. Risks and
uncertainties that could cause actual results to differ materially include, without
limitation, Park’s ability to execute its business plan, Park’s ability to success-
fully integrate acquisitions into Park’s operations, Park’s ability to achieve the
anticipated cost savings and revenue synergies from acquisitions, Park’s ability
to convert its Ohio-based community banking divisions to one operating system,
changes in general economic and financial market conditions, deterioration in
credit conditions in the markets in which Park’s subsidiary banks operate,
changes in interest rates, changes in the competitive environment, changes in
banking regulations or other regulatory or legislative requirements affecting the
respective businesses of Park and its subsidiaries, changes in accounting poli-
cies or procedures as may be required by the Financial Accounting Standards
Board or other regulatory agencies, demand for loans in the respective market
areas served by Park and its subsidiaries, and other risk factors relating to our
industry as detailed from time to time in Park’s reports filed with the Securities
and Exchange Commission (“SEC”) including those described in “Item 1A.
Risk Factors” of Part I of Park’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2008. Undue reliance should not be placed on the
forward-looking statements, which speak only as of the date of this Annual
Report. Park does not undertake, and specifically disclaims any obligation,
to publicly release the result of any revisions that may be made to update any
forward-looking statement to reflect the events or circumstances after the date
on which the forward-looking statement was made, or reflect the occurrence
of unanticipated events, except to the extent required by law.

ACQUISITION OF VISION BANCSHARES, INC.
AND GOODWILL IMPAIRMENT CHARGES
On March 9, 2007, Park acquired all of the stock and outstanding stock options
of Vision Bancshares, Inc. (“Vision”) for $87.8 million in cash and 792,937
shares of Park common stock valued at $83.3 million or $105.00 per share.
The goodwill recognized was $109.0 million. The fair value of the acquired
assets of Vision was $686.5 million and the fair value of the liabilities assumed
was $624.4 million as of March 9, 2007.

At the time of the acquisition, Vision operated two bank subsidiaries (both
named Vision Bank) which became bank subsidiaries of Park on March 9,
2007. On July 20, 2007, the bank operations of the two Vision Banks were
consolidated under a single charter through the merger of the Vision Bank
headquartered in Gulf Shores, Alabama with and into the Vision Bank
headquartered in Panama City, Florida. Vision Bank operates under a Florida
banking charter and has 18 branch locations in Baldwin County, Alabama
and in the Florida panhandle. The markets that Vision Bank operates in are
expected to grow faster than many of the non-metro markets in which Park’s
subsidiary banks operate in Ohio. Management expects that the acquisition
of Vision will improve the future growth rate for Park’s loans and deposits.
However, the acquisition of Vision had a significant negative impact on
Park’s net income in 2007 and 2008.

Vision Bank began experiencing credit problems during the second half of
2007 as nonperforming loans increased from $6.5 million at June 30, 2007 to
$63.5 million or 9.9% of loan balances at December 31, 2007. As a result of
these credit problems at Vision Bank, Park’s management concluded that the
goodwill of $109.0 million recorded at the time of acquisition was possibly

impaired. A goodwill impairment analysis was completed during the fourth
quarter of 2007 and the conclusion was reached that a goodwill impairment
charge of $54.0 million be recorded at Vision Bank at year-end 2007 to reduce
the goodwill balance to $55.0 million.

Credit problems continued to plague Vision Bank in 2008. Net loan
charge-offs for Vision Bank were $5.5 million during the first quarter or an
annualized 3.37% of average loans and increased to $10.8 million during the
second quarter or an annualized 6.41% of average loans. Based primarily on
the increased level of net loan charge-offs at Vision Bank during the second
quarter of 2008, management determined that it would be prudent to test for
additional goodwill impairment. A goodwill impairment analysis was completed
during the third quarter of 2008 and the conclusion was reached that a good-
will impairment charge of $55.0 million be recorded at Vision Bank during the
third quarter to eliminate the goodwill balance pertaining to Vision Bank.

OVERVIEW
Net income for 2008 was $13.7 million, compared to $22.7 million for 2007
and $94.1 million for 2006. Net income decreased by 39.6% in 2008 compared
to 2007 and decreased by 75.9% in 2007 compared to 2006. The primary
reason for the much lower net income in 2008 and 2007 was the net loss at
Vision Bank of $81.2 million in 2008 and $60.7 million from the date of the
acquisition (March 9, 2007) through December 31, 2007. As previously
discussed, Vision Bank recognized goodwill impairment charges of $55.0
million in 2008 and $54.0 million in 2007.

Diluted earnings per common share were $.97, $1.60 and $6.74 for 2008,
2007 and 2006, respectively. Diluted earnings per common share decreased
by 39.4% in 2008 compared to 2007 and decreased by 76.3% in 2007
compared to 2006.

The following tables show the components of net income for 2008, 2007 and
2006. This information is provided for Park, Vision Bank and Park excluding
Vision Bank.

Park – Summary Income Statements
(For the years ended December 31, 2008, 2007 and 2006)

(In thousands)

Net interest income

Provision for loan losses

Other income

Other expense

Goodwill impairment charge

Income before taxes

Income taxes

Net income

2008

2007

2006

$255,873

$234,677

$213,244

70,487

84,834

29,476

71,640

3,927

64,762

179,515

170,129

141,002

54,986

35,719

22,011

54,035

52,677

29,970

—

133,077

38,986

$ 13,708

$ 22,707

$ 94,091

Vision Bank – Summary Income Statements
(For the years ended December 31, 2008 and 2007)

(In thousands)

Net interest income

Provision for loan losses

Other income

Other expense

Goodwill impairment charge

Loss before taxes

Income taxes

Net loss

2008

2007

$ 27,065

$ 23,756

46,963

3,014

27,149

54,986

(99,019)

(17,832)

19,425

3,465

18,545

54,035

(64,784)

(4,103)

$(81,187)

$(60,681)

Park acquired Vision Bank on March 9, 2007 and the summary income
statement for 2007 includes the results from the date of acquisition through
year-end 2007. No comparable results are listed for Vision Bank for 2006.

Vision Bank began experiencing credit problems during the third quarter

of 2007 and the credit problems continued throughout 2008. Vision’s net

loan charge-offs were $38.5 million in 2008 and $8.6 million in 2007. As

a percentage of average loans, net loan charge-offs were 5.69% in 2008

and an annualized 1.71% in 2007. These severe credit problems resulted

in recognition of the goodwill impairment charges of $55.0 million in 2008

and $54.0 million in 2007.

Park Excluding Vision Bank – Summary Income Statements

(For the years ended December 31, 2008, 2007 and 2006)

(In thousands)

Net interest income

Provision for loan losses

Other income

Other expense

Goodwill impairment charge

Income before taxes

Income taxes

Net income

2008

2007

2006

$228,808

$210,921

$213,244

152,366

151,584

141,002

23,524

81,820

—

134,738

39,843

10,051

68,175

—

117,461

34,073

3,927

64,762

—

133,077

38,986

$ 94,895

$ 83,388

$ 94,091

Net income for Park excluding Vision Bank increased by $11.5 million or

13.8% in 2008 compared to 2007 and decreased by $10.7 million or 11.4%

in 2007 compared to 2006.

SUMMARY DISCUSSION OF OPERATING RESULTS FOR PARK

A year ago, Park’s management projected that net interest income would be

$240 million to $242 million in 2008. The actual results in 2008 of $255.9

million exceeded the top of the estimated range by $13.9 million or 5.7%.

Park’s management also projected a year ago that the provision for loan

losses would be approximately $20 million to $25 million and that the net loan

charge-off ratio would be approximately .45% to .55% in 2008. We included

the following statement with this projection: “This estimate could change

significantly as circumstances for individual loans and economic conditions

change.” Indeed, economic conditions did change significantly as the economy

in the United States moved into a severe recession. The provision for loan losses

for 2008 was $70.5 million and exceeded the top of the estimated range by

$45.5 million or 181.9%. The net loan charge-off ratio for 2008 was 1.32%

and exceeded the top of the estimated range by .77% or 140.0%.

Other income for 2008 was $84.8 million and exceeded the year ago estimated

amount of $77.4 million by $7.4 million or 10.0%. The other income for 2008

included some “one-time” items that on a net basis added approximately $13.3

million to other income in 2008. The positive “one-time” items included $3.1

million of income recognized as a result of the initial public offering of Visa,

Inc. and an aggregate of $11.8 million of income recognized from the sale

of the unsecured credit card portfolio and from the sale of the merchant

processing business. Fee income was reduced by a write-down in mortgage

loan servicing rights of $1.6 million which resulted from the sharp decrease

in long-term interest rates on fixed rate residential mortgage loans. The net

positive impact on other income from these “one-time” items was approxi-

mately $13.3 million.

A year ago, Park’s management projected that total other expense would be

approximately $177 million in 2008. Total other expense (excluding the

goodwill impairment charge of $55.0 million) was $179.5 million and

exceeded management’s estimate by $2.5 million or 1.4%.

In summary, the actual results for net interest income, other income and other

expense (excluding goodwill impairment charges) exceeded the estimated

projections from a year ago by $13.9 million, $7.4 million and $2.5 million,

respectively. The net positive impact on income before taxes from these

variances was a positive $18.8 million. However, due to severe economic

conditions the provision for loan losses exceeded the estimate from a year

ago by $45.5 million and an additional goodwill impairment charge of

$55.0 million was recognized at Vision Bank.

ISSUANCE OF PREFERRED STOCK AND

EMERGENCY ECONOMIC STABILIZATION ACT

On October 3, 2008, Congress passed the Emergency Economic Stabilization

Act of 2008 (“EESA”), which creates the Troubled Asset Relief Program

(“TARP”) and provides the Secretary of the Treasury with broad authority

to implement certain actions to help restore stability and liquidity to U.S.

markets. The Capital Purchase Program (the “CPP”) was announced by the

U.S. Department of the Treasury (the “U.S. Treasury”) on October 14, 2008

as part of TARP. Pursuant to the CPP, the U.S. Treasury will purchase up to

$250 billion of senior preferred shares on standardized terms from qualifying

financial institutions. The purpose of the CPP is to encourage U.S. financial

institutions to build capital to increase the flow of financing to U.S. businesses

and consumers and to support the U.S. economy.

The CPP is voluntary and requires a participating institution to comply with

a number of restrictions and provisions, including standards for executive

compensation and corporate governance and limitations on share repurchases

and the declaration and payment of dividends on common shares.

Eligible financial institutions could generally apply to issue preferred shares

to the U.S. Treasury in aggregate amounts between 1% to 3% of the institution’s

risk-weighted assets. Park was eligible to apply to the U.S. Treasury for between

approximately $47 million and $141 million of funding. Park elected to apply

for $100 million of funds though the CPP and its application was approved on

December 1, 2008.

On December 23, 2008, Park completed the sale to the Treasury of $100.0

million of newly issued Park non-voting preferred shares as part of the CPP.

Park entered into a Securities Purchase Agreement and a Letter Agreement

with the U.S. Treasury on December 23, 2008. Pursuant to these agreements,

Park issued and sold to the U.S. Treasury: (i) 100,000 of Park’s Fixed Rate

Cumulative Perpetual Preferred Shares, Series A, each without par value and

having a liquidation preference of $1,000 per share (the “Series A Preferred

Shares”); and (ii) a warrant (the “Warrant”) to purchase 227,376 Park

common shares at an exercise price of $65.97 per share, for an aggregate

purchase price of $100.0 million. The Warrant has a ten-year term. All of

the proceeds from the sale of the Series A Preferred Shares and the Warrant

by Park to the U.S. Treasury under the CPP will qualify as Tier 1 capital for

regulatory purposes.

The $100 million in proceeds from the issuance of the preferred shares

and related warrant are being used to help fund an increase in loan balances.

U.S. generally accepted accounting principles require management to allocate

the proceeds from the issuance of the Series A preferred stock between the

Series A preferred stock and related warrant. The terms of the preferred shares

require management to pay a cumulative dividend at the rate of 5 percent per

annum for the first five years and 9 percent thereafter. Management has deter-

mined that the 5 percent dividend rate is below market value; therefore, the fair

value of the preferred shares would be less than the $100 million in proceeds.

Management determined that a reasonable market discount rate is 12 percent

for the fair value of preferred shares. Management used the Black-Scholes

model for calculating the fair value of the warrant (and related common

shares). The allocation between the preferred shares and warrant at December

23, 2008, the date of issuance, was $95.7 million and $4.3 million, respectively.

The discount on the preferred shares of $4.3 million will be accreted through

retained earnings using the level yield method over a 60-month period. SFAS

No. 128 “Earnings Per Share” requires Park to measure earnings per share

with earnings available to common shareholders. Therefore, the Consolidated

Statements of Income reflect a line item called “Income Available to Common

Shareholders.” For the year ended December 31, 2008, in arriving at Income

Available to Common Shareholders, net income of $13,708,000 has been

reduced by $142,000, which reflects the impact of the accrual of the 5 percent

dividend on the preferred shares and the accretion on the discount for the

nine days they were outstanding during 2008. For the twelve months ended

December 31, 2009, the total amount of Preferred Stock Dividends that will

reduce net income in arriving at Income Available to Common Shareholders

F I N A N C I A L

R E V I E W

F I N A N C I A L

R E V I E W

This financial review presents management’s discussion and analysis of the

financial condition and results of operations for Park National Corporation

impaired. A goodwill impairment analysis was completed during the fourth

quarter of 2007 and the conclusion was reached that a goodwill impairment

(“Park” or the “Corporation”). This discussion should be read in conjunction

charge of $54.0 million be recorded at Vision Bank at year-end 2007 to reduce

with the consolidated financial statements and related notes and the five-year

the goodwill balance to $55.0 million.

summary of selected financial data. Management’s discussion and analysis

contains forward-looking statements that are provided to assist in the

understanding of anticipated future financial performance. Forward-looking

statements provide current expectations or forecasts of future events and are

not guarantees of future performance. The forward-looking statements are

based on management’s expectations and are subject to a number of risks

and uncertainties. Although management believes that the expectations reflected

in such forward-looking statements are reasonable, actual results may differ

materially from those expressed or implied in such statements. Risks and

uncertainties that could cause actual results to differ materially include, without

limitation, Park’s ability to execute its business plan, Park’s ability to success-

fully integrate acquisitions into Park’s operations, Park’s ability to achieve the

anticipated cost savings and revenue synergies from acquisitions, Park’s ability

to convert its Ohio-based community banking divisions to one operating system,

changes in general economic and financial market conditions, deterioration in

credit conditions in the markets in which Park’s subsidiary banks operate,

changes in interest rates, changes in the competitive environment, changes in

banking regulations or other regulatory or legislative requirements affecting the

respective businesses of Park and its subsidiaries, changes in accounting poli-

cies or procedures as may be required by the Financial Accounting Standards

Board or other regulatory agencies, demand for loans in the respective market

areas served by Park and its subsidiaries, and other risk factors relating to our

industry as detailed from time to time in Park’s reports filed with the Securities

and Exchange Commission (“SEC”) including those described in “Item 1A.

Risk Factors” of Part I of Park’s Annual Report on Form 10-K for the fiscal

year ended December 31, 2008. Undue reliance should not be placed on the

forward-looking statements, which speak only as of the date of this Annual

Report. Park does not undertake, and specifically disclaims any obligation,

to publicly release the result of any revisions that may be made to update any

forward-looking statement to reflect the events or circumstances after the date

on which the forward-looking statement was made, or reflect the occurrence

of unanticipated events, except to the extent required by law.

ACQUISITION OF VISION BANCSHARES, INC.

AND GOODWILL IMPAIRMENT CHARGES

On March 9, 2007, Park acquired all of the stock and outstanding stock options

of Vision Bancshares, Inc. (“Vision”) for $87.8 million in cash and 792,937

shares of Park common stock valued at $83.3 million or $105.00 per share.

The goodwill recognized was $109.0 million. The fair value of the acquired

assets of Vision was $686.5 million and the fair value of the liabilities assumed

was $624.4 million as of March 9, 2007.

At the time of the acquisition, Vision operated two bank subsidiaries (both

named Vision Bank) which became bank subsidiaries of Park on March 9,

2007. On July 20, 2007, the bank operations of the two Vision Banks were

consolidated under a single charter through the merger of the Vision Bank

headquartered in Gulf Shores, Alabama with and into the Vision Bank

headquartered in Panama City, Florida. Vision Bank operates under a Florida

banking charter and has 18 branch locations in Baldwin County, Alabama

and in the Florida panhandle. The markets that Vision Bank operates in are

expected to grow faster than many of the non-metro markets in which Park’s

subsidiary banks operate in Ohio. Management expects that the acquisition

of Vision will improve the future growth rate for Park’s loans and deposits.

However, the acquisition of Vision had a significant negative impact on

Park’s net income in 2007 and 2008.

Vision Bank began experiencing credit problems during the second half of

2007 as nonperforming loans increased from $6.5 million at June 30, 2007 to

$63.5 million or 9.9% of loan balances at December 31, 2007. As a result of

these credit problems at Vision Bank, Park’s management concluded that the

goodwill of $109.0 million recorded at the time of acquisition was possibly

Credit problems continued to plague Vision Bank in 2008. Net loan

charge-offs for Vision Bank were $5.5 million during the first quarter or an

annualized 3.37% of average loans and increased to $10.8 million during the

second quarter or an annualized 6.41% of average loans. Based primarily on

the increased level of net loan charge-offs at Vision Bank during the second

quarter of 2008, management determined that it would be prudent to test for

additional goodwill impairment. A goodwill impairment analysis was completed

during the third quarter of 2008 and the conclusion was reached that a good-

will impairment charge of $55.0 million be recorded at Vision Bank during the

third quarter to eliminate the goodwill balance pertaining to Vision Bank.

OVERVIEW

Net income for 2008 was $13.7 million, compared to $22.7 million for 2007

and $94.1 million for 2006. Net income decreased by 39.6% in 2008 compared

to 2007 and decreased by 75.9% in 2007 compared to 2006. The primary

reason for the much lower net income in 2008 and 2007 was the net loss at

Vision Bank of $81.2 million in 2008 and $60.7 million from the date of the

acquisition (March 9, 2007) through December 31, 2007. As previously

discussed, Vision Bank recognized goodwill impairment charges of $55.0

million in 2008 and $54.0 million in 2007.

Diluted earnings per common share were $.97, $1.60 and $6.74 for 2008,

2007 and 2006, respectively. Diluted earnings per common share decreased

by 39.4% in 2008 compared to 2007 and decreased by 76.3% in 2007

compared to 2006.

Vision Bank.

The following tables show the components of net income for 2008, 2007 and

2006. This information is provided for Park, Vision Bank and Park excluding

Park – Summary Income Statements

(For the years ended December 31, 2008, 2007 and 2006)

(In thousands)

Net interest income

Provision for loan losses

Other income

Other expense

Goodwill impairment charge

Income before taxes

Income taxes

Net income

(In thousands)

Net interest income

Provision for loan losses

Other income

Other expense

Goodwill impairment charge

Loss before taxes

Income taxes

Net loss

2008

2007

2006

$255,873

$234,677

$213,244

179,515

170,129

141,002

70,487

84,834

54,986

35,719

22,011

29,476

71,640

54,035

52,677

29,970

3,927

64,762

—

133,077

38,986

$ 13,708

$ 22,707

$ 94,091

2008

2007

$ 27,065

$ 23,756

46,963

3,014

27,149

54,986

(99,019)

(17,832)

19,425

3,465

18,545

54,035

(64,784)

(4,103)

$(81,187)

$(60,681)

Vision Bank – Summary Income Statements

(For the years ended December 31, 2008 and 2007)

Park acquired Vision Bank on March 9, 2007 and the summary income

statement for 2007 includes the results from the date of acquisition through

year-end 2007. No comparable results are listed for Vision Bank for 2006.

Vision Bank began experiencing credit problems during the third quarter
of 2007 and the credit problems continued throughout 2008. Vision’s net
loan charge-offs were $38.5 million in 2008 and $8.6 million in 2007. As
a percentage of average loans, net loan charge-offs were 5.69% in 2008
and an annualized 1.71% in 2007. These severe credit problems resulted
in recognition of the goodwill impairment charges of $55.0 million in 2008
and $54.0 million in 2007.

Park Excluding Vision Bank – Summary Income Statements
(For the years ended December 31, 2008, 2007 and 2006)

(In thousands)

Net interest income

Provision for loan losses

Other income

Other expense

Goodwill impairment charge

Income before taxes

Income taxes

Net income

2008

2007

2006

$228,808

$210,921

$213,244

23,524

81,820

10,051

68,175

3,927

64,762

152,366

151,584

141,002

—

134,738

39,843

—

117,461

34,073

—

133,077

38,986

$ 94,895

$ 83,388

$ 94,091

Net income for Park excluding Vision Bank increased by $11.5 million or
13.8% in 2008 compared to 2007 and decreased by $10.7 million or 11.4%
in 2007 compared to 2006.

SUMMARY DISCUSSION OF OPERATING RESULTS FOR PARK
A year ago, Park’s management projected that net interest income would be
$240 million to $242 million in 2008. The actual results in 2008 of $255.9
million exceeded the top of the estimated range by $13.9 million or 5.7%.

Park’s management also projected a year ago that the provision for loan
losses would be approximately $20 million to $25 million and that the net loan
charge-off ratio would be approximately .45% to .55% in 2008. We included
the following statement with this projection: “This estimate could change
significantly as circumstances for individual loans and economic conditions
change.” Indeed, economic conditions did change significantly as the economy
in the United States moved into a severe recession. The provision for loan losses
for 2008 was $70.5 million and exceeded the top of the estimated range by
$45.5 million or 181.9%. The net loan charge-off ratio for 2008 was 1.32%
and exceeded the top of the estimated range by .77% or 140.0%.

Other income for 2008 was $84.8 million and exceeded the year ago estimated
amount of $77.4 million by $7.4 million or 10.0%. The other income for 2008
included some “one-time” items that on a net basis added approximately $13.3
million to other income in 2008. The positive “one-time” items included $3.1
million of income recognized as a result of the initial public offering of Visa,
Inc. and an aggregate of $11.8 million of income recognized from the sale
of the unsecured credit card portfolio and from the sale of the merchant
processing business. Fee income was reduced by a write-down in mortgage
loan servicing rights of $1.6 million which resulted from the sharp decrease
in long-term interest rates on fixed rate residential mortgage loans. The net
positive impact on other income from these “one-time” items was approxi-
mately $13.3 million.

A year ago, Park’s management projected that total other expense would be
approximately $177 million in 2008. Total other expense (excluding the
goodwill impairment charge of $55.0 million) was $179.5 million and
exceeded management’s estimate by $2.5 million or 1.4%.

In summary, the actual results for net interest income, other income and other
expense (excluding goodwill impairment charges) exceeded the estimated
projections from a year ago by $13.9 million, $7.4 million and $2.5 million,
respectively. The net positive impact on income before taxes from these
variances was a positive $18.8 million. However, due to severe economic
conditions the provision for loan losses exceeded the estimate from a year
ago by $45.5 million and an additional goodwill impairment charge of
$55.0 million was recognized at Vision Bank.

ISSUANCE OF PREFERRED STOCK AND
EMERGENCY ECONOMIC STABILIZATION ACT
On October 3, 2008, Congress passed the Emergency Economic Stabilization
Act of 2008 (“EESA”), which creates the Troubled Asset Relief Program
(“TARP”) and provides the Secretary of the Treasury with broad authority
to implement certain actions to help restore stability and liquidity to U.S.
markets. The Capital Purchase Program (the “CPP”) was announced by the
U.S. Department of the Treasury (the “U.S. Treasury”) on October 14, 2008
as part of TARP. Pursuant to the CPP, the U.S. Treasury will purchase up to
$250 billion of senior preferred shares on standardized terms from qualifying
financial institutions. The purpose of the CPP is to encourage U.S. financial
institutions to build capital to increase the flow of financing to U.S. businesses
and consumers and to support the U.S. economy.

Eligible financial institutions could generally apply to issue preferred shares
to the U.S. Treasury in aggregate amounts between 1% to 3% of the institution’s
risk-weighted assets. Park was eligible to apply to the U.S. Treasury for between
approximately $47 million and $141 million of funding. Park elected to apply
for $100 million of funds though the CPP and its application was approved on
December 1, 2008.

On December 23, 2008, Park completed the sale to the Treasury of $100.0
million of newly issued Park non-voting preferred shares as part of the CPP.
Park entered into a Securities Purchase Agreement and a Letter Agreement
with the U.S. Treasury on December 23, 2008. Pursuant to these agreements,
Park issued and sold to the U.S. Treasury: (i) 100,000 of Park’s Fixed Rate
Cumulative Perpetual Preferred Shares, Series A, each without par value and
having a liquidation preference of $1,000 per share (the “Series A Preferred
Shares”); and (ii) a warrant (the “Warrant”) to purchase 227,376 Park
common shares at an exercise price of $65.97 per share, for an aggregate
purchase price of $100.0 million. The Warrant has a ten-year term. All of
the proceeds from the sale of the Series A Preferred Shares and the Warrant
by Park to the U.S. Treasury under the CPP will qualify as Tier 1 capital for
regulatory purposes.

The $100 million in proceeds from the issuance of the preferred shares
and related warrant are being used to help fund an increase in loan balances.
U.S. generally accepted accounting principles require management to allocate
the proceeds from the issuance of the Series A preferred stock between the
Series A preferred stock and related warrant. The terms of the preferred shares
require management to pay a cumulative dividend at the rate of 5 percent per
annum for the first five years and 9 percent thereafter. Management has deter-
mined that the 5 percent dividend rate is below market value; therefore, the fair
value of the preferred shares would be less than the $100 million in proceeds.
Management determined that a reasonable market discount rate is 12 percent
for the fair value of preferred shares. Management used the Black-Scholes
model for calculating the fair value of the warrant (and related common
shares). The allocation between the preferred shares and warrant at December
23, 2008, the date of issuance, was $95.7 million and $4.3 million, respectively.
The discount on the preferred shares of $4.3 million will be accreted through
retained earnings using the level yield method over a 60-month period. SFAS
No. 128 “Earnings Per Share” requires Park to measure earnings per share
with earnings available to common shareholders. Therefore, the Consolidated
Statements of Income reflect a line item called “Income Available to Common
Shareholders.” For the year ended December 31, 2008, in arriving at Income
Available to Common Shareholders, net income of $13,708,000 has been
reduced by $142,000, which reflects the impact of the accrual of the 5 percent
dividend on the preferred shares and the accretion on the discount for the
nine days they were outstanding during 2008. For the twelve months ended
December 31, 2009, the total amount of Preferred Stock Dividends that will
reduce net income in arriving at Income Available to Common Shareholders

F I N A N C I A L

R E V I E W

F I N A N C I A L

R E V I E W

will be $5,761,000, which includes $761,000 of accretion on the discount of
the preferred shares.

See Note 1 and Note 25 of the Notes to Consolidated Financial Statements for
additional information on the issuance of preferred stock.

DIVIDENDS ON COMMON SHARES
Park declared quarterly cash dividends on common shares in 2008 that totaled
$3.77 per share. The quarterly cash dividend on common shares was $.94 per
share for the first three quarters of 2008 and increased to $.95 per share for
the fourth quarter.

Under the terms of the Securities Purchase Agreement with the U.S. Treasury
under the CPP, Park is not permitted to increase the quarterly cash dividend on
its common shares above $.94 per share without seeking prior approval from
the U.S. Treasury.

Cash dividends declared on common shares were $3.77 in 2008, $3.73 in 2007
and $3.69 in 2006. Park’s management expects to pay a quarterly cash dividend
on common shares of $.94 per quarter in 2009.

CONSOLIDATION OF OHIO BANKING CHARTERS
On July 30, 2007, Park announced a plan to review current processes and
identify opportunities to improve efficiency by converting to one operating
system. One outcome of this initiative (“Project EPS”) was the consolidation
of the eight banking charters of Park’s Ohio-based subsidiary banks into one
national bank charter, The Park National Bank (“PNB”), during the third
quarter of 2008. PNB operates with twelve banking divisions. See Table 1
for a complete listing of the banking divisions.

BRANCH PURCHASE AND BANK ACQUISITION
On September 21, 2007, a national bank subsidiary of Park, The First-Knox
National Bank of Mount Vernon (“FKNB”), acquired the Millersburg, Ohio
banking office (the “Millersburg branch”) of Ohio Legacy Bank, N.A. (“Ohio
Legacy”). FKNB acquired substantially all of the loans administered at the
Millersburg branch of Ohio Legacy and assumed substantially all of the deposit
liabilities relating to the deposit accounts assigned to the Millersburg branch.
The fair value of the loans acquired was approximately $38.3 million and the
fair value of the deposit liabilities assumed was approximately $23.5 million.

FKNB paid a premium of approximately $1.7 million in connection with the
purchase of the deposit liabilities. FKNB recognized a loan premium adjustment
of $700,000 and a certificate of deposit adjustment of $300,000, resulting in
the recording of a core deposit intangible of $2.7 million. No goodwill was
recognized as part of this transaction. In addition, FKNB paid $900,000 for
the acquisition of the branch office building that Ohio Legacy was leasing
from a third party.

On December 18, 2006, Park acquired Anderson Bank Company (“Anderson”)
of Cincinnati, Ohio for $17.7 million in a cash and stock transaction. Park
paid the shareholders of Anderson aggregate consideration consisting of
$9.052 million in cash and 86,137 common shares of Park valued at $8.665
million. Anderson merged with Park’s subsidiary bank, PNB. Anderson’s two
offices are being operated as part of the operating division of PNB known as
The Park National Bank of Southwest Ohio & Northern Kentucky (“PSW”).
The fair value of the acquired assets of Anderson was $69.7 million and the
fair value of the liabilities assumed was $62.6 million at December 18, 2006.
The goodwill recognized as a result of this acquisition was $10.6 million.

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. generally accepted accounting principles and general
practices within the financial services industry. The preparation of financial
statements in conformity with U.S. generally accepted accounting principles

requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and the accompanying notes.
Actual results could differ from those estimates.

Park considers that the determination of the allowance for loan losses
involves a higher degree of judgment and complexity than its other significant
accounting policies. The allowance for loan losses is calculated with the
objective of maintaining a reserve level believed by management to be sufficient
to absorb probable incurred credit losses in the loan portfolio. Management’s
determination of the adequacy of the allowance for loan losses is based on
periodic evaluations of the loan portfolio and of current economic conditions.
However, this evaluation is inherently subjective as it requires material
estimates, including expected default probabilities, the loss given default, the
amounts and timing of expected future cash flows on impaired loans, and
estimated losses on consumer loans and residential mortgage loans based on
historical loss experience and the current economic conditions. All of those
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.

Management’s assessment of the adequacy of the allowance for loan losses
considers individual impaired loans, pools of homogeneous loans with similar
risk characteristics and other environmental risk factors. This assessment is
updated on a quarterly basis. The allowance established for individual impaired
loans, in accordance with SFAS No. 114, as amended by SFAS No. 118, reflects
expected losses resulting from analyses developed through specific credit
allocations for individual loans. The specific credit allocations are based on
regular analyses of commercial, commercial real estate and construction loans
where the internal credit rating is at or below a predetermined classification.
These analyses involve a high degree of judgment in estimating the amount of
loss associated with specific impaired loans. For the years ended December 31,
2008, 2007 and 2006, management has allocated $8.7 million, $3.4 million
and $2.0 million, respectively, to individually impaired loans.

Pools of homogeneous loans with similar risk characteristics are also
assessed for probable losses. A loss migration analysis is performed on certain
commercial, commercial real estate loans and construction loans. These are
loans above a fixed dollar amount that are assigned an internal credit rating.
Generally, residential real estate loans and consumer loans are not individually
graded. The amount of loan loss reserve assigned to these loans, under SFAS
No. 5, is dependent on their net charge-off history and other qualitative factors.

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

Park’s recent adoption of SFAS No. 157 (See Note 21 of the Notes to
Consolidated Financial Statements) on January 1, 2008 required management
to establish a fair value hierarchy, which has the objective of maximizing the use
of observable market inputs. SFAS No. 157 also requires enhanced disclosures
regarding the inputs used to calculate fair value. These inputs are classified as
Level 1, 2, and 3. Level 3 inputs are those with significant unobservable inputs
that reflect a company’s own assumptions about the market for a particular
instrument. Some of the inputs could be based on internal models and cash
flow analysis. At December 31, 2008, financial assets valued using Level 3
inputs for Park had an aggregate fair value of approximately $78.6 million.
This was 4.8% of the total amount of assets measured at fair value as of the
end of the year. The fair value of impaired loans was approximately $75.9
million (or 97%) of the total amount of Level 3 inputs. 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

A table of financial data of Park’s subsidiaries and banking divisions for 2008,

the use of matrix pricing, which is a mathematical technique widely used in the

2007 and 2006 is shown below. See Note 23 of the Notes to Consolidated

financial services industry to value debt securities without relying exclusively

Financial Statements for additional information on the Corporation’s sub-

on quoted market prices for the specific securities but rather by relying on the

sidiaries. Please note that the financial statements for various divisions of

securities’ relationship to other benchmark quoted securities.

PNB are not maintained on a separate basis and therefore net income is

only an estimate by management.

Table 1 – Park National Corporation Affiliate Financial Data

Management believes that the accounting for goodwill and other intangible

assets also involves a higher degree of judgment than most other significant

accounting policies. SFAS No. 142, “Goodwill and Other Intangible Assets,”

establishes standards for the amortization of acquired intangible assets and

the impairment assessment of goodwill. Goodwill arising from business com-

binations represents the value attributable to unidentifiable intangible assets

in the business acquired. Park’s goodwill relates to the value inherent in the

banking industry and that value is dependent upon the ability of Park’s banking

subsidiaries to provide quality, cost-effective banking services in a competitive

marketplace. The goodwill value is supported by revenue that is in part driven

by the volume of business transacted. A decrease in earnings resulting from a

decline in the customer base, the inability to deliver cost-effective services over

sustained periods or significant credit problems can lead to impairment of

goodwill that could adversely impact earnings in future periods. SFAS No. 142

requires an annual evaluation of goodwill for impairment, or more frequently

if events or changes in circumstances indicate that the asset might be impaired.

The fair value of the goodwill, which resides on the books of Park’s subsidiary

banks, is estimated by reviewing the past and projected operating results for the

Park subsidiary banks, deposit and loan totals for the Park subsidiary banks

and banking industry comparable information.

During the three months ended September 30, 2008, Park’s management

determined that the credit conditions at Vision Bank had further deteriorated

and that an impairment analysis of the goodwill balance at Vision Bank was

required. As a result of this impairment analysis, Vision Bank recorded a

goodwill impairment charge of $55.0 million during the third quarter of 2008,

which eliminated the goodwill asset at Vision Bank. Previously, Vision Bank

recorded a goodwill impairment charge of $54.0 million during the fourth

quarter of 2007 which had reduced the goodwill balance carried on the books

of Vision Bank to $55.0 million from the original goodwill asset of $109.0

million.

At December 31, 2008, on a consolidated basis, Park had core deposit

intangibles of $13.2 million subject to amortization and $72.3 million of

goodwill, which was not subject to periodic amortization. The core deposit

intangibles recorded on the balance sheet of Park National Bank totaled

$4.4 million and the core deposit intangibles at Vision Bank were $8.8 million.

The goodwill asset of $72.3 million is carried on the balance sheet of Park

National Bank.

ABOUT OUR BUSINESS

Through its Ohio-based banking divisions, Park is engaged in the commercial

banking and trust business, generally in small to medium population Ohio

communities and through Vision Bank in Baldwin County, Alabama and in

the Florida panhandle. Management believes there is 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 and investment

banking operations, Park attempts to meet the needs of its customers for

commercial, real estate and consumer loans, consumer and commercial

leases, and investment, fiduciary and deposit services.

Park’s subsidiaries compete for deposits and loans with other banks,

savings associations, credit unions and other types of financial institutions.

At December 31, 2008, Park and its Ohio-based banking divisions operated

128 offices and a network of 147 automatic teller machines in 29 Ohio counties

and one county in northern Kentucky. Vision Bank operated 18 offices and a

network of 21 automatic teller machines in Baldwin County, Alabama and in

6 counties in the panhandle of Florida.

