Exhibit 13

FINANCIAL REVIEW

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, deterioration in the asset value of our loan portfolio may be worse than expected, 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 policies 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, 2009. 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 IN 2007 AND 2008

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 panhandle of Florida. The markets that Vision Bank operates in are expected to grow faster than many of the non-metro markets in which Park’s subsidiary bank operates in Ohio. Therefore, management still 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, 2008 and 2009.

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 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 goodwill impairment charge of $55.0 million be recorded at Vision Bank during the third quarter of 2008 to eliminate the goodwill balance pertaining to Vision Bank.

OVERVIEW

Net income was $74.2 million for 2009, compared to $13.7 million for 2008 and $22.7 million for 2007. Net income increased by $60.5 million or 441.2% in 2009 compared to 2008 and decreased by $9.0 million or 39.6% in 2008 compared to 2007. The primary reason for the large changes in net income was the change in the net loss at Vision Bank for the past three years. Vision Bank had a net loss of $30.1 million in 2009, compared to a net loss of $81.2 million in 2008 and a net loss of $60.7 million from the date of 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 $4.82, $.97 and $1.60 for 2009, 2008 and 2007, respectively. Diluted earnings per common share increased by $3.85 or 396.9% in 2009 compared to 2008 and decreased by $.63 or 39.4% in 2008 compared to 2007.

The following tables show the components of net income for 2009, 2008 and 2007. This information is provided for Park, Vision Bank and Park excluding Vision Bank.

Park — Summary Income Statements

(For the years ended December 31, 2009, 2008 and 2007)

(In thousands)		2009				2008				2007
Net interest income		$	273,491			$	255,873			$	234,677
Provision for loan losses			68,821				70,487				29,476
Other income			81,190				84,834				71,640
Other expense			188,725				179,515				170,129
Goodwill impairment charge			—				54,986				54,035
Income before taxes			97,135				35,719				52,677
Income taxes			22,943				22,011				29,970
Net income		$	74,192			$	13,708			$	22,707

Vision Bank — Summary Income Statements

(For the years ended December 31, 2009, 2008 and 2007)

(In thousands)		2009				2008				2007
Net interest income		$	25,634			$	27,065			$	23,756
Provision for loan losses			44,430				46,963				19,425
Other income (loss)			(2,047	)			3,014				3,465
Other expense			28,091				27,149				18,545
Goodwill impairment charge			—				54,986				54,035
Loss before taxes			(48,934	)			(99,019	)			(64,784	)
Income tax benefit			(18,824	)			(17,832	)			(4,103	)
Net loss		$	(30,110	)		$	(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.

FINANCIAL REVIEW

Vision Bank began experiencing credit problems during the third quarter of 2007 and the credit problems continued throughout 2008 and 2009. Vision Bank’s net loan charge-offs were $28.9 million in 2009, compared to $38.5 million in 2008 and $8.6 million in 2007. As a percentage of average loans, net loan charge-offs were 4.18% in 2009, 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, 2009, 2008 and 2007)

(In thousands)		2009				2008				2007
Net interest income		$	247,857			$	228,808			$	210,921
Provision for loan losses			24,391				23,524				10,051
Other income			83,237				81,820				68,175
Other expense			160,634				152,366				151,584
Goodwill impairment charge			—				—				—
Income before taxes			146,069				134,738				117,461
Income taxes			41,767				39,843				34,073
Net income		$	104,302			$	94,895			$	83,388

Net income for Park excluding Vision Bank increased by $9.4 million or 9.9% to $104.3 million in 2009 compared to 2008 and increased by $11.5 million or 13.8% to $94.9 million in 2008 compared to 2007.

SUMMARY DISCUSSION OF OPERATING RESULTS FOR PARK

A year ago, Park’s management projected that net interest income would be $258 million to $263 million in 2009. The actual results in 2009 of $273.5 million exceeded the top of the estimated range by $10.5 million or 4.0%. This positive variance was primarily due to an improvement in the net interest rate spread (the difference between rates received for interest earning assets and the rates paid for interest bearing liabilities). The net interest rate spread improved by 12 basis points to 3.94% for 2009 from 3.82%. Management had not projected an improvement in the net interest rate spread for 2009.

Park’s management also projected a year ago that the provision for loan losses would be approximately $45 million and that the net loan charge-off ratio would be approximately 1.00% in 2009. We included the following statement with this projection: “This estimate could change significantly as circumstances for individual loans and economic conditions change.” The provision for loan losses for 2009 was $68.8 million and exceeded our estimate by $23.8 million or 52.9%. The net loan charge-off ratio for 2009 was 1.14% and exceeded our estimate by 14 basis points or 14.0%. During 2009, “circumstances for individual loans” somewhat changed at Vision Bank. Park’s management had expected a significant reduction in the loan loss provision at Vision Bank in 2009 from the 2008 loan loss provision of $47.0 million. Vision Bank had only a small reduction to $44.4 million in 2009. Vision Bank continued to experience a significant increase in problem loans in 2009. The loan loss provision for Park’s Ohio-based banking activities performed as expected in 2009 with a small increase in the loan loss provision to $24.4 million in 2009, compared to $23.5 million in 2008.

Other income for 2009 was $81.2 million and exceeded the year-ago estimated amount of $75 million by $6.2 million or 8.3%. This positive variance was primarily due to a gain from the sale of investment securities of $7.3 million in the second quarter of 2009. Management had not projected that investment securities would be sold in 2009.

A year ago, Park’s management projected that total other expense would be approximately $184 million in 2009. Total other expense was $188.7 million in 2009 and exceeded management’s estimate by $4.7 million or 2.6%. The primary reason for this variance was higher than projected FDIC insurance expense. The FDIC charged the banking industry a special assessment in 2009. Park’s FDIC special assessment was $3.3 million.

In summary, the actual results for net interest income, other income and other expense exceeded the estimated projections from a year ago by $10.5 million, $6.2 million and $4.7 million, respectively. The net positive impact on income before taxes from these variances was a positive $12.0 million in 2009. However, due to continued severe economic conditions in the markets served by Vision Bank, the provision for loan losses exceeded the estimate from a year ago by $23.8 million.

ISSUANCE OF PREFERRED STOCK AND EMERGENCY ECONOMIC STABILIZATION ACT

On October 3, 2008, Congress passed the Emergency Economic Stabilization Act of 2008 (“EESA”), which created the Troubled Asset Relief Program (“TARP”) and provided the Secretary of the Treasury with broad authority to implement certain actions to help restore stability and liquidity to U.S. markets. The Capital Purchase Program (the “CPP”) was announced by the U.S. Department of the Treasury (the “U.S. Treasury”) on October 14, 2008 as part of TARP. Pursuant to the CPP, the U.S. Treasury was authorized to purchase up to $250 billion of senior preferred shares on standardized terms from qualifying financial institutions. The purpose of the CPP was 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 through the CPP and its application was approved on December 1, 2008.

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

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

FINANCIAL REVIEW

item for “Income available to common shareholders”. The preferred stock dividends totaled $5,762,000 for 2009 and $142,000 for 2008. Included in the preferred stock dividends was the accretion of the discount on the Series A Preferred Shares. The accretion of this discount was $762,000 in 2009 and $18,000 in 2008.

Income available to common shareholders is net income minus the preferred stock dividends and accretion. Income available to common shareholders was $68.4 million for 2009 and $13.6 million for 2008.

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 2009 that totaled $3.76 per share. The quarterly cash dividend on common shares was $.94 per share for each quarter of 2009.

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 $3.76 in 2009, $3.77 in 2008 and $3.73 in 2007. Park’s management expects to pay a quarterly cash dividend on its common shares of $.94 per share in 2010.

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 eleven banking divisions. See Table 1 for a complete listing of the banking divisions.

BRANCH PURCHASE

On September 21, 2007, a banking division of PNB, the First-Knox National Bank Division (“FKND”), acquired the Millersburg, Ohio banking office (the “Millersburg branch”) of Ohio Legacy Bank, N.A. (“Ohio Legacy”). FKND 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.

FKND paid a premium of approximately $1.7 million in connection with the purchase of the deposit liabilities. FKND 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, FKND paid $900,000 for the acquisition of the branch office building that Ohio Legacy was leasing from a third party.

CRITICAL ACCOUNTING POLICIES

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

Park 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 unimpaired commercial loans and 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 impaired commercial loans reflects expected losses resulting from analyses performed on each individual impaired commercial loan. The specific credit allocations are based on regular analyses of commercial, commercial real estate and construction loans where we have determined the loan to be impaired. Due to the variations in Park’s loan portfolio as well as the deteriorating credit conditions at Vision Bank, beginning with the fourth quarter of 2009, management has grouped individually impaired loans into three categories: Vision Bank impaired commercial land and development (CL&D) loans ($85.4 million), other PNB and Vision Bank impaired commercial loans ($112.0 million), and Vision Bank impaired commercial loans with balances less than $250,000 ($3.7 million). At December 31, 2009, management had specifically allocated $21.7 million, $14.5 million, and $0.5 million of the loan loss reserve to these three categories, respectively. For the years ended December 31, 2008 and 2007, management allocated $8.7 million and $3.4 million respectively, to all impaired commercial loans.

Pools of performing commercial loans and pools of homogeneous loans with similar risk characteristics are also assessed for probable losses. At December 31, 2008, a loss migration analysis was performed on accruing commercial loans, which includes commercial, financial and agricultural loans, commercial real estate loans and certain real estate construction loans. These are loans above a fixed dollar amount that are assigned an internal credit rating. During 2009, management determined that it was necessary to discontinue the migration analysis and implemented a methodology that uses an annual loss rate (“historical loss experience”), calculated based on an average of the net charge-offs during the last 24 months. Management believes the 24-month historical loss experience methodology is appropriate in the current economic environment, as it captures loss rates that are comparable to the current period being analyzed. Management also segregated Vision Bank’s accruing CL&D loan portfolio from other commercial loans, as the loss experience in the CL&D loan portfolio has far surpassed losses in other commercial loans at Park. The historical loss experience is judgmentally increased to cover approximately two years of expected losses in the commercial loan portfolio and 1.75 years of expected losses in the Vision Bank CL&D loan portfolio. Generally, residential real estate loans and consumer loans are not individually graded. The amount of loan loss reserve assigned to these loans is based on historical loss experience, judgmentally increased to cover approximately 1.25 years of expected losses. (Refer to the Credit Experience-Provision for Loan Losses section within this Financial Review for additional discussion.)

Effective January 1, 2008, management implemented the fair value hierarchy, which has the objective of maximizing the use of observable market inputs. The related accounting guidance also requires enhanced disclosures regarding the inputs used to calculate fair value. These inputs are classified as Level 1, 2, and 3. Level 3 inputs are those with significant unobservable inputs that reflect a company’s own assumptions about the market for a particular instrument. Some of the inputs could be based on internal models and cash flow analysis. At December 31, 2009, financial assets valued using Level 3 inputs for Park

FINANCIAL REVIEW

had an aggregate fair value of approximately $153.8 million. This was 10.5% of the total amount of assets measured at fair value as of the end of the year. The fair value of impaired loans was approximately $109.8 million (or 71.4%) of the total amount of Level 3 inputs. Additionally, there are $91.3 million of loans that are impaired and carried at cost, as fair value exceeds book value for each individual credit. The large majority of Park’s financial assets valued using Level 2 inputs consist of available-for-sale (“AFS”) securities. The fair value of these AFS securities is obtained largely by the use of matrix pricing, which is a mathematical technique widely used in the financial services industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities.

Management believes that the accounting for goodwill and other intangible assets also involves a higher degree of judgment than most other significant accounting policies. GAAP establishes standards for the amortization of acquired intangible assets and the impairment assessment of goodwill. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in the business acquired. Park’s goodwill relates to the value inherent in the banking industry and that value is dependent upon the ability of Park’s banking subsidiaries to provide quality, cost-effective banking services in a competitive marketplace. The goodwill value is supported by revenue that is in part driven by the volume of business transacted. A decrease in earnings resulting from a decline in the customer base, the inability to deliver cost-effective services over sustained periods or significant credit problems can lead to impairment of goodwill that could adversely impact earnings in future periods. GAAP requires an annual evaluation of goodwill for impairment, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The fair value of the goodwill, which resides on the books of Park’s subsidiary banks, is estimated by reviewing the past and projected operating results for the Park subsidiary banks, deposit and loan totals for the Park subsidiary banks and banking industry comparable information. Park recognized goodwill impairment charges in both 2007 and 2008 as previously discussed.

At December 31, 2009, on a consolidated basis, Park had core deposit intangibles of $9.5 million subject to amortization and $72.3 million of goodwill, which was not subject to periodic amortization. The core deposit intangibles recorded on the balance sheet of PNB totaled $2.8 million and the core deposit intangibles at Vision Bank were $6.7 million. The goodwill asset of $72.3 million is carried on the balance sheet of PNB.

ABOUT OUR BUSINESS

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

Park’s subsidiaries compete for deposits and loans with other banks, savings associations, credit unions and other types of financial institutions. At December 31, 2009, Park and its Ohio-based banking divisions operated 127 offices and a network of 147 automatic teller machines in 28 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 2009, 2008 and 2007 is shown below. See Note 23 of the Notes to Consolidated Financial Statements for additional information on the Corporation’s subsidiaries. Please note that the financial statements for various divisions of PNB are not maintained on a separate basis and, therefore, net income is only an estimate by management.

Table 1 — Park National Corporation Affiliate Financial Data

		2009								2008								2007
		Average				Net				Average				Net				Average				Net
(In thousands)		Assets				Income				Assets				Income				Assets				Income
Park National Bank:
Park National Division		$	1,798,814			$	26,991			$	1,839,012			$	25,445			$	1,492,652			$	24,830
Security National Division			825,481				14,316				820,571				13,001				835,801				12,439
Century National Division			650,488				11,387				711,162				12,995				720,781				11,913
First-Knox National Division			633,260				12,411				658,151				12,718				656,406				10,891
Richland Trust Division			563,776				9,954				526,989				8,946				529,175				5,915
Fairfield National Division			484,849				9,368				337,355				7,332				332,564				6,322
Park National SW & N KY Division			416,502				1,841				416,398				1,506				398,517				(69	)
Second National Division			371,079				6,926				423,062				5,752				403,114				4,847
United Bank Division			242,166				4,300				214,074				3,467				207,493				2,410
Unity National Division			182,373				2,251				190,739				2,061				192,382				1,290
Farmers & Savings Division			107,437				1,713				119,014				2,042				129,133				2,292
Vision Bank			904,897				(30,110	)			904,420				(81,187	)			698,788				(60,681	)
Parent Company, including consolidating entries			(145,591	)			2,844				(452,861	)			(370	)			(427,650	)			308
Consolidated Totals		$	7,035,531			$	74,192			$	6,708,086			$	13,708			$	6,169,156			$	22,707

SOURCE OF FUNDS

Deposits: Park’s major source of funds is provided by deposits from individuals, businesses and local government units. These deposits consist of noninterest bearing and interest bearing deposits.

Total year-end deposits increased by $426 million or 9.0% to $5,188 million at December 31, 2009. Excluding the $236 million decrease in brokered deposits, total year-end deposits increased by $662 million or 14.6% in 2009. Please see the following table for information on the growth in deposits in 2009.

Year-End Deposits

December 31,
(In thousands)		2009				2008				Change
Noninterest bearing checking		$	897,243			$	782,625			$	114,618
Interest bearing transaction accounts			1,193,845				1,204,530				(10,685	)
Savings			873,137				694,721				178,416
Brokered time deposits			—				235,766				(235,766	)
All other time deposits			2,222,537				1,842,606				379,931
Other			1,290				1,502				(212	)
Total		$	5,188,052			$	4,761,750			$	426,302

In 2009, total year-end deposits at Vision Bank increased by $52 million or 8.2% and increased by $374 million or 9.1% for Park’s Ohio-based banking operations.

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 brokered deposits. Excluding the brokered 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 operations increased deposits by $107 million or 2.8%.

FINANCIAL REVIEW

Average total deposits were $5,051 million in 2009 compared to $4,603 million in 2008 and $4,403 million in 2007. Average noninterest bearing deposits were $818 million in 2009 compared to $740 million in 2008 and $697 million in 2007.

Management expects that total deposits (exclusive of brokered deposits) will decrease in 2010 by 3% to 5%. The extraordinary growth in deposits in 2009 was partially due to Park’s competitors attempting to limit deposit growth by not accepting public funds deposits and by customers seeking a different local bank for their deposit business. Excluding brokered deposits, total year-end deposits increased by 14.6% in 2009, which was much stronger than 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 FOMC aggressively lowered the federal funds rate during 2008 as the severity of the economic recession increased. The FOMC maintained the targeted federal funds rate in the 0% to .25% range for all of 2009 as the U.S. economy gradually recovered from the severe recession. The average federal funds rate was .16% for 2009, compared to an average rate of 1.93% for 2008 and 5.02% in 2007.