2008

2007

2006

Average

Assets

Net

Income

Average

Assets

Net

Income

Average

Assets

Net

Income

$1,839,012 $25,445 $1,492,652 $24,830

$1,503,420 $26,577

337,355

7,332

332,564

6,322

338,183

6,457

416,398

1,506

398,517

(69)

288,189

1,331

526,989

8,946

529,175

5,915

496,481

7,987

711,162

12,995

720,781

11,913

719,864

10,149

658,151

12,718

656,406

10,891

639,969

11,406

(In thousands)

Park National Bank:

Park National

Division

Fairfield National

Division

Park National SW &

N KY Division

Richland Trust

Division

Century National

Division

First-Knox National

Division

Farmers & Savings

Division

Second National

Division

Security National

Division

Unity National

Division

Citizens National

Parent Company,

including consolidating

entries

Consolidated

Totals

SOURCE OF FUNDS

United Bank Division

214,074

119,014

2,042

3,467

129,133

207,493

2,292

2,410

132,222

218,358

2,308

2,537

423,062

5,752

403,114

4,847

386,139

4,705

670,041

10,748

685,718

10,609

766,298

11,931

190,739

2,061

192,382

1,290

190,751

986

Division

Vision Bank

150,530

2,253

150,083

1,830

166,611

1,854

904,420 (81,187)

698,788

(60,681)

—

(452,861)

(370)

(427,650)

308

(465,862)

5,863

$6,708,086 $13,708 $6,169,156 $22,707

$5,380,623 $94,091

Deposits: Park’s major source of funds is provided by core deposits from

individuals, businesses and local government units. These core deposits consist

of all noninterest bearing and interest bearing deposits, excluding certificates

of deposit of $100,000 and over and deposits obtained through the use of

brokers. Core deposits were 78.1% of total deposits at year-end 2008,

compared to 85.5% at year-end 2007 and 88.2% at year-end 2006.

Total year-end deposits increased by $323 million or 7.3% in 2008. However,

$236 million of the growth in deposits came from the use of broker deposits.

Excluding the broker deposits, total year-end deposits increased by $87 million

or 2.0%. In 2008, Vision Bank’s year-end total deposits decreased by $20

million or 3.1% and the Ohio-based banking division increased deposits

by $107 million or 2.8%.

In 2007, year-end total deposits increased by $13 million or .3% exclusive of

the $577 million of deposits that were acquired in the Vision acquisition and

exclusive of the $23 million in deposits that were acquired in the purchase of

the Millersburg, Ohio branch office. During 2007, the deposits of Vision Bank

increased by approximately $80 million or 13.8% from the date of acquisition

(March 9, 2007) through year-end. By comparison, the deposits for Park’s

Ohio-based banks decreased by $67 million or 1.7% during 2007.

Average total deposits were $4,603 million in 2008 compared to $4,403 million

in 2007 and $3,825 million in 2006. Average noninterest bearing deposits were

$740 million in 2008 compared to $697 million in 2007 and $662 million

in 2006.

F I N A N C I A L

R E V I E W

F I N A N C I A L

R E V I E W

will be $5,761,000, which includes $761,000 of accretion on the discount of

requires management to make estimates and assumptions that affect the

the preferred shares.

See Note 1 and Note 25 of the Notes to Consolidated Financial Statements for

additional information on the issuance of preferred stock.

DIVIDENDS ON COMMON SHARES

Park declared quarterly cash dividends on common shares in 2008 that totaled

$3.77 per share. The quarterly cash dividend on common shares was $.94 per

share for the first three quarters of 2008 and increased to $.95 per share for

the fourth quarter.

Under the terms of the Securities Purchase Agreement with the U.S. Treasury

under the CPP, Park is not permitted to increase the quarterly cash dividend on

its common shares above $.94 per share without seeking prior approval from

the U.S. Treasury.

Cash dividends declared on common shares were $3.77 in 2008, $3.73 in 2007

and $3.69 in 2006. Park’s management expects to pay a quarterly cash dividend

on common shares of $.94 per quarter in 2009.

CONSOLIDATION OF OHIO BANKING CHARTERS

On July 30, 2007, Park announced a plan to review current processes and

identify opportunities to improve efficiency by converting to one operating

system. One outcome of this initiative (“Project EPS”) was the consolidation

of the eight banking charters of Park’s Ohio-based subsidiary banks into one

national bank charter, The Park National Bank (“PNB”), during the third

quarter of 2008. PNB operates with twelve banking divisions. See Table 1

for a complete listing of the banking divisions.

BRANCH PURCHASE AND BANK ACQUISITION

On September 21, 2007, a national bank subsidiary of Park, The First-Knox

National Bank of Mount Vernon (“FKNB”), acquired the Millersburg, Ohio

banking office (the “Millersburg branch”) of Ohio Legacy Bank, N.A. (“Ohio

Legacy”). FKNB acquired substantially all of the loans administered at the

Millersburg branch of Ohio Legacy and assumed substantially all of the deposit

liabilities relating to the deposit accounts assigned to the Millersburg branch.

The fair value of the loans acquired was approximately $38.3 million and the

fair value of the deposit liabilities assumed was approximately $23.5 million.

FKNB paid a premium of approximately $1.7 million in connection with the

purchase of the deposit liabilities. FKNB recognized a loan premium adjustment

of $700,000 and a certificate of deposit adjustment of $300,000, resulting in

the recording of a core deposit intangible of $2.7 million. No goodwill was

recognized as part of this transaction. In addition, FKNB paid $900,000 for

the acquisition of the branch office building that Ohio Legacy was leasing

from a third party.

On December 18, 2006, Park acquired Anderson Bank Company (“Anderson”)

of Cincinnati, Ohio for $17.7 million in a cash and stock transaction. Park

paid the shareholders of Anderson aggregate consideration consisting of

$9.052 million in cash and 86,137 common shares of Park valued at $8.665

million. Anderson merged with Park’s subsidiary bank, PNB. Anderson’s two

offices are being operated as part of the operating division of PNB known as

The Park National Bank of Southwest Ohio & Northern Kentucky (“PSW”).

The fair value of the acquired assets of Anderson was $69.7 million and the

fair value of the liabilities assumed was $62.6 million at December 18, 2006.

The goodwill recognized as a result of this acquisition was $10.6 million.

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. generally accepted accounting principles and general

practices within the financial services industry. The preparation of financial

statements in conformity with U.S. generally accepted accounting principles

amounts reported in the financial statements and the accompanying notes.

Actual results could differ from those estimates.

Park considers that the determination of the allowance for loan losses

involves a higher degree of judgment and complexity than its other significant

accounting policies. The allowance for loan losses is calculated with the

objective of maintaining a reserve level believed by management to be sufficient

to absorb probable incurred credit losses in the loan portfolio. Management’s

determination of the adequacy of the allowance for loan losses is based on

periodic evaluations of the loan portfolio and of current economic conditions.

However, this evaluation is inherently subjective as it requires material

estimates, including expected default probabilities, the loss given default, the

amounts and timing of expected future cash flows on impaired loans, and

estimated losses on consumer loans and residential mortgage loans based on

historical loss experience and the current economic conditions. All of those

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.

Management’s assessment of the adequacy of the allowance for loan losses

considers individual impaired loans, pools of homogeneous loans with similar

risk characteristics and other environmental risk factors. This assessment is

updated on a quarterly basis. The allowance established for individual impaired

loans, in accordance with SFAS No. 114, as amended by SFAS No. 118, reflects

expected losses resulting from analyses developed through specific credit

allocations for individual loans. The specific credit allocations are based on

regular analyses of commercial, commercial real estate and construction loans

where the internal credit rating is at or below a predetermined classification.

These analyses involve a high degree of judgment in estimating the amount of

loss associated with specific impaired loans. For the years ended December 31,

2008, 2007 and 2006, management has allocated $8.7 million, $3.4 million

and $2.0 million, respectively, to individually impaired loans.

Pools of homogeneous loans with similar risk characteristics are also

assessed for probable losses. A loss migration analysis is performed on certain

commercial, commercial real estate loans and construction loans. These are

loans above a fixed dollar amount that are assigned an internal credit rating.

Generally, residential real estate loans and consumer loans are not individually

graded. The amount of loan loss reserve assigned to these loans, under SFAS

No. 5, is dependent on their net charge-off history and other qualitative factors.

Management also evaluates the impact of environmental qualitative factors

which pose additional risks and assigns a component of the allowance for

loan losses in consideration of these factors. Such environmental factors

include: national and local economic trends and conditions; experience,

ability and depth of lending management and staff; effects of any changes

in lending policies and procedures; levels of, and trends in, consumer

bankruptcies, delinquencies, impaired loans and charge-offs and recoveries.

The determination of this component of the allowance for loan losses requires

considerable management judgment.

Park’s recent adoption of SFAS No. 157 (See Note 21 of the Notes to

Consolidated Financial Statements) on January 1, 2008 required management

to establish a fair value hierarchy, which has the objective of maximizing the use

of observable market inputs. SFAS No. 157 also requires enhanced disclosures

regarding the inputs used to calculate fair value. These inputs are classified as

Level 1, 2, and 3. Level 3 inputs are those with significant unobservable inputs

that reflect a company’s own assumptions about the market for a particular

instrument. Some of the inputs could be based on internal models and cash

flow analysis. At December 31, 2008, financial assets valued using Level 3

inputs for Park had an aggregate fair value of approximately $78.6 million.

This was 4.8% of the total amount of assets measured at fair value as of the

end of the year. The fair value of impaired loans was approximately $75.9

million (or 97%) of the total amount of Level 3 inputs. The large majority of

Park’s financial assets valued using Level 2 inputs consist of available-for-sale

(“AFS”) securities. The fair value of these AFS securities is obtained largely by
the use of matrix pricing, which is a mathematical technique widely used in the
financial services industry to value debt securities without relying exclusively
on quoted market prices for the specific securities but rather by relying on the
securities’ relationship to other benchmark quoted securities.

Management believes that the accounting for goodwill and other intangible
assets also involves a higher degree of judgment than most other significant
accounting policies. SFAS No. 142, “Goodwill and Other Intangible Assets,”
establishes standards for the amortization of acquired intangible assets and
the impairment assessment of goodwill. Goodwill arising from business com-
binations represents the value attributable to unidentifiable intangible assets
in the business acquired. Park’s goodwill relates to the value inherent in the
banking industry and that value is dependent upon the ability of Park’s banking
subsidiaries to provide quality, cost-effective banking services in a competitive
marketplace. The goodwill value is supported by revenue that is in part driven
by the volume of business transacted. A decrease in earnings resulting from a
decline in the customer base, the inability to deliver cost-effective services over
sustained periods or significant credit problems can lead to impairment of
goodwill that could adversely impact earnings in future periods. SFAS No. 142
requires an annual evaluation of goodwill for impairment, or more frequently
if events or changes in circumstances indicate that the asset might be impaired.
The fair value of the goodwill, which resides on the books of Park’s subsidiary
banks, is estimated by reviewing the past and projected operating results for the
Park subsidiary banks, deposit and loan totals for the Park subsidiary banks
and banking industry comparable information.

During the three months ended September 30, 2008, Park’s management
determined that the credit conditions at Vision Bank had further deteriorated
and that an impairment analysis of the goodwill balance at Vision Bank was
required. As a result of this impairment analysis, Vision Bank recorded a
goodwill impairment charge of $55.0 million during the third quarter of 2008,
which eliminated the goodwill asset at Vision Bank. Previously, Vision Bank
recorded a goodwill impairment charge of $54.0 million during the fourth
quarter of 2007 which had reduced the goodwill balance carried on the books
of Vision Bank to $55.0 million from the original goodwill asset of $109.0
million.

At December 31, 2008, on a consolidated basis, Park had core deposit
intangibles of $13.2 million subject to amortization and $72.3 million of
goodwill, which was not subject to periodic amortization. The core deposit
intangibles recorded on the balance sheet of Park National Bank totaled
$4.4 million and the core deposit intangibles at Vision Bank were $8.8 million.
The goodwill asset of $72.3 million is carried on the balance sheet of Park
National Bank.

ABOUT OUR BUSINESS
Through its Ohio-based banking divisions, Park is engaged in the commercial
banking and trust business, generally in small to medium population Ohio
communities and through Vision Bank in Baldwin County, Alabama and in
the Florida panhandle. Management believes there is 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 and investment
banking operations, Park attempts to meet the needs of its customers for
commercial, real estate and consumer loans, consumer and commercial
leases, and investment, fiduciary and deposit services.

Park’s subsidiaries compete for deposits and loans with other banks,
savings associations, credit unions and other types of financial institutions.
At December 31, 2008, Park and its Ohio-based banking divisions operated
128 offices and a network of 147 automatic teller machines in 29 Ohio counties
and one county in northern Kentucky. Vision Bank operated 18 offices and a
network of 21 automatic teller machines in Baldwin County, Alabama and in
6 counties in the panhandle of Florida.

A table of financial data of Park’s subsidiaries and banking divisions for 2008,
2007 and 2006 is shown below. See Note 23 of the Notes to Consolidated
Financial Statements for additional information on the Corporation’s sub-
sidiaries. Please note that the financial statements for various divisions of
PNB are not maintained on a separate basis and therefore net income is
only an estimate by management.

Table 1 – Park National Corporation Affiliate Financial Data

2008

2007

2006

Average
Assets

Net
Income

Average
Assets

Net
Income

Average
Assets

Net
Income

$1,839,012 $25,445 $1,492,652 $24,830

$1,503,420 $26,577

337,355

7,332

332,564

6,322

338,183

6,457

416,398

1,506

398,517

(69)

288,189

1,331

526,989

8,946

529,175

5,915

496,481

7,987

711,162

12,995

720,781

11,913

719,864

10,149

658,151

12,718

656,406

10,891

639,969

11,406

(In thousands)

Park National Bank:
Park National
Division

Fairfield National
Division

Park National SW &
N KY Division

Richland Trust
Division

Century National
Division

First-Knox National
Division

Farmers & Savings
Division

United Bank Division

214,074

119,014

2,042

3,467

129,133

207,493

2,292

2,410

132,222

218,358

2,308

2,537

Second National
Division

Security National
Division

Unity National
Division

Citizens National
Division
Vision Bank
Parent Company,

423,062

5,752

403,114

4,847

386,139

4,705

670,041

10,748

685,718

10,609

766,298

11,931

190,739

2,061

192,382

1,290

190,751

986

150,530

2,253

150,083

1,830

166,611

1,854

904,420 (81,187)

698,788

(60,681)

—

including consolidating
entries

(452,861)

(370)

(427,650)

308

(465,862)

5,863

Consolidated
Totals

$6,708,086 $13,708 $6,169,156 $22,707

$5,380,623 $94,091

SOURCE OF FUNDS
Deposits: Park’s major source of funds is provided by core deposits from
individuals, businesses and local government units. These core deposits consist
of all noninterest bearing and interest bearing deposits, excluding certificates
of deposit of $100,000 and over and deposits obtained through the use of
brokers. Core deposits were 78.1% of total deposits at year-end 2008,
compared to 85.5% at year-end 2007 and 88.2% at year-end 2006.

Total year-end deposits increased by $323 million or 7.3% in 2008. However,
$236 million of the growth in deposits came from the use of broker deposits.
Excluding the broker deposits, total year-end deposits increased by $87 million
or 2.0%. In 2008, Vision Bank’s year-end total deposits decreased by $20
million or 3.1% and the Ohio-based banking division increased deposits
by $107 million or 2.8%.

In 2007, year-end total deposits increased by $13 million or .3% exclusive of
the $577 million of deposits that were acquired in the Vision acquisition and
exclusive of the $23 million in deposits that were acquired in the purchase of
the Millersburg, Ohio branch office. During 2007, the deposits of Vision Bank
increased by approximately $80 million or 13.8% from the date of acquisition
(March 9, 2007) through year-end. By comparison, the deposits for Park’s
Ohio-based banks decreased by $67 million or 1.7% during 2007.

Average total deposits were $4,603 million in 2008 compared to $4,403 million
in 2007 and $3,825 million in 2006. Average noninterest bearing deposits were
$740 million in 2008 compared to $697 million in 2007 and $662 million
in 2006.

F I N A N C I A L

R E V I E W

F I N A N C I A L

R E V I E W

Management expects that total deposits (excluding broker deposits) will
increase by a modest amount (1% to 2%) in 2009. Emphasis will continue to
be placed on increasing noninterest bearing deposits and controlling the cost of
interest bearing deposits. The growth in year-end deposits in 2008 (excluding
broker deposits) was 2.0%, which was consistent with the growth guidance of
1% to 2% that was provided a year ago by Park’s management.

The Federal Open Market Committee (“FOMC”) of the Federal Reserve Board
decreased the federal funds rate from 4.25% at December 31, 2007 to a range
of 0% to .25% at year-end 2008. The average federal funds rate for 2008 was
1.93%, compared to an average rate of 5.02% in 2007 and 4.97% in 2006.
The FOMC aggressively lowered the federal funds during 2008 as the severity
of the economic recession increased.

The average interest rate paid on interest bearing deposits was 2.33% in 2008,
compared to 3.27% in 2007 and 2.60% in 2006. The average cost of interest
bearing deposits was 2.00% for the fourth quarter of 2008, compared to 2.17%
for the third quarter of 2008, 2.34% for the second quarter of 2008 and 2.83%
for the first quarter of 2008.

Park’s management expects that due to the severe economic recession, the
FOMC will maintain the federal funds interest rate at .25% or so for most of
2009. As a result, Park’s management expects a further decrease in the average
interest rate paid on interest bearing deposits in 2009.

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 2.38% in 2008 compared to 4.47% in 2007 and 4.18% in
2006.

The average cost of short-term borrowings was 1.82% for the fourth quarter of
2008, compared to 2.13% for the third quarter, 2.23% for the second quarter
and 3.34% for the first quarter. Management expects a significant reduction in
the average rate paid on short-term borrowings in 2009, as a result of the
decrease in the federal funds rate in the fourth quarter of 2008.

Average short-term borrowings were $609 million in 2008 compared to
$494 million in 2007 and $375 million in 2006. The increase in short-term
borrowings in 2008 compared to 2007 was primarily used to help fund the
increase in loans and investments. The increase in short-term borrowings in
2007 compared to 2006 was primarily due to the acquisition of Vision on
March 9, 2007. Park paid $87.8 million in cash as part of the consideration
for the acquisition of Vision.

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 rate paid on long-term debt was 3.72% for 2008 and 4.22%
for both 2007 and 2006. The average cost of long-term debt was 3.46% for the
fourth quarter of 2008, compared to 3.68% for the third quarter, 3.79% for the
second quarter and 4.00% for the first quarter. (The average balance of long-
term debt and the average cost of long-term debt includes the subordinated
debentures discussed in the following section.)

In 2008, average long-term debt was $836 million compared to $569 million in
2007 and $553 million in 2006. Average total debt (long-term and short-term)
was $1,445 million in 2008 compared to $1,063 million in 2007 and $929
million in 2006. Average total debt increased by $382 million or 35.9% in 2008
compared to 2007 and increased by $134 million or 14.4% in 2007 compared
to 2006. The large increase in average total debt in 2008 was used to fund the
large increase in average loans and investments. In 2007, the increase in total
debt was primarily used to fund the acquisition of Vision.

Average long-term debt was 58% of average total debt in 2008 compared to
54% in 2007 and 60% in 2006.

Subordinated Debentures: Park assumed with the Vision acquisition
$15 million of a floating rate subordinated debenture. The interest rate on
this subordinated debenture adjusts every quarter at 148 basis points above
the three-month LIBOR interest rate. The maturity date on the debenture is
December 30, 2035 and the subordinated debenture may be prepaid after
December 30, 2010. This subordinated debenture qualifies as Tier 1 capital
under Federal Reserve Board guidelines.

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

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

Stockholders’ Equity: Tangible stockholders’ equity (stockholders’ equity
less goodwill and other intangible assets) to tangible assets (total assets less
goodwill and other intangible assets) was 7.98% at December 31, 2008
compared to 6.85% at December 31, 2007 and 9.13% at December 31, 2006.

The large increase in the ratio of tangible stockholders’ equity to tangible assets
was due to the issuance of $100.0 million of Park non-voting preferred shares
to the U.S. Treasury on December 23, 2008. Excluding the $100.0 million of
preferred stock, the ratio of tangible stockholders’ equity to tangible assets
ratio was 6.54% at December 31, 2008.

In 2007, the large decrease in the ratio of tangible stockholders’ equity to
tangible assets was primarily due to the purchase of treasury stock during
2007 and to the acquisition of Vision. Park purchased 760,531 treasury
shares in 2007 at an average price of $86.21 per share for a total cost of $65.6
million. As part of the Vision acquisition, Park issued 792,937 shares of Park
common stock valued at a price of $105.00 per share for a total value of $83.3
million. Vision Bank had a net loss of $60.7 million in 2007 and ended that
year with goodwill and intangible assets of $65.9 million.

In accordance with SFAS No. 115, Park reflects any unrealized holding gain
or loss on AFS securities, net of income taxes, as accumulated other compre-
hensive income (loss) which is part of Park’s equity. The unrealized holding
gain on AFS securities, net of income taxes, was $31.6 million at year-end
2008, compared to an unrealized holding gain on AFS securities, net of income
taxes of $1.0 million at year-end 2007 and an unrealized holding loss on AFS
securities, net of income taxes of ($16.0) million at year-end 2006. Long-term
and short-term interest rates decreased sharply during the fourth quarter of
2008 which caused the market value of Park’s investment securities to increase
and produced the large unrealized holding gain on AFS securities, net of
income taxes, at year-end 2008.

In accordance with SFAS No. 158, Park adjusts accumulated other
comprehensive income (loss) to recognize the net actuarial loss related
to the accounting for Park’s defined benefit pension plan. See Note 13 of the
Notes to Consolidated Financial Statements for information on the accounting
for Park’s defined benefit pension plan.

During 2008, Park recognized a net comprehensive loss of ($16.2) million

decreased by $15 million exclusive of the $28 million of loans from the

pertaining to the accounting for Park’s pension plan. At year-end 2007, the

Anderson acquisition. Management expects growth of 2% to 3% in residential

balance in accumulated other income (loss) pertaining to the pension plan

real estate loans in 2009.

2009 as a result of the sharp decrease in market interest rates during the fourth

On a combined basis, year-end construction loans, commercial loans and

was a loss of ($3.6) million. As a result, the balance in accumulated other

comprehensive income (loss) pertaining to the pension plan was a loss of

($19.8) million at December 31, 2008. The large adjustment in 2008 was

primarily due to the negative investment return on pension plan assets in

2008, as a result of the poor performance of stock investments in 2008. Park

also recognized in 2008 a net comprehensive loss of ($1.3) million due to the

mark to market of the $25 million cash flow hedge. See Note 19 of the Notes to

Consolidated Financial Statements for information on the accounting for Park’s

derivative instruments.

INVESTMENT OF FUNDS

Loans: Average loans, net of unearned income, were $4,355 million in 2008

compared to $4,011 million in 2007 and $3,357 million in 2006. The average

yield on loans was 6.93% in 2008 compared to 8.01% in 2007 and 7.61% in

2006. The average prime lending rate in 2008 was 5.09% compared to 8.05%

in 2007 and 7.96% in 2006. Approximately 64% of loan balances mature or

reprice within one year (see Table 10). This results in the interest rate yield

on the loan portfolio adjusting with changes in interest rates, but on a delayed

basis. Management expects that the yield on the loan portfolio will decrease in

quarter of 2008.

In 2008, year-end loan balances, net of unearned income, increased by $267

million or 6.3%. During the fourth quarter of 2008, Park’s Ohio-based banking

divisions sold $31 million of unsecured credit card balances. Exclusive of the

sale of the credit card balances, year-end loan balances grew by $298 million

or 7.0%. At Vision Bank, year-end loan balances increased by $51 million or

8.0% during 2008 to $690 million. Park’s Ohio-based subsidiaries increased

loans by $216 million or 6.0% during 2008. Excluding the sale of the credit

card balances, Park’s Ohio-based subsidiaries increased loans by $247 million

or 6.9% in 2008.

By comparison, Park’s Ohio-based subsidiaries increased loans by 1.9% in

2007, 3.0% in 2006 and 1.7% in 2005. The much stronger loan growth in Ohio

in 2008 was primarily due to customers changing their banking relationship to

Park from other banks.

Year-end loan balances, net of unearned income, increased by $110 million

or 3.2% in 2007 exclusive of $596 million of loans that were acquired in the

Vision acquisition and exclusive of the $38 million of loans that were acquired

as part of the Millersburg, Ohio branch purchase. From the date of the Vision

acquisition (March 9, 2007) through year-end 2007, Vision Bank increased

loans by $43 million to $639 million at year-end 2007. Excluding the growth

from Vision Bank, Park’s Ohio-based subsidiary banks grew loans by $67

million during 2007 for a growth rate of 1.9%.

In 2006, year-end loan balances, net of unearned income, increased by $100

million or 3.0% in 2006 exclusive of $53 million of loans that were acquired

in the Anderson acquisition. Loans increased by $52 million or 1.7% in 2005

exclusive of $161 million of loans that were acquired in the First Clermont

acquisition and $5 million of loans that were included in the sale of the

Roseville branch office.

A year ago, management projected that year-end loan balances would grow

between 2% to 3% in 2008. The actual loan growth of 6.3% (7.0%, excluding

the sale of credit cards) was much stronger than anticipated. Management

expects that loan growth for 2009 will be slower at about 3% to 4%, due to

the weakness in the economy.

Year-end residential real estate loans were $1,560 million, $1,481 million and

$1,300 million in 2008, 2007 and 2006, respectively. Residential real estate

loans increased by $79 million or 5.3% during 2008. In 2007, residential real

estate loans increased by $43 million or 3.3% exclusive of the $138 million

of loans from the Vision acquisition. In 2006, residential real estate loans

The long-term fixed-rate residential mortgage loans that Park originates are

sold in the secondary market and Park retains the servicing on these loans. The

balance of sold fixed-rate mortgage loans was $1,369 million at year-end 2008

compared to $1,403 million at year-end 2007 and $1,405 million at year-end

2006. Vision Bank does not retain servicing on residential real estate loans sold

in the secondary market and as a result, has had no impact on Park’s servicing

portfolio. Management expects that the balance of sold fixed-rate mortgage

loans will increase by 3% to 4% in 2009 as a result of the decrease in long-term

interest rates in the fourth quarter of 2008 and the first quarter of 2009.

Year-end consumer loans were $643 million, $593 million and $532 million in

2008, 2007 and 2006, respectively. Consumer loans increased by $50 million

or 8.4% in 2008 and increased by $55 million or 10.3% in 2007 exclusive of

the $6 million of consumer loans acquired from the Vision acquisition. In

2006, consumer loans increased by $35 million or 7.1% exclusive of the $2

million of loans from the Anderson acquisition. The increases in consumer

loans for 2008, 2007 and 2006 were primarily due to an increase in

automobile loans originated through automobile dealers in Ohio. Management

expects that consumer loans will increase by 4% to 5% in 2009.

commercial real estate loans totaled $2,284 million, $2,143 million and $1,638

million at year-end 2008, 2007 and 2006, respectively. These combined loan

totals increased by $141 million or 6.6% in 2008 with most of the increase

($101 million) coming from commercial loans. In 2007, these combined loan

totals increased by $33 million or 2.0% exclusive of the $472 million of loans

acquired through the Vision acquisition and the Millersburg branch purchase.

In 2006, these combined loan totals increased by $86 million or 5.6% exclusive

of $23 million of loans from the Anderson acquisition. Management expects

that construction loans, commercial loans and commercial real estate loans

will grow by 3% to 4% in 2009.

Year-end lease balances were $4 million, $7 million and $10 million in 2008,

2007 and 2006, respectively. Management continues to de-emphasize leasing

and expects the balance to further decline in 2009.

Table 2 reports year-end loan balances by type of loan for the past five years.

Table 2 – Loans by Type

December 31,

(In thousands)

Commercial, financial

and agricultural

Real estate –

construction

Real estate –

residential

Real estate –

commercial

Consumer, net of

unearned income

Leases, net of

unearned income

2008

2007

2006

2005

2004

$ 714,296

$ 613,282

$ 548,254

$ 512,636

$ 469,382

533,788

536,389

234,988

193,185

155,326

1,560,198

1,481,174

1,300,294

1,287,438

1,190,275

1,035,725

993,101

854,869

823,354

752,428

643,507

593,388

532,092

494,975

505,151

Total Loans

$4,491,337

$4,224,134

$3,480,702

$3,328,112

$3,120,608

3,823

6,800

10,205

16,524

48,046

Table 3 – Selected Loan Maturity Distribution

One Year

or Less

Over One

Through

Five Years

Over

Five

Years

Total

$ 358,058

$207,740

$148,498

$ 714,296

446,220

220,381

36,868

102,282

50,700

713,062

533,788

1,035,725

Total

$1,024,659

$346,890

$912,260

$2,283,809

December 31, 2008

(In thousands)

Commercial, financial and

agricultural

Real estate – construction

Real estate – commercial

Total of these selected loans due

after one year with:

Fixed interest rate

Floating interest rate

$ 469,301

$ 789,849

F I N A N C I A L

R E V I E W

F I N A N C I A L

R E V I E W

Management expects that total deposits (excluding broker deposits) will

Subordinated Debentures: Park assumed with the Vision acquisition

increase by a modest amount (1% to 2%) in 2009. Emphasis will continue to

$15 million of a floating rate subordinated debenture. The interest rate on

be placed on increasing noninterest bearing deposits and controlling the cost of

this subordinated debenture adjusts every quarter at 148 basis points above

interest bearing deposits. The growth in year-end deposits in 2008 (excluding

the three-month LIBOR interest rate. The maturity date on the debenture is

broker deposits) was 2.0%, which was consistent with the growth guidance of

December 30, 2035 and the subordinated debenture may be prepaid after

1% to 2% that was provided a year ago by Park’s management.

December 30, 2010. This subordinated debenture qualifies as Tier 1 capital

The Federal Open Market Committee (“FOMC”) of the Federal Reserve Board

under Federal Reserve Board guidelines.

decreased the federal funds rate from 4.25% at December 31, 2007 to a range

Park’s Ohio-based banking subsidiary (PNB) issued a $25 million

of 0% to .25% at year-end 2008. The average federal funds rate for 2008 was

subordinated debenture on December 28, 2007. The interest rate on this

1.93%, compared to an average rate of 5.02% in 2007 and 4.97% in 2006.

subordinated debenture adjusts every quarter at 200 basis points above

The FOMC aggressively lowered the federal funds during 2008 as the severity

the three-month LIBOR interest rate. The maturity date on the subordinated

of the economic recession increased.

The average interest rate paid on interest bearing deposits was 2.33% in 2008,

compared to 3.27% in 2007 and 2.60% in 2006. The average cost of interest

bearing deposits was 2.00% for the fourth quarter of 2008, compared to 2.17%

for the third quarter of 2008, 2.34% for the second quarter of 2008 and 2.83%

for the first quarter of 2008.

Park’s management expects that due to the severe economic recession, the

FOMC will maintain the federal funds interest rate at .25% or so for most of

2009. As a result, Park’s management expects a further decrease in the average

interest rate paid on interest bearing deposits in 2009.

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 2.38% in 2008 compared to 4.47% in 2007 and 4.18% in

2006.

The average cost of short-term borrowings was 1.82% for the fourth quarter of

2008, compared to 2.13% for the third quarter, 2.23% for the second quarter

and 3.34% for the first quarter. Management expects a significant reduction in

the average rate paid on short-term borrowings in 2009, as a result of the

decrease in the federal funds rate in the fourth quarter of 2008.

Average short-term borrowings were $609 million in 2008 compared to

$494 million in 2007 and $375 million in 2006. The increase in short-term

borrowings in 2008 compared to 2007 was primarily used to help fund the

increase in loans and investments. The increase in short-term borrowings in

2007 compared to 2006 was primarily due to the acquisition of Vision on

March 9, 2007. Park paid $87.8 million in cash as part of the consideration

for the acquisition of Vision.

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 rate paid on long-term debt was 3.72% for 2008 and 4.22%

for both 2007 and 2006. The average cost of long-term debt was 3.46% for the

fourth quarter of 2008, compared to 3.68% for the third quarter, 3.79% for the

second quarter and 4.00% for the first quarter. (The average balance of long-

term debt and the average cost of long-term debt includes the subordinated

debentures discussed in the following section.)

In 2008, average long-term debt was $836 million compared to $569 million in

2007 and $553 million in 2006. Average total debt (long-term and short-term)

was $1,445 million in 2008 compared to $1,063 million in 2007 and $929

million in 2006. Average total debt increased by $382 million or 35.9% in 2008

compared to 2007 and increased by $134 million or 14.4% in 2007 compared

to 2006. The large increase in average total debt in 2008 was used to fund the

large increase in average loans and investments. In 2007, the increase in total

debt was primarily used to fund the acquisition of Vision.

Average long-term debt was 58% of average total debt in 2008 compared to

54% in 2007 and 60% in 2006.

debenture is December 29, 2017 and the subordinated debenture may be

prepaid after December 28, 2012. On January 2, 2008, Park entered into a

“pay fixed-receive floating” interest rate swap agreement for a notional amount

of $25 million with a maturity date of December 28, 2012. This interest rate

swap agreement was designed to hedge the cash flows pertaining to the $25

million subordinated debenture until December 28, 2012. Management

converted the cash flows to a fixed interest rate of 6.01% through the use

of the interest rate swap. This subordinated debenture qualifies as Tier 2

capital under the applicable regulations of the Office of the Comptroller of

the Currency of the United States of America (the “OCC”) and the Federal

Reserve Bank.

See Note 11 of the Notes to Consolidated Financial Statements for additional

information on the subordinated debentures.

Stockholders’ Equity: Tangible stockholders’ equity (stockholders’ equity

less goodwill and other intangible assets) to tangible assets (total assets less

goodwill and other intangible assets) was 7.98% at December 31, 2008

compared to 6.85% at December 31, 2007 and 9.13% at December 31, 2006.

The large increase in the ratio of tangible stockholders’ equity to tangible assets

was due to the issuance of $100.0 million of Park non-voting preferred shares

to the U.S. Treasury on December 23, 2008. Excluding the $100.0 million of

preferred stock, the ratio of tangible stockholders’ equity to tangible assets

ratio was 6.54% at December 31, 2008.

In 2007, the large decrease in the ratio of tangible stockholders’ equity to

tangible assets was primarily due to the purchase of treasury stock during

2007 and to the acquisition of Vision. Park purchased 760,531 treasury

shares in 2007 at an average price of $86.21 per share for a total cost of $65.6

million. As part of the Vision acquisition, Park issued 792,937 shares of Park

common stock valued at a price of $105.00 per share for a total value of $83.3

million. Vision Bank had a net loss of $60.7 million in 2007 and ended that

year with goodwill and intangible assets of $65.9 million.

In accordance with SFAS No. 115, Park reflects any unrealized holding gain

or loss on AFS securities, net of income taxes, as accumulated other compre-

hensive income (loss) which is part of Park’s equity. The unrealized holding

gain on AFS securities, net of income taxes, was $31.6 million at year-end

2008, compared to an unrealized holding gain on AFS securities, net of income

taxes of $1.0 million at year-end 2007 and an unrealized holding loss on AFS

securities, net of income taxes of ($16.0) million at year-end 2006. Long-term

and short-term interest rates decreased sharply during the fourth quarter of

2008 which caused the market value of Park’s investment securities to increase

and produced the large unrealized holding gain on AFS securities, net of

income taxes, at year-end 2008.

In accordance with SFAS No. 158, Park adjusts accumulated other

comprehensive income (loss) to recognize the net actuarial loss related

to the accounting for Park’s defined benefit pension plan. See Note 13 of the

Notes to Consolidated Financial Statements for information on the accounting

for Park’s defined benefit pension plan.

During 2008, Park recognized a net comprehensive loss of ($16.2) million
pertaining to the accounting for Park’s pension plan. At year-end 2007, the
balance in accumulated other income (loss) pertaining to the pension plan
was a loss of ($3.6) million. As a result, the balance in accumulated other
comprehensive income (loss) pertaining to the pension plan was a loss of
($19.8) million at December 31, 2008. The large adjustment in 2008 was
primarily due to the negative investment return on pension plan assets in
2008, as a result of the poor performance of stock investments in 2008. Park
also recognized in 2008 a net comprehensive loss of ($1.3) million due to the
mark to market of the $25 million cash flow hedge. See Note 19 of the Notes to
Consolidated Financial Statements for information on the accounting for Park’s
derivative instruments.

INVESTMENT OF FUNDS
Loans: Average loans, net of unearned income, were $4,355 million in 2008
compared to $4,011 million in 2007 and $3,357 million in 2006. The average
yield on loans was 6.93% in 2008 compared to 8.01% in 2007 and 7.61% in
2006. The average prime lending rate in 2008 was 5.09% compared to 8.05%
in 2007 and 7.96% in 2006. Approximately 64% of loan balances mature or
reprice within one year (see Table 10). This results in the interest rate yield
on the loan portfolio adjusting with changes in interest rates, but on a delayed
basis. Management expects that the yield on the loan portfolio will decrease in
2009 as a result of the sharp decrease in market interest rates during the fourth
quarter of 2008.

In 2008, year-end loan balances, net of unearned income, increased by $267
million or 6.3%. During the fourth quarter of 2008, Park’s Ohio-based banking
divisions sold $31 million of unsecured credit card balances. Exclusive of the
sale of the credit card balances, year-end loan balances grew by $298 million
or 7.0%. At Vision Bank, year-end loan balances increased by $51 million or
8.0% during 2008 to $690 million. Park’s Ohio-based subsidiaries increased
loans by $216 million or 6.0% during 2008. Excluding the sale of the credit
card balances, Park’s Ohio-based subsidiaries increased loans by $247 million
or 6.9% in 2008.