The average interest rate paid on interest bearing deposits was 1.53% in 2009, compared to 2.33% in 2008 and 3.27% in 2007. The average cost of interest bearing deposits for each quarter of 2009 was 1.33% for the fourth quarter, compared to 1.48% for the third quarter, 1.59% for the second quarter and 1.73% for the first quarter.

Park’s management expects that due to the uncertainty of future economic growth following the severe economic recession, the FOMC will maintain the federal funds interest rate at approximately .25% for most of 2010. As a result, Park’s management expects a further decrease in the average interest rate paid on interest bearing deposits in 2010.

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 .76% in 2009 compared to 2.38% in 2008 and 4.47% in 2007.

The average cost of short-term borrowings for each quarter of 2009 was .64% for the fourth quarter, compared to .81% for the third quarter, .77% for the second quarter and .83% for the first quarter. Management expects the average rate paid on short-term borrowings in 2010 to be similar to 2009.

Average short-term borrowings were $420 million in 2009 compared to $609 million in 2008 and $494 million in 2007. The decrease in average short-term borrowings in 2009 compared to 2008 was primarily due to the large increase in average deposit balances. The increase in average short-term borrowings in 2008 compared to 2007 was used to help fund the increase in loans and investments.

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 3.38% for 2009, compared to 3.72% for 2008 and 4.22% for 2007. In 2009, the average cost of long-term debt for each quarter was 3.63% for the fourth quarter, compared to 3.62% for the third quarter, 3.31% for the second quarter and 3.03% 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.) Management expects that the average rate paid on long-term debt will be approximately 3.75% in 2010.

In 2009, average long-term debt was $780 million compared to $836 million in 2008 and $569 million in 2007. Average total debt (long-term and short-term) was $1,200 million in 2009 compared to $1,445 million in 2008 and $1,063 million in 2007. Average total debt decreased by $245 million or 16.9% in 2009 compared to 2008 and increased by $382 million or 35.9% in 2008 compared to 2007. The decrease in average total debt in 2009 compared to 2008 was primarily due to the large increase in average deposits. In 2008, the large increase in average total debt was used to fund the large increase in average loans and investments.

Average long-term debt was 65% of average total debt in 2009 compared to 58% in 2008 and 54% in 2007.

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

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

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

Sale of Common Stock: Park sold an aggregate of 904,072 common shares, out of treasury shares, during 2009 using various capital raising strategies. As part of one of these strategies, Park issued warrants for the purchase of 500,000 shares of common stock. The warrants have an exercise price of $67.75 per share. Warrants covering the purchase of an aggregate of 250,000 common shares expire on April 30, 2010 and warrants covering the purchase of the other 250,000 common shares expire on October 30, 2010.

Park sold a total of 288,272 common shares through an At-the-Market Common Stock Offering Program (“ATM”) during the second and third quarters of 2009. Gross proceeds from these sales were $17.5 million at a weighted average sales price of $60.83 per share. Net of selling and due diligence expenses, Park raised $16.7 million in equity from the ATM.

During the fourth quarter of 2009, Park sold 500,000 shares of common stock and issued the previously described warrants for the purchase of an aggregate of 500,000 shares of common stock in a registered direct offering. The gross proceeds from the sale of the common stock and warrants was $30.8 million at an average sales price of $61.59 per share. Net of selling and professional expenses, Park raised $29.8 million from this transaction.

Also during the fourth quarter of 2009, Park sold 115,800 common shares to Park’s Defined Benefit Pension Plan (the “Pension Plan”). These common shares were sold at the current market price of $60.45 per share for gross proceeds of $7.0 million. There were no expenses associated with this sale.

FINANCIAL REVIEW

In total for 2009, Park sold 904,072 common shares and warrants covering 500,000 common shares at a weighted average price per share of $61.20 for gross proceeds of $55.3 million. Net of selling expenses and professional fees, Park raised $53.5 million of equity from these capital raising strategies in 2009.

Stockholders’ Equity: Tangible stockholders’ equity (stockholders’ equity less goodwill and other intangible assets) to tangible assets (total assets less goodwill and other intangible assets) was 9.13% at December 31, 2009 compared to 7.98% at December 31, 2008 and 6.85% at December 31, 2007.

The large increase in the ratio of tangible stockholders’ equity to tangible assets in 2008 was due to the issuance of $100 million of Park non-voting preferred shares to the U.S. Treasury on December 23, 2008. In 2009, Park’s tangible stockholders’ equity to tangible assets ratio further increased largely as a result of the sale of common stock which increased equity by $53.5 million. Excluding the $100.0 million of preferred stock, the ratio of tangible stockholders’ equity to tangible assets ratio was 7.69% at December 31, 2009 and 6.54% at December 31, 2008.

In accordance with GAAP, Park reflects any unrealized holding gain or loss on AFS securities, net of income taxes, as accumulated other comprehensive income (loss) which is part of Park’s equity. The unrealized holding gain on AFS securities, net of income taxes, was $30.1 million at year-end 2009, compared to an unrealized holding gain on AFS securities, net of income taxes, of $31.6 million at year-end 2008 and an unrealized holding gain on AFS securities, net of income taxes, of $1.0 million at year-end 2007. 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 and year-end 2009.

In accordance with GAAP, Park adjusts accumulated other comprehensive income (loss) to recognize the net actuarial gain or loss reflected in the accounting for Park’s Pension Plan. See Note 13 of the Notes to Consolidated Financial Statements for information on the accounting for Park’s Pension Plan.

Pertaining to the Pension Plan, Park recognized a net comprehensive gain of $6.3 million in 2009, a net comprehensive loss of $(16.2) million in 2008 and a net comprehensive gain of $3.3 million in 2007. The comprehensive gain in 2009 was due to positive investment returns and contributions to the Pension Plan. The large comprehensive loss 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. At year-end 2009, the balance in accumulated other income (loss) pertaining to the Pension Plan was $(13.5) million, compared to $(19.8) million at December 31, 2008 and $(3.6) million at December 31, 2007.

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. In 2009, Park recognized $.3 million of comprehensive income on the cash flow hedge. See Note 19 of the Notes to Consolidated Financial Statements for information on the accounting for Park’s derivative instruments.

INVESTMENT OF FUNDS

Loans: Average loans were $4,594 million in 2009 compared to $4,355 million in 2008 and $4,011 million in 2007. The average yield on loans was 6.03% in 2009 compared to 6.93% in 2008 and 8.01% in 2007. The average prime lending rate in 2009 was 3.25% compared to 5.09% in 2008 and 8.05% in 2007. Approximately 63% of Park’s loan balances mature or reprice within one year (see Table 10). The yield on average loan balances for each quarter of 2009 was 5.91% for the fourth quarter, compared to 5.99% for the third quarter, 6.02% for the second quarter and 6.18% for the first quarter. Management expects that the yield on the loan portfolio will decrease modestly in 2010 compared to the average yield of 6.03% for 2009. Year-end loan balances increased by $149 million or 3.3% in 2009 compared to 2008. Park’s Ohio-based subsidiaries increased loans by $162 million or 4.3% during 2009. Vision Bank had a small decline in loans of $13 million or 1.9% during 2009.

In 2008, year-end loan balances 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.

Year-end loan balances 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 subsidiaries grew loans by $67 million during 2007 for a growth rate of 1.9%.

A year ago, management projected that year-end loan balances would grow between 3% to 4% in 2009. The actual loan growth of 3.3% was consistent with this guidance. Management expects that loan growth for 2010 will be slower (1% to 3%) as the demand for loans decreased in the fourth quarter of 2009.

Year-end residential real estate loans were $1,555 million, $1,560 million and $1,481 million in 2009, 2008 and 2007, respectively. Residential real estate loans decreased by $5 million or .3% in 2009 and 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. Management does not expect any growth in residential real estate loans in 2010, as Park’s customers will continue to favor long-term fixed rate residential mortgage loans.

The long-term fixed rate residential mortgage loans that Park originates are sold in the secondary market and Park typically retains the servicing on these loans. The balance of sold fixed-rate residential mortgage loans increased by $149 million or 10.9% to $1,518 million at year-end 2009, compared to $1,369 million at year-end 2008 and $1,403 million at year-end 2007. Due to low long-term interest rates in 2009, the demand for fixed-rate residential mortgage loans was extraordinary. Park originated and sold $615 million of fixed-rate residential mortgage loans in 2009, compared to $161 million in 2008 and 2007. Management expects that the loan origination volume of fixed-rate mortgage loans will decrease by 50% or more in 2010, as the annualized loan origination volume for the fourth quarter of 2009 was $333 million. The balance of sold fixed-rate residential mortgage loans is expected to increase by 1% to 3% in 2010.