By comparison, Park’s Ohio-based subsidiaries increased loans by 1.9% in
2007, 3.0% in 2006 and 1.7% in 2005. The much stronger loan growth in Ohio
in 2008 was primarily due to customers changing their banking relationship to
Park from other banks.

Year-end loan balances, net of unearned income, increased by $110 million
or 3.2% in 2007 exclusive of $596 million of loans that were acquired in the
Vision acquisition and exclusive of the $38 million of loans that were acquired
as part of the Millersburg, Ohio branch purchase. From the date of the Vision
acquisition (March 9, 2007) through year-end 2007, Vision Bank increased
loans by $43 million to $639 million at year-end 2007. Excluding the growth
from Vision Bank, Park’s Ohio-based subsidiary banks grew loans by $67
million during 2007 for a growth rate of 1.9%.

In 2006, year-end loan balances, net of unearned income, increased by $100
million or 3.0% in 2006 exclusive of $53 million of loans that were acquired
in the Anderson acquisition. Loans increased by $52 million or 1.7% in 2005
exclusive of $161 million of loans that were acquired in the First Clermont
acquisition and $5 million of loans that were included in the sale of the
Roseville branch office.

A year ago, management projected that year-end loan balances would grow
between 2% to 3% in 2008. The actual loan growth of 6.3% (7.0%, excluding
the sale of credit cards) was much stronger than anticipated. Management
expects that loan growth for 2009 will be slower at about 3% to 4%, due to
the weakness in the economy.

Year-end residential real estate loans were $1,560 million, $1,481 million and
$1,300 million in 2008, 2007 and 2006, respectively. Residential real estate
loans increased by $79 million or 5.3% during 2008. In 2007, residential real
estate loans increased by $43 million or 3.3% exclusive of the $138 million
of loans from the Vision acquisition. In 2006, residential real estate loans

decreased by $15 million exclusive of the $28 million of loans from the
Anderson acquisition. Management expects growth of 2% to 3% in residential
real estate loans in 2009.

The long-term fixed-rate residential mortgage loans that Park originates are
sold in the secondary market and Park retains the servicing on these loans. The
balance of sold fixed-rate mortgage loans was $1,369 million at year-end 2008
compared to $1,403 million at year-end 2007 and $1,405 million at year-end
2006. Vision Bank does not retain servicing on residential real estate loans sold
in the secondary market and as a result, has had no impact on Park’s servicing
portfolio. Management expects that the balance of sold fixed-rate mortgage
loans will increase by 3% to 4% in 2009 as a result of the decrease in long-term
interest rates in the fourth quarter of 2008 and the first quarter of 2009.

Year-end consumer loans were $643 million, $593 million and $532 million in
2008, 2007 and 2006, respectively. Consumer loans increased by $50 million
or 8.4% in 2008 and increased by $55 million or 10.3% in 2007 exclusive of
the $6 million of consumer loans acquired from the Vision acquisition. In
2006, consumer loans increased by $35 million or 7.1% exclusive of the $2
million of loans from the Anderson acquisition. The increases in consumer
loans for 2008, 2007 and 2006 were primarily due to an increase in
automobile loans originated through automobile dealers in Ohio. Management
expects that consumer loans will increase by 4% to 5% in 2009.

On a combined basis, year-end construction loans, commercial loans and
commercial real estate loans totaled $2,284 million, $2,143 million and $1,638
million at year-end 2008, 2007 and 2006, respectively. These combined loan
totals increased by $141 million or 6.6% in 2008 with most of the increase
($101 million) coming from commercial loans. In 2007, these combined loan
totals increased by $33 million or 2.0% exclusive of the $472 million of loans
acquired through the Vision acquisition and the Millersburg branch purchase.
In 2006, these combined loan totals increased by $86 million or 5.6% exclusive
of $23 million of loans from the Anderson acquisition. Management expects
that construction loans, commercial loans and commercial real estate loans
will grow by 3% to 4% in 2009.

Year-end lease balances were $4 million, $7 million and $10 million in 2008,
2007 and 2006, respectively. Management continues to de-emphasize leasing
and expects the balance to further decline in 2009.

Table 2 reports year-end loan balances by type of loan for the past five years.
Table 2 – Loans by Type

December 31,
(In thousands)

Commercial, financial
and agricultural

Real estate –

construction

Real estate –
residential
Real estate –
commercial
Consumer, net of

unearned income

Leases, net of

unearned income

2008

2007

2006

2005

2004

$ 714,296

$ 613,282

$ 548,254

$ 512,636

$ 469,382

533,788

536,389

234,988

193,185

155,326

1,560,198

1,481,174

1,300,294

1,287,438

1,190,275

1,035,725

993,101

854,869

823,354

752,428

643,507

593,388

532,092

494,975

505,151

3,823

6,800

10,205

16,524

48,046

Total Loans

$4,491,337

$4,224,134

$3,480,702

$3,328,112

$3,120,608

Table 3 – Selected Loan Maturity Distribution

December 31, 2008
(In thousands)

Commercial, financial and

agricultural

Real estate – construction
Real estate – commercial

One Year
or Less

$ 358,058
446,220
220,381

Over One
Through
Five Years

$207,740
36,868
102,282

Over
Five
Years

Total

$148,498
50,700
713,062

$ 714,296
533,788
1,035,725

Total

$1,024,659

$346,890

$912,260

$2,283,809

Total of these selected loans due

after one year with:
Fixed interest rate
Floating interest rate

$ 469,301
$ 789,849

F I N A N C I A L

R E V I E W

F I N A N C I A L

R E V I E W

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

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

Average taxable investment securities were $1,756 million in 2008, compared
to $1,531 million in 2007 and $1,533 million in 2006. The average yield on
taxable securities was 5.00% in 2008, compared to 5.03% in 2007 and 4.91%
in 2006. Average tax-exempt investment securities were $45 million in 2008,
compared to $65 million in 2007 and $77 million in 2006. The average tax-
equivalent yield on tax-exempt investment securities was 6.90% in 2008,
compared to 6.68% in 2007 and 6.84% in 2006.

Year-end total investment securities (at amortized cost) were $2,010 million
in 2008, $1,702 million in 2007 and $1,538 million in 2006. Management
purchased investment securities totaling $693 million in 2008, $843 million
in 2007 and $167 million in 2006. Proceeds from repayments and maturities
of investment securities were $310 million in 2008, $712 million in 2007 and
$313 million in 2006. Proceeds from sales of available-for-sale securities were
$81 million in 2008 and $304,000 in 2006. Park realized net security gains of
$1.1 million in 2008 and $97,000 in 2006. Park did not sell any investment
securities in 2007.

At year-end 2008 and 2007, the average tax-equivalent yield on the total
investment portfolio was 5.01% and 5.13%, respectively. The weighted
average remaining maturity was 2.9 years at December 31, 2008 and 3.7 years
at December 31, 2007. U.S. Government Agency asset-backed securities were
approximately 88% of the total investment portfolio at year-end 2008 and
were approximately 81% of the total investment portfolio at year-end 2007.
This segment of the investment portfolio consists of 15-year mortgage-backed
securities and collateralized mortgage obligations.

During 2008, management purchased approximately $270 million of U.S.
Government Agency collateralized mortgage obligations and classified these
securities at the time of purchase as held-to-maturity. The U.S. Government
Agency collateralized mortgage obligations are not as liquid as U.S. Government
Agency mortgage-backed securities and as such management generally classi-
fies the purchase of collateralized mortgage obligations as held-to-maturity.

The average maturity of the investment portfolio would lengthen if long-term
interest rates would increase as the principal repayments from mortgage-
backed securities and collateralized mortgage obligations would be reduced.
At year-end 2008, management estimated that the average maturity of the invest-
ment portfolio would lengthen to 4.1 years with a 100 basis point increase in
long-term interest rates and to 4.6 years with a 200 basis point increase in
long-term interest rates. Likewise, the average maturity of the investment
portfolio would shorten if long-term interest rates would decrease as the
principal repayments from mortgage-backed securities and collateralized
mortgage obligations would increase as borrowers would refinance their
mortgage loans. At year-end 2008, management estimated that the average
maturity of the investment portfolio would decrease to 2.0 years with a 100
basis point decrease in long-term interest rates and to 1.3 years with a 200
basis point decrease in long-term interest rates.

The following table sets forth the carrying value of investment securities at
year-end 2008, 2007 and 2006:

Table 4 – Investment Securities

December 31,
(In thousands)

Obligations of U.S. Treasury and other

U.S. Government agencies

2008

2007

2006

$ 128,688

$ 203,558

90,709

Obligations of states and political subdivisions

37,188

59,052

70,090

U.S. Government asset-backed securities
and other asset-backed securities

Other securities

Total

1,822,587

1,375,005

1,288,969

70,588

65,488

63,730

$2,059,051

$1,703,103

$1,513,498

Included in “Other Securities” in Table 4, are Park’s investments in Federal
Home Loan Bank stock and Federal Reserve Bank stock. At December 31,
2008, Park owned $61.9 million of Federal Home Loan Bank Stock and $6.9
million of Federal Reserve Bank stock. Park owned $56.8 million of Federal
Home Loan Bank stock and $6.4 million of Federal Reserve Bank stock at
year-end 2007. At December 31, 2006, Park owned $55.5 million of Federal
Home Loan Bank stock and $6.4 million of Federal Reserve Bank stock.
The fair values of these investments are the same as their amortized costs.

ANALYSIS OF EARNINGS
Park’s principal source of earnings is net interest income, the difference
between total interest income and total interest expense. Net interest income
results from average balances outstanding for interest earning assets and
interest bearing liabilities in conjunction with the average rates earned and paid
on them. (See Table 5 for three years of history on the average balances of the
balance sheet categories and the average rates earned on interest earning assets
and the average rates paid on interest bearing liabilities.)

Net interest income increased by $21.2 million or 9.0% to $255.9 million for
2008 compared to an increase of $21.4 million or 10.1% to $234.7 million
for 2007. The tax equivalent net yield on interest earning assets was 4.16% for
2008 compared to 4.20% for 2007 and 4.33% for 2006. The net interest rate
spread (the difference between rates received for interest earning assets and
the rates paid for interest bearing liabilities) was 3.82% for 2008, compared
to 3.68% for 2007 and 3.80% for 2006. The increase in net interest income in
2008 was primarily due to the large increase in average interest earning assets
of $546 million or 9.7% and an increase in the net interest spread to 3.82%
from 3.68% in 2007. In 2007, the increase in net interest income was primarily
due to the large increase in average interest earning assets of $649 million or
13.0% which resulted from the acquisition of Vision on March 9, 2007.

The average yield on interest earning assets was 6.37% in 2008 compared to
7.18% in 2007 and 6.77% in 2006. On a quarterly basis for 2008, the average
yield on earning assets was 5.99% for the fourth quarter, 6.25% for the third
quarter, 6.40% for the second quarter and 6.83% for the first quarter. The
FOMC of the Federal Reserve Board decreased the targeted federal funds rate
from 4.25% at year-end 2007 to a range of 0% to .25% at year-end 2008. The
average federal funds rate for 2008 was 1.93%, compared to an average rate of
5.02% in 2007 and 4.97% in 2006. Management expects that the average yield
on interest earning assets will decrease in 2009 due to reductions in market
interest rates in the fourth quarter of 2008.

The average rate paid on interest bearing liabilities was 2.55% in 2008,
compared to 3.50% in 2007 and 2.97% in 2006. On a quarterly basis for 2008,
the average rate paid on interest bearing liabilities was 2.21% for the fourth
quarter, 2.42% for the third quarter, 2.55% for the second quarter and 3.07%
for the first quarter. Management expects that the average rate paid on interest
bearing liabilities will decrease in 2009 due to reductions in market interest
rates in the fourth quarter of 2008.

Table 5 – Distribution of Assets, Liabilities and Stockholders’ Equity

December 31,

(Dollars in thousands)

ASSETS

Interest earning assets:

Loans (1) (2)

Taxable investment securities

Tax-exempt investment securities (3)

Money market instruments

Total interest earning assets

Noninterest earning assets:

Allowance for possible loan losses

Cash and due from banks

Premises and equipment, net

Other assets

TOTAL

LIABILITIES AND STOCKHOLDERS’ EQUITY

Interest bearing liabilities:

Transaction accounts

Savings deposits

Time deposits

Total interest bearing deposits

Short-term borrowings

Long-term debt

Noninterest bearing liabilities:

Demand deposits

Other

Total noninterest bearing liabilities

Stockholders’ equity

TOTAL

Net interest earnings

Net interest spread

Net yield on interest earning assets

Daily

Average

2008

Interest

Average

Rate

Daily

Average

2007

Interest

Average

Rate

Daily

Average

2006

Interest

Average

Rate

$4,354,520

$301,926

$4,011,307

$321,392

$3,357,278

$255,641

1,755,879

45,420

15,502

87,711

3,134

295

1,531,144

65,061

17,838

77,016

4,346

920

1,533,310

77,329

8,723

75,300

5,288

469

6,171,321

393,066

5,625,350

403,674

4,976,640

336,698

6.93%

5.00%

6.90%

1.90%

6.37%

1.43%

0.53%

3.52%

2.33%

2.38%

3.72%

2.55%

3.82%

4.16%

(78,256)

151,219

61,604

409,239

$6,169,156

553,407

1,834,060

494,160

568,575

697,247

84,185

781,432

618,758

$6,169,156

8.01%

5.03%

6.68%

5.16%

7.18%

2.72%

0.70%

4.43%

3.27%

4.47%

4.22%

3.50%

3.68%

4.20%

(70,386)

142,794

46,894

284,681

$5,380,623

573,067

1,531,477

3,162,867

375,332

553,307

662,077

81,966

744,043

545,074

$5,380,623

7.61%

4.91%

6.84%

5.38%

6.77%

2.13%

0.59%

3.68%

2.60%

4.18%

4.22%

2.97%

3.80%

4.33%

(86,485)

143,151

69,278

410,821

$6,708,086

585,505

1,912,640

3,862,780

609,219

835,522

739,993

92,607

832,600

567,965

$6,708,086

$257,599

$236,527

$215,383

$1,364,635

$19,509

$1,318,764

$ 35,919

$1,058,323

$ 22,508

3,124

67,259

89,892

14,469

31,106

3,706,231

121,021

3,878

81,224

22,113

24,013

3,362

56,402

82,272

15,692

23,351

Total interest bearing liabilities

5,307,521

135,467

4,768,966

167,147

4,091,506

121,315

(1) Loan income includes loan related fee income of $4,650 in 2008, $5,935 in 2007 and $4,340 in 2006. Loan income also includes the effects of taxable equivalent adjustments using a 35% tax rate in 2008, 2007

and 2006. The taxable equivalent adjustment was $763 in 2008, $565 in 2007 and $518 in 2006.

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

(3) Interest income on tax-exempt investment securities includes the effects of taxable equivalent adjustments using a 35% tax rate in 2008, 2007 and 2006. The taxable equivalent adjustments were $963 in 2008,

$1,285 in 2007 and $1,621 in 2006.

The following table displays (for each quarter of 2008) the average balance of

interest earning assets, net interest income and the tax equivalent net yield on

interest earning assets.

(In thousands)

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

2008

Average Interest

Earning Assets

$5,941,570

6,189,218

6,251,883

6,313,986

Net Interest

Income

$ 61,484

64,326

65,228

64,835

$6,171,321

$255,873

Tax Equivalent

Net Interest Margin

4.19%

4.20%

4.17%

4.11%

4.16%

$6,400 million for 2009 as the expected growth in loan balances from year-

end will be offset by a similar decrease in investment securities. Management

expects that net interest income will be $258 to $263 million in 2009 and that

the tax equivalent net interest margin will be approximately 4.08% in 2009.

(Please see the “Summary Discussion of Operating Results for Park” section

of this “Financial Review” for a comparison of 2008 results to management’s

projections from a year ago.)

The change in interest due to both volume and rate has been allocated to

volume and rate changes in proportion to the relationship of the absolute

dollar amounts of the change in each.

Table 6 – Volume /Rate Variance Analysis

Change from 2007 to 2008

Change from 2006 to 2007

Volume

Rate

Total

Volume

Rate

Total

(In thousands)

Increase (decrease) in:

Interest income:

Total loans

$26,080 $(45,546) $(19,466) $51,780

$13,971

$65,751

Taxable investments

11,160

(465)

10,695

Tax-exempt investments

(1,351)

139

(1,212)

(107)

(821)

1,823

1,716

(121)

(942)

Money market

instruments

Total interest

income

(107)

(518)

(625)

471

(20)

451

35,782

(46,390)

(10,608)

51,323

15,653

66,976

Transaction accounts

$ 1,204 $(17,614) $(16,410) $ 6,309

$ 7,102

$13,411

Savings accounts

217

(971)

(754)

(116)

632

516

Time deposits

3,351

(17,316)

(13,965)

12,218

12,604

24,822

Short-term borrowings

4,345

(11,989)

(7,644)

5,267

1,154

Long-term debt

10,204

(3,111)

7,093

662

6,421

662

Total interest

expense

Net variance

19,321

(51,001)

(31,680)

24,340

21,492

45,832

$16,461 $ 4,611 $ 21,072

$26,983

$ (5,839) $21,144

Management expects that average interest earnings assets will be approximately

Interest expense:

F I N A N C I A L

R E V I E W

F I N A N C I A L

R E V I E W

The following table sets forth the carrying value of investment securities at

Table 5 – Distribution of Assets, Liabilities and Stockholders’ Equity

(86,485)

143,151

69,278

410,821

$6,708,086

$1,364,635

$19,509

585,505

1,912,640

3,862,780

609,219

835,522

3,124

67,259

89,892

14,469

31,106

December 31,
(Dollars in thousands)

ASSETS
Interest earning assets:

Loans (1) (2)

Taxable investment securities

Tax-exempt investment securities (3)

Money market instruments

Total interest earning assets

Noninterest earning assets:

Allowance for possible loan losses

Cash and due from banks

Premises and equipment, net

Other assets

TOTAL

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest bearing liabilities:
Transaction accounts

Savings deposits

Time deposits

Total interest bearing deposits

Short-term borrowings

Long-term debt

Daily
Average

2008

Interest

Average
Rate

Daily
Average

2007

Interest

Average
Rate

Daily
Average

2006

Interest

Average
Rate

$4,354,520

$301,926

1,755,879

45,420

15,502

87,711

3,134

295

6,171,321

393,066

6.93%

5.00%

6.90%

1.90%

6.37%

$4,011,307

$321,392

1,531,144

65,061

17,838

77,016

4,346

920

5,625,350

403,674

8.01%

5.03%

6.68%

5.16%

7.18%

$3,357,278

$255,641

1,533,310

77,329

8,723

75,300

5,288

469

4,976,640

336,698

7.61%

4.91%

6.84%

5.38%

6.77%

(78,256)

151,219

61,604

409,239

$6,169,156

(70,386)

142,794

46,894

284,681

$5,380,623

1.43%

0.53%

3.52%

2.33%

2.38%

3.72%

2.55%

$1,318,764

$ 35,919

553,407

1,834,060

3,878

81,224

3,706,231

121,021

494,160

568,575

22,113

24,013

4,768,966

167,147

2.72%

0.70%

4.43%

3.27%

4.47%

4.22%

3.50%

$1,058,323

$ 22,508

573,067

1,531,477

3,162,867

375,332

553,307

3,362

56,402

82,272

15,692

23,351

4,091,506

121,315

2.13%

0.59%

3.68%

2.60%

4.18%

4.22%

2.97%

as available-for-sale are free to be sold in future periods in carrying out Park’s

Included in “Other Securities” in Table 4, are Park’s investments in Federal

Investment Securities: Park’s investment securities portfolio is structured

to provide liquidity and contribute to earnings. Park’s investment strategy is

dynamic. As conditions change over time, Park’s overall interest rate risk,

liquidity needs and potential return on the investment portfolio will change.

Management regularly evaluates the securities in the investment portfolio as

circumstances evolve. Circumstances that may precipitate a sale of a security

would be to better manage interest rate risk, to meet liquidity needs or to

improve the overall yield on the investment portfolio.

Park classifies most of its securities as AFS (see Note 4 of the Notes to

Consolidated Financial Statements). These securities are carried on the books

at their estimated fair value with the unrealized holding gain or loss, net of

federal taxes, accounted for as accumulated other comprehensive income

(loss) which is part of the Corporation’s equity. The securities that are classified

investment strategies.

Average taxable investment securities were $1,756 million in 2008, compared

to $1,531 million in 2007 and $1,533 million in 2006. The average yield on

taxable securities was 5.00% in 2008, compared to 5.03% in 2007 and 4.91%

in 2006. Average tax-exempt investment securities were $45 million in 2008,

compared to $65 million in 2007 and $77 million in 2006. The average tax-

equivalent yield on tax-exempt investment securities was 6.90% in 2008,

compared to 6.68% in 2007 and 6.84% in 2006.

Year-end total investment securities (at amortized cost) were $2,010 million

in 2008, $1,702 million in 2007 and $1,538 million in 2006. Management

purchased investment securities totaling $693 million in 2008, $843 million

in 2007 and $167 million in 2006. Proceeds from repayments and maturities

of investment securities were $310 million in 2008, $712 million in 2007 and

$313 million in 2006. Proceeds from sales of available-for-sale securities were

$81 million in 2008 and $304,000 in 2006. Park realized net security gains of

$1.1 million in 2008 and $97,000 in 2006. Park did not sell any investment

securities in 2007.

At year-end 2008 and 2007, the average tax-equivalent yield on the total

investment portfolio was 5.01% and 5.13%, respectively. The weighted

average remaining maturity was 2.9 years at December 31, 2008 and 3.7 years

at December 31, 2007. U.S. Government Agency asset-backed securities were

approximately 88% of the total investment portfolio at year-end 2008 and

were approximately 81% of the total investment portfolio at year-end 2007.

This segment of the investment portfolio consists of 15-year mortgage-backed

securities and collateralized mortgage obligations.

year-end 2008, 2007 and 2006:

Table 4 – Investment Securities

December 31,

(In thousands)

Obligations of U.S. Treasury and other

U.S. Government agencies

2008

2007

2006

$ 128,688

$ 203,558

90,709

Obligations of states and political subdivisions

37,188

59,052

70,090

U.S. Government asset-backed securities

and other asset-backed securities

Other securities

Total

1,822,587

1,375,005

1,288,969

70,588

65,488

63,730

$2,059,051

$1,703,103

$1,513,498

Home Loan Bank stock and Federal Reserve Bank stock. At December 31,

2008, Park owned $61.9 million of Federal Home Loan Bank Stock and $6.9

million of Federal Reserve Bank stock. Park owned $56.8 million of Federal

Home Loan Bank stock and $6.4 million of Federal Reserve Bank stock at

year-end 2007. At December 31, 2006, Park owned $55.5 million of Federal

Home Loan Bank stock and $6.4 million of Federal Reserve Bank stock.

The fair values of these investments are the same as their amortized costs.

ANALYSIS OF EARNINGS

Park’s principal source of earnings is net interest income, the difference

between total interest income and total interest expense. Net interest income

results from average balances outstanding for interest earning assets and

interest bearing liabilities in conjunction with the average rates earned and paid

on them. (See Table 5 for three years of history on the average balances of the

balance sheet categories and the average rates earned on interest earning assets

and the average rates paid on interest bearing liabilities.)

Net interest income increased by $21.2 million or 9.0% to $255.9 million for

2008 compared to an increase of $21.4 million or 10.1% to $234.7 million

for 2007. The tax equivalent net yield on interest earning assets was 4.16% for

2008 compared to 4.20% for 2007 and 4.33% for 2006. The net interest rate

spread (the difference between rates received for interest earning assets and

the rates paid for interest bearing liabilities) was 3.82% for 2008, compared

to 3.68% for 2007 and 3.80% for 2006. The increase in net interest income in

2008 was primarily due to the large increase in average interest earning assets

of $546 million or 9.7% and an increase in the net interest spread to 3.82%

from 3.68% in 2007. In 2007, the increase in net interest income was primarily

During 2008, management purchased approximately $270 million of U.S.

due to the large increase in average interest earning assets of $649 million or

Government Agency collateralized mortgage obligations and classified these

13.0% which resulted from the acquisition of Vision on March 9, 2007.

securities at the time of purchase as held-to-maturity. The U.S. Government

Agency collateralized mortgage obligations are not as liquid as U.S. Government

Agency mortgage-backed securities and as such management generally classi-

fies the purchase of collateralized mortgage obligations as held-to-maturity.

The average yield on interest earning assets was 6.37% in 2008 compared to

7.18% in 2007 and 6.77% in 2006. On a quarterly basis for 2008, the average

yield on earning assets was 5.99% for the fourth quarter, 6.25% for the third

quarter, 6.40% for the second quarter and 6.83% for the first quarter. The

The average maturity of the investment portfolio would lengthen if long-term

FOMC of the Federal Reserve Board decreased the targeted federal funds rate

interest rates would increase as the principal repayments from mortgage-

from 4.25% at year-end 2007 to a range of 0% to .25% at year-end 2008. The

backed securities and collateralized mortgage obligations would be reduced.

average federal funds rate for 2008 was 1.93%, compared to an average rate of

At year-end 2008, management estimated that the average maturity of the invest-

5.02% in 2007 and 4.97% in 2006. Management expects that the average yield

ment portfolio would lengthen to 4.1 years with a 100 basis point increase in

on interest earning assets will decrease in 2009 due to reductions in market

long-term interest rates and to 4.6 years with a 200 basis point increase in

interest rates in the fourth quarter of 2008.

long-term interest rates. Likewise, the average maturity of the investment

portfolio would shorten if long-term interest rates would decrease as the

principal repayments from mortgage-backed securities and collateralized

mortgage obligations would increase as borrowers would refinance their

mortgage loans. At year-end 2008, management estimated that the average

maturity of the investment portfolio would decrease to 2.0 years with a 100

basis point decrease in long-term interest rates and to 1.3 years with a 200

basis point decrease in long-term interest rates.

The average rate paid on interest bearing liabilities was 2.55% in 2008,

compared to 3.50% in 2007 and 2.97% in 2006. On a quarterly basis for 2008,

the average rate paid on interest bearing liabilities was 2.21% for the fourth

quarter, 2.42% for the third quarter, 2.55% for the second quarter and 3.07%

for the first quarter. Management expects that the average rate paid on interest

bearing liabilities will decrease in 2009 due to reductions in market interest

rates in the fourth quarter of 2008.

Noninterest bearing liabilities:

Demand deposits

Other

Total noninterest bearing liabilities

Stockholders’ equity

TOTAL

Net interest earnings

Net interest spread
Net yield on interest earning assets

739,993

92,607

832,600

567,965

$6,708,086

697,247

84,185

781,432

618,758

$6,169,156

662,077

81,966

744,043

545,074

$5,380,623

$257,599

$236,527

$215,383

3.82%
4.16%

3.68%
4.20%

3.80%
4.33%

and 2006. The taxable equivalent adjustment was $763 in 2008, $565 in 2007 and $518 in 2006.

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

$1,285 in 2007 and $1,621 in 2006.

The following table displays (for each quarter of 2008) the average balance of
interest earning assets, net interest income and the tax equivalent net yield on
interest earning assets.

(In thousands)

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

2008

Average Interest
Earning Assets

$5,941,570

6,189,218

6,251,883

6,313,986

Net Interest
Income

$ 61,484

64,326

65,228

64,835

$6,171,321

$255,873

Tax Equivalent
Net Interest Margin

4.19%

4.20%

4.17%

4.11%

4.16%

Management expects that average interest earnings assets will be approximately
$6,400 million for 2009 as the expected growth in loan balances from year-
end will be offset by a similar decrease in investment securities. Management
expects that net interest income will be $258 to $263 million in 2009 and that
the tax equivalent net interest margin will be approximately 4.08% in 2009.
(Please see the “Summary Discussion of Operating Results for Park” section
of this “Financial Review” for a comparison of 2008 results to management’s
projections from a year ago.)

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

Table 6 – Volume/Rate Variance Analysis

Change from 2007 to 2008
Total
Rate
Volume

Change from 2006 to 2007
Total
Rate
Volume

(In thousands)

Increase (decrease) in:
Interest income:

Total loans

$26,080 $(45,546) $(19,466) $51,780

$13,971

$65,751

Taxable investments

11,160

(465)

10,695

Tax-exempt investments

(1,351)

139

(1,212)

(107)

(821)

1,823

1,716

(121)

(942)

Money market
instruments

Total interest
income

Interest expense:

(107)

(518)

(625)

471

(20)

451

35,782

(46,390)

(10,608)

51,323

15,653

66,976

Transaction accounts

$ 1,204 $(17,614) $(16,410) $ 6,309

$ 7,102

$13,411

Savings accounts

217

(971)

(754)

(116)

632

516

Time deposits

3,351

(17,316)

(13,965)

12,218

12,604

24,822

Short-term borrowings

4,345

(11,989)

(7,644)

5,267

1,154

Long-term debt

10,204

(3,111)

7,093

662

6,421

662

Total interest
expense

Net variance

19,321

(51,001)

(31,680)

24,340

21,492

45,832

$16,461 $ 4,611 $ 21,072

$26,983

$ (5,839) $21,144

Total interest bearing liabilities

5,307,521

135,467

F I N A N C I A L

R E V I E W

F I N A N C I A L

R E V I E W

Other Income: Total other income, exclusive of security gains or losses,
increased by $12.1 million or 16.9% to $83.7 million in 2008 compared to
an increase of $7.0 million or 10.8% to $71.6 million in 2007. In 2008, Park’s
total other income was positively impacted by two “one-time” items totaling
$14.9 million and was negatively impacted by the write-down of the mortgage
loan servicing asset of $1.6 million. The net impact from the three items had a
positive impact of $13.3 million on total other income. The “one-time” positive
items were $3.1 million of revenue recognized as a result of the initial public
offering of Visa, Inc. and an aggregate of $11.8 million of revenue which
resulted from the sale of the unsecured credit card balances and the sale of
the merchant processing business. The large increase in 2007 was primarily
due to the acquisition of Vision on March 9, 2007. Excluding Vision Bank’s total
other income of $3.5 million, the increase was $3.5 million or 5.4% to $68.2
million in 2007. A year ago, management had projected that total other income
for 2008 would be approximately $77 million.

The following table displays total other income for Park in 2008, 2007
and 2006.

Year Ended December 31
(Dollars in thousands)

Income from fiduciary activities

Service charges on deposits

Net gains on sales of securities

Other service income

Other

Total other income

2008

$13,937

24,296

1,115

8,882

36,604

$84,834

2007

$14,403

23,813

—

11,543

21,881

2006

$13,548

19,969

10,920

20,228

$71,640

$64,762

Income from fiduciary activities decreased by $466,000 or 3.2% to $13.9
million in 2008. This decrease was primarily due to the poor performance of
the equity markets in 2008, as the market value of trust assets being managed
decreased throughout the year. In 2007, income from fiduciary activities
increased by $855,000 or 6.3% to $14.4 million. The increase in 2007
was primarily due to growth in the number of customers being serviced.
Management expects a decrease of approximately 7% in fee income from
fiduciary activities in 2009. Fiduciary fees are charged based on the market
value of the assets being managed and the market values declined somewhat
during the last four months of 2008.

Service charges on deposit accounts increased by $483,000 or 2.0% to $24.3
million in 2008. In 2007, service charges on deposit accounts increased by
$3.8 million or 19.2% to $23.8 million. The increase in service charges on
deposits in 2007 (exclusive of Vision Bank) was $2.2 million or 11.1%. Park
introduced a courtesy overdraft program in 2006 which helped generate
an 11.9% increase in service charges in 2006 and contributed to the strong
increase in services charges on deposits in 2007. The revenue produced by
the courtesy overdraft program has plateaued and Park’s management expects
another small increase in service charges on deposits of approximately 2%
in 2009.

Fee income earned from the origination and sale into the secondary market
of long-term fixed-rate mortgage loans is included with other non-yield related
loan fees in the subcategory “Other service income.” Other service income
decreased by $2.7 million or 23.1% to $8.9 million in 2008. This decrease was
primarily due to a write-down of $1.6 million on the mortgage loan servicing
asset during the fourth quarter of 2008. Long-term interest rates on fixed-rate
mortgage loans decreased during the fourth quarter and the value of Park’s
mortgage loan servicing asset decreased due to faster prepay assumptions on
sold mortgage loans being serviced by Park. Park’s management expects that
the volume of fixed-rate mortgage loans originated and sold into the secondary
market will double in 2009 and as a result will expect other service income to
increase by 60.0% to $14.2 million in 2009. Other service income was $11.5
million in 2007 ($10.3 million excluding Vision) and $10.9 million in 2006.

The subcategory of “Other” income includes fees earned from check card
and ATM services, income from bank owned life insurance, fee income earned
from the sale of official checks and printed checks, rental fee income from safe
deposit boxes and other miscellaneous income. Total other income increased
by $14.7 million or 67.3% to $36.6 million in 2008. This increase was
primarily due to the two “one-time” revenue items which totaled $14.9 million.
Excluding these two items, total other income decreased by $.2 million in
2008. By comparison, the increase in other income was $1.7 million or 8.2%
to $21.9 million in 2007. Excluding Vision Bank, the increase in other income
was $1.1 million or 5.3% in 2007. Management expects that other income will
be approximately $23 million in 2009. For 2009, management projects total
other income to be approximately $75 million.

Other Expense: Total other expense was $234.5 million in 2008, compared
to $224.2 million in 2007 and $141.0 million in 2006. Total other expense
includes goodwill impairment charges of $55.0 million in 2008 and $54.0
million in 2007. Excluding the goodwill impairment charges, total other
expense increased by $9.4 million or 5.5% to $179.5 million in 2008 and
increased by $29.1 million or 20.7% to $170.1 million in 2007. A year ago,
Park’s management had projected total other expense of $177.0 million for
2008. The actual results were $2.5 million or 1.4% higher than the projected
amount. The large increase in total other expense in 2007 was primarily due
to the acquisition of Vision Bank. In 2007, total other expense (excluding the
goodwill impairment charge) was $18.5 million for Vision Bank.

The following table displays total other expense for Park in 2008, 2007
and 2006.

Year Ended December 31
(Dollars in thousands)

2008

2007

2006

Salaries and employee benefits

$ 99,018

$ 97,712

$ 82,579

Goodwill impairment charge

Data processing fees

Fees and service charges

Net occupancy expense of

bank premises

Amortization of intangibles

Furniture and equipment expense

Insurance

Marketing

Postage and telephone

State taxes

Other

54,986

7,121

12,801

54,035

6,892

11,055

11,534

10,717

4,025

9,756

2,322

4,525

7,167

2,989

3,847

9,259

1,445

4,961

6,910

2,769

—

4,246

9,553

9,155

2,470

8,215

1,137

4,438

6,303

2,333

18,257

14,562

10,573

Consolidated Statements of Income.

Total other expense

$234,501

$224,164

$141,002

Salaries and employee benefits expense increased by $1.3 million or 1.3% to
$99.0 million in 2008. By comparison, salaries and employee benefits expense
increased by $15.1 million or 18.3% to $97.7 million in 2007, but (exclusive
of Vision) the increase in 2007 was $5.9 million or 7.1%. During the fourth
quarter of 2007, Park granted 90,000 incentive stock options to officers and
other key employees of Park’s subsidiaries and accordingly recognized $.9
million of compensation expense. No stock options were granted in 2008.

Full-time equivalent employees at year-end 2008 were 2,051 compared to
2,066 at year-end 2007 and 1,892 at year-end 2006. Vision Bank had 214
full-time equivalent employees at year-end 2008 and 201 at year-end 2007.

On July 30, 2007, Park announced a plan (“Project EPS”) to review current
processes and identify opportunities to improve efficiency by converting to
one operating system. During the third quarter of 2008, Park merged its eight
Ohio banking charters into a national bank charter, PNB. The banking divisions
of PNB have been able to reduce full-time equivalent employees as a result of
Project EPS. Park’s Ohio-based banking divisions reduced full-time equivalent
employees by a net of 28 or 1.5% in 2008. Park’s management expects an
additional reduction in full-time equivalent employees as Project EPS is
expected to be completed during the fourth quarter of 2009.

CREDIT EXPERIENCE

Provision for Loan Losses: The provision for loan losses is the amount

added to the allowance for loan losses to absorb future loan charge-offs. The

amount of the loan loss provision is determined by management after reviewing

the risk characteristics of the loan portfolio, historic and current loan loss

experience and current economic conditions.

The provision for loan losses was $70.5 million in 2008, $29.5 million in 2007

and $3.9 million in 2006. Net loan charge-offs were $57.5 million in 2008,

$22.2 million in 2007 and $3.9 million in 2006. The ratio of net loan charge-

offs to average loans was 1.32% in 2008, .55% in 2007 and .12% in 2006.

Vision Bank experienced significant credit problems during 2008 and the

second half of 2007. The loan loss provision for Vision Bank was $47.0

million in 2008 and $19.4 million in 2007.

Net loan charge-offs for Vision Bank were $38.5 million in 2008 and $8.6

million in 2007. Vision Bank’s ratio of net loan charge-offs to average loans

was 5.69% in 2008 and an annualized 1.71% in 2007.