Year-end consumer loans were $704 million, $643 million and $593 million in 2009, 2008 and 2007, respectively. Consumer loans increased by $61 million or 9.5% in 2009 and increased by $50 million or 8.4% in 2008. In 2007, consumer loans increased by $55 million or 10.3% exclusive of the $6 million of loans acquired from the Vision acquisition. The increases in consumer loans for 2009, 2008 and 2007 were primarily due to an increase in automobile loans originated through automobile dealers in Ohio. Management expects that consumer loans will increase by 2% to 3% in 2010.

On a combined basis, year-end construction loans, commercial loans and commercial real estate loans totaled $2,377 million, $2,284 million and $2,143 million at year-end 2009, 2008 and 2007, respectively. These combined loan totals increased by $93 million or 4.1% in 2009 and increased by $141 million or 6.6% in 2008. These combined loan totals increased by $33 million or 2.0% in 2007, exclusive of the $472 million of loans acquired through the Vision acquisition and the Millersburg branch purchase. Management expects that construction loans, commercial loans and commercial real estate loans will grow by 1% to 3% in 2010.

FINANCIAL REVIEW

Year-end lease balances were $3 million, $4 million and $7 million in 2009, 2008 and 2007, respectively. Management continues to de-emphasize leasing and expects the balance to further decline in 2010.

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)		2009				2008				2007				2006				2005
Commercial, financial and agricultural		$	751,277			$	714,296			$	613,282			$	548,254			$	512,636
Real estate — construction			495,518				533,788				536,389				234,988				193,185
Real estate — residential			1,555,390				1,560,198				1,481,174				1,300,294				1,287,438
Real estate — commercial			1,130,672				1,035,725				993,101				854,869				823,354
Consumer			704,430				643,507				593,388				532,092				494,975
Leases			3,145				3,823				6,800				10,205				16,524
Total Loans		$	4,640,432			$	4,491,337			$	4,224,134			$	3,480,702			$	3,328,112

Table 3 — Selected Loan Maturity Distribution

						Over One				Over
December 31, 2009		One Year				Through				Five
(In thousands)		or Less (1)				Five Years				Years				Total
Commercial, financial and agricultural		$	355,738			$	248,780			$	146,759			$	751,277
Real estate — construction			396,829				33,325				65,364				495,518
Real estate — commercial			254,901				131,738				744,033				1,130,672
Total		$	1,007,468			$	413,843			$	956,156			$	2,377,467
Total of these selected loans due after one year with:
Fixed interest rate														$	508,111
Floating interest rate														$	861,888

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 AFS are free to be sold in future periods in carrying out Park’s investment strategies.

Generally, Park classifies U.S. Government Agency collateralized mortgage obligations (“CMOs”) that it purchases as held-to-maturity. A classification of held-to-maturity means that Park has the positive intent and the ability to hold these securities until maturity. Park classifies CMOs as held-to-maturity because these securities are generally not as liquid as the U.S. Government Agency mortgage-backed securities and U.S. Government Agency notes that Park classifies as AFS. At year-end 2009, Park’s held-to-maturity securities portfolio was $507 million, compared to $428 million at year-end 2008 and $165 million at year-end 2007. Park purchased $119 million of CMOs in 2009 and purchased $270 million of CMOs in 2008. All of the mortgage-backed securities and CMOs in Park’s investment portfolio were issued by a U.S. Government Agency.

Average taxable investment securities were $1,848 million in 2009, compared to $1,756 million in 2008 and $1,531 million in 2007. The average yield on taxable securities was 4.90% in 2009, compared to 5.00% in 2008 and 5.03% in 2007. Average tax-exempt investment securities were $30 million in 2009, compared to $45 million in 2008 and $65 million in 2007. The average tax-equivalent yield on tax-exempt investment securities was 7.45% in 2009, compared to 6.90% in 2008 and 6.68% in 2007.

Year-end total investment securities (at amortized cost) were $1,817 million in 2009, $2,010 million in 2008 and $1,702 million in 2007. Management purchased investment securities totaling $469 million in 2009, $693 million in 2008 and $843 million in 2007. Proceeds from repayments and maturities of investment securities were $467 million in 2009, $310 million in 2008 and $712 million in 2007. Proceeds from sales of AFS securities were $204 million in 2009 and $81 million in 2008. Park realized net security gains of $7.3 million in 2009 and $1.1 million in 2008. Park did not sell any investment securities in 2007.

During the second quarter of 2009, Park’s management sold U.S. Government Agency mortgage-backed securities with a book value of $197 million, for proceeds of $204.3 million and a pre-tax gain of $7.3 million. These securities had a book yield of 4.70% and a weighted average remaining life of about 3 years. These mortgage-backed securities were sold at a price of approximately 103.2% of par for a give-up yield (yield expected to be received by purchaser to maturity) of approximately 3.33%. Park’s management purchased $250 million of U.S. Government Agency callable notes during the second quarter of 2009 at a weighted average yield of 4.55%. These callable notes have final maturities in 9 to 10 years and have call dates from 1 to 3 years.

During January 2010, Park’s management sold approximately $200 million of U.S. Government Agency mortgage-backed securities for settlement in March 2010 for an estimated gain of $7.3 million. These securities were sold at a price of approximately 103.5% of par for a give-up yield of approximately 3.12%. The book yield on these mortgage-backed securities is approximately 4.68%. Management expects to reinvest the proceeds from the sale of the mortgage-backed securities late in the first quarter of 2010 or in the second quarter of 2010.

At year-end 2009 and 2008, the average tax-equivalent yield on the total investment portfolio was 4.87% and 5.01%, respectively. The weighted average remaining maturity was 3.5 years at December 31, 2009 and 2.9 years at December 31, 2008. U.S. Government Agency asset-backed securities were approximately 76% of the total investment portfolio at year-end 2009 and were approximately 88% of the total investment portfolio at year-end 2008. This segment of the investment portfolio consists of 15-year mortgage-backed securities and CMOs.

The average maturity of the investment portfolio would lengthen if long-term interest rates would increase as the principal repayments from mortgage-backed securities and CMOs would be reduced and callable U.S. Government Agency notes would extend to their maturity dates. At year-end 2009, management estimated that the average maturity of the investment portfolio would lengthen to 5.3 years with a 100 basis point increase in long-term interest rates and to 5.4 years with a 200 basis point increase in long-term interest rates. Likewise, the average maturity of the investment port folio would shorten if long-term interest rates would decrease as the principal repayments from mortgage-backed securities and CMOs would increase as borrowers would refinance their mortgage loans and the callable U.S. Government Agency notes would shorten to their call dates. At year-end 2009, management estimated that the average maturity of the investment portfolio would decrease to 1.8 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 2009, 2008 and 2007:

Table 4 — Investment Securities

December 31,
(In thousands)		2009				2008				2007
Obligations of U.S. Treasury and other U.S. Government agencies		$	347,595			$	128,688			$	203,558
Obligations of states and political subdivisions			20,123				37,188				59,052
U.S. Government asset-backed securities			1,425,361				1,822,587				1,375,005
Other securities			70,481				70,588				65,488
Total		$	1,863,560			$	2,059,051			$	1,703,103

FINANCIAL REVIEW

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, 2009, Park owned $62.0 million of Federal Home Loan Bank stock and $6.9 million of Federal Reserve Bank stock. Park owned $61.9 million of Federal Home Loan Bank stock and $6.9 million of Federal Reserve Bank stock at year-end 2008. At December 31, 2007, Park owned $56.8 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 $17.6 million or 6.9% to $273.5 million for 2009 compared to an increase of $21.2 million or 9.0% to $255.9 million for 2008. The tax equivalent net yield on interest earning assets was 4.22% for 2009 compared to 4.16% for 2008 and 4.20% for 2007. The net interest rate spread (the difference between rates received for interest earning assets and the rates paid for interest bearing liabilities) was 3.94% for 2009, compared to 3.82% for 2008 and 3.68% for 2007. In 2009, the increase in net interest income was primarily due to the increase in average interest earning assets of $353 million or 5.7% and to an increase in the net interest spread to 3.94% from 3.82% in 2008. 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.

The average yield on interest earning assets was 5.67% in 2009 compared to 6.37% in 2008 and 7.18% in 2007. On a quarterly basis for 2009, the average yield on earning assets was 5.51% for the fourth quarter, 5.66% for the third quarter, 5.69% for the second quarter and 5.81% 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 2009 was .16%, compared to an average rate of 1.93% in 2008 and 5.02% in 2007. Management expects that the average yield on interest earning assets will modestly decrease in 2010.