Park’s Ohio-based subsidiaries had a combined loan loss provision of $23.5

million in 2008 and $10.1 million in 2007. Net loan charge-offs for Park’s

Ohio-based operations were $19.0 million in 2008 and $13.6 million in 2007.

The net loan charge-off ratio for Park’s Ohio-based subsidiaries was .52% for

2008 and .39% for 2007.

At year-end 2008, the allowance for loan losses was $100.1 million or 2.23%

of total loans outstanding, compared to $87.1 million or 2.06% of total loans

outstanding at year-end 2007 and $70.5 million or 2.03% of total loans out-

standing at year-end 2006. In two of the last three years, the loan loss reserve

for an acquired bank was added to Park’s allowance for loan losses. The Vision

acquisition added $9.3 million in 2007 and the Anderson acquisition added

$798,000 in 2006.

Management believes that the allowance for loan losses at year-end 2008 is

adequate to absorb probable incurred credit losses in the loan portfolio. See

Note 1 of the Notes to Consolidated Financial Statements and the discussion

under the heading “Critical Accounting Policies” earlier in this “Financial

Review” section for additional information on management’s evaluation of

the adequacy of the allowance for loan losses.

Management expects that the loan loss provision for 2009 will be approximately

$45 million and that the annualized net loan charge-off ratio will be approxi-

mately 1.00%. This estimate could change significantly as circumstances for

individual loans and economic conditions change.

A year ago, management projected that the provision for loan losses would

be $20 to $25 million in 2008 and that the net loan charge-off ratio would be

.45% to .55%. The credit problems at Vision Bank in 2008 were far worse than

management anticipated. General economic conditions deteriorated throughout

the year and as a result, real estate values declined in the Florida markets in

which Vision Bank operates.

A year ago, Park’s management projected that salaries and employee benefits

expense would increase by approximately 6.5% in 2008. This estimate included

an estimated $2 million of severance expense pertaining to Project EPS. Park

was able to achieve reductions in full-time equivalent employees without paying

any meaningful amount of severance in 2008. For 2009, Park’s management

projects that salaries and employee benefits expense will increase to approxi-

mately $103 million or by 4.0%. Most of this projected increase is due to an

estimated increase in pension plan expense of $3 million in 2009.

Vision Bank recorded goodwill impairment charges of $55.0 million in 2008

and $54.0 million in 2007. Please see Note 1 of the Notes to Consolidated

Financial Statements for a discussion of the goodwill impairment charges.

Vision Bank did not have any remaining goodwill at year-end 2008.

Other fees and service charges increased by $1.7 million or 15.8% to $12.8

million in 2008. 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 large increase in other

fees and service charges expense in 2008 was primarily due to an increase

in management consulting fees of $.7 million to $1.3 million. This expense

primarily pertained to Project EPS.

The subcategory “Other” expense includes expenses for supplies, travel,

charitable contributions, amortization of low income housing tax credit

investments, expenses pertaining to other real estate owned and other

miscellaneous expenses. The subcategory other expense increased by $3.7

million or 25.4% to $18.3 million in 2008. This increase in other expense

was primarily due to an increase in other real estate owned expenses from

$3.4 million to $4.1 million.

Park’s management expects that total other expense will be approximately

$184.0 million in 2009. This projected amount represents an increase of $4.5

million or 2.5% in total other expense compared to $179.5 million for 2008,

which is exclusive of the $55.0 million goodwill impairment charge.

Income Taxes: Federal income tax expense was $24.3 million in 2008,

compared to $30.4 million in 2007 and $39.0 million in 2006. State income

tax expense was a credit of ($2.3) million in 2008 and a credit of ($453,000)

in 2007. Vision Bank is subject to state income tax in the states of Alabama and

Florida. State tax expense was a credit in both 2008 and 2007, because Vision

Bank had losses in both years. Park and its Ohio-based subsidiaries do not pay

state income tax to the state of Ohio, but pay a franchise tax based on year-end

equity. The franchise tax expense is included in “state taxes” on Park’s

Federal income tax expense as a percentage of income before taxes was 68.1%

in 2008 and 57.8% in 2007. The goodwill impairment charge of $55.0 million

in 2008 reduced income tax expense by approximately $1 million. The goodwill

impairment charge of $54.0 million in 2007 had no impact on income tax

expense.

For 2008 and 2007, the percentage of federal income tax expense to income

before taxes (adjusted for the goodwill impairment charges) was 26.8% and

28.5%, respectively. By comparison, the percentage of federal income taxes

to income before taxes was 29.3% in 2006.

A lower federal effective tax rate than the statutory rate of 35% is primarily due

to tax-exempt interest income from state and municipal investments and loans,

low income housing tax credits and income from bank owned life insurance.

Park’s management expects that the federal effective income tax rate for 2009

will be approximately 29.0%.

F I N A N C I A L

R E V I E W

F I N A N C I A L

R E V I E W

Other Income: Total other income, exclusive of security gains or losses,

The subcategory of “Other” income includes fees earned from check card

increased by $12.1 million or 16.9% to $83.7 million in 2008 compared to

and ATM services, income from bank owned life insurance, fee income earned

an increase of $7.0 million or 10.8% to $71.6 million in 2007. In 2008, Park’s

from the sale of official checks and printed checks, rental fee income from safe

total other income was positively impacted by two “one-time” items totaling

deposit boxes and other miscellaneous income. Total other income increased

$14.9 million and was negatively impacted by the write-down of the mortgage

by $14.7 million or 67.3% to $36.6 million in 2008. This increase was

loan servicing asset of $1.6 million. The net impact from the three items had a

primarily due to the two “one-time” revenue items which totaled $14.9 million.

positive impact of $13.3 million on total other income. The “one-time” positive

Excluding these two items, total other income decreased by $.2 million in

items were $3.1 million of revenue recognized as a result of the initial public

2008. By comparison, the increase in other income was $1.7 million or 8.2%

offering of Visa, Inc. and an aggregate of $11.8 million of revenue which

to $21.9 million in 2007. Excluding Vision Bank, the increase in other income

resulted from the sale of the unsecured credit card balances and the sale of

was $1.1 million or 5.3% in 2007. Management expects that other income will

the merchant processing business. The large increase in 2007 was primarily

be approximately $23 million in 2009. For 2009, management projects total

due to the acquisition of Vision on March 9, 2007. Excluding Vision Bank’s total

other income to be approximately $75 million.

other income of $3.5 million, the increase was $3.5 million or 5.4% to $68.2

million in 2007. A year ago, management had projected that total other income

for 2008 would be approximately $77 million.

The following table displays total other income for Park in 2008, 2007

and 2006.

Year Ended December 31

(Dollars in thousands)

Income from fiduciary activities

Service charges on deposits

Net gains on sales of securities

Other service income

Other

Total other income

2008

$13,937

24,296

1,115

8,882

36,604

$84,834

2007

$14,403

23,813

—

11,543

21,881

2006

$13,548

19,969

10,920

20,228

$71,640

$64,762

and 2006.

Income from fiduciary activities decreased by $466,000 or 3.2% to $13.9

million in 2008. This decrease was primarily due to the poor performance of

the equity markets in 2008, as the market value of trust assets being managed

decreased throughout the year. In 2007, income from fiduciary activities

increased by $855,000 or 6.3% to $14.4 million. The increase in 2007

was primarily due to growth in the number of customers being serviced.

Management expects a decrease of approximately 7% in fee income from

fiduciary activities in 2009. Fiduciary fees are charged based on the market

value of the assets being managed and the market values declined somewhat

during the last four months of 2008.

Service charges on deposit accounts increased by $483,000 or 2.0% to $24.3

million in 2008. In 2007, service charges on deposit accounts increased by

$3.8 million or 19.2% to $23.8 million. The increase in service charges on

deposits in 2007 (exclusive of Vision Bank) was $2.2 million or 11.1%. Park

introduced a courtesy overdraft program in 2006 which helped generate

an 11.9% increase in service charges in 2006 and contributed to the strong

increase in services charges on deposits in 2007. The revenue produced by

Other Expense: Total other expense was $234.5 million in 2008, compared

to $224.2 million in 2007 and $141.0 million in 2006. Total other expense

includes goodwill impairment charges of $55.0 million in 2008 and $54.0

million in 2007. Excluding the goodwill impairment charges, total other

expense increased by $9.4 million or 5.5% to $179.5 million in 2008 and

increased by $29.1 million or 20.7% to $170.1 million in 2007. A year ago,

Park’s management had projected total other expense of $177.0 million for

2008. The actual results were $2.5 million or 1.4% higher than the projected

amount. The large increase in total other expense in 2007 was primarily due

to the acquisition of Vision Bank. In 2007, total other expense (excluding the

goodwill impairment charge) was $18.5 million for Vision Bank.

The following table displays total other expense for Park in 2008, 2007

Year Ended December 31

(Dollars in thousands)

2008

2007

2006

Salaries and employee benefits

$ 99,018

$ 97,712

$ 82,579

Goodwill impairment charge

Data processing fees

Fees and service charges

Net occupancy expense of

bank premises

Amortization of intangibles

Furniture and equipment expense

Insurance

Marketing

State taxes

Other

Postage and telephone

11,534

10,717

54,986

7,121

12,801

4,025

9,756

2,322

4,525

7,167

2,989

54,035

6,892

11,055

3,847

9,259

1,445

4,961

6,910

2,769

—

4,246

9,553

9,155

2,470

8,215

1,137

4,438

6,303

2,333

Total other expense

$234,501

$224,164

$141,002

18,257

14,562

10,573

Salaries and employee benefits expense increased by $1.3 million or 1.3% to

the courtesy overdraft program has plateaued and Park’s management expects

$99.0 million in 2008. By comparison, salaries and employee benefits expense

another small increase in service charges on deposits of approximately 2%

increased by $15.1 million or 18.3% to $97.7 million in 2007, but (exclusive

in 2009.

Fee income earned from the origination and sale into the secondary market

of long-term fixed-rate mortgage loans is included with other non-yield related

loan fees in the subcategory “Other service income.” Other service income

of Vision) the increase in 2007 was $5.9 million or 7.1%. During the fourth

quarter of 2007, Park granted 90,000 incentive stock options to officers and

other key employees of Park’s subsidiaries and accordingly recognized $.9

million of compensation expense. No stock options were granted in 2008.

decreased by $2.7 million or 23.1% to $8.9 million in 2008. This decrease was

Full-time equivalent employees at year-end 2008 were 2,051 compared to

primarily due to a write-down of $1.6 million on the mortgage loan servicing

2,066 at year-end 2007 and 1,892 at year-end 2006. Vision Bank had 214

asset during the fourth quarter of 2008. Long-term interest rates on fixed-rate

full-time equivalent employees at year-end 2008 and 201 at year-end 2007.

mortgage loans decreased during the fourth quarter and the value of Park’s

mortgage loan servicing asset decreased due to faster prepay assumptions on

sold mortgage loans being serviced by Park. Park’s management expects that

the volume of fixed-rate mortgage loans originated and sold into the secondary

market will double in 2009 and as a result will expect other service income to

increase by 60.0% to $14.2 million in 2009. Other service income was $11.5

million in 2007 ($10.3 million excluding Vision) and $10.9 million in 2006.

On July 30, 2007, Park announced a plan (“Project EPS”) to review current

processes and identify opportunities to improve efficiency by converting to

one operating system. During the third quarter of 2008, Park merged its eight

Ohio banking charters into a national bank charter, PNB. The banking divisions

of PNB have been able to reduce full-time equivalent employees as a result of

Project EPS. Park’s Ohio-based banking divisions reduced full-time equivalent

employees by a net of 28 or 1.5% in 2008. Park’s management expects an

additional reduction in full-time equivalent employees as Project EPS is

expected to be completed during the fourth quarter of 2009.

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

The provision for loan losses was $70.5 million in 2008, $29.5 million in 2007
and $3.9 million in 2006. Net loan charge-offs were $57.5 million in 2008,
$22.2 million in 2007 and $3.9 million in 2006. The ratio of net loan charge-
offs to average loans was 1.32% in 2008, .55% in 2007 and .12% in 2006.

Vision Bank experienced significant credit problems during 2008 and the
second half of 2007. The loan loss provision for Vision Bank was $47.0
million in 2008 and $19.4 million in 2007.

Net loan charge-offs for Vision Bank were $38.5 million in 2008 and $8.6
million in 2007. Vision Bank’s ratio of net loan charge-offs to average loans
was 5.69% in 2008 and an annualized 1.71% in 2007.

Park’s Ohio-based subsidiaries had a combined loan loss provision of $23.5
million in 2008 and $10.1 million in 2007. Net loan charge-offs for Park’s
Ohio-based operations were $19.0 million in 2008 and $13.6 million in 2007.
The net loan charge-off ratio for Park’s Ohio-based subsidiaries was .52% for
2008 and .39% for 2007.

At year-end 2008, the allowance for loan losses was $100.1 million or 2.23%
of total loans outstanding, compared to $87.1 million or 2.06% of total loans
outstanding at year-end 2007 and $70.5 million or 2.03% of total loans out-
standing at year-end 2006. In two of the last three years, the loan loss reserve
for an acquired bank was added to Park’s allowance for loan losses. The Vision
acquisition added $9.3 million in 2007 and the Anderson acquisition added
$798,000 in 2006.

Management believes that the allowance for loan losses at year-end 2008 is
adequate to absorb probable incurred credit losses in the loan portfolio. See
Note 1 of the Notes to Consolidated Financial Statements and the discussion
under the heading “Critical Accounting Policies” earlier in this “Financial
Review” section for additional information on management’s evaluation of
the adequacy of the allowance for loan losses.

Management expects that the loan loss provision for 2009 will be approximately
$45 million and that the annualized net loan charge-off ratio will be approxi-
mately 1.00%. This estimate could change significantly as circumstances for
individual loans and economic conditions change.

A year ago, management projected that the provision for loan losses would
be $20 to $25 million in 2008 and that the net loan charge-off ratio would be
.45% to .55%. The credit problems at Vision Bank in 2008 were far worse than
management anticipated. General economic conditions deteriorated throughout
the year and as a result, real estate values declined in the Florida markets in
which Vision Bank operates.

A year ago, Park’s management projected that salaries and employee benefits
expense would increase by approximately 6.5% in 2008. This estimate included
an estimated $2 million of severance expense pertaining to Project EPS. Park
was able to achieve reductions in full-time equivalent employees without paying
any meaningful amount of severance in 2008. For 2009, Park’s management
projects that salaries and employee benefits expense will increase to approxi-
mately $103 million or by 4.0%. Most of this projected increase is due to an
estimated increase in pension plan expense of $3 million in 2009.

Vision Bank recorded goodwill impairment charges of $55.0 million in 2008
and $54.0 million in 2007. Please see Note 1 of the Notes to Consolidated
Financial Statements for a discussion of the goodwill impairment charges.
Vision Bank did not have any remaining goodwill at year-end 2008.

Other fees and service charges increased by $1.7 million or 15.8% to $12.8
million in 2008. 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 large increase in other
fees and service charges expense in 2008 was primarily due to an increase
in management consulting fees of $.7 million to $1.3 million. This expense
primarily pertained to Project EPS.

The subcategory “Other” expense includes expenses for supplies, travel,
charitable contributions, amortization of low income housing tax credit
investments, expenses pertaining to other real estate owned and other
miscellaneous expenses. The subcategory other expense increased by $3.7
million or 25.4% to $18.3 million in 2008. This increase in other expense
was primarily due to an increase in other real estate owned expenses from
$3.4 million to $4.1 million.

Park’s management expects that total other expense will be approximately
$184.0 million in 2009. This projected amount represents an increase of $4.5
million or 2.5% in total other expense compared to $179.5 million for 2008,
which is exclusive of the $55.0 million goodwill impairment charge.

Income Taxes: Federal income tax expense was $24.3 million in 2008,
compared to $30.4 million in 2007 and $39.0 million in 2006. State income
tax expense was a credit of ($2.3) million in 2008 and a credit of ($453,000)
in 2007. Vision Bank is subject to state income tax in the states of Alabama and
Florida. State tax expense was a credit in both 2008 and 2007, because Vision
Bank had losses in both years. Park and its Ohio-based subsidiaries do not pay
state income tax to the state of Ohio, but pay a franchise tax based on year-end
equity. The franchise tax expense is included in “state taxes” on Park’s
Consolidated Statements of Income.

Federal income tax expense as a percentage of income before taxes was 68.1%
in 2008 and 57.8% in 2007. The goodwill impairment charge of $55.0 million
in 2008 reduced income tax expense by approximately $1 million. The goodwill
impairment charge of $54.0 million in 2007 had no impact on income tax
expense.

For 2008 and 2007, the percentage of federal income tax expense to income
before taxes (adjusted for the goodwill impairment charges) was 26.8% and
28.5%, respectively. By comparison, the percentage of federal income taxes
to income before taxes was 29.3% in 2006.

A lower federal effective tax rate than the statutory rate of 35% is primarily due
to tax-exempt interest income from state and municipal investments and loans,
low income housing tax credits and income from bank owned life insurance.

Park’s management expects that the federal effective income tax rate for 2009
will be approximately 29.0%.

F I N A N C I A L

R E V I E W

F I N A N C I A L

R E V I E W

Table 7 – Summary of Loan Loss Experience

(In thousands)

2008

2007

2006

2005

2004

Average loans

(net of unearned
interest)

Allowance for
loan losses:

$4,354,520 $4,011,307 $3,357,278 $3,278,092 $2,813,069

Beginning balance

87,102

70,500

69,694

68,328

63,142

Charge-offs:

Commercial, financial
and agricultural

Real estate –

construction

Real estate –
residential

Real estate –
commercial

Consumer

Leases

2,953

4,170

34,052

7,899

853

718

3,154

2,557

613

12,600

5,785

1,915

1,006

1,476

4,126
9,181
4

1,899

8,020

556

6,673

1,612

7,255

316

1,951

8,111

465

Total charge-offs

62,916

27,776

10,772

13,389

15,173

Recoveries:

Commercial, financial
and agricultural

Real estate –

construction

Real estate –
residential

Real estate –
commercial

Consumer

Leases

Total recoveries

Net charge-offs

Provision charged
to earnings

Allowance for loan
losses of acquired bank

861 $

1,011 $

842 $

2,707 $

2,138

137

1,128

451

2,807

5,415

57,501

180

718

560

3,035

5,568

22,208

—

1,017

1,646

3,198

150

6,853

3,919

173

659

517

3,214

229

7,499

5,890

650

292

3,633

529

7,309

7,864

70,487

29,476

3,927

5,407

8,600

—

9,334

798

1,849

4,450

Ending balance

$ 100,088 $

87,102 $

70,500 $

69,694 $

68,328

Ratio of net charge-offs

to average loans

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

1.32%

0.55%

0.12%

0.18%

0.28%

2.23%

2.06%

2.03%

2.09%

2.19%

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

Table 8 – Allocation of Allowance for Loan Losses

December 31,

2008

2007

2006

2005

2004

(Dollars in
thousands)

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

Consumer
Leases

Percent of
Percent of
Loans Per
Loans Per
Category Allowance Category Allowance Category Allowance Category

Percent of
Loans Per

Percent of
Loans Per
Allowance Category

Allowance

$ 14,286

15.90% $14,557

14.52% $16,985

15.75% $17,942

15.40% $17,837

15.04%

24,794

11.88%

20,007

12.70%

4,425

6.75%

3,864

5.80%

3,107

4.98%

22,077

34.74%

15,997

35.06%

10,402

37.36%

10,329

38.68%

8,926

38.14%

15,498
23,391
42

23.06%
14.33%
0.09%

15,989
20,477
75

23.51%
14.05%
0.16%

17,097
21,285
306

24.56%
15.29%
0.29%

16,823
19,799
937

24.74%
14.87%
0.51%

16,930
20,206
1,322

24.11%
16.19%
1.54%

Total

$100,088 100.00% $87,102 100.00% $70,500 100.00% $69,694 100.00% $68,328 100.00%

As of December 31, 2008, Park had no significant concentrations of loans to
borrowers engaged in the same or similar industries nor did Park have any
loans to foreign governments.

Nonperforming Assets: Nonperforming loans include: l) loans whose
interest is accounted for on a nonaccrual basis; 2) loans whose terms have
been renegotiated; and 3) loans which are contractually past due 90 days
or more as to principal or interest payments but whose interest continues to
accrue. Other real estate owned results from taking title to property used as
collateral for a defaulted loan.

The percentage of nonperforming loans to total loans was 3.74% at year-end
2008, 2.57% at year-end 2007 and .95% at year-end 2006. The percentage of
nonperforming assets to total loans was 4.31% at year-end 2008, 2.89% at year-
end 2007 and 1.04% at year-end 2006.

Vision Bank had $94.7 million of nonperforming loans or 13.7% of their total
loans at year-end 2008, compared to $63.5 million of nonperforming loans or
9.9% of their total loans at year-end 2007. Nonperforming assets totaled $114.4
million for Vision Bank at year-end 2008, compared to $70.5 million at year-
end 2007. As a percentage of year-end loans, Vision Bank’s nonperforming
assets were 16.6% and 11.0% for 2008 and 2007, respectively.

Park’s Ohio-based subsidiaries had $73.1 million of nonperforming loans at
year-end 2008, compared to $45.0 million at year-end 2007. Nonperforming
loans were 1.9% and 1.3% of loans for Park’s Ohio-based operations at
year-end 2008 and 2007, respectively. Total nonperforming assets for Park’s
Ohio-based subsidiaries were $79.2 million or 2.1% of loans at year-end
2008 and $51.4 million or 1.4% of loans at year-end 2007.

Economic conditions began deteriorating during the second half of 2007
and continued throughout 2008. Park and many other financial institutions
throughout the country experienced a sharp increase in net loan charge-offs
and nonperforming loans. Financial institutions operating in Florida (including
Vision Bank) have been particularly hard hit by the severe recession as the
demand for real estate and the price of real estate have sharply decreased.

Park’s lending management has reviewed closely all of the nonperforming loans
and nonperforming assets as of December 31, 2008. Partial loan charge-offs of
approximately $30 million have been recognized on nonperforming loans at
year-end 2008. Approximately $20 million of these net loan charge-offs were
recorded at Vision Bank.

Park had $243.2 million of loans included on the watch list of potential
problem loans at December 31, 2008 compared to $208.8 million at year-end
2007 and $176.8 million at year-end 2006. As a percentage of year-end total
loans, Park’s watch list of potential problem loans was 5.4% in 2008, 4.9% in
2007 and 5.1% in 2006. The existing conditions of these loans do not warrant
classification as nonaccrual. However, these loans have shown some weakness
and management performs additional analyses regarding a borrower’s ability
to comply with payment terms for watch list loans.

The following is a summary of the nonaccrual, past due and renegotiated loans
and other real estate owned for the last five years:

Table 9 – Nonperforming Assets

December 31,
(Dollars in thousands)

Nonaccrual loans
Renegotiated loans
Loans past due 90 days

or more

Total nonperforming

loans

2008

2007

2006

2005

2004

$159,512
2,845

$101,128
2,804

$16,004
9,113

$14,922
7,441

$17,873
5,461

5,421

4,545

7,832

7,661

5,439

167,778

108,477

32,949

30,024

28,773

Other real estate owned

25,848

13,443

3,351

2,368

2,680

Total nonperforming

assets

Percentage of

nonperforming loans
to loans, net of
unearned income

Percentage of

nonperforming assets
to loans, net of
unearned income

Percentage of

nonperforming assets
to total assets

$193,626

$121,920

$36,300

$32,392

$31,453

3.74%

2.57%

0.95%

0.90%

0.92%

4.31%

2.89%

1.04%

0.97%

1.01%

2.74%

1.88%

0.66%

0.60%

0.58%

Tax equivalent interest income from loans of $301.9 million for 2008 would
have increased by $12.1 million if all loans had been current in accordance
with their original terms.

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 $22.1 million during 2008 to $171.3

million at year-end. Cash provided by operating activities was $90.7 million in

2008, $83.2 million in 2007 and $85.3 million in 2006. Net income (adjusted

for the goodwill impairment charges) was the primary source of cash for

operating activities during each year. The goodwill impairment charges of

$55.0 million in 2008 and $54.0 million in 2007 did not impact cash and

as a result had no impact on cash provided by operating activities.

Cash used in investing activities was $635.0 million in 2008 and $360.3

million in 2007. Cash provided by investing activities was $47.8 million in

2006. Investment security transactions are the major use or source of cash in

investing activities. Proceeds from the sale, repayment or maturity of securities

provide cash and purchases of securities use cash. Net security transactions

used cash of $304.8 million in 2008 and $130.8 million in 2007 and provided

cash of $145.9 million in 2006. Another major use or source of cash in invest-

ing activities is the net increase or decrease in the loan portfolio. Cash used

by the net increase in the loan portfolio was $351.3 million in 2008, $126.0

million in 2007 and $99.3 million in 2006. In 2007, Park also used $38.3

million in cash to acquire the loans pertaining to the Millersburg, Ohio branch

purchase and used $47.7 million of cash on a net basis for the acquisition

of Vision.

Cash provided by financing activities was $522.2 million in 2008 and $284.2

million in 2007. Cash used in financing activities was $120.7 million in 2006.

A major source of cash for financing activities is the net change in deposits.

Cash provided by the net change in deposits was $322.5 million in 2008,

$13.2 million in 2007 and $6.3 million in 2006. The large increase in

deposits in 2008 was primarily due to the use of broker deposits, which

added $235.7 million in deposits in 2008. Another major source of cash

for financing activities is short-term borrowings and long-term debt. In

2008, net short-term borrowings used $100.1 million in cash and net

long-term borrowings provided $265.1 million in cash. The net increase in

short-term borrowings provided cash of $359.2 million in 2007 and $61.7

million in 2006. Cash was used by the net decrease in long-term borrowings

of $19.4 million in 2007 and $110.6 million in 2006. In 2008, cash of $100.0

million was provided from the issuance of preferred stock. In 2007, cash

was also provided from the deposits of $23.5 million acquired as part of the

Millersburg, Ohio branch purchase and from the $25 million in proceeds

from the issuance of subordinated debt.

Funds are available from a number of sources, including the securities

portfolio, the core deposit base, Federal Home Loan Bank borrowings and the

capability to securitize or package loans for sale. The present funding sources

provide more than adequate liquidity for Park to meet its cash flow needs.

The following table shows interest rate sensitivity data for five different time

intervals as of December 31, 2008:

Interest earning

assets:

Investment

Money market

instruments

Total interest

earning

assets

Interest bearing

liabilities:

Interest bearing

transaction

accounts (2)

Savings

accounts (2)

Time deposits

Other

Short-term

borrowings

Long-term debt

Subordinated

debentures

Total interest

bearing

liabilities

Interest rate

Cumulative rate

sensitivity gap

Cumulative gap as

a percentage of

total interest

earning assets

Table 10 – Interest Rate Sensitivity

(Dollars

in thousands)

0-3

Months

3-12

Months

1-3

Years

3-5

Years

Over 5

Years

Total

securities (1)

$ 255,318 $ 242,984 $ 377,344 $233,258 $950,147 $2,059,051

20,964

—

20,964

Loans (1)

1,756,245

1,126,092

1,336,032

252,245

20,723

4,491,337

2,032,527

1,369,076

1,713,376

485,503

970,870

6,571,352

559,873

— 644,657

— 1,204,530

— 493,020

— 694,721

846,460

366,739

139,073

1,865

2,078,372

—

1,502

—

Total deposits 1,487,311

846,460

1,504,416

139,073

1,865

3,979,125

—

— 659,196

29,045

18,920

1,000

604,416

855,559

— 25,000

—

40,000

201,701

724,235

1,502

659,196

202,178

15,000

—

2,363,685

875,505

1,523,336

165,073

606,281

5,533,880

sensitivity gap

(331,158)

493,571

190,040

320,430

364,589

1,037,472

(331,158)

162,413

352,453

672,883 1,037,472

—

–5.04%

2.47%

5.36% 10.24% 15.79%

(1) Investment securities and loans that are subject to prepayment are shown in the table by the earlier of

their repricing date or their expected repayment dates and not by their contractual maturity. The totals

for investment securities include interest bearing deposits with other banks.

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

deposits and therefore, not as rate sensitive as other deposit accounts and borrowed money.

Accordingly, only 46% of interest bearing transaction accounts and 29% of savings accounts are

considered to reprice within one year. If all of the interest bearing checking accounts and savings

accounts were considered to reprice within one year, the one year cumulative gap would change

from a positive 2.47% to a negative 14.84%.

The interest rate sensitivity gap analysis provides a good overall picture of

Park’s static interest rate risk position. Park’s policy is that the twelve month

cumulative gap position should not exceed fifteen percent of interest earning

assets for three consecutive quarters. At December 31, 2008, the cumulative

interest earning assets maturing or repricing within twelve months were

$3,401.6 million compared to the cumulative interest bearing liabilities

maturing or repricing within twelve months of $3,239.2 million. For the

twelve-month cumulative gap position, rate sensitive assets exceed rate

sensitive liabilities by $162.4 million or 2.5% of interest earning assets.

F I N A N C I A L

R E V I E W

F I N A N C I A L

R E V I E W

853

718

556

6,673

—

1,017

1,646

3,198

150

6,853

3,919

Real estate –

construction

Real estate –

residential

Real estate –

commercial

Consumer

Leases

Real estate –

construction

Real estate –

residential

Real estate –

commercial

Consumer

Leases

Table 7 – Summary of Loan Loss Experience

(In thousands)

2008

2007

2006

2005

2004

$4,354,520 $4,011,307 $3,357,278 $3,278,092 $2,813,069

Beginning balance

87,102

70,500

69,694

68,328

63,142

Average loans

(net of unearned

interest)

Allowance for

loan losses:

Charge-offs:

Commercial, financial

and agricultural

2,953

4,170

3,154

2,557

34,052

7,899

613

12,600

5,785

1,915

1,006

1,476

4,126

9,181

1,899

8,020

1,612

7,255

316

1,951

8,111

465

Total charge-offs

62,916

27,776

10,772

13,389

15,173

Recoveries:

Commercial, financial

and agricultural

861 $

1,011 $

842 $

2,707 $

2,138

137

1,128

451

2,807

5,415

57,501

180

718

560

3,035

5,568

22,208

173

659

517

3,214

229

7,499

5,890

650

292

3,633

529

7,309

7,864

Total recoveries

Net charge-offs

Provision charged

to earnings

Allowance for loan

losses of acquired bank

Ratio of net charge-offs

to average loans

Ratio of allowance for

loan losses to end of

year loans, net of

unearned interest

for the past five years:

70,487

29,476

3,927

5,407

8,600

Ending balance

$ 100,088 $

87,102 $

70,500 $

69,694 $

68,328

—

9,334

798

1,849

4,450

1.32%

0.55%

0.12%

0.18%

0.28%

The following table summarizes the allocation of the allowance for loan losses

2.23%

2.06%

2.03%

2.09%

2.19%

Table 8 – Allocation of Allowance for Loan Losses

December 31,

2008

2007

2006

2005

2004

Percent of

Loans Per

Percent of

Loans Per

Percent of

Loans Per

Percent of

Loans Per

Percent of

Loans Per

Allowance

Category Allowance Category Allowance Category Allowance Category

Allowance Category

(Dollars in

thousands)

Commercial,

financial

and

Real estate –

construction

Real estate –

residential

Real estate –

commercial

Consumer

Leases

agricultural

$ 14,286

15.90% $14,557

14.52% $16,985

15.75% $17,942

15.40% $17,837

15.04%

24,794

11.88%

20,007

12.70%

4,425

6.75%

3,864

5.80%

3,107

4.98%

22,077

34.74%

15,997

35.06%

10,402

37.36%

10,329

38.68%

8,926

38.14%

15,498

23,391

23.06%

14.33%

0.09%

15,989

20,477

23.51%

14.05%

0.16%

17,097

21,285

306

24.56%

15.29%

0.29%

16,823

19,799

937

24.74%

14.87%

0.51%

16,930

24.11%

20,206

16.19%

1,322

1.54%

Total

$100,088 100.00% $87,102 100.00% $70,500 100.00% $69,694 100.00% $68,328 100.00%

As of December 31, 2008, Park had no significant concentrations of loans to

borrowers engaged in the same or similar industries nor did Park have any

loans to foreign governments.

Nonperforming Assets: Nonperforming loans include: l) loans whose

interest is accounted for on a nonaccrual basis; 2) loans whose terms have

been renegotiated; and 3) loans which are contractually past due 90 days

or more as to principal or interest payments but whose interest continues to

accrue. Other real estate owned results from taking title to property used as

collateral for a defaulted loan.

The percentage of nonperforming loans to total loans was 3.74% at year-end

2008, 2.57% at year-end 2007 and .95% at year-end 2006. The percentage of

nonperforming assets to total loans was 4.31% at year-end 2008, 2.89% at year-

end 2007 and 1.04% at year-end 2006.

Vision Bank had $94.7 million of nonperforming loans or 13.7% of their total

loans at year-end 2008, compared to $63.5 million of nonperforming loans or

9.9% of their total loans at year-end 2007. Nonperforming assets totaled $114.4

million for Vision Bank at year-end 2008, compared to $70.5 million at year-

end 2007. As a percentage of year-end loans, Vision Bank’s nonperforming

assets were 16.6% and 11.0% for 2008 and 2007, respectively.

Park’s Ohio-based subsidiaries had $73.1 million of nonperforming loans at

year-end 2008, compared to $45.0 million at year-end 2007. Nonperforming

loans were 1.9% and 1.3% of loans for Park’s Ohio-based operations at

year-end 2008 and 2007, respectively. Total nonperforming assets for Park’s

Ohio-based subsidiaries were $79.2 million or 2.1% of loans at year-end

2008 and $51.4 million or 1.4% of loans at year-end 2007.

Economic conditions began deteriorating during the second half of 2007

and continued throughout 2008. Park and many other financial institutions

throughout the country experienced a sharp increase in net loan charge-offs

and nonperforming loans. Financial institutions operating in Florida (including

Vision Bank) have been particularly hard hit by the severe recession as the

demand for real estate and the price of real estate have sharply decreased.

Park’s lending management has reviewed closely all of the nonperforming loans

and nonperforming assets as of December 31, 2008. Partial loan charge-offs of

approximately $30 million have been recognized on nonperforming loans at

year-end 2008. Approximately $20 million of these net loan charge-offs were

recorded at Vision Bank.

Park had $243.2 million of loans included on the watch list of potential

problem loans at December 31, 2008 compared to $208.8 million at year-end

2007 and $176.8 million at year-end 2006. As a percentage of year-end total

loans, Park’s watch list of potential problem loans was 5.4% in 2008, 4.9% in

2007 and 5.1% in 2006. The existing conditions of these loans do not warrant

classification as nonaccrual. However, these loans have shown some weakness

and management performs additional analyses regarding a borrower’s ability

to comply with payment terms for watch list loans.

The following is a summary of the nonaccrual, past due and renegotiated loans

and other real estate owned for the last five years:

Table 9 – Nonperforming Assets

2008

2007

2006

2005

2004

$159,512

$101,128

$16,004

$14,922

$17,873

2,845

2,804

9,113

7,441

5,461

5,421

4,545

7,832

7,661

5,439

Other real estate owned

25,848

13,443

3,351

2,368

2,680

167,778

108,477

32,949

30,024

28,773

$193,626

$121,920

$36,300

$32,392

$31,453

3.74%

2.57%

0.95%

0.90%

0.92%

4.31%

2.89%

1.04%

0.97%

1.01%

2.74%

1.88%

0.66%

0.60%

0.58%

Tax equivalent interest income from loans of $301.9 million for 2008 would

have increased by $12.1 million if all loans had been current in accordance

with their original terms.

December 31,

(Dollars in thousands)

Nonaccrual loans

Renegotiated loans

Loans past due 90 days

or more

loans

Total nonperforming

assets

Percentage of

nonperforming loans

to loans, net of

unearned income

Percentage of

nonperforming assets

to loans, net of

unearned income

Percentage of

nonperforming assets

to total assets

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 $22.1 million during 2008 to $171.3
million at year-end. Cash provided by operating activities was $90.7 million in
2008, $83.2 million in 2007 and $85.3 million in 2006. Net income (adjusted
for the goodwill impairment charges) was the primary source of cash for
operating activities during each year. The goodwill impairment charges of
$55.0 million in 2008 and $54.0 million in 2007 did not impact cash and
as a result had no impact on cash provided by operating activities.

Cash used in investing activities was $635.0 million in 2008 and $360.3
million in 2007. Cash provided by investing activities was $47.8 million in
2006. Investment security transactions are the major use or source of cash in
investing activities. Proceeds from the sale, repayment or maturity of securities
provide cash and purchases of securities use cash. Net security transactions
used cash of $304.8 million in 2008 and $130.8 million in 2007 and provided
cash of $145.9 million in 2006. Another major use or source of cash in invest-
ing activities is the net increase or decrease in the loan portfolio. Cash used
by the net increase in the loan portfolio was $351.3 million in 2008, $126.0
million in 2007 and $99.3 million in 2006. In 2007, Park also used $38.3
million in cash to acquire the loans pertaining to the Millersburg, Ohio branch
purchase and used $47.7 million of cash on a net basis for the acquisition
of Vision.