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

		2009												2008												2007
December 31,		Daily								Average				Daily								Average				Daily								Average
(In thousands)		Average				Interest				Rate				Average				Interest				Rate				Average				Interest				Rate
ASSETS
Interest earning assets:
Loans (1) (2)		$	4,594,436			$	276,893				6.03	%		$	4,354,520			$	301,926				6.93	%		$	4,011,307			$	321,392				8.01	%
Taxable investment securities			1,847,706				90,558				4.90	%			1,755,879				87,711				5.00	%			1,531,144				77,016				5.03	%
Tax-exempt investment securities (3)			29,597				2,205				7.45	%			45,420				3,134				6.90	%			65,061				4,346				6.68	%
Money market instruments			52,518				111				0.21	%			15,502				295				1.90	%			17,838				920				5.16	%
Total interest earning assets			6,524,257				369,767				5.67	%			6,171,321				393,066				6.37	%			5,625,350				403,674				7.18	%
Noninterest earning assets:
Allowance for probable loan losses			(103,683	)											(86,485	)											(78,256	)
Cash and due from banks			110,227												143,151												151,219
Premises and equipment, net			67,944												69,278												61,604
Other assets			436,786												410,821												409,239
TOTAL		$	7,035,531											$	6,708,086											$	6,169,156
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest bearing liabilities:
Transaction accounts		$	1,229,553			$	7,889				0.64	%		$	1,364,635			$	19,509				1.43	%		$	1,318,764			$	35,919				2.72	%
Savings deposits			805,783				2,926				0.36	%			585,505				3,124				0.53	%			553,407				3,878				0.70	%
Time deposits			2,197,055				53,805				2.45	%			1,912,640				67,259				3.52	%			1,834,060				81,224				4.43	%
Total interest bearing deposits			4,232,391				64,620				1.53	%			3,862,780				89,892				2.33	%			3,706,231				121,021				3.27	%
Short-term borrowings			419,733				3,209				0.76	%			609,219				14,469				2.38	%			494,160				22,113				4.47	%
Long-term debt (4)			780,435				26,370				3.38	%			835,522				31,105				3.72	%			568,575				24,013				4.22	%
Total interest bearing liabilities			5,432,559				94,199				1.73	%			5,307,521				135,466				2.55	%			4,768,966				167,147				3.50	%
Noninterest bearing liabilities:
Demand deposits			818,243												739,993												697,247
Other			109,415												92,607												84,185
Total noninterest bearing liabilities			927,658												832,600												781,432
Stockholders’ equity			675,314												567,965												618,758
TOTAL		$	7,035,531											$	6,708,086											$	6,169,156
Net interest earnings						$	275,568											$	257,600											$	236,527
Net interest spread											3.94	%											3.82	%											3.68	%
Net yield on interest earning assets											4.22	%											4.16	%											4.20	%

FINANCIAL REVIEW

The average rate paid on interest bearing liabilities was 1.73% in 2009, compared to 2.55% in 2008 and 3.50% in 2007. On a quarterly basis for 2009, the average rate paid on interest bearing liabilities was 1.58% for the fourth quarter, 1.73% for the third quarter, 1.78% for the second quarter and 1.84% for the first quarter. Management expects that the average rate paid on interest bearing liabilities will modestly decrease in 2010.

The following table displays (for each quarter of 2009) the average balance of interest earning assets, net interest income and the tax equivalent net interest margin.

		Average Interest				Net Interest				Tax Equivalent
(In thousands)		Earning Assets				Income				Net Interest Margin
First Quarter		$	6,546,681			$	68,233				4.26	%
Second Quarter			6,528,425				67,994				4.21	%
Third Quarter			6,476,283				68,462				4.22	%
Fourth Quarter			6,546,174				68,802				4.20	%
2009		$	6,524,257			$	273,491				4.22	%

Management expects that average interest earnings assets will be approximately $6,550 million for 2010 as the expected growth in loan balances from year-end will be partially offset by a decrease in investment securities. Management expects that net interest income will be $265 to $275 million in 2010 and that the tax equivalent net interest margin will be approximately 4.15% to 4.20% in 2010. (Please see the “Summary Discussion of Operating Results for Park” section of this Financial Review for a comparison of 2009 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 2008 to 2009												Change from 2007 to 2008
(In thousands)		Volume				Rate				Total				Volume				Rate				Total
Increase (decrease) in:
Interest income:
Total loans		$	15,891			$	(40,924	)		$	(25,033	)		$	26,080			$	(45,546	)		$	(19,466	)
Taxable investments			4,600				(1,753	)			2,847				11,160				(465	)			10,695
Tax-exempt investments			(1,163	)			234				(929	)			(1,351	)			139				(1,212	)
Money market instruments			248				(432	)			(184	)			(107	)			(518	)			(625	)
Total interest income			19,576				(42,875	)			(23,299	)			35,782				(46,390	)			(10,608	)
Interest expense:
Transaction accounts		$	(1,766	)		$	(9,854	)		$	(11,620	)		$	1,204			$	(17,614	)		$	(16,410	)
Savings accounts			968				(1,166	)			(198	)			217				(971	)			(754	)
Time deposits			9,026				(22,480	)			(13,454	)			3,351				(17,316	)			(13,965	)
Short-term borrowings			(3,536	)			(7,724	)			(11,260	)			4,345				(11,989	)			(7,644	)
Long-term debt			(1,985	)			(2,750	)			(4,735	)			10,203				(3,111	)			7,092
Total interest expense			2,707				(43,974	)			(41,267	)			19,320				(51,001	)			(31,681	)
Net variance		$	16,869			$	1,099			$	17,968			$	16,462			$	4,611			$	21,073

Other Income: Total other income decreased by $3.6 million or 4.3% to $81.2 million in 2009 compared to an increase of $13.2 million or 18.4% to $84.8 million in 2008. Park’s total other income in 2008 was positively impacted by two “one-time” items totaling $14.9 million. The “one-time” positive items in 2008 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. In 2009, Park’s total other income includes a “one-time” positive item of $3.0 million from the sale of all the Class B shares of stock that Park received from the initial public offering of Visa, Inc.

The following table displays total other income for Park in 2009, 2008 and 2007.

Year Ended December 31
(In thousands)		2009				2008				2007
Income from fiduciary activities		$	12,468			$	13,937			$	14,403
Service charges on deposits			21,985				24,296				23,813
Net gains on sales of securities			7,340				1,115				—
Other service income			18,767				8,882				11,543
Other			20,630				36,604				21,881
Total other income		$	81,190			$	84,834			$	71,640

Income from fiduciary activities decreased by $1.5 million or 10.5% to $12.5 million in 2009 and decreased $466,000 or 3.2% to $13.9 million in 2008. The decrease in fiduciary fee income in 2009 and 2008 was primarily due to the poor performance of the equity markets during the past two years. Park charges fiduciary fees based on the market value of the assets being managed. The Dow Jones Industrial Average stock index annual average was 13,178 for calendar year 2007, compared to 11,244 for calendar year 2008 and 8,885 for calendar year 2009. On a positive note, the Dow Jones Industrial Average stock index at year-end 2009 was 10,428, compared to 8,776 at year-end 2008. The market value of the assets that Park manages were $3.1 billion at December 31, 2009 compared to $2.7 billion at December 31, 2008. Management expects an increase of approximately 7% in fee income from fiduciary activities in 2010.

Service charges on deposit accounts decreased by $2.3 million or 9.5% to $22.0 million in 2009 and increased by $483,000 or 2.0% to $24.3 million in 2008. The decrease in service charge income in 2009 was primarily due to a decrease in fee income from the courtesy overdraft program. Park’s customers did not use the courtesy overdraft program as frequently in 2009 and as a result this fee income decreased by $2.2 million or 12.7% in 2009 compared to 2008. Management expects that revenue from service charges on deposits in 2010 will decrease modestly from the $22.0 million in revenue in 2009.

Fee income earned from origination and sale into the secondary market of long-term fixed-rate mortgage loans is included within other non-yield related fees in the subcategory “Other service income”. Other service income increased by $9.9 million or 111.3% to $18.8 million in 2009. This large increase was due to the extraordinary volume of fixed-rate residential mortgage loans that Park originated and sold into the secondary market in 2009. The amount of fixed-rate mortgage loans originated and sold in 2009 was $615 million, compared to $161 million for both 2008 and 2007. In 2008, other service income decreased by $2.7 million or 23.1% to $8.9 million. 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. Park’s management expects that the volume of fixed-rate residential mortgage loans will decrease significantly in 2010 and as a result expects that other service income will decrease by approximately $7 million or 38% in 2010.