Cash provided by financing activities was $522.2 million in 2008 and $284.2
million in 2007. Cash used in financing activities was $120.7 million in 2006.
A major source of cash for financing activities is the net change in deposits.
Cash provided by the net change in deposits was $322.5 million in 2008,
$13.2 million in 2007 and $6.3 million in 2006. The large increase in
deposits in 2008 was primarily due to the use of broker deposits, which
added $235.7 million in deposits in 2008. Another major source of cash
for financing activities is short-term borrowings and long-term debt. In
2008, net short-term borrowings used $100.1 million in cash and net
long-term borrowings provided $265.1 million in cash. The net increase in
short-term borrowings provided cash of $359.2 million in 2007 and $61.7
million in 2006. Cash was used by the net decrease in long-term borrowings
of $19.4 million in 2007 and $110.6 million in 2006. In 2008, cash of $100.0
million was provided from the issuance of preferred stock. In 2007, cash
was also provided from the deposits of $23.5 million acquired as part of the
Millersburg, Ohio branch purchase and from the $25 million in proceeds
from the issuance of subordinated debt.

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

The following table shows interest rate sensitivity data for five different time
intervals as of December 31, 2008:

Table 10 – Interest Rate Sensitivity

(Dollars
in thousands)

0-3
Months

3-12
Months

1-3
Years

3-5
Years

Over 5
Years

Total

Interest earning

assets:
Investment

securities (1)

$ 255,318 $ 242,984 $ 377,344 $233,258 $950,147 $2,059,051

Money market
instruments

20,964

—

20,964

Loans (1)

1,756,245

1,126,092

1,336,032

252,245

20,723

4,491,337

Total interest
earning
assets

Interest bearing
liabilities:
Interest bearing
transaction
accounts (2)

Savings

accounts (2)

Time deposits

Other

2,032,527

1,369,076

1,713,376

485,503

970,870

6,571,352

559,873

— 644,657

— 493,020

—

— 1,204,530

— 694,721

846,460

366,739

139,073

1,865

2,078,372

—

1,502

201,701

724,235

1,502

Total deposits 1,487,311

846,460

1,504,416

139,073

1,865

3,979,125

Short-term

borrowings

Long-term debt

Subordinated
debentures

Total interest
bearing
liabilities

Interest rate

659,196

202,178

—

— 659,196

29,045

18,920

1,000

604,416

855,559

15,000

—

— 25,000

—

40,000

2,363,685

875,505

1,523,336

165,073

606,281

5,533,880

sensitivity gap

(331,158)

493,571

190,040

320,430

364,589

1,037,472

Cumulative rate
sensitivity gap

Cumulative gap as
a percentage of
total interest
earning assets

(331,158)

162,413

352,453

672,883 1,037,472

–5.04%

2.47%

5.36% 10.24% 15.79%

—

(1) Investment securities and loans that are subject to prepayment are shown in the table by the earlier of
their repricing date or their expected repayment dates and not by their contractual maturity. The totals
for investment securities include interest bearing deposits with other banks.

(2) Management considers interest bearing transaction accounts and savings accounts to be core
deposits and therefore, not as rate sensitive as other deposit accounts and borrowed money.
Accordingly, only 46% of interest bearing transaction accounts and 29% of savings accounts are
considered to reprice within one year. If all of the interest bearing checking accounts and savings
accounts were considered to reprice within one year, the one year cumulative gap would change
from a positive 2.47% to a negative 14.84%.

The interest rate sensitivity gap analysis provides a good overall picture of
Park’s static interest rate risk position. Park’s policy is that the twelve month
cumulative gap position should not exceed fifteen percent of interest earning
assets for three consecutive quarters. At December 31, 2008, the cumulative
interest earning assets maturing or repricing within twelve months were
$3,401.6 million compared to the cumulative interest bearing liabilities
maturing or repricing within twelve months of $3,239.2 million. For the
twelve-month cumulative gap position, rate sensitive assets exceed rate
sensitive liabilities by $162.4 million or 2.5% of interest earning assets.

F I N A N C I A L

R E V I E W

F I N A N C I A L

R E V I E W

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

A year ago, the cumulative twelve month interest rate sensitivity gap position
at year-end 2007 was a similar amount of a positive $177.7 million or 3.0%
of interest earning assets. The percentage of interest earning assets maturing
or repricing within one year was 51.8% at year-end 2008 compared to 54.3%
at year-end 2007. The percentage of interest bearing liabilities maturing or
repricing within one year was 58.5% at year-end 2008 compared to 59.4%
at year-end 2007.

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

Management uses a 50 basis point change in market interest rates per quarter
for a total of 200 basis points per year in evaluating the impact of changing
interest rates on net interest income and net income over a twelve month
horizon. At December 31, 2008, the earnings simulation model projected that
net income would increase by .6% using a rising interest rate scenario and
decrease by 3.3% using a declining interest rate scenario over the next year.
At December 31, 2007, the earnings simulation model projected that net
income would increase by .2% using a rising interest rate scenario and
decrease by .6% using a declining interest rate scenario over the next year
and at December 31, 2006, the earnings simulation model projected that
net income would increase by .1% using a rising interest rate scenario and
decrease by .7% using a declining interest rate scenario over the next year.
Consistently, over the past several years, the earnings simulation model has
projected that changes in interest rates would have only a small impact on net
income and the net interest margin. The net interest margin has been relatively
stable over the past three years at 4.16% in 2008, 4.20% in 2007 and 4.33% in
2006. A major goal of the asset/liability committee is to have a relatively stable
net interest margin regardless of the level of interest rates. Management expects
that the net interest margin will be approximately 4.08% in 2009. The large
increase in nonaccrual loans in 2008 and 2007 reduced the net interest margin
in both years compared to 2006. The large projected amount of nonaccrual
loans and other real estate owned in 2009 are expected to further reduce the
net interest margin.

CONTRACTUAL OBLIGATIONS
In the ordinary course of operations, Park enters into certain contractual
obligations. Such obligations include the funding of operations through
debt issuances as well as leases for premises. The following table summarizes
Park’s significant and determinable obligations by payment date at December
31, 2008.

Further discussion of the nature of each specified obligation is included in the
referenced Note to the Consolidated Financial Statements or referenced Table
in this “Financial Review” section.

Table 11 – Contractual Obligations

December 31, 2008

Payments Due In

(Dollars
in thousands)

Deposits without
stated maturity

Certificates of deposit

Short-term borrowings

Long-term debt

Table /
Note

0-1
Years

1-3
Years

3-5
Years

Over 5
Years

Total

$2,683,378

— $

— $2,683,378

1,563,967

372,454

140,010

1,941

2,078,372

659,196

—

— 659,196

31,262

219,006

1,116

604,174

855,558

Subordinated debentures 11

Operating leases

Purchase obligations

Total contractual
obligations

—

2,006

491

—

— 40,000

40,000

2,323

2,122

2,870

—

9,321

491

$4,940,300

$593,783 $143,248 $648,985 $6,326,316

During 2008, Park did not issue any shares of Park common stock, however,

data have been retroactively restated for the 5% stock dividend paid on

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

Commitments, Contingent Liabilities, and Off-Balance Sheet
Arrangements: In order to meet the financing needs of its customers,
the Corporation issues loan commitments and standby letters of credit. At
December 31, 2008, the Corporation had $1,143 million of loan commitments
for commercial, commercial real estate, and residential real estate loans and
had $25.4 million of standby letters of credit at December 31, 2008.

Commitments to extend credit for loan commitments and standby letters
of credit do not necessarily represent future cash requirements. These
commitments often expire without being drawn upon. However, all of the
loan commitments and standby letters of credit are permitted to be drawn
upon in 2009. See Note 18 of the Notes to Consolidated Financial Statements
for additional information on loan commitments and standby letters of credit.

The Corporation did not have any unrecorded significant contingent liabilities
at December 31, 2008.

Capital: Park’s primary means of maintaining capital adequacy is through
net retained earnings. At December 31, 2008, the Corporation’s stockholders’
equity was $642.7 million, compared to $580.0 million at December 31, 2007.
Stockholders’ equity at December 31, 2008 was 9.09% of total assets compared
to 8.92% of total assets at December 31, 2007. On December 23, 2008, Park
issued $100 million of preferred stock to the U.S. Treasury (see Note 25 of
the Notes to Consolidated Financial Statements for a description of this
transaction).

Tangible stockholders’ equity (stockholders’ equity less goodwill and other
intangible assets) was $557.1 million at December 31, 2008 and was $435.5
million at December 31, 2007. At December 31, 2008, tangible stockholders’
equity was 7.98% of total tangible assets (total assets less goodwill and other
intangible assets), compared to 6.85% at December 31, 2007.

Tangible common equity (tangible stockholders’ equity less preferred stock)

At December 31, 2008, Park exceeded the well capitalized regulatory guidelines

was $461.4 million at December 31, 2008 compared to $435.5 million at

December 31, 2007. At December 31, 2008, tangible common equity was

6.61% of tangible assets, compared to 6.85% at December 31, 2007.

Net income for 2008 was $13.7 million, $22.7 million in 2007, and $94.1

for bank holding companies. Park exceeded the well capitalized leverage capital

ratio of 5% by $225 million, exceeded the well capitalized Tier 1 risk-based

capital ratio of 6% by $272 million and exceeded the well capitalized total

risk-based capital ratio of 10% by $167 million at December 31, 2008.

million in 2006. The decrease in net income in 2008 was primarily due to a

The two financial institution subsidiaries of Park each met the well

loss of $81.2 million at Vision Bank. This loss includes a goodwill impairment

capitalized ratio guidelines at December 31, 2008. See Note 22 of the Notes

charge of $55.0 million and a loan loss provision of $47.0 million. The year

to Consolidated Financial Statements for the capital ratios for Park and its

ended December 31, 2007 also included a goodwill impairment charge of

two financial institution subsidiaries.

$54.0 million at Vision Bank.

Cash dividends declared were $52.6 million in 2008, $52.8 million in 2007

Effects of Inflation: Balance sheets of financial institutions typically contain

assets and liabilities that are monetary in nature, and therefore, differ greatly

and $51.4 million in 2006. On a per share basis, the cash dividends declared

from most commercial and industrial companies which have significant invest-

were $3.77 per share in 2008, $3.73 per share in 2007, and $3.69 per share

ments in premises, equipment and inventory. During periods of inflation,

in 2006.

Park did not purchase any treasury stock during 2008. In 2007, Park

purchased 760,531 shares of treasury stock totaling $65.6 million at a

weighted average cost of $86.21 per share. In 2006, Park purchased 302,786

shares of treasury stock totaling $30.5 million at a weighted average cost of

$100.76 per share. Treasury stock had a balance in stockholders’ equity of

$207.7 million at December 31, 2008 compared to $208.1 million at

December 31, 2007 and $143.4 million at December 31, 2006.

financial institutions that are in a net positive monetary position will experience

a decline in purchasing power, which does have an impact on growth. Another

significant effect on internal equity growth is other expenses, which tend to rise

during periods of inflation.

Management believes the most significant impact on financial results is the

Corporation’s ability to align its asset/liability management program to react

to changes in interest rates.

The following table summarizes five-year financial information. All per share

Table 12 – Consolidated Five-Year Selected Financial Data

Park recorded $4.3 million for the common stock warrant as part of the

issuance of $100 million of preferred stock (see Note 1 and Note 25 of the

Notes to Consolidated Financial Statements). In 2007, Park issued 792,937

shares of Park common stock valued at a price of $105.00 per share for a total

value of $83.3 million pursuant to the acquisition of Vision on March 9, 2007.

In 2006, Park issued 86,137 shares of common stock valued at a price of

$100.60 per share for a total value of $8.7 million pursuant to the acquisition

of Anderson. Common stock had a balance in stockholders’ equity of $301.2

million at December 31, 2008 and December 31, 2007 compared to $217.1

million at December 31, 2006.

Accumulated other comprehensive income (loss) was $10.6 million at

December 31, 2008 compared to ($2.6) million at December 31, 2007

and ($22.8) million at December 31, 2006. Long-term interest rates began a

significant decline in the fourth quarter of 2007 and continued through 2008.

Therefore, the market value of Park’s investment securities increased during

2007 and continued to increase in 2008. Park recognized $30.7 million of

other comprehensive income in 2008 on investment securities and $16.9

million in 2007. In addition, Park recognized a loss of ($16.2) million of

other comprehensive income related to the change in pension plan assets

and benefit obligations in 2008, compared to income of $3.3 million of other

comprehensive income related to pension in 2007. Finally, Park has recognized

($1.3) million of comprehensive loss due to the mark-to-market of a cash flow

hedge at December 31, 2008.

Financial institution regulators have established guidelines for minimum capital

ratios for banks, thrifts, and bank holding companies. Park’s accumulated other

comprehensive income (loss) is not included in computing regulatory capital.

The minimum leverage capital ratio (defined as stockholders’ equity less

intangible assets divided by tangible assets) is 4% and the well capitalized ratio

is greater than or equal to 5%. Park’s leverage ratio was 8.36% at December

31, 2008 and exceeded the minimum capital required by $292 million. The

minimum Tier 1 risk-based capital ratio (defined as leverage capital divided

by risk-adjusted assets) is 4% and the well capitalized ratio is greater than or

equal to 6%. Park’s Tier 1 risk-based capital ratio was 11.69% at December

31, 2008 and exceeded the minimum capital required by $369 million. The

minimum total risk-based capital ratio (defined as leverage capital plus supple-

mental capital divided by risk-adjusted assets) is 8% and the well capitalized

ratio is greater than or equal to 10%. Park’s total risk-based capital ratio was

13.47% at December 31, 2008 and exceeded the minimum capital required

by $262 million.

December 15, 2004.

December 31,

(Dollars in thousands,

except per share data)

Results of Operations:

Interest income

Interest expense

Net interest income

Provision for loan

losses

Net interest income

after provision for

loan losses

Net gains (losses) on

sale of securities

Noninterest income

Noninterest expense

Net income

Net income available

to common

shareholders

Net income available to

common shareholders

excluding impairment

charge (a)

Per common share:

Net income per common

share – basic

Net income per common

share – diluted

Net income per common

share excluding

impairment charge –

diluted (a)

Cash dividends declared

Average Balances:

Loans

Investment securities

Money market

Noninterest bearing

deposits

Interest bearing

deposits

2008

2007

2006

2005

2004

$ 391,339 $ 401,824 $ 334,559 $ 314,459 $ 270,993

135,466

255,873

167,147

234,677

121,315

213,244

93,895

220,564

58,702

212,291

70,487

29,476

3,927

5,407

8,600

185,386

205,201

209,317

215,157

203,691

1,115

83,719

234,501

13,708

—

71,640

224,164

22,707

64,665

141,002

94,091

59,609

139,438

95,238

(793)

52,641

126,290

91,507

13,566

22,707

94,091

95,238

91,507

68,552

76,742

94,091

95,238

91,507

0.97

1.60

6.75

6.74

6.68

6.64

6.38

6.32

4.91

3.770

5.40

3.730

6.74

3.690

6.64

3.620

6.32

3.414

4,354,520

1,801,299

4,011,307

1,596,205

3,357,278

1,610,639

3,278,092

1,851,598

2,813,069

1,901,129

instruments and other

15,502

17,838

8,723

12,258

9,366

Total earning assets 6,171,321

5,625,350

4,976,640

5,141,948

4,723,564

739,993

697,247

662,077

643,032

574,560

3,862,780

3,706,231

3,162,867

3,187,033

2,946,360

Total deposits

4,602,773

4,403,478

3,824,944

3,830,065

3,520,920

F I N A N C I A L

R E V I E W

F I N A N C I A L

R E V I E W

A positive twelve month cumulative rate sensitivity gap (assets exceed liabilities)

CONTRACTUAL OBLIGATIONS

would suggest that Park’s net interest margin would decrease if interest rates

were to decrease. Conversely, a positive twelve month cumulative rate sensitivity

gap would suggest that Park’s net interest margin would increase if interest

rates were to increase. However, the usefulness of the interest sensitivity gap

analysis as a forecasting tool in projecting net interest income is limited. The

gap analysis does not consider the magnitude by which assets or liabilities will

reprice during a period and also contains assumptions as to the repricing of

transaction and savings accounts that may not prove to be correct.

A year ago, the cumulative twelve month interest rate sensitivity gap position

at year-end 2007 was a similar amount of a positive $177.7 million or 3.0%

of interest earning assets. The percentage of interest earning assets maturing

or repricing within one year was 51.8% at year-end 2008 compared to 54.3%

at year-end 2007. The percentage of interest bearing liabilities maturing or

repricing within one year was 58.5% at year-end 2008 compared to 59.4%

at year-end 2007.

Management supplements the interest rate sensitivity gap analysis with

periodic simulations of balance sheet sensitivity under various interest rate

and what-if scenarios to better forecast and manage the net interest margin.

Park’s management uses an earnings simulation model to analyze net interest

income sensitivity to movements in interest rates. This model is based on

actual cash flows and repricing characteristics for balance sheet instruments

and incorporates market-based assumptions regarding the impact of changing

interest rates on the prepayment rate of certain assets and liabilities. This model

also includes management’s projections for activity levels of various balance

sheet instruments and noninterest fee income and operating expense.

Assumptions based on the historical behavior of deposit rates and balances

in relation to changes in interest rates are also incorporated into this earnings

In the ordinary course of operations, Park enters into certain contractual

obligations. Such obligations include the funding of operations through

debt issuances as well as leases for premises. The following table summarizes

Park’s significant and determinable obligations by payment date at December

31, 2008.

Further discussion of the nature of each specified obligation is included in the

referenced Note to the Consolidated Financial Statements or referenced Table

in this “Financial Review” section.

Table 11 – Contractual Obligations

December 31, 2008

Payments Due In

Table /

Note

0-1

Years

1-3

Years

3-5

Years

Over 5

Years

Total

(Dollars

in thousands)

Deposits without

stated maturity

$2,683,378

— $

— $2,683,378

Certificates of deposit

1,563,967

372,454

140,010

1,941

2,078,372

Short-term borrowings

659,196

—

— 659,196

Long-term debt

31,262

219,006

1,116

604,174

855,558

Subordinated debentures 11

— 40,000

40,000

—

2,006

491

2,323

2,122

2,870

—

9,321

491

Operating leases

Purchase obligations

Total contractual

obligations

$4,940,300

$593,783 $143,248 $648,985 $6,326,316

The Corporation’s operating lease obligations represent short-term and

long-term lease and rental payments for facilities and equipment. Purchase

obligations represent obligations under agreements to purchase goods or

services that are enforceable and legally binding on the Corporation.

simulation model. These assumptions are inherently uncertain and as a result,

Commitments, Contingent Liabilities, and Off-Balance Sheet

the model cannot precisely measure net interest income and net income.

Actual results will differ from simulated results due to timing, magnitude,

Arrangements: In order to meet the financing needs of its customers,

the Corporation issues loan commitments and standby letters of credit. At

and frequency of interest rate changes as well as changes in market conditions

December 31, 2008, the Corporation had $1,143 million of loan commitments

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

for commercial, commercial real estate, and residential real estate loans and

had $25.4 million of standby letters of credit at December 31, 2008.

Commitments to extend credit for loan commitments and standby letters

of credit do not necessarily represent future cash requirements. These

horizon. At December 31, 2008, the earnings simulation model projected that

commitments often expire without being drawn upon. However, all of the

net income would increase by .6% using a rising interest rate scenario and

decrease by 3.3% using a declining interest rate scenario over the next year.

At December 31, 2007, the earnings simulation model projected that net

income would increase by .2% using a rising interest rate scenario and

decrease by .6% using a declining interest rate scenario over the next year

and at December 31, 2006, the earnings simulation model projected that

net income would increase by .1% using a rising interest rate scenario and

decrease by .7% using a declining interest rate scenario over the next year.

Consistently, over the past several years, the earnings simulation model has

projected that changes in interest rates would have only a small impact on net

income and the net interest margin. The net interest margin has been relatively

stable over the past three years at 4.16% in 2008, 4.20% in 2007 and 4.33% in

2006. A major goal of the asset/liability committee is to have a relatively stable

net interest margin regardless of the level of interest rates. Management expects

that the net interest margin will be approximately 4.08% in 2009. The large

increase in nonaccrual loans in 2008 and 2007 reduced the net interest margin

in both years compared to 2006. The large projected amount of nonaccrual

loans and other real estate owned in 2009 are expected to further reduce the

net interest margin.

loan commitments and standby letters of credit are permitted to be drawn

upon in 2009. See Note 18 of the Notes to Consolidated Financial Statements

for additional information on loan commitments and standby letters of credit.

The Corporation did not have any unrecorded significant contingent liabilities

at December 31, 2008.

Capital: Park’s primary means of maintaining capital adequacy is through

net retained earnings. At December 31, 2008, the Corporation’s stockholders’

equity was $642.7 million, compared to $580.0 million at December 31, 2007.

Stockholders’ equity at December 31, 2008 was 9.09% of total assets compared

to 8.92% of total assets at December 31, 2007. On December 23, 2008, Park

issued $100 million of preferred stock to the U.S. Treasury (see Note 25 of

the Notes to Consolidated Financial Statements for a description of this

transaction).

Tangible stockholders’ equity (stockholders’ equity less goodwill and other

intangible assets) was $557.1 million at December 31, 2008 and was $435.5

million at December 31, 2007. At December 31, 2008, tangible stockholders’

equity was 7.98% of total tangible assets (total assets less goodwill and other

intangible assets), compared to 6.85% at December 31, 2007.

Tangible common equity (tangible stockholders’ equity less preferred stock)
was $461.4 million at December 31, 2008 compared to $435.5 million at
December 31, 2007. At December 31, 2008, tangible common equity was
6.61% of tangible assets, compared to 6.85% at December 31, 2007.

Net income for 2008 was $13.7 million, $22.7 million in 2007, and $94.1
million in 2006. The decrease in net income in 2008 was primarily due to a
loss of $81.2 million at Vision Bank. This loss includes a goodwill impairment
charge of $55.0 million and a loan loss provision of $47.0 million. The year
ended December 31, 2007 also included a goodwill impairment charge of
$54.0 million at Vision Bank.

Cash dividends declared were $52.6 million in 2008, $52.8 million in 2007
and $51.4 million in 2006. On a per share basis, the cash dividends declared
were $3.77 per share in 2008, $3.73 per share in 2007, and $3.69 per share
in 2006.

Park did not purchase any treasury stock during 2008. In 2007, Park
purchased 760,531 shares of treasury stock totaling $65.6 million at a
weighted average cost of $86.21 per share. In 2006, Park purchased 302,786
shares of treasury stock totaling $30.5 million at a weighted average cost of
$100.76 per share. Treasury stock had a balance in stockholders’ equity of
$207.7 million at December 31, 2008 compared to $208.1 million at
December 31, 2007 and $143.4 million at December 31, 2006.

During 2008, Park did not issue any shares of Park common stock, however,
Park recorded $4.3 million for the common stock warrant as part of the
issuance of $100 million of preferred stock (see Note 1 and Note 25 of the
Notes to Consolidated Financial Statements). In 2007, Park issued 792,937
shares of Park common stock valued at a price of $105.00 per share for a total
value of $83.3 million pursuant to the acquisition of Vision on March 9, 2007.
In 2006, Park issued 86,137 shares of common stock valued at a price of
$100.60 per share for a total value of $8.7 million pursuant to the acquisition
of Anderson. Common stock had a balance in stockholders’ equity of $301.2
million at December 31, 2008 and December 31, 2007 compared to $217.1
million at December 31, 2006.

Accumulated other comprehensive income (loss) was $10.6 million at
December 31, 2008 compared to ($2.6) million at December 31, 2007
and ($22.8) million at December 31, 2006. Long-term interest rates began a
significant decline in the fourth quarter of 2007 and continued through 2008.
Therefore, the market value of Park’s investment securities increased during
2007 and continued to increase in 2008. Park recognized $30.7 million of
other comprehensive income in 2008 on investment securities and $16.9
million in 2007. In addition, Park recognized a loss of ($16.2) million of
other comprehensive income related to the change in pension plan assets
and benefit obligations in 2008, compared to income of $3.3 million of other
comprehensive income related to pension in 2007. Finally, Park has recognized
($1.3) million of comprehensive loss due to the mark-to-market of a cash flow
hedge at December 31, 2008.

Financial institution regulators have established guidelines for minimum capital
ratios for banks, thrifts, and bank holding companies. Park’s accumulated other
comprehensive income (loss) is not included in computing regulatory capital.
The minimum leverage capital ratio (defined as stockholders’ equity less
intangible assets divided by tangible assets) is 4% and the well capitalized ratio
is greater than or equal to 5%. Park’s leverage ratio was 8.36% at December
31, 2008 and exceeded the minimum capital required by $292 million. The
minimum Tier 1 risk-based capital ratio (defined as leverage capital divided
by risk-adjusted assets) is 4% and the well capitalized ratio is greater than or
equal to 6%. Park’s Tier 1 risk-based capital ratio was 11.69% at December
31, 2008 and exceeded the minimum capital required by $369 million. The
minimum total risk-based capital ratio (defined as leverage capital plus supple-
mental capital divided by risk-adjusted assets) is 8% and the well capitalized
ratio is greater than or equal to 10%. Park’s total risk-based capital ratio was
13.47% at December 31, 2008 and exceeded the minimum capital required
by $262 million.

At December 31, 2008, Park exceeded the well capitalized regulatory guidelines
for bank holding companies. Park exceeded the well capitalized leverage capital
ratio of 5% by $225 million, exceeded the well capitalized Tier 1 risk-based
capital ratio of 6% by $272 million and exceeded the well capitalized total
risk-based capital ratio of 10% by $167 million at December 31, 2008.

The two financial institution subsidiaries of Park each met the well
capitalized ratio guidelines at December 31, 2008. See Note 22 of the Notes
to Consolidated Financial Statements for the capital ratios for Park and its
two financial institution subsidiaries.

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

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

The following table summarizes five-year financial information. All per share
data have been retroactively restated for the 5% stock dividend paid on
December 15, 2004.

Table 12 – Consolidated Five-Year Selected Financial Data

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

Results of Operations:

Interest income
Interest expense
Net interest income
Provision for loan

losses

Net interest income
after provision for
loan losses

Net gains (losses) on
sale of securities
Noninterest income
Noninterest expense
Net income
Net income available

to common
shareholders

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

Net income per common

share – basic

Net income per common

share – diluted

Net income per common

share excluding
impairment charge –
diluted (a)

Cash dividends declared

Average Balances:

Loans
Investment securities
Money market

2008

2007

2006

2005

2004

$ 391,339 $ 401,824 $ 334,559 $ 314,459 $ 270,993
58,702
212,291

167,147
234,677

121,315
213,244

93,895
220,564

135,466
255,873

70,487

29,476

3,927

5,407

8,600

185,386

205,201

209,317

215,157

203,691

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

—
71,640
224,164
22,707

97
64,665
141,002
94,091

96
59,609
139,438
95,238

(793)
52,641
126,290
91,507

13,566

22,707

94,091

95,238

91,507

68,552

76,742

94,091

95,238

91,507

0.97

1.60

6.75

6.74

6.68

6.64

6.38

6.32

4.91
3.770

5.40
3.730

6.74
3.690

6.64
3.620

6.32
3.414

4,354,520
1,801,299

4,011,307
1,596,205

3,357,278
1,610,639

3,278,092
1,851,598

2,813,069
1,901,129

instruments and other

15,502

17,838

8,723

12,258

9,366

Total earning assets 6,171,321

5,625,350

4,976,640

5,141,948

4,723,564

Noninterest bearing

deposits
Interest bearing
deposits

739,993

697,247

662,077

643,032

574,560

3,862,780

3,706,231

3,162,867

3,187,033

2,946,360

Total deposits

4,602,773

4,403,478

3,824,944

3,830,065

3,520,920

F I N A N C I A L

R E V I E W

Table 12 – Consolidated Five-Year Selected Financial Data continued

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

Average Balances:

Short-term borrowings
Long-term debt
Stockholders’ equity
Common stockholders’

2008

2007

2006

2005

2004

609,219
835,522
567,965

494,160
568,575
618,758

375,332
553,307
545,074

291,842
799,888
559,211

401,299
519,979
538,275

equity
Total assets

565,612
6,708,086

618,758
6,169,156

545,074
5,380,623

559,211
5,558,088

538,275
5,049,081

Ratios:

Return on average assets
Return on average assets
excluding impairment
charge (a)

Return on average

common equity (x)

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

Net interest margin (1)
Noninterest expense

excluding impairment
charge to net
revenue (1)

Dividend payout ratio
Average stockholders’
equity to average
total assets
Leverage capital
Tier 1 capital
Risk-based capital

0.20%

0.37%

1.75%

1.71%

1.81%

1.02%

1.24%

1.75%

1.71%

1.81%

2.42%

3.67%

17.26%

17.03%

17.00%

12.12%
4.16%

12.40%
4.20%

17.26%
4.33%

17.03%
4.34%

17.00%
4.56%

52.59%
387.79%

55.21%
232.35%

50.35%
54.65%

49.32%
54.19%

47.11%
53.54%

8.47%
8.36%
11.69%
13.47%

10.03%
7.10%
10.16%
11.97%

10.13%
9.96%
14.72%
15.98%

10.06%
9.27%
14.17%
15.43%

10.66%
10.10%
15.16%
16.43%

(1) Computed on a fully taxable equivalent basis

(x) Reported measure includes the impact of the preferred stock issued to the U.S. Treasury under

the Capital Purchase Program and uses net income available to common shareholders.

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

Twelve Months Ended December 31,
(In thousands, except per share data)

Reconciliation of net income available to common
shareholders to net income available to common
shareholders excluding impairment charge:
Net income available to common shareholders

Plus goodwill impairment charge

Net income available to common shareholders

before impairment charge

Reconciliation of net income per common share
– diluted to net income per common share –
diluted excluding impairment charge:

Net income per common share – diluted

Plus impairment charge to goodwill per common share – diluted

Net income per common share

before impairment charge – diluted

2008

2007

$13,566

54,986

$22,707

54,035

$0.97

3.94

$1.60

3.80

$4.91

$5.40

Non-GAAP Financial Measures: Park’s management uses certain non-GAAP
(generally accepted accounting principles) financial measures to evaluate
Park’s performance. Specifically, management reviews (i) net income available
to common shareholders before impairment charge, (ii) net income available
to common shareholders before impairment charge per common share-
diluted, (iii) return on average assets before impairment charge, (iv) return
on average common equity before impairment charge, and (v) efficiency ratio
before impairment charge, (collectively, the “adjusted performance metrics”)
and has included in this annual report information relating to the adjusted per-
formance metrics for the twelve-month periods ended December 31, 2008 and
2007, and the three-month periods ended December 31, 2007, September 30,
2008, and December 31, 2008. Management believes the adjusted performance
metrics present a more reasonable view of Park’s operating performance and
ensures comparability of operating performance from period to period while
eliminating the one-time non-recurring impairment charges. Park has provided
reconciliations of the GAAP measures to the adjusted performance metrics

solely for the purpose of complying with SEC Regulation G and not as an
indication that the adjusted performance metrics are a substitute for other
measures determined by GAAP.

The following table is a summary of selected quarterly results of operations for
the years ended December 31, 2008 and 2007. Certain quarterly amounts have
been reclassified to conform to the year-end financial statement presentation.

Table 13 – Quarterly Financial Data

(Dollars in thousands,
except per share data)

March 31

Three Months Ended
Sept. 30
June 30

Dec. 31

2008:

Interest income

Interest expense

Net interest income

Provision for loan losses

Gain (loss) on sale of securities

Income (loss) before
income taxes

Net income (loss)

Net income (loss) available
to common shareholders

Net income available to common

shareholders excluding
impairment charge (a)

Per common share data:

Net income (loss) per common

share – basic (x)

Net income (loss) per common

share – diluted (x)

Net income per common share

excluding impairment
charge – diluted (a) (x)

Weighted-average common
stock outstanding – basic

Weighted-average common
stock equivalent – diluted

2007:

Interest income

Interest expense

Net interest income

Provision for loan losses

Income (loss) before
income taxes

Net income (loss)

Net income excluding

impairment charge (a)

Per share data:

Net income (loss) – basic

Net income (loss) – diluted

Net income per share

excluding impairment
charge – diluted (a)

Weighted-average common
stock outstanding – basic

Weighted-average common
stock equivalent – diluted

$100,468

$98,201

$97,947

$94,723

38,984

61,484

7,394

309

32,161

22,978

33,875

64,326

14,569

587

24,454

18,191

32,719

65,228

15,906

—

(33,069)

(38,412)

29,888

64,835

32,618

219

12,173

10,951

22,978

18,191

(38,412)

10,809

22,978

18,191

16,574

10,809

1.65

1.30

(2.75)

0.77

1.65

1.30

1.19

0.77

13,964,572

13,964,561

13,964,549

13,967,194

13,964,572

13,964,561

13,964,549

13,967,650

$90,836

$102,825

$103,766

$104,397

35,938

54,898

2,205

—

29,558

21,063

42,415

60,410

2,881

—

33,511

23,510

44,350

59,416

5,793

—

29,866

21,304

44,444

59,953

18,597

—

(40,258)

(43,170)

21,063

23,510

21,304

10,865

1.49

1.62

1.50

(3.08)

1.49

1.62

1.50

0.77

14,121,331

14,506,926

14,193,019

14,029,944

14,138,517

14,507,895

14,193,019

14,030,499

(x) Reported measure includes the impact of the preferred stock issued to the U.S. Treasury

under the Capital Purchase Program and uses net income available to common shareholders.

(a) Net income for the third quarter of 2008 and fourth quarter of 2007 has been adjusted for

the impairment charge to goodwill. Net income excluding the impairment charge equals net
income for the period plus the impairment charge to goodwill of $54,986 for the third quarter
of 2008 and $54,035 for the fourth quarter of 2007.

$68,552

$76,742

Gain (loss) on sale of securities

F I N A N C I A L

R E V I E W

(Dollars in thousands,
except per share data)

March 31

Three Months Ended
Sept. 30
June 30

Dec. 31

2008:
Reconciliation of net income
(loss) available to common
shareholders to net income
available to common
shareholders excluding
impairment charge:
Net income (loss) available to
common shareholders

$22,978

$18,191

$(38,412)

$10,809

Plus goodwill impairment charge

—

54,986

—

Net income available to
common shareholders
before impairment charge

Reconciliation of net income
(loss) per common share
– diluted to net income
per common share – diluted
excluding impairment charge:

Net income (loss) per common

share – diluted

Plus impairment charge to

goodwill per share – diluted

Net income per common

share before
impairment
charge – diluted

2007:
Reconciliation of net income

(loss) to net income
excluding impairment charge:
Net income (loss) available to
common shareholders

Plus goodwill

impairment charge

Net income available

to common
shareholders before
impairment charge

Reconciliation of net income
(loss) per share – diluted
to net income per share –
diluted excluding
impairment charge:
Net income (loss) per common

$22,978

$18,191

$ 16,574

$10,809

$ 1.65

$ 1.30

$ (2.75)

$ 0.77

—

3.94

—

$ 1.65

$ 1.30

1.19

$ 0.77

$21,063

$23,510

$ 21,304

$(43,170)

—

54,035

$21,063

$23,510

$ 21,304

$10,865

share – diluted

$ 1.49

$ 1.62

1.50

$ (3.08)

Plus impairment charge

to goodwill per share – diluted

—

3.85

PERFORMANCE GRAPH
Table 15 compares the total return performance for Park common
shares with the NYSE Alternext, the NASDAQ Bank Stocks Index and the SNL
Financial Bank and Thrift Index for the five-year period from December 31,
2003 to December 31, 2008. The NYSE Alternext Composite Index is a market
capitalization-weighted index of the stocks listed on the NYSE Alternext. The
NASDAQ Bank Stocks Index is comprised of all depository institutions, holding
companies and other investment companies that are traded on The NASDAQ
Global Select and Global Markets. Park considers a number of bank holding
companies traded on The NASDAQ National Market to be within its peer group.
The SNL Financial Bank and Thrift Index is comprised of all publicly traded
bank and thrift stocks researched by SNL Financial.

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

350

300

250

200

150

100

e
u
a
V
x
e
d
n
I

12/31/03

12/31/04

12/31/05

12/31/06

12/31/07

12/31/08

Net income per common

share before impairment
charge – diluted

$ 1.49

$ 1.62

1.50

$ 0.77

Table 15 – Total Return Performance

The Corporation’s common stock (symbol: PRK) is traded on the NYSE
Alternext. At December 31, 2008, the Corporation had 4,686 stockholders of
record. The following table sets forth the high, low and closing sale prices of,
and dividends declared on the common stock for each quarterly period for the
years ended December 31, 2008 and 2007, as reported by NYSE Alternext since
October 1, 2008 and by its predecessor, American Stock Exchange LLC, prior
thereto.