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 decreased by $16.0 million or 43.6% to $20.6 million in 2009 and increased by $14.7 million or 67.3% to $36.6 million in 2008. The large increase in this revenue in 2008 and the large decrease in 2009 was primarily due to the two “one-time” revenue items in 2008 which totaled $14.9 million. Park also had a $3.0 million positive “one-time” revenue item in 2009, but other income was reduced during the year by $6.3 million of losses recognized on the write-down or sale of real estate owned at Vision Bank. Approximately $5.0 million of these other real estate owned losses occurred in the fourth quarter of 2009. Park’s management expects that the subcategory of other income will increase by 5% in 2010 as the losses on real estate owned at Vision Bank are expected to decline modestly in 2010.

FINANCIAL REVIEW

Park recognized net gains from the sale of investment securities of $7.3 million in 2009 and $1.1 million in 2008. No securities were sold in 2007. As previously discussed, Park expects to recognize a gain of approximately $7.3 million from the sale of securities in 2010.

A year ago, Park’s management forecast that total other income, excluding gains from the sale of securities, would be approximately $75 million for 2009. The actual performance was below our estimate by $1.1 million or 1.5% at $73.9 million. For 2010, Park’s management expects that total other income, excluding gains from the sale of securities, will be approximately $68 million.

Other Expense: Total other expense was $188.7 million in 2009, compared to $234.5 million in 2008 and $224.2 million in 2007. 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 $9.2 million or 5.1% to $188.7 million in 2009 and increased by $9.4 million or 5.5% to $179.5 million in 2008.

The following table displays total other expense for Park in 2009, 2008 and 2007.

Year Ended December 31
(In thousands)		2009				2008				2007
Salaries and employee benefits		$	101,225			$	99,018			$	97,712
Goodwill impairment charge			—				54,986				54,035
Data processing fees			5,674				7,121				6,892
Fees and service charges			15,935				12,801				11,055
Net occupancy expense of bank premises			11,552				11,534				10,717
Amortization of intangibles			3,746				4,025				3,847
Furniture and equipment expense			9,734				9,756				9,259
Insurance			12,072				2,322				1,445
Marketing			3,775				4,525				4,961
Postage and telephone			6,903				7,167				6,910
State taxes			3,206				2,989				2,769
Other			14,903				18,257				14,562
Total other expense		$	188,725			$	234,501			$	224,164

Salaries and employee benefits expense increased by $2.2 million or 2.2% to $101.2 million in 2009 and increased by $1.3 million or 1.3% to $99.0 million in 2008. The increase in 2009 was primarily related to higher employee benefit costs, as Pension Plan expense increased approximately $2.8 million. Full-time equivalent employees at year-end 2009 were 2,024, compared to 2,051 at year-end 2008 and 2,066 at year-end 2007.

On July 30, 2007, Park announced Project EPS, a plan to review current processes and identify opportunities to improve efficiency by converting to one operating system in Ohio. During the third quarter of 2008, Park merged its eight Ohio banking charters into a national bank, PNB. The banking divisions of PNB have been able to reduce full-time equivalent employees as a result of Project EPS. Full-time equivalent employees for Park’s Ohio-based divisions were 1,811 at year-end 2009, compared to 1,837 at year-end 2008, 1,865 at year-end 2007 and 1,889 at year-end 2006. During 2008 and 2009, all of Park’s Ohio-based banking divisions converted to one operating system. The number of full-time equivalent employees in Ohio has declined by 78 from year-end 2006 to year-end 2009. Park’s management estimates that approximately 105 full-time equivalent positions were eliminated as a result of Project EPS. The actual reduction in full-time equivalent employees over the past three years was not quite this large due to the opening of additional branch offices.

A year ago, Park’s management projected that salaries and benefit expense would be $103.0 million for 2009. The actual performance for the year was $1.8 million or 1.7% lower than the estimate. For 2010, management is projecting salaries and employee benefits expense to increase by $0.8 million or 0.8% to $102 million for the year.

Vision Bank recorded goodwill impairment charges of $55.0 million in 2008 and $54.0 million in 2007. 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.

Fees and service charges increased by $3.1 million or 24.5% to $15.9 million in 2009 and 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 fees and service charges expense in 2009 was primarily due to an increase in legal fees of $1.9 million to $4.1 million and in consulting fees of $.4 million to $1.7 million. This additional expense was primarily related to an increase in problem loans in 2009. The increase in other fees and service charges expense in 2008 was primarily due to an increase in consulting fees of $.7 million to $1.3 million. This additional expense in 2008 primarily pertained to Project EPS.

Insurance expense increased by $9.8 million or 419.0% to $12.1 million in 2009 and increased by $.9 million or 60.7% to $2.3 million in 2008. The increase in insurance expense for both years was primarily due to the increase in FDIC insurance expense. In 2009, FDIC insurance expense increased by $9.5 million to $11.0 million and in 2008, FDIC insurance expense increased by $.9 million to $1.5 million.

The subcategory “Other” expense includes expenses for supplies, travel, charitable contributions, amortization of low income housing tax investments, expenses pertaining to other real estate owned and other miscellaneous expenses. The subcategory other expense decreased by $3.4 million or 18.4% to $14.9 million in 2009 and increased by $3.7 million or 25.4% to $18.3 million in 2008. The decrease in the subcategory other expense in 2009 was primarily due to a $1.9 million decrease to $2.2 million in other real estate owned expense. In 2008, the increase in other expense was primarily due to an increase of $3.4 million to $4.1 million in other real estate owned expense.

A year ago, Park’s management projected that total other expense would be approximately $184.0 million in 2009. The actual expense for the year of $188.7 million exceeded our estimate by $4.7 million or by 2.6%. This variance was primarily due to the special assessment of FDIC insurance in the second quarter of 2009, which was $3.3 million for Park. Management expects that total other expense for 2010 will be approximately $191 million, a projected increase of $2.3 million or 1.2%.

Income Taxes: Federal income tax expense was $25.4 million in 2009, compared to $24.3 million in 2008 and $30.4 million in 2007. State income tax expense was a credit for each of the past three years of $(2.5) million in 2009, $(2.3) million in 2008 and $(453,000) in 2007. Vision Bank is subject to state income tax in the states of Alabama and Florida. State income tax expense was a credit in 2009, 2008 and 2007, because Vision Bank had losses in all three 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. Park’s management will investigate the merger of Vision Bank into PNB during 2010. The merger of Vision Bank into PNB will ensure that the state net operating loss carryforward will be utilized in the future in the states of Alabama and Florida.

Federal income tax expense as a percentage of income before taxes was 26.2% in 2009, compared to 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.

FINANCIAL REVIEW

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 tax expense to income before taxes was 26.2% in 2009.

A lower federal effective tax rate than the statutory rate of 35% is primarily due to tax-exempt interest income from state and municipal investments and loans, low income housing tax credits and income from bank owned life insurance.

Park’s management expects that the federal effective income tax rate for 2010 will be approximately 28% to 29%.

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 $68.8 million in 2009, $70.5 million in 2008 and $29.5 million in 2007. Net loan charge-offs were $52.2 million in 2009, $57.5 million in 2008 and $22.2 million in 2007. The ratio of net loan charge-offs to average loans was 1.14% in 2009, 1.32% in 2008 and 0.55% in 2007.

The loan loss provision for Vision Bank was $44.4 million in 2009, $47.0 million in 2008 and $19.4 million in 2007. Net loan charge-offs for Vision Bank were $28.9 million in 2009, $38.5 million in 2008 and $8.6 million in 2007. Vision Bank’s ratio of net loan charge-offs to average loans was 4.18% in 2009, 5.69% in 2008 and an annualized 1.71% in 2007.

Park’s Ohio-based subsidiaries had a combined loan loss provision of $24.4 million in 2009, $23.5 million in 2008 and $10.1 million in 2007. Net loan charge-offs for Park’s Ohio-based subsidiaries were $23.3 million in 2009, $19.0 million in 2008 and $13.6 million in 2007. The net loan charge-off ratio for Park’s Ohio-based subsidiaries was 0.60% for 2009, 0.52% for 2008 and 0.39% for 2007.

At year-end 2009, the allowance for loan losses was $116.7 million or 2.52% of total loans outstanding, compared to $100.1 million or 2.23% of total loans outstanding at year-end 2008 and $87.1 million or 2.06% of total loans outstanding at year-end 2007. In 2007, the acquired loan loss reserve for Vision, $9.3 million, was added to Park’s allowance for loan losses.