Table 14 – Market and Dividend Information

2008:

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

2007:

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

High

Low

Last
Price

$ 74.87

$ 56.80

$ 70.85

78.65

82.50

80.00

53.90

44.87

53.55

53.90

78.00

71.75

$101.25

$ 88.48

$ 94.48

95.50

93.45

91.70

83.50

78.55

64.50

84.79

87.20

64.50

Cash
Dividend
Declared
Per Share

$0.94

0.94

0.95

$0.93

0.93

0.94

PERIOD ENDING

Index

12/31/03

12/31/04

12/31/05

12/31/06

12/31/07

12/31/08

Park National Corporation

100.00

NYSE Alternext Composite Index 100.00

NASDAQ Bank Stocks Index

SNL Bank and Thrift Index

100.00

129.44

125.56

110.99

111.98

101.33

158.43

106.18

113.74

101.36

190.03

117.87

132.90

69.03

81.26

222.66

132.60

91.85

101.34

69.88

58.28

The total return performance for Park’s common shares underperformed the
total return performance of the NYSE Alternext Composite Index in the five-year
comparison as indicated in Table 15, but outperformed both The NASDAQ Bank
Stocks Index and the SNL Bank and Thrift Index for the same five-year period.
The annual compound total return on Park’s common shares for the past five
years was a negative 4.1%. By comparison, the annual compound total returns
for the past five years on the NYSE Alternext Composite Index, The NASDAQ
Bank Stocks Index and the SNL Bank and Thrift Index were positive 5.8%,
negative 6.9% and negative 10.2%, respectively.

The total return performance for bank stocks in 2008 was very poor. However,
Park’s total return on common shares for 2008 was a positive 17.7%, com-
pared to a total return on The NASDAQ Bank Stocks Index of a negative 23.9%
and a total return on the SNL Bank and Thrift Index of a negative 42.5%.

M A N A G E M E N T ’ S

R E P O R T

O N

O V E R

F I N A N C I A L

I N T E R N A L
R E P O R T I N G

C O N T R O L

To the Board of Directors and Stockholders
Park National Corporation

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

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

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

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

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

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

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

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

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

With the participation of our Chairman of the Board and Chief Executive Officer, our President and our Chief Financial
Officer, management evaluated the effectiveness of the Corporation’s internal control over financial reporting as of
December 31, 2008, the end of the Corporation’s fiscal year. In making this assessment, management used the criteria set
forth for effective internal control over financial reporting by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control-Integrated Framework.

Based on our assessment under the criteria described in the proceeding paragraph, management concluded that the
Corporation maintained effective internal control over financial reporting as of December 31, 2008.

The Corporation’s independent registered public accounting firm, Crowe Horwath LLP, has audited the Corporation’s
2008 and 2007 consolidated financial statements included in this Annual Report and the Corporation’s internal control
over financial reporting as of December 31, 2008, and has issued their Report of Independent Registered Public
Accounting Firm, which appears in this Annual Report.

C. Daniel DeLawder
Chairman and Chief Executive Officer

David L. Trautman
President

John W. Kozak
Chief Financial Officer

February 25, 2009

R E P O R T

I N D E P E N D E N T

O F
P U B L I C

A C C O U N T I N G

F I R M

R E G I S T E R E D

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

We have audited the accompanying consolidated balance sheets of Park National Corporation as of December 31, 2008 and 2007
and the related consolidated statements of income, changes in stockholders’ equity and cash flows for each of the three years in
the period ended December 31, 2008. We also have audited Park National Corporation’s internal control over financial reporting
as of December 31, 2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Park National Corporation’s management is responsible for
these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion
on the company’s internal control over financial reporting based on our audits.

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

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

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Park National Corporation as of December 31, 2008 and 2007, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted
in the United States of America. Also in our opinion, Park National Corporation maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control – Integrated
Framework issued by the COSO.

Columbus, Ohio
February 25, 2009

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

B A L A N C E

S H E E T S

PARK NATIONAL CORPORATION AND SUBSIDIARIES
at December 31, 2008 and 2007 (Dollars in thousands, except per share data)

ASSETS

Cash and due from banks

Money market instruments

Cash and cash equivalents

Interest bearing deposits with other banks

Investment securities:

Securities available-for-sale, at fair value (amortized cost of $1,513,223 and

$1,473,052 at December 31, 2008 and 2007, respectively)

Securities held-to-maturity, at amortized cost (fair value of $433,435 and

$161,414 at December 31, 2008 and 2007, respectively)

Other investment securities

Total investment securities

Total loans

Allowance for loan losses

Net loans

Other assets:

Bank owned life insurance

Goodwill

Other intangibles

Premises and equipment, net

Accrued interest receivable

Other real estate owned

Mortgage loan servicing rights

Other

Total other assets

Total assets

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

2008

$ 150,298

20,963

171,261

1,561,896

428,350

68,805

2,059,051

4,491,337

(100,088)

4,391,249

132,916

72,334

13,211

68,553

27,930

25,848

8,306

100,060

449,158

$7,070,720

2007

$ 183,165

10,232

193,397

1,474,517

165,421

63,165

1,703,103

4,224,134

(87,102)

4,137,032

119,472

127,320

17,236

66,634

30,646

13,443

10,204

82,614

467,569

$6,501,102

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

B A L A N C E

S H E E T S

(CONTINUED)

PARK NATIONAL CORPORATION AND SUBSIDIARIES
at December 31, 2008 and 2007 (Dollars in thousands, except per share data)

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits:

Noninterest bearing

Interest bearing

Total deposits

Short-term borrowings

Long-term debt

Subordinated debentures

Total borrowings

Other liabilities:

Accrued interest payable

Other

Total other liabilities

Total liabilities

COMMITMENTS AND CONTINGENCIES

Stockholders’ equity:

Preferred stock (200,000 shares authorized in 2008 and 0 in 2007;

100,000 shares issued in 2008 with $1,000 per share
liquidation preference and 0 issued in 2007)

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

16,151,151 shares issued in 2008 and 16,151,200 issued in 2007)

Common stock warrant

Accumulated other comprehensive income (loss), net

Retained earnings

Less: Treasury stock (2,179,424 shares in 2008 and

2,186,624 shares in 2007)

Total stockholders’ equity

Total liabilities and stockholders’ equity

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

2008

$ 782,625

3,979,125

4,761,750

659,196

855,558

40,000

1,554,754

11,335

100,218

111,553

6,428,057

95,721

301,210

4,297

10,596

438,504

(207,665)

642,663

$7,070,720

2007

$ 695,466

3,743,773

4,439,239

759,318

590,409

40,000

1,389,727

15,125

76,999

92,124

5,921,090

—

301,213

—

(2,608)

489,511

(208,104)

580,012

$6,501,102

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

S T A T E M E N T S

O F

I N C O M E

PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 2008, 2007 and 2006 (Dollars in thousands, except per share data)

Interest and dividend income:
Interest and fees on loans

Interest and dividends on:

Obligations of U.S. Government, its agencies

and other securities

Obligations of states and political subdivisions

Other interest income

Total interest and dividend income

Interest expense:

Interest on deposits:

Demand and savings deposits

Time deposits

Interest on short-term borrowings

Interest on long-term debt

Total interest expense

Net interest income

Provision for loan losses

Net interest income after provision for loan losses

Other income:

Income from fiduciary activities

Service charges on deposit accounts

Net gains on sales of securities

Other service income

Net gain on sale of credit card portfolio

Income from sale of merchant processing

Other

Total other income

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

2008

2007

2006

$301,163

$ 320,827

$255,123

87,711

2,171

294

391,339

22,633

67,259

14,469

31,105

135,466

255,873

70,487

185,386

13,937

24,296

1,115

8,882

7,618

4,200

24,786

$ 84,834

77,016

3,061

920

401,824

39,797

81,224

22,113

24,013

167,147

234,677

29,476

205,201

14,403

23,813

—

11,543

—

21,881

$ 71,640

75,300

3,667

469

334,559

25,870

56,402

15,692

23,351

121,315

213,244

3,927

209,317

13,548

19,969

10,920

—

20,228

$ 64,762

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

S T A T E M E N T S

O F

I N C O M E

(CONTINUED)

PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 2008, 2007 and 2006 (Dollars in thousands, except per share data)

Other expense:

Salaries and employee benefits

Goodwill impairment charge

Data processing fees

Fees and service charges

Net occupancy expense of bank premises

Amortization of intangibles

Furniture and equipment expense

Insurance

Marketing

Postage and telephone

State taxes

Other

Total other expense

Income before income taxes

Income taxes

Net income

Preferred stock dividends

Income available to common shareholders

Earnings per common share:

Basic

Diluted

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

2008

2007

2006

$ 99,018

$ 97,712

$ 82,579

54,986

7,121

12,801

11,534

4,025

9,756

2,322

4,525

7,167

2,989

18,257

234,501

35,719

22,011

$ 13,708

142

$ 13,566

$0.97

54,035

6,892

11,055

10,717

3,847

9,259

1,445

4,961

6,910

2,769

14,562

224,164

52,677

29,970

$ 22,707

—

$ 22,707

$1.60

—

4,246

9,553

9,155

2,470

8,215

1,137

4,438

6,303

2,333

10,573

141,002

133,077

38,986

$ 94,091

—

$ 94,091

$6.75

$6.74

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

S T A T E M E N T S

O F

C H A N G E S

I N

S T O C K H O L D E R S ’

E Q U I T Y

PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 2008, 2007 and 2006 (Dollars in thousands, except per share data)

Balance, January 1, 2006

—

14,092,626

$208,365

$476,889

$(116,681)

$(10,143)

$558,430

Preferred Stock

Common Stock

Shares
Outstanding

Amount

Shares
Outstanding

Amount

Retained
Earnings

Treasury
Stock

Accumulated
Other
Comprehensive
Income (Loss)

Total

Comprehensive
Income

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

Unrealized net holding loss on

securities available-for-sale,
net of income taxes of $(3,151)

Total comprehensive income

Adjustment to initially apply SFAS No. 158,

net of income taxes of $(3,675)

Cash dividends, $3.69 per share
Cash payment for fractional shares
in dividend reinvestment plan

Shares issued for stock options
Treasury stock purchased
Treasury stock reissued for stock options

exercised and other grants

Shares issued for Anderson Bank purchase

Balance, December 31, 2006

—

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

Change in funded status of pension plan, net of

income taxes of $1,759
Unrealized net holding gain on

securities available-for-sale,
net of income taxes of $9,125

Total comprehensive income

Cash dividends, $3.73 per share
Cash payment for fractional shares
in dividend reinvestment plan

Stock options granted
Treasury stock purchased
Treasury stock reissued

for stock options exercised
and other grants

Shares issued for Vision Bancshares, Inc. purchase

—

94,091

—

94,091

$ 94,091

—

(72)
684
(302,786)

—

(5)
42
—

44,940
86,137
13,921,529

—

—
8,665
$217,067

—

—
—
$519,563

22,707

(51,417)

—

—
—
—

—
—
(30,508)

3,818
—
$(143,371)

—

(5,851)

$ 88,240

(6,826)
—

—
—
—

(6,826)
(51,417)

(5)
42
(30,508)

—
—
$(22,820)

3,818
8,665
$570,439

—

22,707

$ 22,707

3,266

16,946

$ 42,919

—

(60)
—
(760,531)

—

(5)
893
—

10,701
792,937

—
83,258

(52,759)

—

—
—
—

—
—

—
—
(65,568)

835
—

—

—
—
—

—
—

(52,759)

(5)
893
(65,568)

835
83,258

Balance, December 31, 2007

—

13,964,576

$301,213

$489,511

$(208,104)

$ (2,608)

$580,012

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

Change in funded status of pension plan, net of

income taxes of $(8,735)
Unrealized net holding loss on
cash flow hedge, net of
income taxes of $(678)
Unrealized net holding gain on

securities available-for-sale,
net of income taxes of $16,522

Total comprehensive income

Cash dividends, $3.77 per share
Cash payment for fractional shares
in dividend reinvestment plan
Cumulative effect of new accounting
pronouncement pertaining to
endorsement split-dollar life insurance

SFAS No. 158 measurement date

adjustment, net of taxes of $(178)

Preferred stock issued
Discount on preferred stock issued
Amortization of discount on preferred stock
Common stock warrant issued
Preferred stock dividends
Treasury stock reissued for

director grants

13,708

—

13,708

$ 13,708

(16,223)

(1,259)

30,686

$ 26,912

—

(49)

—

(3)

100,000

100,000
(4,297)
18

—

4,297

—

(52,608)

—

(11,634)

(331)

(18)

(124)

7,200

439

(52,608)

(3)

(11,634)

(331)
100,000
(4,297)
—
4,297
(124)

439

Balance, December 31, 2008

100,000

$ 95,721

13,971,727

$305,507

$438,504

$(207,665)

$ 10,596

$642,663

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

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

S T A T E M E N T S

O F

C A S H

F L O W S

PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 2008, 2007 and 2006 (Dollars in thousands)

Operating activities:

Net income
Adjustments to reconcile net income to net cash

provided by operating activities:

Provision for loan losses
Amortization of loan fees and costs, net
Provision for depreciation and amortization
Other than temporary impairment on investment securities
Goodwill impairment charge
Amortization of intangible assets
Accretion of investment securities
Gain on sale of credit card portfolio
Deferred income tax (benefit) expense
Realized net investment security (gains)
Stock based compensation expense
Stock dividends on Federal Home Loan Bank stock
Changes in assets and liabilities:

Increase in other assets
Increase (decrease) in other liabilities

Net cash provided by operating activities

Investing activities:

Proceeds from sales of available-for-sale securities
Proceeds from maturities of securities:

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

Proceeds from sale of credit card portfolio
Net decrease (increase) in other investments
Net decrease in interest bearing deposits with other banks
Net increase in loans
Proceeds from loans purchased with branch office
Cash (paid) received for acquisition, net
Purchases of bank owned life insurance, net
Purchases of premises and equipment, net
Premises and equipment acquired in branch acquisitions

Net cash (used in) provided by investing activities

Financing activities:

Net increase in deposits
Deposits purchased with branch office
Net (decrease) increase in short-term borrowings
Cash payment for fractional shares of common stock
Exercise of stock options, including tax benefits
Issuance of preferred stock and common stock warrant
Issuance (purchase) of treasury stock, net
Proceeds from issuance of subordinated debt
Proceeds from long-term debt
Repayment of long-term debt
Cash dividends paid

Net cash provided by (used in) 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

Supplemental disclosure

Summary of business acquisition:
Fair value of assets acquired
Cash paid for the purchase of financial institutions
Stock issued for the purchase of financial institutions
Fair value of liabilities assumed
Goodwill recognized

2008

$ 13,708

70,487
(4,650)
7,517
980
54,986
4,025
(1,592)
(7,618)
(1,590)
(1,115)
—
(2,269)

(42,406)
239
90,702

80,894

7,116
303,160

(270,045)
(422,512)
38,841
(3,371)
—
(351,277)
—
—
(8,401)
(9,436)
—
(635,031)

322,511
—
(100,122)
(3)
—
100,000
439
—
690,100
(424,951)
(65,781)
522,193
(22,136)
193,397
$ 171,261

—
—
—
—
—

2007

$ 22,707

29,476
(5,935)
6,480
—
54,035
3,847
(3,009)
—
(7,839)
—
893
—

(11,975)
(5,492)
83,188

—

11,063
700,582

—
(842,598)
—
180
—
(126,005)
(38,348)
(47,686)
—
(16,331)
(1,150)
(360,293)

13,198
23,466
359,213
(5)
—
—
(64,733)
25,000
378,100
(397,460)
(52,533)
284,246
7,141
186,256
$ 193,397

$ 686,512
(87,843)
(83,258)
(624,432)
$(109,021)

2006

$ 94,091

3,927
(4,340)
5,522
—
—
2,470
(1,630)
—
156
(97)
—
(3,101)

(14,606)
2,858
85,250

304

19,471
293,207

—
(166,518)
—
(532)
299
(99,316)
—
5,177
—
(4,311)
—
47,781

6,320
—
61,699
(5)
42
—
(26,690)
—
300,000
(410,644)
(51,470)
(120,748)
12,283
173,973
$ 186,256

$ 69,717
(9,052)
(8,665)
(62,638)
$ (10,638)

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

53
53

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

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

Principles of Consolidation
The consolidated financial statements include the accounts of Park National
Corporation (“Park” or the “Corporation”) and all of its subsidiaries. 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 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. The allowance for loan losses and the
accounting for goodwill are particularly subject to change.

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

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

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

Available-for-sale and held-to-maturity securities are evaluated quarterly for
potential other-than-temporary impairment. Management considers the facts
of each security including the nature of the security, the amount and duration
of the loss, credit quality of the issuer, the expectations for that security’s
performance and Park’s intent and ability to hold the security until recovery.
A decline in value that is considered to be other-than-temporary is recorded
as a charge to earnings in the Consolidated Statements of Income.

Other investment securities (as shown on the balance sheet) consist of stock
investments in the Federal Home Loan Bank and the Federal Reserve Bank.

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

Gains and losses realized on the sale of investment securities have been
accounted for on the trade date in the year of sale on a specific identification
basis.

Federal Home Loan Bank (FHLB) Stock
Park’s two separately chartered banks are members of the FHLB system.
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
is carried at cost, classified as a restricted security, and periodically evaluated
for impairment based on the ultimate recovery of the par value. Both cash and
stock dividends are reported as income.

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

Mortgage Loans Held for Sale
Mortgage loans held for sale are carried at the lower of cost or fair value,
determined using an aggregate basis. Write-downs to fair value are recognized
as a charge to earnings at the time the decline in value occurs. Mortgage loans
held for sale were $9.6 million at December 31, 2008 and $10.0 million at
December 31, 2007. These amounts are included in loans on the balance sheet.
The Corporation enters into forward commitments to sell mortgage loans to
reduce market risk on mortgage loans in the process of origination and mort-
gage loans held for sale. Gains and losses resulting from sales of mortgage
loans are recognized when the respective loans are sold to investors. Gains and
losses are determined by the difference between the selling price and the carry-
ing amount of the loans sold, net of discounts collected or paid and considering
a normal servicing rate.

Loans
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or payoff, are reported at their outstanding principal
balances adjusted for any charge-offs, any deferred fees or costs on originated
loans, and any unamortized premiums or discounts on purchased loans.
Interest income is reported on the interest method and includes amortization
of net deferred loan fees and costs over the loan term. 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. Interest on these loans is considered a loss, unless the loan is well-secured
and in the process of collection. Commercial loans placed on nonaccrual status
are considered impaired under SFAS No. 114, as amended by SFAS No. 118
(see Note 5 of these Notes to Consolidated Financial Statements). For loans
which are on nonaccrual status, it is Park’s policy to reverse interest previously
accrued on the loan against interest income. Interest on such loans is thereafter
recorded on a cash basis and is included in earnings only when actually
received in cash and when full payment of principal is no longer doubtful.

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

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

Loan losses are charged against the allowance when management believes the
uncollectibility of a loan balance is confirmed. Generally, consumer loans and
deficiency balances for residential mortgage loans are charged off at 120 days
past due. The charge off of commercial loans requires significant judgment.
Subsequent recoveries, if any, are credited to the allowance.

Statement of Financial Accounting Standards (“SFAS”) No. 114, “Accounting by
Creditors for Impairment of a Loan,” as amended by SFAS No. 118, “Accounting
by Creditors for Impairment of a Loan—Income Recognition and Disclosure”
requires an allowance 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 loan will not be collected, and the recorded
investment in the loan exceeds the fair value. Fair value is measured using
either the present value of expected future cash flows based upon the initial
effective interest rate on the loan, the observable market price of the loan or
the fair value of the collateral, if the loan is collateral dependent. Management’s
practice is typically to record partial charge-offs to commercial loans to reduce
the recorded investment in the loan to fair value.

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

Commercial loans are individually risk graded. Where appropriate, reserves are
allocated to individual loans based on management’s estimate of the borrower’s
ability to repay the loan given the availability of collateral and other sources of
cash flow. Homogenous loans, such as consumer installment loans, residential
mortgage loans and automobile leases are not individually risk graded.
Reserves are established for each pool of loans based on environmental factors.
Such environmental factors include: historical loan loss experience; current
economic conditions; loan delinquency; and experience, ability and depth of
lending management and staff.

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

Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is generally provided on the straight-line method
over the estimated useful lives of the related assets. Leasehold improvements
are amortized over the lives of the respective leases or the estimated useful lives
of the improvements, whichever are the shorter periods. Upon the sale or other
disposal of the assets, 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 are capitalized.

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

Buildings
Equipment, furniture and fixtures
Leasehold improvements

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

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

Other Real Estate Owned
Other real estate owned is recorded at fair market value (which is the estimated
net realizable value) and consists of property acquired through foreclosure and
real estate held for sale. Subsequent to acquisition, write-downs to other real
estate owned result if carrying values exceed fair value less estimated costs to
sell. These write-downs are expensed within “other expense.” Costs relating
to development and improvement of such properties are capitalized (not in
excess of fair value less estimated costs to sell) and costs relating to holding
the properties are charged to expense.

Mortgage Loan Servicing Rights
When Park sells mortgage loans with servicing rights retained, the total cost
of the mortgage loan is allocated to the servicing rights and the loans based on
their relative fair values. Park adopted SFAS No. 156, “Accounting for Servicing
of Financial Assets—an amendment of FASB Statement No. 140,” on January 1,
2007, and selected the “amortization method,” whereby the servicing rights
capitalized are amortized in proportion to and over the period of estimated
future servicing income of the underlying loan. Capitalized mortgage servicing
rights totaled $8.3 million at December 31, 2008 and $10.2 million at
December 31, 2007. The estimated fair values of capitalized mortgage servicing
rights were $8.3 million at December 31, 2008 and $11.6 million at December
31, 2007. The fair value of mortgage servicing rights is determined by discount-
ing estimated future cash flows from the servicing assets, using market discount
rates, and using expected future prepayment rates. In order to calculate fair
value, the sold loan portfolio is stratified into homogenous pools of like
categories.

Mortgage servicing rights are assessed for impairment periodically, based
on fair value, with any impairment recognized through a valuation allowance.
Fees received for servicing mortgage loans owned by investors are based on a

percentage of the outstanding monthly principal balance of such loans and are
included in income as loan payments are received. The cost of servicing loans
is charged to expense as incurred.

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

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

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

The following table reflects the activity in goodwill and other intangible assets
for the years 2008, 2007 and 2006. (See Note 2 of these Notes to Consolidated
Financial Statements for details on the acquisitions of Vision Bancshares, Inc.
(“Vision”), Anderson Bank Company (“Anderson”) and the Millersburg branch
of Ohio Legacy Bank N.A. and the recognition of both impairment charges to
Vision bank’s goodwill).

(In thousands)
January 1, 2006

Anderson Acquisition
Amortization

December 31, 2006

Vision Acquisition
Millersburg Branch Acquisition
Amortization
Impairment of Vision Goodwill

December 31, 2007

Amortization
Impairment of Vision Goodwill

December 31, 2008

Goodwill
$ 61,696

10,638
—

Core Deposit
Intangibles
$ 7,492

647
(2,470)

Total
$ 69,188

11,285
(2,470)

$ 72,334

$ 5,669

$ 78,003

109,021
—
—
(54,035)

12,720
2,694
(3,847)
—

121,741
2,694
(3,847)
(54,035)

$127,320

$17,236

$144,556

—
(54,986)

(4,025)
—

(4,025)
(54,986)

$ 72,334

$13,211

$ 85,545

SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”),
requires a company to perform an impairment test on goodwill annually, or
more frequently if events or changes in circumstances indicate that the asset
might be impaired, by comparing the fair value of such goodwill to its recorded
or carrying amount. If the carrying amount of the goodwill exceeds the fair
value, an impairment charge must be recorded in an amount equal to the
excess.

Park typically evaluates goodwill for impairment during the first quarter of each
year. A determination was made during the first quarter of 2008 that goodwill
for Park’s Ohio-based banks was not impaired.

During the fourth quarter of 2007, Park’s management determined that the
goodwill from the Vision acquisition on March 9, 2007 could possibly be
impaired due to the significant deterioration in the credit condition of Vision
Bank. Nonperforming loans at Vision Bank increased from $26.3 million at
September 30, 2007 to $63.5 million at December 31, 2007, or 9.9% of year-
end loan balances. Net loan charge-offs were $6.4 million for the fourth quarter
or an annualized 3.99% of average loan balances. Management determined that
due to severe credit conditions that a valuation of the fair value of Vision Bank
be computed to determine if the goodwill of $109.0 million was impaired as of
December 31, 2007.

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

At December 31, 2007, management calculated the estimated fair value
of Vision Bank to be $123.0 million, based on four equally weighted tests:
(i) on-going earnings multiplied by a price to earnings multiple; (ii) tangible
book multiplied by a price to tangible book ratio; (iii) core deposit premium
added to tangible book; and (iv) discounted future cash flows. Once it is
determined that the fair value is materially less than the carrying value, FAS 142
requires a company to calculate the implied fair value of goodwill and compare
it to the carrying amount of goodwill. The amount of the excess of the carrying
amount of goodwill over the implied amount of goodwill is the amount of the
impairment loss, which was calculated as $54.0 million by Park management.
After the impairment charge, the new carrying amount of goodwill resulting
from the Vision acquisition was $55.0 million at December 31, 2007.

The balance of goodwill was $127.3 million at December 31, 2007 and was
located at four subsidiary banks of Park. The subsidiary banks were Vision
Bank ($55.0 million), The Park National Bank ($39.0 million), Century
National Bank ($25.8 million) and The Security National Bank and Trust Co.
($7.5 million).

Based primarily on the increased level of net loan charge-offs at Vision
Bank during the second quarter of 2008, management determined that it was
appropriate to test for goodwill impairment during the third quarter of 2008.
Park continued to experience credit deterioration in Vision Bank’s market
place during the third quarter of 2008. The fair value of Vision was estimated
by using the average of three measurement methods. These included applica-
tion of various metrics from bank sale transactions for institutions comparable
to Vision Bank, including application of a market-derived multiple of tangible
book value and estimations of the present value of future cash flows. Park’s
management reviewed the valuation of Vision Bank with Park’s Board of
Directors and concluded that Vision Bank should recognize an impairment
charge and write down the remaining value of the goodwill previously recorded
as a result of the merger of Vision Bancshares, Inc. (“Vision”) into Park ($55.0
million), resulting in goodwill with a balance of zero with respect to the Vision
Bank reporting unit.

Goodwill and other intangible assets (as shown on the balance sheet) totaled
$85.5 million at December 31, 2008 and $144.6 million at December 31,
2007.

The core deposit intangibles are being amortized to expense principally
on the straight-line method, over periods ranging from six to ten years. The
amortization period for each of the Vision and Anderson acquisitions, and the
Millersburg branch acquisition is six years. Core deposit intangible amortization
expense was $4.0 million in 2008, $3.8 million in 2007 and $2.5 million in
2006.

The accumulated amortization of core deposit intangibles was $8.9 million
as of December 31, 2008 and $7.1 million at December 31, 2007. In addition,
United Bank, a division of PNB, had core deposit intangibles of $5.7 million,
which were fully amortized by the end of 2007. Park’s banking divisions had
two branch offices in 2006 for which the core deposit intangibles were fully
amortized. These intangibles totaled $4.6 million. The expected core deposit
intangible amortization expense for each of the next five years is as follows:

(In thousands)

2009

2010

2011

2012

2013

Total

$ 3,746

3,422

2,677

689

$13,211

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

December 31,
(Dollars in thousands)

2008

2007

2006

Interest paid on deposits and other borrowings

$139,256

Income taxes paid

$ 28,365

$167,154

$ 39,115

$118,589

$ 34,633

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.

Pursuant to the requirements of FASB Interpretation 45 (“FIN 45”), Park
recorded a contingent legal liability of $0.9 million during the fourth quarter
of 2007. This was a result of an announcement Visa, Inc. made in the fourth
quarter of 2007 that it was establishing litigation reserves for the settlement
of a lawsuit and for additional potential settlements with other parties. Park
recorded the contingent legal liability based on Visa’s announcements and
Park’s membership interest in Visa. Visa had a successful initial public offering
(“IPO”) during the first quarter of 2008. Visa used a portion of the IPO
proceeds to fund an escrow account that will be used to pay contingent
legal settlements. As a result of the IPO, Park was able to reverse the entire
contingent legal liability and recognize as income $0.9 million during the first
quarter of 2008. This was reflected in other income within the consolidated
statement of income for the twelve months ended December 31, 2008.

At the time of the IPO, Park held 132,876 Class B Common Shares of Visa.
During the first quarter of 2008, Visa redeemed 51,373 of these shares and
paid Park $2.2 million, which was recognized in other income within the
consolidated statement of income for the twelve months ended December 31,
2008. The unredeemed shares are recorded at their original cost basis of zero.

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.

Park adopted FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes”—(“FIN 48”), on January 1, 2007. A 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. FIN 48 also provides guidance on disclosures and other
issues. The adoption had no material effect on Park’s consolidated financial
statements. As a result, there was no cumulative effect related to adopting FIN
48. As of December 31, 2008, Park had provided a liability of approximately
$800,000 for unrecognized tax benefits related to various federal and state
income tax matters. Park recognizes interest and penalties through the income
tax provision. The total amount of interest and penalties on the date of adoption
of FIN 48 was $76,000. Park is no longer subject to examination by federal
taxing authorities for the tax year 2004 and the years prior.

Preferred Stock
On December 18, 2008, the Shareholders of Park voted, in a Special Meeting
of Shareholders, to amend Park’s Articles of Incorporation to authorize the
issuance of up to 200,000 preferred shares, each without par value.

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

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

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

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

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

Stock Based Compensation
Compensation cost is recognized for stock options and stock awards issued to
employees and directors, based on the fair value of these awards at the date
of grant. A Black-Scholes model is utilized to estimate the fair value of stock
options, while the market price of Park’s common stock at the date of grant
is used for stock awards. Compensation cost is recognized over the required
service period, generally defined as the vesting period. Park did not grant
any stock options during 2008 and 2006, but granted 90,000 stock options in
2007. Additionally, all stock options granted in 2007 became vested that year.
No stock options became vested in 2008.

Derivative Instruments
SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”
(“SFAS No. 133”), as amended and interpreted, establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. As
required by SFAS No. 133, the Company records all derivatives on the balance
sheet at fair value. The accounting for changes in the fair value of derivatives
depends on the intended use of the derivative and the resulting designation.
Derivatives used to hedge the exposure to changes in the fair value of an asset,
liability, or firm commitment attributable to a particular risk, such as interest
rate risk, are considered fair value hedges. Derivatives used to hedge the
exposure to variability in expected future cash flows, or other types of
forecasted transactions, are considered cash flow hedges.

Fair Value Measurement
Effective January 1, 2008, Park adopted SFAS No. 157 “Fair Value
Measurements.” SFAS No. 157 defines fair value, establishes a framework
for measuring fair value in U.S. generally accepted accounting principles and
expands disclosures about fair value measurements. This Statement establishes
a fair value hierarchy about the assumptions used to measure fair value and

clarifies assumptions about risk and the effect of a restriction on the sale or use
of an asset. SFAS No. 157 was effective for financial statements issued for fiscal
years beginning after November 15, 2007. Management believes that the impact
of adoption resulted in enhanced footnote disclosures; however, the adoption
did not materially impact the Consolidated Balance Sheets, the Consolidated
Statements of Income, the Consolidated Statements of Changes in Stockholders’
Equity, or the Consolidated Statements of Cash Flows. (See Note 21 – Fair
Values of these Notes to Consolidated Financial Statements).

Accounting for Defined Benefit Pension Plan
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting
for Defined Benefit Pension and Other Postretirement Plans—an amendment
of FASB Statements No. 87, 88, 106 and 132R.” This statement requires an
employer to recognize the overfunded or underfunded status of a defined
benefit postretirement plan (other than a multi-employer plan) as an asset or
liability in its balance sheet, beginning with year-end 2006, and to recognize
changes in the funded status in the year in which the changes occur through
comprehensive income beginning in 2007. Additionally, defined benefit plan
assets and obligations were required to be measured as of the date of the
employer’s fiscal year-end, starting in 2008. The adoption of SFAS No. 158
decreased accumulated other comprehensive income by $6,826,000, net of
income taxes of $3,675,000, at December 31, 2006.

As a result of the adoption of SFAS No. 158 measurement date provisions,
Park charged approximately $0.3 million to retained earnings on January 1,
2008 to reflect the after-tax expense pertaining to three months of pension
plan expense.

Prior Year Misstatements
In September 2006, the Securities and Exchange Commission (SEC) released
Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements” (“SAB 108”), which is effective for fiscal years ending on or after
November 15, 2006. SAB 108 provides guidance on how the effects of prior-
year uncorrected financial statement misstatements should be considered in
quantifying a current year misstatement. SAB 108 requires public companies
to quantify misstatements using both an income statement (rollover) and
balance sheet (iron curtain) approach and evaluate whether either approach
results in misstatement that, when all relevant quantitative and qualitative
factors are considered, is material. If prior year errors that had been previously
considered immaterial now are considered material based on either approach,
no restatement is required so long as management properly applied its previous
approach and all relevant facts and circumstances were considered. Upon
adoption in 2006, Park had no items that required posting an adjustment to
beginning retained earnings.

Adoption of New Accounting Standards
Accounting for Postretirement Benefits Pertaining to Life Insurance
Arrangements: In July 2006, the Emerging Issues Task Force (“EITF”) of
FASB issued a draft abstract for EITF Issue No. 06-04, “Accounting for Deferred
Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar
Life Insurance Arrangements” (EITF Issue No. 06-04). This draft abstract from
EITF reached a consensus that for an endorsement split-dollar life insurance
arrangement within the scope of this Issue, an employer should recognize a
liability for future benefits in accordance with SFAS No. 106, “Employers’
Accounting for Postretirement Benefits Other Than Pensions.” The EITF
concluded that a liability for the benefit obligation under SFAS No. 106 has
not been settled through the purchase of an endorsement type life insurance
policy. In September 2006, FASB agreed to ratify the consensus reached in EITF
Issue No. 06-04. This new accounting standard was effective for fiscal years
beginning after December 15, 2007.

At December 31, 2008, Park and its subsidiary banks owned $132.9 million
of bank owned life insurance policies. These life insurance policies are
generally subject to endorsement split-dollar life insurance arrangements.

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

These arrangements were designed to provide a pre-and postretirement benefit
for senior officers and directors of Park and its subsidiary banks. As a result of
the adoption of EITF Issue No. 06-4, there was a charge of $11.6 million to
retained earnings on January 1, 2008 and a corresponding liability was
recognized for the same amount.

Fair Value Measurements: In February 2007, the FASB issued SFAS No. 159,
“The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No.
159 gives entities the option to measure eligible financial assets and financial
liabilities at fair value on an instrument by instrument basis, that are otherwise
not permitted to be accounted for at fair value under other accounting stan-
dards. The fair value option permits companies to choose to measure eligible
items at fair value at specified election dates. Subsequent changes in fair value
must be reported in earnings. SFAS No. 159 is effective for financial statements
issued for fiscal years beginning after November 15, 2007. The Company did
not elect the fair value option for any financial assets or financial liabilities as
of January 1, 2008.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.”
SFAS No. 157 defines fair value, establishes a framework for measuring fair
value in United States generally accepted accounting principles and expands
disclosures about fair value measurements. This Statement establishes a fair
value hierarchy about the assumptions used to measure fair value and clarifies
assumptions about risk and the effect of a restriction on the sale or use of an
asset. SFAS No. 157 was effective for financial statements issued for fiscal years
beginning after November 15, 2007. The impact of adoption has resulted in
enhanced footnote disclosures.

At the February 12, 2008 FASB meeting, the FASB decided to defer the effective
date of Statement 157 for all non-financial assets and non-financial liabilities,
except those that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). SFAS No. 157 is effective
for certain non-financial assets and liabilities for fiscal years beginning after
November 15, 2008. Non-financial assets and liabilities may include (but are
not limited to): (i) non-financial assets and liabilities initially valued at fair
value in a business combination, but not measured at fair value in subsequent
periods; (ii) reporting units measured at fair value in the first step of a goodwill
impairment test described in SFAS No. 142; and (iii) non-financial assets and
liabilities measured at fair value in the second step of a goodwill impairment
test described in SFAS No. 142.

On October 10, 2008, the FASB issued FASB Staff Position (“FSP”) No. 157-3,
“Determining the Fair Value of a Financial Asset When the Market for that
Asset is Not Active.” This FSP does not change existing GAAP, but seeks to clarify
how to consider various inputs in determining fair value under current market
conditions consistent with the principles of SFAS No. 157. The FSP provides an
example on how to calculate fair value when there is not an active market for
that financial asset. Key concepts addressed include distressed sales, the use
of third party pricing information, use of internal assumptions, and others.
FSP 157-3 was effective upon issuance and, therefore, it applies to Park’s
consolidated financial statements for the year ended December 31, 2008. The
adoption of FSP 157-3 had no material impact on these financial statements.