Management believes that the allowance for loan losses at year-end 2009 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 the Financial Review section for additional information on management’s evaluation of the adequacy of the allowance for loan losses.

Management expects the loan loss provision for 2010 will be approximately $45 million to $55 million. This estimate reflects management’s expectation that: (1) future declines in collateral values will be moderate as the economy continues to improve and pricing stabilizes throughout 2010 and (2) new nonperforming loans, specifically new nonperforming CL&D loans at Vision Bank, will decline in 2010. As discussed within the remainder of the credit experience section, Vision Bank’s performing CL&D loan portfolio has declined significantly over the past two years. Thus management expects new non-performers to decline in 2010. This estimated range could change significantly as circumstances for individual loans and economic conditions change.

A year ago, management projected the provision for loan losses would be $45 million in 2009 and the net loan charge-off ratio would be approximately 1.00%. As discussed throughout the remainder of this “Credit Experience” section, the primary reasons that the provision for loan losses and net charge-offs were greater than management’s projections were the credit losses and continued credit deterioration at Vision.

Table 7 — Summary of Loan Loss Experience

(In thousands)		2009				2008				2007				2006				2005
Average loans (net of unearned interest)		$	4,594,436			$	4,354,520			$	4,011,307			$	3,357,278			$	3,278,092
Allowance for loan losses:
Beginning balance			100,088				87,102				70,500				69,694				68,328
Charge-offs:
Commercial, financial and agricultural			10,047				2,953				4,170				853				3,154
Real estate — construction			21,956				34,052				7,899				718				46
Real estate — residential			11,765				12,600				5,785				1,915				1,006
Real estate — commercial			5,662				4,126				1,899				556				1,612
Consumer			9,583				9,181				8,020				6,673				7,255
Leases			9				4				3				57				316
Total charge-offs			59,022				62,916				27,776				10,772				13,389
Recoveries:
Commercial, financial and agricultural		$	1,010			$	861			$	1,011			$	842			$	2,707
Real estate — construction			1,322				137				180				—				173
Real estate — residential			1,723				1,128				718				1,017				659
Real estate — commercial			771				451				560				1,646				517
Consumer			2,001				2,807				3,035				3,198				3,214
Leases			3				31				64				150				229
Total recoveries			6,830				5,415				5,568				6,853				7,499
Net charge-offs			52,192				57,501				22,208				3,919				5,890
Provision charged to earnings			68,821				70,487				29,476				3,927				5,407
Allowance for loan losses of acquired bank			—				—				9,334				798				1,849
Ending balance		$	116,717			$	100,088			$	87,102			$	70,500			$	69,694
Ratio of net charge-offs to average loans			1.14	%			1.32	%			0.55	%			0.12	%			0.18	%
Ratio of allowance for loan losses to end of year loans, net of unearned interest			2.52	%			2.23	%			2.06	%			2.03	%			2.09	%

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

		2009								2008								2007								2006								2005
						Percent of								Percent of								Percent of								Percent of								Percent of
December 31,						Loans Per								Loans Per								Loans Per								Loans Per								Loans Per
(In thousands)		Allowance				Category				Allowance				Category				Allowance				Category				Allowance				Category				Allowance				Category
Commercial, financial and agricultural		$	14,725				16.19	%		$	14,286				15.90	%		$	14,557				14.52	%		$	16,985				15.75	%		$	17,942				15.40	%
Real estate — construction			47,521				10.68	%			24,794				11.88	%			20,007				12.70	%			4,425				6.75	%			3,864				5.80	%
Real estate — residential			19,753				33.51	%			22,077				34.74	%			15,997				35.06	%			10,402				37.36	%			10,329				38.68	%
Real estate — commercial			23,970				24.37	%			15,498				23.06	%			15,989				23.51	%			17,097				24.56	%			16,823				24.74	%
Consumer			10,713				15.18	%			23,391				14.33	%			20,477				14.05	%			21,285				15.29	%			19,799				14.87	%
Leases			35				0.07	%			42				0.09	%			75				0.16	%			306				0.29	%			937				0.51	%
Total		$	116,717				100.00	%		$	100,088				100.00	%		$	87,102				100.00	%		$	70,500				100.00	%		$	69,694				100.00	%

As of December 31, 2009, Park had no significant concentrations of loans to borrowers engaged in the same or similar industries nor did Park have any loans to foreign governments.

Nonperforming Assets: Nonperforming loans include: 1) loans whose interest is accounted for on a nonaccrual basis; 2) renegotiated loans not currently on nonaccrual; 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.

FINANCIAL REVIEW

The percentage of nonperforming loans to total loans was 5.35% at year-end 2009, 3.74% at year-end 2008 and 2.57% at year-end 2007. The percentage of nonperforming assets to total loans was 6.24% at year-end 2009, 4.31% at year-end 2008 and 2.89% at year-end 2007.

Vision Bank had $159.6 million of nonperforming loans or 23.6% of its total loans at year-end 2009, compared to $94.7 million of nonperforming loans or 13.7% of its total loans at year-end 2008 and $63.5 million of nonperforming loans or 9.9% of its total loans at year-end 2007. Nonperforming assets totaled $194.8 million for Vision Bank at year-end 2009, compared to $114.4 million at year-end 2008 and $70.5 million at year-end 2007. As a percentage of year-end loans, Vision Bank’s nonperforming assets were 28.8%, 16.6% and 11.0% for 2009, 2008 and 2007, respectively.

Park’s Ohio-based subsidiaries had $88.8 million of nonperforming loans at year-end 2009, compared to $73.1 million at year-end 2008. Nonperforming loans were 2.2% and 1.9% of total loans for Park’s Ohio-based subsidiaries at year-end 2009 and 2008, respectively. Total nonperforming assets for Park’s Ohio-based subsidiaries were $94.9 million or 2.4% of total loans at year-end 2009 and $79.2 million or 2.1% of total loans at year-end 2008.

Economic conditions began deteriorating during the second half of 2007 and continued throughout 2008 and 2009. 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 and Alabama (including Vision Bank) have been particularly hard hit by the severe recession as the demand for real estate and the price of real estate have sharply decreased.

Park had $277.7 million of commercial loans included on the watch list of potential problem commercial loans at December 31, 2009 compared to $243.2 million at year-end 2008 and $208.8 million at year-end 2007. Commercial loans include: (1) commercial, financial and agricultural loans, (2) commercial real estate loans, and (3) real estate construction loans. Park’s watch list includes all classified commercial loans, defined by Park as loans rated special mention or worse, less those commercial loans currently considered to be impaired. As a percentage of year-end total loans, Park’s watch list of potential problem loans was 6.0% in 2009, 5.4% in 2008 and 4.9% in 2007. 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 loans, loans past due 90 days or more and still accruing and renegotiated loans not currently on nonaccrual and other real estate owned for the last five years:

Table 9 — Nonperforming Assets

December 31,
(In thousands)		2009				2008				2007				2006				2005
Nonaccrual loans		$	233,544			$	159,512			$	101,128			$	16,004			$	14,922
Renegotiated loans			142				2,845				2,804				9,113				7,441
Loans past due 90 days or more			14,773				5,421				4,545				7,832				7,661
Total nonperforming loans			248,459				167,778				108,477				32,949				30,024
Other real estate owned			41,240				25,848				13,443				3,351				2,368
Total nonperforming assets		$	289,699			$	193,626			$	121,920			$	36,300			$	32,392
Percentage of nonperforming loans to loans			5.35	%			3.74	%			2.57	%			0.95	%			0.90	%
Percentage of nonperforming assets to loans			6.24	%			4.31	%			2.89	%			1.04	%			0.97	%
Percentage of nonperforming assets to total assets			4.11	%			2.74	%			1.88	%			0.66	%			0.60	%

Tax equivalent interest income from loans of $276.9 million for 2009 would have increased by $24.9 million if all loans had been current in accordance with their contractual terms.