Accounting for Written Loan Commitments Recorded at Fair Value:
On November 5, 2007, the SEC issued Staff Accounting Bulletin No. 109,
“Written Loan Commitments Recorded at Fair Value through Earnings”
(“SAB 109”). Previously, SAB 105, “Application of Accounting Principles to
Loan Commitments,” stated that in measuring the fair value of a derivative
loan commitment, a company should not incorporate the expected net future
cash flows related to the associated servicing of the loan. SAB 109 supercedes
SAB 105 and indicates that the expected net future cash flows related to the
associated servicing of the loan should be included in measuring fair value
for all written loan commitments that are accounted for at fair value through
earnings. SAB 105 also indicated that internally-developed intangible assets
should not be recorded as part of the fair value of a derivative loan commit-
ment, and SAB 109 retains that view. SAB 109 was effective for derivative loan

commitments issued or modified in fiscal quarters beginning after December
15, 2007. The impact of this standard was not material.

Accounting for Servicing of Financial Assets: In March 2006, FASB issued
SFAS No. 156, “Accounting for Servicing of Financial Assets—an amendment of
SFAS No. 140.” This Statement provides the following: 1.) revised guidance on
when a servicing asset and servicing liability should be recognized; 2.) requires
all separately recognized servicing assets and servicing liabilities to be initially
measured at fair value, if practicable; 3.) permits an entity to elect to measure
servicing assets and servicing liabilities at fair value each reporting date and
report changes in fair value in earnings in the period in which the changes
occur; 4.) upon initial adoption, permits a one-time reclassification of avail-
able-for-sale securities to trading securities for securities which are identified
as offsetting the entity’s exposure to changes in the fair value of servicing assets
or liabilities that a servicer elects to subsequently measure at fair value; and
5.) requires separate presentation of servicing assets and servicing liabilities
subsequently measured at fair value in the statement of financial condition and
additional footnote disclosures. For Park, SFAS No. 156 was effective January 1,
2007. The adoption of this Statement did not have a material impact on Park’s
consolidated financial statements.

Recently Issued but not yet Effective Accounting Pronouncements
Accounting for Business Combinations: On December 4, 2007, the FASB
issued Statement No. 141(R), “Business Combinations” (“SFAS No. 141(R)”),
with the objective to improve the comparability of information that a company
provides in its financial statements related to a business combination. SFAS
No. 141(R) establishes principles and requirements for how the acquirer:
(i) recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree; (ii) recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase; and (iii) determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. The statement
does not apply to combinations between entities under common control.
This Statement applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting period
beginning on or after December 15, 2008.

Disclosures about Derivative Instruments: In March 2008, FASB
issued SFAS No. 161 “Disclosures about Derivative Instruments and Hedging
Activities”—an amendment to SFAS No. 133. This statement requires enhanced
disclosures about an entity’s derivative and hedging activities and therefore
should improve the transparency of financial reporting. This new accounting
standard is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008. Management is still evaluating the
impact of this accounting standard.

Noncontrolling Interests in Consolidated Financial Statements:
In December 2007, the FASB issued Statement No. 160, “Noncontrolling
Interests in Consolidated Financial Statements,” which amends Accounting
Research Bulletin No. 51 “Consolidated Financial Statements” (“ARB 51”).
A noncontrolling interest, also known as a “minority interest”, is the portion of
equity in a subsidiary not attributable to a parent. The objective of this statement
is to improve upon the consistency of financial information that a company
provides in its consolidated financial statements. Consistent with SFAS No.
141(R), SFAS No. 160 is effective for fiscal years beginning on or after
December 15, 2008. Management does not expect that the adoption of
this Statement will have a material impact on Park’s consolidated financial
statements.

2. ORGANIZATION, ACQUISITIONS, BRANCH SALE

AND BRANCH PURCHASE

Park National Corporation is a multi-bank holding company headquartered
in Newark, Ohio. Through its banking subsidiaries, The Park National Bank
(PNB) and Vision Bank (VIS), Park is engaged in a general commercial

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

banking and trust business, primarily in Ohio and Baldwin County, Alabama
and the panhandle of Florida. A wholly-owned subsidiary of Park, Guardian
Finance Company (GFC) began operating in May 1999. GFC is a consumer
finance company located in Central Ohio. PNB operates through twelve
banking divisions with the Park National Division headquartered in Newark,
Ohio, the Fairfield National Division headquartered in Lancaster, Ohio, The Park
National Bank of Southwest Ohio & Northern Kentucky Division headquartered
in Milford, Ohio, with the First-Knox National Division headquartered in Mount
Vernon, Ohio, the Farmers and Savings Division headquartered in Loudonville,
Ohio, the Security National Division headquartered in Springfield, Ohio, the
Unity National Division headquartered in Piqua, Ohio, the Richland Bank
Division headquartered in Mansfield, Ohio, the Century National Division
headquartered in Zanesville, Ohio, the United Bank Division headquartered in
Bucyrus, Ohio, the Second National Division headquartered in Greenville, Ohio
and the Citizens National Bank Division headquartered in Urbana, Ohio. Finally,
VIS operates through two banking divisions with the Vision Bank Florida
Division headquartered in Panama City, Florida and the Vision Bank Alabama
Division headquartered in Gulf Shores, Alabama. In the third quarter of 2008,
seven separately-chartered banks in Ohio were merged into PNB. These were
accounted for as internal reorganizations and had no effect on the consolidated
financial statements. Before 2008, eight of the PNB divisions operated as sepa-
rately-chartered banks. All of the Ohio-based banking divisions provide the
following principal services: the acceptance of deposits for demand, savings and
time accounts; commercial, industrial, consumer and real estate lending,
including installment loans, credit cards, home equity lines of credit, commer-
cial and auto leasing; trust services; cash management; safe deposit operations;
electronic funds transfers and a variety of additional banking-related services.
Vision Bank, with their two banking divisions, provide the services mentioned
above, with the exception of credit cards, commercial and auto leasing, and
cash management. See Note 23 of these Notes to Consolidated Financial
Statements for financial information on the Corporation’s operating segments.

On March 9, 2007, Park acquired all of the stock and outstanding stock options
of Vision Bancshares, Inc. for $87.8 million in cash and 792,937 shares of Park
common stock valued at $83.3 million or $105.00 per share. The goodwill
recognized as a result of this acquisition was $109.0 million. Management
expects that the acquisition of Vision will improve the future growth rate for
Park’s loans, deposits and net income. The fair value of the acquired assets
of Vision was $686.5 million and the fair value of the liabilities assumed was
$624.4 million at March 9, 2007. During the fourth quarter of 2007, Park
recognized a $54.0 million impairment charge to the Vision goodwill. In
addition, Park recognized an additional impairment charge to the remaining
Vision goodwill of $55.0 million during the third quarter of 2008. The goodwill
impairment charge of $55 million in 2008 reduced income tax expense by
approximately $1 million. The goodwill impairment charge of $54 million in
2007 had no impact on income tax expense.

On September 21, 2007, a national bank subsidiary of Park, The First-Knox
National Bank of Mount Vernon (“First-Knox”), acquired the Millersburg, Ohio
banking office (the “Millersburg branch”) of Ohio Legacy Bank, N.A. (“Ohio
Legacy”). First-Knox acquired substantially all of the loans administered at the
Millersburg branch of Ohio Legacy and assumed substantially all of the deposit
liabilities relating to the deposit accounts assigned to the Millersburg branch.
The fair value of loans acquired was approximately $38 million and deposit
liabilities acquired were approximately $23 million. First-Knox paid a premium
of approximately $1.7 million in connection with the purchase of the deposit

liabilities. First-Knox recognized a loan premium adjustment of $700,000 and
a certificate of deposit adjustment of $300,000, resulting in a total increase to
core deposit intangibles of $2.7 million. No goodwill was recognized as part of
this transaction. In addition, First-Knox paid $900,000 for the acquisition of the
branch office building that Ohio Legacy was leasing from a third party.

On December 18, 2006, Park acquired all of the stock of Anderson Bank of
Cincinnati, Ohio for $9.052 million in cash and 86,137 shares of Park common
stock valued at $8.665 million or $100.60 per share. Immediately following
Park’s acquisition, Anderson merged with Park’s subsidiary, The Park National
Bank and is being operated as part of PNB’s operating division, The Park
National Bank of Southwest Ohio & Northern Kentucky. The goodwill
recognized as a result of this acquisition was $10.638 million. The fair
value of the acquired assets of Anderson was $69.717 million and the fair
value of the liabilities assumed was $62.638 million at December 18, 2006.

3. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Corporation’s two bank subsidiaries are required to maintain average
reserve balances with the Federal Reserve Bank. The average required reserve
balance was approximately $29.4 million at December 31, 2008 and $29.0
million at December 31, 2007. No other compensating balance arrangements
were in existence at year-end.

4. INVESTMENT SECURITIES
The amortized cost and fair value of investment securities are shown in the
following table. Management evaluates the investment securities on a quarterly
basis for other-than-temporary impairment. No impairment charges were
deemed necessary during 2007.

Management follows the principles of Staff Accounting Bulletin No. 59 (“SAB
No. 59”) when performing the quarterly evaluation of investment securities for
any other-than-temporary impairment. During 2008, management determined
that Park’s unrealized losses in the stocks of several financial institutions were
other-than-temporarily impaired due to the duration and severity of the loss.
Therefore, Park recognized impairment losses of $980,000 during the twelve
months ended December 31, 2008, which is recorded in “other expenses”
within the Consolidated Statements of Income. These impairment losses
represent the difference between the investment’s cost and fair value on
December 31, 2008.

Investment securities at December 31, 2008, were as follows:

Gross

Unrealized Unrealized

Amortized
Cost

Holding
Gains

Holding
Losses

Estimated
Fair Value

(In thousands)

2008:

Securities Available-for-Sale

Obligations of U.S. Treasury and

other U.S. Government agencies $ 127,628

$ 1,060

$ — $ 128,688

Obligations of states and
political subdivisions
U.S. Government agencies’
asset-backed securities

Other equity securities

Total

2008:

Securities Held-to-Maturity
Obligations of states and
political subdivisions
U.S. Government agencies’
asset-backed securities

26,424

503

1,357,710

47,050

1,461

428

229

106

26,894

1,404,531

1,783

$1,513,223

$49,041

$ 368

$1,561,896

10,294

$ — $

10,373

418,056

5,035

423,062

Total

$ 428,350

$ 5,114

$ 29

$ 433,435

Other investment securities (as shown on the balance sheet) consist of stock
investments in the Federal Home Loan Bank and the Federal Reserve Bank.
Park owned $61.9 million of Federal Home Loan Bank stock and $6.9 million
of Federal Reserve stock at December 31, 2008. Park owned $56.8 million of
Federal Home Loan Bank stock and $6.4 million of Federal Reserve Bank stock
at December 31, 2007.

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59

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

Securities with unrealized losses at December 31, 2007, were as follows:

Less than 12 Months

12 Months or Longer

Total

(In thousands)

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

2007:

Securities
Available-for-Sale
Obligations of
states and
political
subdivisions

U.S. Government

agencies’ asset-
backed securities

Other equity securities

$1,302

$ 18

120

$ 1,422

—

729

—

291

770,808

8,115

770,808

101

830

8,115

390

Total

$2,031

$309

$771,029

$8,216

$773,060

$8,525

2007:

Securities
Held-to-Maturity
U.S. Government

agencies’ asset-
backed securities

$ — $ —

$147,536

$4,136

$147,536

$4,136

The amortized cost and estimated fair value of investments in debt securities at
December 31, 2008, are shown in the following table by contractual maturity or
the expected call date, except for asset-backed securities, which are shown as a
single total, due to the unpredictability of the timing in principal repayments.

(Dollars in thousands)

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

Due within one year

Total

Obligations of states and
political subdivisions:
Due within one year

Due one through five years

Due five through ten years

Due over ten years

Total

U.S. Government agencies’
asset-backed securities:

Total

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

Due one through five years

Total

U.S. Government agencies’
asset-backed securities:

Amortized
Cost

Estimated
Fair Value

$ 127,628

$ 128,688

17,123

17,351

5,469

2,001

1,831

5,663

2,081

1,799

26,424

26,894

$1,357,710

$1,404,531

9,881

413

10,294

9,945

428

10,373

Investment securities having a book value of $1,751 million and $1,631 million
at December 31, 2008 and 2007, respectively, were pledged to collateralize
government and trust department deposits in accordance with federal and state
requirements and to secure repurchase agreements sold, and as collateral for
Federal Home Loan Bank (FHLB) advance borrowings.

Management does not believe any individual unrealized loss as of December 31,
2008 and December 31, 2007, represents an other-than-temporary impairment.
The unrealized losses on debt securities are primarily the result of interest rate
changes, credit spread widening on agency-issued mortgage related securities,
general financial market uncertainty and unprecedented market volatility. These
conditions will not prohibit Park from receiving its contractual principal and
interest payments on its 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 recog-
nized in net income in the period the other-than-temporary impairment is
identified.

Securities with unrealized losses at December 31, 2008, were as follows:

Less than 12 Months

12 Months or Longer

Total

(In thousands)

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

2008:

Securities
Available-for-Sale
Obligations of
states and
political
subdivisions

U.S. Government

agencies’ asset-
backed securities

Other equity securities

$1,135

$ 1

278

$ 32

$ 1,413

$ 33

703

6,850

314

223

7,553

331

229

106

Total

$1,855

$21

$ 7,442

$347

$ 9,297

$368

2008:

Securities
Held-to-Maturity
U.S. Government

agencies’ asset-
backed securities

$ 156

$ 1

$42,863

$ 28

$43,019

$ 29

Investment securities at December 31, 2007 were as follows:

Gross

Unrealized Unrealized

Amortized
Cost

Holding
Gains

Holding
Losses

Estimated
Fair Value

(In thousands)

2007:

Securities Available-for-Sale

Obligations of U.S. Treasury and

other U.S. Government agencies $ 200,996

$2,562

$ —

$ 203,558

44,805

716

45,501

1,224,958
2,293

6,292
420

8,115
390

1,223,135
2,323

Obligations of states and
political subdivisions

U.S. Government agencies’
asset-backed securities

Other equity securities

Total

2007:

Securities Held-to-Maturity
Obligations of states and
political subdivisions

U.S. Government agencies’
asset-backed securities

13,551

$ 127

$ —

13,678

151,870

4,136

147,736

Total

$ 165,421

$ 129

$4,136

$ 161,414

60
60

$1,473,052

$9,990

$8,525

$1,474,517

Total

$ 418,056

$ 423,062

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

At December 31, 2008, $939 million was pledged for government and
trust department deposits, $664 million was pledged to secure repurchase
agreements and $148 million was pledged as collateral for FHLB advance
borrowings. At December 31, 2007, $912 million was pledged for government
and trust department deposits, $667 million was pledged to secure repurchase
agreements and $52 million was pledged as collateral for FHLB advance
borrowings.

At year-end, 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 2008, Park sold $140 million of U.S. Governmental Agency securities,
for total gains of $1,115,000. These securities were callable during 2008 and
were sold with a give up yield of approximately 3.63%. The proceeds from
the sale of these investment securities were generally reinvested in U.S.
Governmental Agency 15-year mortgage-backed securities. The tax expense
related to the net securities gains was $357,000 for 2008. There were no sales
of securities in 2007. No gross losses were realized in 2008 and 2007.

5. LOANS
The composition of the loan portfolio is as follows:

December 31 (Dollars in thousands)

Commercial, financial and agricultural
Real estate:

Construction
Residential
Commercial
Consumer, net
Leases, net

Total loans

2008

$ 714,296

533,788
1,560,198
1,035,725
643,507
3,823

$4,491,337

2007

$ 613,282

536,389
1,481,174
993,101
593,388
6,800

$4,224,134

Loans are shown net of origination deferred fees and costs of $6 million at
December 31, 2008 and 2007.

Overdrawn deposit accounts of $3,636,000 and $4,287,000 have been reclassi-
fied to loans at December 31, 2008 and 2007, respectively.

Under the Corporation’s credit policies and practices, all nonaccrual and
restructured commercial, financial, agricultural, construction and commercial
real estate loans meet the definition of impaired loans under SFAS No. 114
and 118. Impaired loans, as defined by SFAS No. 114 and 118, exclude certain
consumer loans, residential real estate loans and lease financing classified as
nonaccrual. The majority of the loans deemed impaired were evaluated using
the fair value of the collateral as the measurement method.

Nonperforming loans are summarized as follows:

December 31 (Dollars in thousands)

2008

Impaired loans:
Nonaccrual
Restructured

Total impaired loans

Other nonaccrual loans

$138,498
2,845

141,343
21,014

Total nonaccrual and restructured loans

$162,357

Loans past due 90 days or more and accruing

Total nonperforming loans

5,421

$167,778

2007

$ 87,277
2,804

90,081
13,851

$103,932

4,545

$108,477

Management’s general practice is to charge down impaired loans to the fair
value of the underlying collateral of the loan, so no specific loss allocations
are generally necessary for many of these loans. The allowance for loan losses,
specifically related to impaired loans at December 31, 2008 and 2007, was
$8,727,000 and $3,424,000, respectively, related to loans with principal
balances of $62,929,000 and $27,218,000.

The average balance of impaired loans was $130,579,000, $51,118,000 and
$21,976,000 for 2008, 2007 and 2006, respectively.

Interest income on impaired loans is recognized after all past due and current
principal payments have been made, and collectibility is no longer doubtful.
For the years ended December 31, 2008, 2007 and 2006, the Corporation

recognized $905,000, $392,000 and $450,000, respectively, of interest
income on loans that were impaired as of the end of the year.

Management transfers ownership of a loan to other real estate owned at the
time that Park takes the title of the asset. At December 31, 2008 and 2007,
Park had $25.8 million and $13.4 million, respectively, of other real estate
owned. Other real estate owned at Vision Bank has increased from $7.1
million at December 31, 2007 to $19.7 million at December 31, 2008.

Certain of the Corporation’s executive officers, directors and their affiliates are
loan customers of the Corporation’s two banking subsidiaries. As of December
31, 2008 and 2007, loans and lines of credit aggregating approximately
$59,101,000 and $118,506,000, respectively, were outstanding to such
parties. The decrease of $59.4 million since December 31, 2007 is
due to the change in the Corporation’s executive officers and directors.
Commensurate with the mergers of the eight Ohio bank charters, which
occurred during the third quarter of 2008, Park significantly reduced the
number of individuals considered executive officers and directors, as deter-
mined by Regulation O of Title 12 from the Federal Reserve Bank regulations.

During 2008, $17,444,000 of new loans were made and repayments totaled
$3,406,000. New loans and repayments for 2007 were $35,992,000 and
$29,792,000, respectively.

6. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:

(Dollars in thousands)

Balance, January 1

Allowance for loan losses of acquired banks
Provision for loan losses
Losses charged to the reserve
Recoveries

Balance, December 31

2008

$ 87,102
—
70,487
(62,916)
5,415

$100,088

2007

$ 70,500
9,334
29,476
(27,776)
5,568

$ 87,102

2006

$ 69,694
798
3,927
(10,772)
6,853

$ 70,500

7. PREMISES AND EQUIPMENT
The major categories of premises and equipment and accumulated
depreciation are summarized as follows:

December 31 (Dollars in thousands)

Land

Buildings

Equipment, furniture and fixtures

Leasehold improvements

Total

Less accumulated depreciation and amortization

2008

2007

$ 21,799

$ 21,789

74,106

52,574

5,553

154,032

(85,479)

71,000

41,428

5,474

139,691

(73,057)

Premises and Equipment, Net

$ 68,553

$ 66,634

Depreciation and amortization expense amounted to $7,517,000, $6,480,000
and $5,522,000 for the three years ended December 31, 2008, 2007 and 2006,
respectively.

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

(In thousands)

2009

2010

2011

2012

2013

Thereafter

Total

$2,006

1,396

927

850

1,272

2,870

$9,321

Rent expense was $2,802,000, $2,701,000 and $2,107,000, for the three years
ended December 31, 2008, 2007 and 2006, respectively.

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8. DEPOSITS
At December 31, 2008 and 2007, noninterest bearing and interest bearing
deposits were as follows:

December 31 (Dollars in thousands)

Noninterest bearing

Interest bearing

Total

2008

$ 782,625

3,979,125

$4,761,750

2007

$ 695,466

3,743,773

$4,439,239

At December 31, 2008, the maturities of time deposits were as follows:

(In thousands)

2009

2010

2011

2012

2013

After 5 years

Total

$1,563,967

276,115

96,339

109,486

30,524

1,941

$2,078,372

Maturities of time deposits of $100,000 and over as of December 31, 2008
were:

December 31 (In thousands)

3 months or less

Over 3 months through 6 months

Over 6 months through 12 months

Over 12 months

Total

$354,868

93,943

208,468

149,808

$807,087

At December 31, 2008, Park had approximately $29.7 million of deposits
received from executive officers, directors, and their related interests.

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

December 31 (Dollars in thousands)

2008

2007

(Dollars in thousands)

2007:

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

As of year-end
Paid during the year

2006:

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

As of year-end
Paid during the year

Repurchase
Agreements
and Federal
Funds
Purchased

Federal
Home Loan
Bank
Advances

Demand
Notes
Due U.S.
Treasury
and Other

$253,289
259,065
230,651

3.27%
3.67%

$225,356
240,924
224,662

3.73%
3.54%

$502,000
502,000
260,140

4.42%
5.19%

$142,000
246,000
147,145

5.24%
5.15%

$4,029
8,058
3,369

3.59%
4.78%

$8,417
11,290
3,525

5.06%
4.62%

At December 31, 2008 and 2007, Federal Home Loan Bank (FHLB) advances
were collateralized by investment securities owned by the Corporation’s sub-
sidiary banks and by various loans pledged under a blanket agreement by the
Corporation’s subsidiary banks.

See Note 4 of these Notes to Consolidated Financial Statements for the
amount of investment securities that are pledged. At December 31, 2008,
$1,992 million of commercial real estate and residential mortgage loans were
pledged under a blanket agreement to the FHLB by Park’s subsidiary banks. At
December 31, 2007, $1,865 million of commercial real estate and residential
mortgage loans were pledged under a blanket agreement to the FHLB by Park’s
subsidiary banks.

Note 4 states that $664 and $667 million of securities were pledged to secure
repurchase agreements as of December 31, 2008 and 2007, respectively. Park’s
repurchase agreements in short-term borrowings consist of customer accounts
and securities which are pledged on an individual security basis. Park’s repur-
chase agreements with a third-party financial institution are classified in
long-term debt. See Note 10 of these Notes to Consolidated Financial
Statements.

Securities sold under agreements to repurchase

and federal funds purchased

Federal Home Loan Bank advances

Other short-term borrowings

Total short-term borrowings

$284,196

375,000

—

$253,289

502,000

4,029

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

$659,196

$759,318

December 31 (Dollars in thousands)

2008

2007

The outstanding balances for all short-term borrowings as of December 31,
2008, 2007 and 2006 (in thousands) and the weighted-average interest rates
as of and paid during each of the years then ended are as follows:

(Dollars in thousands)

2008:

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

As of year-end
Paid during the year

Repurchase
Agreements
and Federal
Funds
Purchased

$284,196
294,226
256,877

1.12%
1.81%

Federal
Home Loan
Bank
Advances

$375,000
572,000
336,561

0.71%
2.80%

Demand
Notes
Due U.S.
Treasury
and Other

$ —
30,414
12,008

0.00%
3.43%

Outstanding
Balance

Average
Rate

Outstanding
Balance

Average
Rate

Total Federal Home Loan Bank advances

by year of maturity:

2008
2009
2010
2011
2012
2013
Thereafter

Total

—
6,208
217,442
1,442
488
485
302,949

$529,014

Total broker repurchase agreements

by year of maturity:

2008
2009
2010
Thereafter

Total

—
25,000
—
300,000

$325,000

—
3.79%
1.09%
4.00%
3.87%
4.03%
3.02%

2.24%

—
3.79%
—
4.04%

4.02%

$ 34,844
6,146
17,429
1,436
485
482
202,993

$263,815

—
25,000
—
300,000

$325,000

4.02%
3.86%
5.72%
4.01%
3.87%
4.03%
3.83%

3.98%

—
3.79%
—
4.04%

4.02%

62
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N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

December 31 (Dollars in thousands)

2008

2007

Outstanding
Balance

Average
Rate

Outstanding
Balance

Average
Rate

Other borrowings by year of maturity:

2008
2009
2010
2011
2012
2013
Thereafter

Total

Total combined long-term debt

by year of maturity:

2008
2009
2010
2011
2012
2013
Thereafter

Total

$ —
54
59
63
69
74
1,225

$1,544

—
31,262
217,501
1,505
557
559
604,174

$855,558

—
12.00%
12.00%
12.00%
12.00%
12.00%
12.00%

12.00%

—
3.80%
1.10%
4.34%
4.88%
5.09%
3.55%

2.93%

50
54
59
63
69
74
1,225

1,594

$34,894
31,200
17,488
1,499
554
556
504,218

$590,409

12.00%
12.00%
12.00%
12.00%
12.00%
12.00%
12.00%

12.00%

4.03%
3.81%
5.74%
4.35%
4.88%
5.09%
3.98%

4.02%

Other borrowings consist of a capital lease obligation of $1.5 million,
pertaining to an arrangement that was part of the acquisition of Vision
on March 9, 2007 and its associated minimum lease payments.

Park had approximately $605 million of long-term debt at December 31, 2008
with a contractual maturity longer than five years. However, approximately $500
million of this debt is callable by the issuer in 2009 and $100 million is callable
by the issuer in 2010.

See Note 4 of these Notes to Consolidated Financial Statements for the
amount of investment securities that are pledged. See Note 9 of these Notes
to Consolidated Financial Statements for the amount of commercial real estate
and residential mortgage loans that are pledged to the FHLB.

11. SUBORDINATED DEBENTURES
As part of the acquisition of Vision on March 9, 2007, Park became the
successor to Vision under (i) the Amended and Restated Trust Agreement
of Vision Bancshares Trust I (the “Trust”), dated as of December 5, 2005,
(ii) the Junior Subordinated Indenture, dated as of December 5, 2005, and
(iii) the Guarantee Agreement, also dated as of December 5, 2005.

On December 1, 2005, Vision formed a wholly-owned Delaware statutory
business trust, Vision Bancshares Trust I (“Trust I”), which issued $15.0
million of the Trust’s floating rate Preferred Securities (the “Trust Preferred
Securities”) to institutional investors. These Trust Preferred Securities qualify
as Tier I capital under Federal Reserve Board guidelines. All of the common
securities of Trust I are owned by Park. The proceeds from the issuance of the
common securities and the Trust Preferred Securities were used by Trust I to
purchase $15.5 million of junior subordinated debentures, which carry a float-
ing rate based on a three-month LIBOR plus 148 basis points. The debentures
represent the sole asset of Trust I. The Trust Preferred Securities accrue and
pay distributions at a floating rate of three-month LIBOR plus 148 basis points
per annum. The Trust Preferred Securities are mandatorily redeemable upon
maturity of the debentures in December 2035, or upon earlier redemption
as provided in the debenture. Park has the right to redeem the debentures
purchased by Trust I in whole or in part, on or after December 30, 2010. As
specified in the indenture, if the debentures are redeemed prior to maturity,
the redemption price will be the principal amount, plus any unpaid accrued
interest.

In accordance with FASB Interpretation 46R, Trust I is not consolidated with
Park’s financial statements, but rather the subordinated debentures are
reflected as a liability.

On December 28, 2007, one of Park’s wholly-owned subsidiary banks, The
Park National Bank (“PNB”), entered into a Subordinated Debenture Purchase
Agreement with USB Capital Funding Corp. Under the terms of the Purchase
Agreement, USB Capital Funding Corp. purchased from PNB a Subordinated
Debenture dated December 28, 2007, in the principal amount of $25 million,
which matures on December 29, 2017. The Subordinated Debenture is
intended to qualify as Tier 2 capital under the applicable regulations of the
Office of the Comptroller of the Currency of the United States of America
(the “OCC”). The Subordinated Debentures accrue and pay interest at a floating
rate of three-month LIBOR plus 200 basis points. The Subordinated Debenture
may not be prepaid in any amount prior to December 28, 2012, however,
subsequent to this date, PNB may prepay, without penalty, all or a portion of the
principal amount outstanding in a minimum amount of $5 million or any larger
multiple of $5 million. The three-month LIBOR rate was 1.43% at December
31, 2008.

On January 2, 2008, Park entered into an interest rate swap transaction, which
was designated as a cash flow hedge against the variability of cash flows related
to the Subordinated Debenture of $25 million (see Note 19 of these Notes to
Consolidated Financial Statements).

12. STOCK OPTION PLANS
The Park National Corporation 2005 Incentive Stock Option Plan (the “2005
Plan”) was adopted by the Board of Directors of Park on January 18, 2005,
and was approved by the shareholders at the Annual Meeting of Shareholders
on April 18, 2005. Under the 2005 Plan, 1,500,000 common shares are
authorized for delivery upon the exercise of incentive stock options. All of
the common shares delivered upon the exercise of incentive stock options
granted under the 2005 Plan are to be treasury shares. At December 31, 2008,
1,220,727 common shares were available for future grants under the 2005
Plan. Under the terms of the 2005 Plan, incentive stock options may be granted
at a price not less than the fair market value at the date of the grant, and for an
option term of up to five years. No additional incentive stock options may be
granted under the 2005 Plan after January 17, 2015.

The Park National Corporation 1995 Incentive Stock Option Plan (the “1995
Plan”) was adopted April 17, 1995 and amended April 20, 1998 and April
16, 2001. Pursuant to the terms of the 1995 Plan, all of the common shares
delivered upon exercise of incentive stock options are to be treasury shares.
No incentive stock options may be granted under the 1995 Plan after January
16, 2005.

The fair value of each incentive stock option granted is estimated on the date
of grant using a closed form option valuation (Black-Scholes) model that uses
the assumptions noted in the table below. Expected volatilities are based on
historical volatilities of Park’s common stock. The Corporation uses historical
data to estimate option exercise behavior. The expected term of incentive stock
options granted is based on historical data and represents the period of time
that options granted are expected to be outstanding, which takes into account
that the options are not transferable. The risk-free interest rate for the expected
term of the incentive stock options is based on the U.S. Treasury yield curve in
effect at the time of the grant.

The fair value of incentive stock options granted was determined using the
following weighted-average assumptions as of the grant date. Park did not
grant any options in 2008 or 2006.

Risk-free interest rate

Expected term (years)

Expected stock price volatility

Dividend yield

2008

—

2007

3.99%

5.0

19.5%

4.00%

2006

—

63
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N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

The activity in Park’s stock option plan is listed in the following table for 2008:

January 1, 2008

Granted
Exercised
Forfeited/Expired

December 31, 2008

Number

615,191
—
—
162,772

452,419

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

Weighted Average
Exercise Price per Share

$100.63
—
—
95.90

$102.33

452,419
1.5 years
$0

Information related to Park’s stock option plans for the past three years is listed
in the following table for 2008:

(Dollars in thousands)

Intrinsic value of options exercised

Cash received from option exercises

Tax benefit realized from option exercises

Weighted-average fair value of options

granted per share

2008

$ —

—

$ —

2007

$ 47

296

—

2006

$ 692

3,227

$9.92

$ —

Total compensation cost that has been charged against income pertaining to the
above plans was $893,000 for 2007. No expense was recognized for 2008 and
2006. The 90,000 options granted in 2007 vested immediately upon grant.

13. BENEFIT PLANS
The Corporation has a noncontributory defined benefit pension plan
covering substantially all of the employees of the Corporation and its
subsidiaries. The plan provides benefits based on an employee’s years
of service and compensation.

The Corporation’s funding policy is to contribute annually an amount that can
be deducted for federal income tax purposes using a different actuarial cost
method and different assumptions from those used for financial reporting pur-
poses. Management did not make a contribution to the defined benefit pension
plan in 2008, however, management made a $20 million contribution in
January 2009, which will be deductible on the 2008 tax return and as such
is reflected as part of the deferred tax liabilities at December 31, 2008.
See Note 14 of these Notes to Consolidated Financial Statements.

Using an accrual measurement date of December 31, 2008 and September 30,
2007, plan assets and benefit obligation activity for the pension plan are listed
below:

(Dollars in thousands)

Change in fair value of plan assets

Fair value at beginning of measurement period

Actual return on plan assets

Company contributions

Benefits paid

Fair value at end of measurement period

Change in benefit obligation

Projected benefit obligation at beginning of

measurement period

Service cost

Interest cost

Actuarial (gain) or loss

Benefits paid

Projected benefit obligation at the
end of measurement period

Funded status at end of year

(assets less benefit obligation)

2008

2007

$ 60,116

(16,863)

(4,747)

$ 38,506

$55,541

7,827

(3,252)

$60,116

$ 51,914

$49,700

4,313

3,946

2,378

(4,747)

3,238

3,104

(876)

(3,252)

$ 57,804

$51,914

$(19,298)

$ 8,202

The asset allocation for the defined benefit pension plan as of the measurement
date, by asset category, is as follows:

Percentage of Plan Assets

Asset Category

Equity securities
Fixed income and cash equivalents
Other

Total

Target Allocation

50% – 100%
remaining balance
—

—

2008

79%
21%
—

100%

2007

81%
19%
—

100%

The investment policy, as established by the Retirement Plan Committee, is to
invest assets per 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 is 7.75% in 2008 and
2007. This return is based on the expected return of each of the asset cate-
gories, weighted based on the median of the target allocation for each class.

The accumulated benefit obligation for the defined benefit pension plan was
$49.5 million at December 31, 2008 and $43.9 million at September 30, 2007.

The weighted average assumptions used to determine benefit obligations at
December 31, 2008 and September 30, 2007 were as follows:
2008

2007

Discount rate
Rate of compensation increase

6.00%
3.00%

6.25%
3.00%

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

2009
2010
2011
2012
2013
2014 – 2018

Total

$ 1,213
1,404
1,628
1,954
2,301
16,646

$25,146

In 2006, Park recorded the unrecognized prior service cost and the
unrecognized net actuarial loss as a reduction to prepaid benefit cost and
an adjustment to accumulated other comprehensive income (loss).

The following table shows ending balances of accumulated other
comprehensive income (loss) at December 31, 2008 and 2007.

(Dollars in thousands)

Prior service cost
Net actuarial loss

Total

Deferred taxes

Accumulated other comprehensive income (loss)

2008

(149)
$
(30,286)

(30,435)

10,652

$(19,783)

2007

$ (191)
(5,286)

(5,477)

1,917

$(3,560)

Using an actuarial measurement date of December 31, 2008 and September 30
for 2007 and 2006, components of net periodic benefit cost and other amounts
recognized in other comprehensive income are as follows:

(Dollars in thousands)

2008

2007

2006

Components of net periodic benefit cost and

other amounts recognized in Other
Comprehensive Income
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Recognized net actuarial loss/(gain)

Net periodic benefit cost

Change to net actuarial (gain)/loss

for the period

Amortization of prior service cost
Amortization of net gain/(loss)

Total recognized in other
comprehensive income

$ 3,451
3,157
(4,608)
34
—

$ 2,034

$25,000
(42)
0

$ 3,238
3,104
(4,263)
34
551

$ 2,664

(4,440)
(34)
(551)

24,958

(5,025)

Total recognized in net benefit cost

and other comprehensive (income)

$26,992

$(2,361)

$ 3,179
2,886
(3,975)
14
555

$ 2,659

N/A
N/A
N/A

N/A

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

The estimated prior service costs for the defined benefit pension plan that will
be amortized from accumulated other comprehensive income into net periodic
benefit cost over the next fiscal year is $34,000. The estimated net actuarial gain
(loss) expected to be recognized in the next fiscal year is $(2,042,000).

The weighted average assumptions used to determine net periodic benefit cost
for the years ended December 31, 2008 and 2007, are listed below:

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

2008

6.25%
3.00%
7.75%

2007

6.08%
3.50%
7.75%

The defined benefit pension plan maintains cash in a Park savings account,
with a balance of $2,057,000 at December 31, 2008.

The Corporation has a voluntary salary deferral plan covering substantially all
of its employees. Eligible employees may contribute a portion of their compen-
sation subject to a maximum statutory limitation. The Corporation provides a
matching contribution established annually by the Corporation. Contribution
expense for the Corporation was $1,731,000, $1,734,000, and $1,672,000
for 2008, 2007 and 2006, respectively.

The Corporation has a Supplemental Executive Retirement Plan (SERP)
covering certain key officers of the Corporation and its subsidiaries with defined
pension benefits in excess of limits imposed by federal tax law. At December 31,
2008 and 2007, the accrued benefit cost for this plan totaled $7,550,000 and
$7,701,000, respectively. The expense for the Corporation was $594,200,
$684,000 and $647,000 for 2008, 2007, and 2006, respectively.

14. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant
components of the Corporation’s deferred tax assets and liabilities are as
follows:

December 31 (Dollars in thousands)

2008

2007

Deferred tax assets:

Allowance for loan losses
Accumulated other comprehensive loss –

SFAS 133

Accumulated other comprehensive loss –

SFAS 158
Intangible assets
Deferred compensation
Other

Total deferred tax assets

Deferred tax liabilities:

Accumulated other comprehensive

income – SFAS 115

Deferred investment income
Pension plan
Mortgage servicing rights
Purchase accounting adjustments
Other

Total deferred tax liabilities

Net deferred tax asset

$35,929

$31,133

678

10,652
3,357
4,539
5,693

—

1,917
2,895
4,504
5,153

$60,848

$45,602

$17,036
11,168
10,875
2,907
4,493
1,440

$47,919

$12,929

513
11,346
4,713
3,571
5,264
1,924

$27,331

$18,271

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

December 31 (Dollars in thousands)

2008

2007

2006

Currently payable

Federal
State

Deferred
Federal
State

Total

$23,645
(44)

$37,692
117

$38,830
—

697
(2,287)

(7,269)
(570)

156
—

$22,011

$29,970

$38,986

The following is a reconcilement of federal income tax expense to the amount
computed at the statutory rate of 35% for the years ended December 31, 2008,
2007 and 2006.
December 31

2007

2008

2006

Statutory federal corporate tax rate
Changes in rates resulting from:

Tax-exempt interest income, net of

disallowed interest

Bank owned life insurance
Tax credits (low income housing)
Goodwill impairment
State income tax expense, net of

federal benefit

Other

Effective tax rate

35.0%

(3.5%)
(5.0%)
(11.7%)
50.7%

(4.2%)
.3%

61.6%

(2.6%)
(2.8%)
(7.5%)
35.9%

(.6%)
(.5%)

(1.2%)
(1.0%)
(2.9%)
—

—
(.6%)

56.9%

29.3%

Park and its Ohio-based subsidiary banks do not pay state income tax to
the state of Ohio, but pay a franchise tax based on their year-end equity.
The franchise tax expense is included in the state tax expense and is shown
in “state taxes” on Park’s Consolidated Statements of Income. Vision Bank
is subject to state income tax, in the states of Alabama and Florida. State
income tax expense (benefit) for Vision Bank is included in “income taxes”
on Park’s Consolidated Statements of Income. Vision Bank’s 2008 state
income tax benefit was $(2,331,000).

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

(Dollars 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 the statute of limitations

December 31, 2008 Balance

2008

$828
102
18
(15)
(150)

$783

2007

$713
250
17
(24)
(128)

$828

The amount of unrecognized tax benefits that, if recognized, would favorably
affect the effective income tax rate in the future periods at December 31, 2008
and 2007 is $571,000 and $578,000, respectively. Park does not expect the
total amount of unrecognized tax benefits to significantly increase or decrease
during the next year.

The total amount of interest and penalties recorded in the income statement
for the years ended December 31, 2008 and December 31, 2007 was $16,000
and $(3,000), respectively. The amount accrued for interest and penalties at
December 31, 2008 and 2007 was $89,000 and $73,000, respectively.

Park and its subsidiaries are subject to U.S. federal income tax. Some of Park’s
subsidiaries are subject to state income tax in the following states: Alabama,
Florida, California, Kentucky, Michigan, New Jersey, Pennsylvania and West
Virginia. Park is no longer subject to examination by federal or state taxing
authorities for the tax year 2004 and the years prior.

The 2006 and 2007 federal income tax returns of Vision Bancshares, Inc. are
currently under examination by the Internal Revenue Service. No significant
adjustments are anticipated to result from this examination.

65
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15. OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) components and related taxes are shown
in the following table for the years ended December 31, 2008, 2007 and 2006.
Net-of-Tax
Amount

Year ended December 31
(Dollars in thousands)

Before-Tax
Amount

Tax
Expense

2008:

Unrealized gains on available-for-sale

securities

Reclassification adjustment for gains

realized in net income

Unrealized net holding loss on

cash flow hedge

Changes in pension plan assets and
benefit obligations recognized in
Other Comprehensive Income

Other comprehensive income

2007:

Unrealized gains on available-for-sale

securities

Changes in pension plan assets and
benefit obligations recognized in
Other Comprehensive Income

$ 48,324

$16,913

$ 31,411

(1,115)

(1,937)

(390)

(678)

(725)

(1,259)

(24,958)

$ 20,314

(8,735)

$ 7,110

(16,223)

$ 13,204

$ 26,071

9,125

$ 16,946

5,025

1,759

3,266

Other comprehensive income

$ 31,096

$ 10,884

$ 20,212

2006:

Unrealized losses on available-for-sale

securities

Reclassification adjustment for gains

realized in net income

$ (8,905)

$ (3,117)

$ (5,788)

(97)

(34)

(63)

Other comprehensive loss

$ (9,002)

$ (3,151)

$ (5,851)

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

17. DIVIDEND RESTRICTIONS
Bank regulators limit the amount of dividends a subsidiary bank can declare
in any calendar year without obtaining prior approval. At December 31, 2008,
approximately $19.9 million of the total stockholders’ equity of the bank sub-
sidiaries is available for the payment of dividends to the Corporation, without
approval by the applicable regulatory authorities.

18. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF
CREDIT RISK

The Corporation is party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include loan commitments and standby letters of
credit. The instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the 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 are
as follows:

(Dollars in thousands)

Application of SFAS No. 158
Unrealized net holding loss on cash flow hedge
Unrealized net holding gains on A-F-S Securities

Total accumulated other

comprehensive income (loss)

2008

$(19,783)
(1,259)
31,638

2007

$(3,560)
—
952

December 31 (Dollars in thousands)

Loan commitments

Unused credit card limits

Standby letters of credit

2008

$1,143,280

—

25,353

2007

$995,775

132,242

30,009

$ 10,596

$(2,608)

The loan commitments are generally for variable rates of interest.

16. EARNINGS PER SHARE
SFAS No. 128, “Earnings Per Share” requires the reporting of basic and diluted
earnings per share. Basic earnings per common share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
common share is very similar to the previously reported fully diluted earnings
per common share.

The following table sets forth the computation of basic and diluted earnings
per share:

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

2008

2007

2006

Numerator:

Net income available to
common shareholders

Denominator:

Basic earnings per common share:

Weighted-average shares

Effect of dilutive securities – stock options

and warrant

Diluted earnings per common share:
Adjusted weighted-average shares
and assumed conversions

Earnings per common share:

Basic earnings per common share
Diluted earnings per common share

$13,566

$22,707

$94,091

13,965,219

14,212,805

13,929,090

114

4,678

37,746

13,965,333

14,217,483

13,966,836

$0.97
$0.97

$1.60
$1.60

$6.75
$6.74

Stock options for 505,749 and 491,262 shares of common stock were not
considered in computing diluted earnings per common share for 2008 and
2007, respectively, because they were anti-dilutive. The dilutive effect of the
warrant pertaining to the Capital Purchase Program was 114 shares of common
stock at December 31, 2008.

The Corporation grants retail, commercial and commercial real estate loans
to customers primarily located in Ohio, Baldwin County, Alabama and the
panhandle of Florida. The Corporation evaluates each customer’s
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Corporation upon extension of credit, is based on
management’s credit evaluation of the customer. Collateral held varies but
may include accounts receivable, inventory, property, plant and equipment,
and income-producing commercial properties.

Although the Corporation has a diversified loan portfolio, a substantial
portion of the borrowers’ ability to honor their contracts is dependent upon
the economic conditions in each borrower’s geographic location and industry.

19. DERIVATIVE INSTRUMENTS
SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”
(“SFAS No. 133”), as amended and interpreted, establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. As
required by SFAS No. 133, the Company records all derivatives on the balance
sheet at fair value. The accounting for changes in the fair value of derivatives
depends on the intended use of the derivative and the resulting designation.
Derivatives used to hedge the exposure to changes in the fair value of an asset,
liability, or firm commitment attributable to a particular risk, such as interest
rate risk, are considered fair value hedges. Derivatives used to hedge the
exposure to variability in expected future cash flows, or other types of
forecasted transactions, are considered cash flow hedges.

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For derivatives designated as cash flow hedges, the effective portion of changes
in the fair value of the derivative is initially reported in other comprehensive
income (outside of earnings) and subsequently reclassified into earnings when
the hedged transaction affects earnings, and the ineffective portion of changes
in the fair value of the derivative is recognized directly in earnings. The
Company assesses the effectiveness of each hedging relationship by comparing
the changes in cash flows of the derivative hedging instrument with the changes
in cash flows of the designated hedged item or transaction.

During the first quarter of 2008, the Company executed an interest rate swap
to hedge a $25 million floating-rate subordinated note that was entered into by
Park during the fourth quarter of 2007. The Company’s objective in using this
derivative was to add stability to interest expense and to manage its exposure
to interest rate risk. Our interest rate swap involves the receipt of variable-rate
amounts in exchange for fixed-rate payments over the life of the agreement
without exchange of the underlying principal amount, and has been designated
as a cash flow hedge.

As of December 31, 2008, no derivatives were designated as fair value hedges
or hedges of net investments in foreign operations. Additionally, the Company
does not use derivatives for trading or speculative purposes and currently does
not have any derivatives that are not designated as hedges.

At December 31, 2008, the derivative’s fair value of $(1,937,000) was
included in other liabilities. No hedge ineffectiveness on the cash flow hedge
was recognized during the twelve months ended December 31, 2008. At
December 31, 2008, the variable rate on the $25 million subordinated note
was 3.43% (LIBOR plus 200 basis points) and Park was paying 6.01% (4.01%
fixed rate on the interest rate swap plus 200 basis points).

For the twelve months ended December 31, 2008, the change in the fair value
of the derivative designated as a cash flow hedge reported in other comprehen-
sive income was $(1,259,000) (net of taxes of $(678,000)). Amounts reported
in accumulated other comprehensive income related to derivatives will be
reclassified to interest expense as interest payments are made on the Company’s
variable-rate debt.

20. LOAN SERVICING
Park serviced sold mortgage loans of $1,369 million at December 31, 2008
compared to $1,403 million at December 31, 2007, and $1,405 million at
December 31, 2006. At December 31, 2008, $65 million of the sold mortgage
loans were sold with recourse compared to $70 million at December 31, 2007.
Management closely monitors the delinquency rates on the mortgage loans sold
with recourse. At December 31, 2008, management determined that no liability
was deemed necessary for these loans.

Park capitalized $1.5 million in mortgage servicing rights in 2008 and $1.6
million in both 2007 and 2006. Park’s amortization of mortgage servicing
rights was $1.7 million, in both 2008 and 2007 and $1.9 million in 2006. The
amortization of mortgage loan servicing rights is included within “Other Service
Income”. Generally, mortgage servicing rights are capitalized and amortized on
an individual sold loan basis. When a sold mortgage loan is paid off, the related
mortgage servicing rights are fully amortized.

Activity for mortgage servicing rights and the related valuation allowance
follows:

December 31 (Dollars in thousands)

2008

2007

Servicing rights:

Beginning of year
Additions
Amortized to expense
Change in valuation expense

End of year

Valuation allowance:
Beginning of year
Additions expensed

End of year

$10,204
1,481
(1,734)
(1,645)

$ 8,306

$ —
1,645

$ 1,645

$10,371
1,573
(1,740)
—

$10,204

$ —
—

$ —

21. FAIR VALUES
SFAS No. 157 establishes a fair value hierarchy which requires an entity to
maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. SFAS No. 157 describes three levels of inputs
that Park uses to measure fair value:

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

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

� Level 3: Consists of unobservable inputs that are used to measure fair

value when observable market inputs are not available. This could include
the use of internally developed models, financial forecasting, etc.

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

Assets and Liabilities Measured on a Recurring Basis:
The following table presents financial assets and liabilities measured on a
recurring basis:

Fair Value Measurements at Reporting Date Using:

(In thousands)

12/31/08

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Available-for-Sale

Securities

Interest rate swap

Total

$1,561,896
(1,937)

$1,559,959

$1,783
—

$1,783

$1,557,408
(1,937)

$1,555,471

$2,705
—

$2,705

The table below is a reconciliation of the beginning and ending balances of the
Level 3 inputs:

Fair Value Measurements at Reporting Date Using Significant Unobservable Inputs (Level 3)

(In thousands)

Beginning Balance at January 1, 2008

Maturities of investments

Total unrealized (losses) included in Other Comprehensive Income

Ending Balance

AFS Securities

$2,969

(120)

(144)

$2,705

Assets and Liabilities Measured on a Nonrecurring Basis:
The following table presents financial assets and liabilities measured on a
nonrecurring basis:

Fair Value Measurements at Reporting Date Using:

(In thousands)

12/31/08

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

SFAS No. 114

impaired loans

Mortgage servicing

rights

$75,942

8,306

$ —

—

$ —

$75,942

8,306

—

T A B L E

O F

C O N T E N T S

Directors:

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

Financial Statements:

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

Commercial nonaccrual and restructured (impaired) loans, which are usually
measured for impairment using the fair value of the collateral (less estimated
cost to sell), had a carrying amount of $141.3 million. Of these, $75.9 million
were carried at fair value, as a result of partial charge-offs of $30.0 million and
a specific valuation allowance of $8.7 million. The specific valuation allowance
for those loans has increased from $4.5 million at September 30, 2008 to $8.7
million at December 31, 2008.

Servicing rights, which are carried at lower of cost or fair value, were written
down to fair value of $8.3 million, resulting in a valuation allowance of $1.6
million. A charge of $1.6 million was included in earnings for the year ended
December 31, 2008.

The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments:

Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and short-term instruments approximate those assets’ fair values.

Interest bearing deposits with other banks: The carrying amounts
reported in the balance sheet for interest bearing deposits with other banks
approximate those assets’ fair values.

Investment securities: Fair values for investment securities are based on
quoted market prices, where available. If quoted market prices are not avail-
able, fair values are based on quoted market prices of comparable instruments.
The table below excludes Park’s Federal Home Loan Bank stock and Federal
Reserve Bank stock, as it is not practicable to calculate their fair values.

Loans receivable: For variable-rate loans that reprice frequently and with
no significant change in credit risk, fair values are based on carrying values.
The fair values for certain mortgage loans (e.g., one-to-four family residential)
are based on quoted market prices of similar loans sold in conjunction with
securitization transactions, adjusted for differences in loan characteristics.
The fair values for other loans are estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality. Loans carried on the balance sheet
at their fair value are broken out separately for 2008, the year of adoption of
SFAS No. 157. SFAS No. 157 was adopted prospectively on January 1, 2008.

Off-balance sheet instruments: Fair values for the Corporation’s loan
commitments and standby letters of credit are based on the fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the counterparties’ credit standing. The carrying
amount and fair value are not material.

Deposit liabilities: The fair values disclosed for demand deposits (e.g.,
interest and non-interest checking, savings, and money market accounts)
are, by definition, equal to the amount payable on demand at the reporting
date (i.e., their carrying amounts). The carrying amounts for variable-rate,
fixed-term certificates of deposit approximate their fair values at the reporting
date. Fair values for fixed rate certificates of deposit are estimated using a dis-
counted cash flow calculation that applies interest rates currently being offered
on certificates to a schedule of aggregated expected monthly maturities of time
deposits. Maturities of time deposits in denominations of $100,000 and over
at December 31, 2008, maturing in 12 months or less, were $657.3 million
and those maturing after 12 months were $149.8 million.

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

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

Subordinated debt: The carrying amounts reported in the balance sheet
approximate fair value. The interest rates on these instruments reprice every
90 days based on the three-month LIBOR rate.

Interest rate swaps: The fair value of interest rate swaps represent the
estimated amount Park would pay or receive to terminate the agreements,
considering current interest rates and the current creditworthiness of the
counterparties.

The fair value of financial instruments at December 31, 2008 and 2007, is as
follows. Items that are not financial instruments are not included.

December 31,
(In thousands)

Financial assets:

Cash and money market

2008

2007

Carrying
Amount

Fair
Value

Carrying
Amount

Fair
Value

instruments

$ 171,261

$ 193,397

Interest bearing deposits

with other banks
Investment securities
Loans carried at fair value
Other loans

1
2,059,051
75,942
4,311,484

1
2,064,136
75,942
4,430,697

1
1,703,103
N/A
4,130,232

1
1,699,096
N/A
4,217,169

Loans
receivable, net

Financial liabilities:
Noninterest bearing

checking
Interest bearing

transaction accounts

Savings
Time deposits
Other

$4,387,426

$4,506,639

$4,130,232

$4,217,169

$ 782,625

$ 695,466

1,204,530
694,721
2,078,372
1,502

1,204,530
694,721
2,084,732
1,502

1,338,492
531,049
1,872,440
1,792

1,338,492
531,049
1,873,114
1,792

Total deposits

$4,761,750

$4,768,110

$4,439,239

$4,439,913

Short-term borrowings
Long-term debt
Subordinated debentures

659,196
855,558
40,000

659,196
939,210
40,000

759,318
590,409
40,000

759,318
605,866
40,000

Derivative financial
instruments:
Interest rate swap

(1,937)

—

22. CAPITAL RATIOS
At December 31, 2008 and 2007, the Corporation and each of its two separately
chartered banks had Tier 1, total risk-based capital and leverage ratios which
were well above both the required minimum levels of 4.00%, 8.00% and
4.00%, respectively, and the well-capitalized levels of 6.00%, 10.00% and
5.00%, respectively.

The following table indicates the capital ratios for Park and each subsidiary at
December 31, 2008 and December 31, 2007.

December 31

2008

Total
Risk-
Based

Tier 1
Risk-
Based

Leverage

2007

Total
Risk-
Based

Park National Bank

8.63% 10.89% 5.94%

7.92% 10.78%

Vision Bank

Park

11.60% 12.86% 9.74%

9.01% 10.28%

11.69% 13.47% 8.36%

10.16% 11.97%

Leverage

5.66%

7.08%

7.10%

Failure to meet the minimum requirements above could cause the Federal
Reserve Board to take action. Park’s bank subsidiaries are also subject to
these capital requirements by their primary regulators. As of December 31,
2008 and 2007, Park and its banking subsidiaries were well-capitalized and
met all capital requirements to which each was subject. There are no conditions
or events since the most recent regulatory report filings, by PNB or Vision Bank
(“VB”), that management believes have changed the risk categories for either
of the two banks.

68
68

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

Commercial nonaccrual and restructured (impaired) loans, which are usually

Subordinated debt: The carrying amounts reported in the balance sheet

measured for impairment using the fair value of the collateral (less estimated

approximate fair value. The interest rates on these instruments reprice every

cost to sell), had a carrying amount of $141.3 million. Of these, $75.9 million

90 days based on the three-month LIBOR rate.

The following table reflects various measures of capital for Park and each
of PNB and Vision:

(In thousands)

Actual Amount

Ratio

To Be Adequately Capitalized

Amount

Ratio

To Be Well Capitalized

Amount

Ratio

At December 31, 2008:

Total Risk-Based Capital

(to risk-weighted assets)

PNB

Park

Tier 1 Risk-Based Capital

(to risk-weighted assets)

PNB

Park

Leverage Ratio

(to average total assets)

PNB

Park

At December 31, 2007:

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

$442,247

94,670

646,132

$350,344

85,397

560,691

$350,344

85,397

560,691

$167,362

67,938

533,041

$122,865

59,533

452,073

$122,865

59,533

432,073

10.89%

12.86%

13.47%

8.63%

11.60%

11.69%

5.94%

9.74%

8.36%

10.78%

10.28%

11.97%

7.92%

9.01%

10.16%

5.66%

7.08%

7.10%

$324,818

58,897

383,650

$162,409

29,449

191,825

$235,878

35,057

268,244

$124,158

52,855

356,130

$62,079

26,427

178,065

$86,790

33,613

254,854

8.00%

4.00%

8.00%

4.00%

$406,022

73,622

479,562

$243,613

44,173

287,737

$294,848

43,821

335,304

$155,197

66,068

445,163

$93,118

39,641

267,098

$108,488

42,016

318,568

10.00%

6.00%

5.00%

10.00%

6.00%

5.00%

23. SEGMENT INFORMATION

The Corporation is a multi-bank holding company headquartered in Newark,
Ohio. The operating segments for the Corporation are its two chartered bank
subsidiaries, The Park National Bank (headquartered in Newark, Ohio) and
Vision Bank (headquartered in Panama City, Florida) (“VIS”). Guardian
Finance Company (“GFC”) is a consumer finance company and is excluded
from PNB for segment reporting purposes. GFC is included within the presenta-
tion of “All Other” in the segment reporting tables that follow. During the third
quarter of 2008, Park combined the eight separately chartered Ohio-based
bank subsidiaries into one national bank charter, that of The Park National
Bank (“PNB”). Prior to the charter mergers that were consummated in the
third quarter of 2008, Park considered each of its nine chartered bank sub-
sidiaries as a separate segment for financial reporting purposes. SFAS No. 131
“Disclosures about Segments of an Enterprise and Related Information (as
amended)” 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. The change to two
operating segments is in line with SFAS No. 131 as there are: (i) two separate
and distinct geographic markets in which Park operates, (ii) the key opera-
tional functions of the two segments are primarily kept separate and distinct
and (iii) the segments are aligned with the internal reporting to Park’s senior
management. The financial information for the two fiscal years ended
December 31, 2007 and December 31, 2006 has been reclassified to be
consistent with the presentation of the financial information for the twelve
months ended December 31, 2008.

were carried at fair value, as a result of partial charge-offs of $30.0 million and

a specific valuation allowance of $8.7 million. The specific valuation allowance

for those loans has increased from $4.5 million at September 30, 2008 to $8.7

million at December 31, 2008.

Servicing rights, which are carried at lower of cost or fair value, were written

down to fair value of $8.3 million, resulting in a valuation allowance of $1.6

million. A charge of $1.6 million was included in earnings for the year ended

December 31, 2008.

The following methods and assumptions were used by the Corporation in

estimating its fair value disclosures for financial instruments:

Cash and cash equivalents: The carrying amounts reported in the balance

sheet for cash and short-term instruments approximate those assets’ fair values.

Interest bearing deposits with other banks: The carrying amounts

reported in the balance sheet for interest bearing deposits with other banks

approximate those assets’ fair values.

Investment securities: Fair values for investment securities are based on

quoted market prices, where available. If quoted market prices are not avail-

able, fair values are based on quoted market prices of comparable instruments.

The table below excludes Park’s Federal Home Loan Bank stock and Federal

Reserve Bank stock, as it is not practicable to calculate their fair values.

Loans receivable: For variable-rate loans that reprice frequently and with

no significant change in credit risk, fair values are based on carrying values.

The fair values for certain mortgage loans (e.g., one-to-four family residential)

are based on quoted market prices of similar loans sold in conjunction with

securitization transactions, adjusted for differences in loan characteristics.

The fair values for other loans are estimated using discounted cash flow

analyses, using interest rates currently being offered for loans with similar

terms to borrowers of similar credit quality. Loans carried on the balance sheet

at their fair value are broken out separately for 2008, the year of adoption of

SFAS No. 157. SFAS No. 157 was adopted prospectively on January 1, 2008.

Off-balance sheet instruments: Fair values for the Corporation’s loan

commitments and standby letters of credit are based on the fees currently

charged to enter into similar agreements, taking into account the remaining

terms of the agreements and the counterparties’ credit standing. The carrying

amount and fair value are not material.

Deposit liabilities: The fair values disclosed for demand deposits (e.g.,

interest and non-interest checking, savings, and money market accounts)

are, by definition, equal to the amount payable on demand at the reporting

date (i.e., their carrying amounts). The carrying amounts for variable-rate,

fixed-term certificates of deposit approximate their fair values at the reporting

date. Fair values for fixed rate certificates of deposit are estimated using a dis-

counted cash flow calculation that applies interest rates currently being offered

on certificates to a schedule of aggregated expected monthly maturities of time

deposits. Maturities of time deposits in denominations of $100,000 and over

at December 31, 2008, maturing in 12 months or less, were $657.3 million

and those maturing after 12 months were $149.8 million.

Short-term borrowings: The carrying amounts of federal funds purchased,

borrowings under repurchase agreements and other short-term borrowings

approximate their fair values.

Long-term debt: Fair values for long-term debt are estimated using a

discounted cash flow calculation that applies interest rates currently being

offered on long-term debt to a schedule of monthly maturities.

Interest rate swaps: The fair value of interest rate swaps represent the

estimated amount Park would pay or receive to terminate the agreements,

considering current interest rates and the current creditworthiness of the

counterparties.

The fair value of financial instruments at December 31, 2008 and 2007, is as

follows. Items that are not financial instruments are not included.

2008

2007

Carrying

Amount

Fair

Value

Carrying

Amount

Fair

Value

December 31,

(In thousands)

Financial assets:

Cash and money market

Interest bearing deposits

with other banks

Other loans

Loans

Financial liabilities:

Noninterest bearing

checking

Interest bearing

transaction accounts

Savings

Time deposits

Other

instruments

$ 171,261

$ 193,397

Investment securities

2,059,051

2,064,136

1,703,103

1,699,096

Loans carried at fair value

75,942

N/A

4,311,484

4,430,697

4,130,232

4,217,169

receivable, net

$4,387,426

$4,506,639

$4,130,232

$4,217,169

$ 782,625

$ 695,466

1,204,530

694,721

2,078,372

1,502

1,204,530

694,721

2,084,732

1,502

1,338,492

531,049

1,872,440

1,792

1,338,492

531,049

1,873,114

1,792

759,318

605,866

40,000

Total deposits

$4,761,750

$4,768,110

$4,439,239

$4,439,913

Short-term borrowings

Long-term debt

Subordinated debentures

659,196

855,558

40,000

659,196

939,210

40,000

759,318

590,409

40,000

Derivative financial

instruments:

Interest rate swap

(1,937)

—

22. CAPITAL RATIOS

At December 31, 2008 and 2007, the Corporation and each of its two separately

chartered banks had Tier 1, total risk-based capital and leverage ratios which

were well above both the required minimum levels of 4.00%, 8.00% and

4.00%, respectively, and the well-capitalized levels of 6.00%, 10.00% and

5.00%, respectively.

The following table indicates the capital ratios for Park and each subsidiary at

December 31, 2008 and December 31, 2007.

December 31

2008

Total

Risk-

Based

Tier 1

Risk-

Based

Tier 1

Risk-

Based

Leverage

2007

Total

Risk-

Based

Park National Bank

8.63% 10.89% 5.94%

7.92% 10.78%

Vision Bank

Park

11.60% 12.86% 9.74%

9.01% 10.28%

11.69% 13.47% 8.36%

10.16% 11.97%

Leverage

5.66%

7.08%

7.10%

Failure to meet the minimum requirements above could cause the Federal

Reserve Board to take action. Park’s bank subsidiaries are also subject to

these capital requirements by their primary regulators. As of December 31,

2008 and 2007, Park and its banking subsidiaries were well-capitalized and

met all capital requirements to which each was subject. There are no conditions

or events since the most recent regulatory report filings, by PNB or Vision Bank

(“VB”), that management believes have changed the risk categories for either

of the two banks.

69
69

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

(In thousands)

2007:

Totals for reportable

segments

Elimination of

Net Interest Depreciation

Income

Expense

Other
Expense

Income
Taxes

Assets

Deposits

$225,311

$6,416 $203,463 $36,589 $6,510,816 $4,477,685

intersegment items

—

Parent Co. and GFC totals

– not eliminated

9,366

—

— (108,602)

(38,446)

14,221

(6,619)

98,888

—

$234,677

$6,480 $217,684 $29,970 $6,501,102 $4,439,239

$200,758

$5,322 $125,080

$43,111 $5,830,304 $3,878,024

Other items

Totals

2006:

Totals for reportable

segments

Elimination of

intersegment items

—

— (450,425)

(52,490)

Parent Co. and GFC totals

– not eliminated

12,486

Other items

Totals

151

10,400

(4,125)

90,997

—

$213,244

$5,522 $135,480

$38,986 $5,470,876 $3,825,534

24. PARENT COMPANY STATEMENTS
The Parent Company statements should be read in conjunction with the
consolidated financial statements and the information set forth below.

Investments in subsidiaries are accounted for using the equity method
of accounting.

The effective tax rate for the Parent Company is substantially less than the
statutory rate due principally to tax-exempt dividends from subsidiaries.

Cash represents noninterest bearing deposits with a bank subsidiary.

Net cash provided by operating activities reflects cash payments (received from
subsidiaries) for income taxes of $8.230 million, $6.670 million and $5.345
million in 2008, 2007 and 2006, respectively.

At December 31, 2008 and 2007, stockholders’ equity reflected in the
Parent Company balance sheet includes $126.2 million and $127.3 million,
respectively, of undistributed earnings of the Corporation’s subsidiaries which
are restricted from transfer as dividends to the Corporation.

Balance Sheets
at December 31, 2008 and 2007

(In thousands)

Assets:
Cash

Investment in subsidiaries
Debentures receivable from subsidiary banks

Other investments

Other assets

Total assets

Liabilities:

Dividends payable

Subordinated debentures

Other liabilities

Total liabilities

Total stockholders’ equity

2008

$ 80,343

547,308
7,500

1,064

58,054

$694,269

123

15,000

36,483

51,606

642,663

Total liabilities and stockholders’ equity

$694,269

2007

$ 22,541

547,171
7,500

1,395

62,675

$641,282

$ 13,173

15,000

33,097

61,270

580,012

$641,282

Operating Results for the year ended December 31, 2008 (In thousands)

PNB

All Other

Total

Net interest income

$ 219,843

$ 27,065

Provision for loan losses

Other income

Depreciation and amortization

Goodwill impairment charge

Other expense

Income (loss) before taxes

Income taxes (benefit)

21,512

81,310

6,128

—

131,167

142,346

47,081

46,963

3,014

1,360

54,986

25,789

(99,019)

(17,832)

8,965

2,012

510

—

15,042

(7,608)

(7,238)

$ 255,873

70,487

84,834

7,517

54,986

171,998

35,719

22,011

Net income (loss)

95,265

$ (81,187)

(370)

13,708

Balances at December 31, 2008:
Assets

$6,243,365

$917,041

$ (89,686)

$7,070,720

Loans
Deposits

3,790,867
4,210,439

690,472
636,635

9,998
(85,324)

4,491,337
4,761,750

Operating Results for the year ended December 31, 2007 (In thousands)

PNB

All Other

Total

Net interest income

$ 201,555

$ 23,756

Provision for loan losses

Other income

Depreciation and amortization

Goodwill impairment charge

Other expense

7,966

67,482

5,392

—

131,907

Income (loss) before taxes

123,772

Income taxes (benefit)

40,692

19,425

3,465

1,024

54,035

17,521

(64,784)

(4,103)

9,366

2,085

693

—

14,221

(6,311)

(6,619)

$ 234,677

29,476

71,640

6,480

54,035

163,649

52,677

29,970

Net income (loss)

83,080

$ (60,681)

Balances at December 31, 2007:

Assets

Loans
Deposits

$5,655,022

3,574,894
3,820,917

$855,794

639,097
656,768

308

22,707

(9,714)

10,143
(38,446)

$6,501,102

4,224,134
4,439,239

Operating Results for the year ended December 31, 2006 (In thousands)

PNB

All Other

Total

Net interest income

$ 200,758

Provision for loan losses

Other income

Depreciation and amortization

Other expense

Income before taxes

Income taxes (benefit)

3,128

64,111

5,322

125,080

131,339

43,111

Net income

88,228

Balances at December 31, 2006:
Assets

$5,830,304

Loans
Deposits

3,471,158
3,878,024

—

—
—

12,486

$ 213,244

799

651

200

10,400

1,738

(4,125)

3,927

64,762

5,522

135,480

133,077

38,986

5,863

94,091

$ (359,428)

$5,470,876

9,544
(52,490)

3,480,702
3,825,534

Reconciliation of financial information for the reportable segments to the
Corporation’s consolidated totals:

(In thousands)

2008:

Totals for reportable

segments

Elimination of

Net Interest Depreciation

Income

Expense

Other
Expense

Income
Taxes

Assets

Deposits

$246,908

$7,488 $211,942 $29,249 $7,160,406 $4,847,074

intersegment items

—

Parent Co. and GFC totals

– not eliminated

8,965

—

— (186,809)

(85,324)

15,042

(7,238)

97,123

—

$255,873

$7,517 $226,984 $22,011 $7,070,720 $4,761,750

Other items

Totals

70
70

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

Statements of Income
for the years ended December 31, 2008, 2007 and 2006

25. PARTICIPATION IN THE U.S. TREASURY

CAPITAL PURCHASE PROGRAM

On October 3, 2008, Congress passed the Emergency Economic Stabilization
Act of 2008 (EESA), which creates the Troubled Asset Relief Program (“TARP”)
and provides the U.S. Secretary of the Treasury with broad authority to imple-
ment certain actions to help restore stability and liquidity to U.S. markets. The
Capital Purchase Program (the “CPP”) was announced by the U.S. Treasury on
October 14, 2008 as part of TARP. Pursuant to the CPP, the U.S. Treasury will
purchase up to $250 billion of senior preferred shares on standardized terms
from qualifying financial institutions. The purpose of the CPP is to encourage
U.S. financial institutions to build capital to increase the flow of financing to
U.S. businesses and consumers and to support the U.S. economy.

The CPP is voluntary and requires a participating institution to comply with
a number of restrictions and provisions, including standards for executive
compensation and corporate governance and limitations on share repurchases
and the declaration and payment of dividends on common shares. The standard
terms of the CPP require that a participating financial institution limit the
payment of dividends to the most recent quarterly amount prior to October
14, 2008, which is $0.94 per share in the case of Park. This dividend limitation
will remain in effect until such time that the preferred shares are no longer
outstanding.

Eligible financial institutions could generally apply to issue senior preferred
shares to the U.S. Treasury in aggregate amounts between 1% to 3% of the
institution’s risk-weighted assets. In the case of Park, an application for an
investment by the U.S. Treasury of $100 million was made. Park’s application
was approved by the U.S. Treasury on December 1, 2008 and on December 23,
2008, Park issued $100 million of cumulative perpetual preferred shares, with
a liquidation preference of $1,000 per share (the “Senior Preferred Shares”).
The Senior Preferred Shares constitute Tier 1 capital and rank senior to Park’s
common shares. The Senior Preferred Shares pay cumulative dividends at a rate
of 5% per annum for the first five years and will reset to a rate of 9% per annum
after five years.

As part of its participation in the CPP, Park also issued a warrant to the U.S.
Treasury to purchase 227,376 common shares having an exercise price of
$65.97, which is equal to 15% of the aggregate amount of the Senior Preferred
Shares purchased by the U.S. Treasury. The initial exercise price for the warrant
and the market price for determining the number of common shares subject to
the warrant was determined by reference to the market price of the common
shares on the date of the investment by the U.S. Treasury in the Senior Preferred
Shares (calculated on a 20-day trailing average). The warrant has a term of 10
years.

(In thousands)

Income:

Dividends from subsidiaries

Interest and dividends

Other

Total income

Expense:

Other, net

Total expense

Income before federal taxes and equity

in undistributed earnings
of subsidiaries

Federal income tax benefit

Income before equity in

undistributed earnings
of subsidiaries

Equity in undistributed (losses) earnings

of subsidiaries

Net income

2008

2007

2006

$ 93,850

$ 65,564

$89,500

3,639

575

98,064

14,158

83,906

8,057

3,828

673

70,065

12,032

58,033

7,055

7,107

632

97,239

8,307

88,932

4,985

91,963

65,088

93,917

(78,255)

$ 13,708

(42,381)

$ 22,707

174

$94,091

Statements of Cash Flows
for the years ended December 31, 2008, 2007 and 2006

(In thousands)

Operating activities:

Net income

2008

2007

2006

$ 13,708

$ 22,707

$ 94,091

Adjustments to reconcile net income to

net cash provided by operating activities:

Undistributed losses (earnings)

of subsidiaries

78,255

42,381

(174)

Other than temporary impairment charge,

investments

Realized net investment security (gains)

(Gain) on sale of assets

Decrease in dividends receivable

from subsidiaries

Stock based compensation expense
Decrease (increase) in other assets

Increase in other liabilities

Net cash provided by
operating activities

Investing activities:

Cash paid for acquisition, net

Purchase (sales) of investment securities

Capital contribution to subsidiary

Cash received for sale of premises

Repayment of debentures receivable

from subsidiaries

Net cash (used in) provided by

investing activities

Financing activities:
Cash dividends paid

Proceeds from issuance of

common stock and warrant

Cash payment for fractional shares

Proceeds from issuance of

preferred stock

Purchase of treasury stock, net

Net cash provided by (used in)

financing activities

Increase (decrease) in cash

Cash at beginning of year

774

—

4,508

2,042

—

(18)

—

893

(6,227)

1,774

—

(97)

—

75,075

—

(4,090)

1,378

99,287

61,510

166,183

—

(158)

(76,000)

—

(85,600)

(400)

(6,700)

(9,052)

403

(2,000)

—

20,000

28,500

(76,158)

(72,652)

17,851

(65,781)

(52,533)

(51,470)

4,736

(3)

95,721

—

34,673

57,802

22,541

—

(5)

—

(5)

—

(64,733)

(26,690)

(117,271)

(128,413)

150,954

(78,123)

105,911

45,043

Cash at end of year

$ 80,343

$ 22,541

$150,954

71
71

N O T E S