Park’s allowance for loan losses includes an allocation for loans specifically identified as impaired under GAAP. At December 31, 2009, loans considered to be impaired consisted substantially of commercial loans graded as “doubtful” and placed on non-accrual status. During the fourth quarter of 2009, management made a change in accounting estimate (as defined under GAAP) for the estimation of allowance for loan losses. Based on escalating losses within the Vision Bank CL&D loan portfolio, management determined that it was necessary to segregate this portion of the portfolio for both impaired credits, as well as those CL&D loans on accrual at December 31, 2009. From the date Park acquired Vision (March 9, 2007) through December 31, 2009, Vision had cumulative charge-offs within the CL&D loan portfolio of $51.3 million. Additionally, at December 31, 2009, management established a specific reserve of $21.7 million related to those CL&D loans at Vision Bank that are deemed to be impaired. The aggregate of charge-offs since acquisition, along with the specific reserves at December 31, 2009, total $73.0 million. Total provision expense for Vision Bank since the date of acquisition through December 31, 2009 has been $110.8 million. The magnitude of the losses coming from the CL&D loan portfolio at Vision, along with the continued run-off of performing CL&D loans, led to the change in accounting estimate made by management during the fourth quarter of 2009. The following table summarizes the CL&D loan portfolio at Vision Bank:

Year Ended December 31
(In thousands)		2009				2008				2007
CL&D loans, period end		$	218,205			$	251,443			$	295,743
Impaired CL&D loans			85,417				59,731				35,548
Performing CL&D loans, period end			132,788				191,712				260,195
Specific reserve on impaired CL&D loans			21,706				3,134				1,184
Current year net charge-offs			16,233				27,705				7,399
Specific reserve plus net charge-offs			38,035				30,839				8,583

At December 31, 2009, loans considered to be impaired under GAAP totaled $201.1 million, after charge-offs of $43.4 million. At December 31, 2008, impaired loans totaled $142.9 million, after charge-offs of $30.0 million. The specific allowance for loan losses related to these impaired loans was $36.7 million at December 31, 2009 and $8.9 million at December 31, 2008. At December 31, 2009, the impaired loans and related specific reserves are summarized as follows:

December 31, 2009
(In thousands)		Principal Balance				Specific Reserve
Impaired loan type:
Vision Bank impaired CL&D loans		$	85,417			$	21,706
Other impaired commercial loans			111,981				14,453
Vision other impaired commercial less than $250,000			3,745				562
Total		$	201,143			$	36,721

The specific reserves discussed above are typically based on management’s best estimate of the fair value of collateral securing these loans or based on projected cash flows from the sale of the underlying collateral and payments from the borrowers. The amount ultimately charged-off for these loans may be different from the specific reserve as the ultimate liquidation of the collateral and/or projected cash flows may be for amounts different from management’s estimates.

FINANCIAL REVIEW

We have listed in the table below the year-end 2008 and the quarterly and year-end 2009 information pertaining to the provision for loan losses, net loan charge-offs, nonperforming loans and the allowance for loan losses:

		Provision												Allowance
		for Loan				Net Loan				Nonperforming				for Loan
(In thousands)		Losses				Charge-Offs				Loans				Losses
Year-end 2008		$	70,487			$	57,501			$	167,778			$	100,088
March 2009		$	12,287			$	11,097			$	166,673			$	101,279
June 2009			15,856				12,330				210,998				104,804
September 2009			14,958				9,721				212,061				110,040
December 2009			25,720				19,044				248,459				116,717
Year-end 2009		$	68,821			$	52,192			$	248,459			$	116,717

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

As of December 31, 2009, management had taken partial charge-offs of approximately $43.4 million ($30.2 million for Vision Bank) related to the $201.1 million of commercial loans considered to be impaired, compared to charge-offs of approximately $30 million ($22.2 million for Vision Bank) related to the $142.9 million of impaired commercial loans at December 31, 2008. Historically, Park’s management has been quick to recognize charge-offs on problem loans. However, there is a higher level of uncertainty when valuing collateral or projecting cash flows in Vision Bank’s Florida and Alabama markets due to the illiquid nature of the collateral. Park has experienced an increase in specific reserves related to many of Vision Bank’s impaired loans. In April 2009, Park engaged a third-party specialist to assist in the resolution of impaired loans at Vision Bank. Management is pleased with the success this third-party specialist experienced in the second half of 2009, as they have helped maximize the value of the impaired loans at Vision Bank. We expect to continue utilizing this third-party specialist through 2010 and thereafter, until such point in time that Vision Bank’s impaired loan portfolio shows sustained improvement.

A significant portion of Park’s allowance for loan losses is allocated to commercial loans classified as “special mention” or “substandard.” “Special mention” loans are loans that have potential weaknesses that may result in loss exposure to Park. “Substandard” loans are those that exhibit a well defined weakness, jeopardizing repayment of the loan, resulting in a higher probability that Park will suffer a loss on the loan unless the weakness is corrected. As previously discussed, during the 2009 fourth quarter, management segregated the Vision Bank CL&D loans from other commercial loans that are still accruing. The Vision CL&D loans that are still accruing at December 31, 2009 total $132.8 million. Additionally, PNB participations in Vision Bank accruing CL&D loans total $21.3 million at December 31, 2009, bringing total exposure of accruing CL&D loans originated at Vision Bank to $154.1 million. Park’s loss experience on CL&D loans for the last 24 months is an annual rate of 8.83%. Management has allocated an allowance for loan losses to the $154.1 million of accruing CL&D loans based on this historical loss experience, judgmentally increased to cover 1.75 years of expected losses, for a total reserve of $23.8 million or 15.45%. Further, we have allocated 15.45% to the $154.1 million of CL&D loans, regardless of the current loan grade, as this portion of the loan portfolio has experienced significant declines in collateral values, and thus if management determines that borrowers are unable to pay in accordance with the contractual terms of the loan agreement, significant specific reserves have typically been necessary. Park’s 24-month loss experience within the remaining commercial loan portfolio (excluding Vision Bank’s CL&D loans) has been 0.86% of the principal balance of these loans. Park’s management believes it is appropriate to cover two years worth of expected commercial losses within the other commercial loan portfolio, thus the total reserve for loan losses is $41.8 million or 1.72% of the outstanding principal balance at December 31, 2009. The overall reserve of 1.72% for other accruing commercial loans breaks down as follows: pass-rated commercial loans are reserved at 1.26%; special mention commercial loans are reserved at 4.29%; and substandard commercial loans are reserved at 12.87%. As always, management is working to address weaknesses in those loans that may result in future loss. Actual loss experience may be more or less than the amount allocated.

CAPITAL RESOURCES

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

Cash and cash equivalents decreased by $12.2 million during 2009 to $159.1 million at year-end. Cash provided by operating activities was $71.9 million in 2009, $90.7 million in 2008 and $83.2 million in 2007. Net income (adjusted for the goodwill impairment charges in 2008 and 2007) was the primary source of cash for operating activities during each year. The goodwill impairment charges of $55 million in 2008 and $54 million in 2007 did not impact cash or cash provided by operating activities.

Cash used in investing activities was $5.3 million in 2009, $635.0 million in 2008 and $360.3 million in 2007. Investment security transactions are the major use or source of cash in investing activities. Proceeds from the sale, repayment or maturity of securities provide cash and purchases of securities use cash. Net security transactions provided cash of $202.6 million in 2009 and used cash of $304.8 million in 2008 and $130.8 million in 2007. Another major use or source of cash in investing activities is the net increase or decrease in the loan portfolio. Cash used by the net increase in the loan portfolio, including proceeds from the sale of loans, was $199.9 million in 2009, $351.3 million in 2008 and $126 million in 2007. 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 used in financing activities was $78.7 million in 2009. Cash provided by financing activities was $522.2 million in 2008 and $284.2 million in 2007. A major source of cash for financing activities is the net change in deposits. Cash provided by the net change in deposits was $426.3 million in 2009, $322.5 million in 2008, and $13.2 million in 2007. Another major source of cash for financing activities is short-term borrowings and long-term debt. In 2009, net short-term borrowings used $335 million in cash and net long-term borrowings used $201.2 million. 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. Cash was used by the net decrease in long-term borrowings of $19.4 million in 2007. In 2009, $35.3 million of cash was provided by the issuance of subordinated notes and $53.5 million was provided by the issuance of common stock previously held as treasury shares. In 2008, cash of $100 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.

FINANCIAL REVIEW

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, 2009:

Table 10 — Interest Rate Sensitivity

		0-3				3-12				1-3				3-5				Over 5
(In thousands)		Months				Months				Years				Years				Years				Total
Interest earning assets:
Investment securities (1)		$	182,483			$	254,417			$	465,456			$	339,556			$	621,648			$	1,863,560
Money market instruments			42,289				—				—				—				—				42,289
Loans (1)			1,518,818				1,383,273				1,430,468				291,842				16,031				4,640,432
Total interest earning assets			1,743,590				1,637,690				1,895,924				631,398				637,679				6,546,281
Interest bearing liabilities:
Interest bearing transaction accounts (2)			608,849				—				584,996				—				—				1,193,845
Savings accounts (2)			228,699				—				644,438				—				—				873,137
Time deposits			601,728				1,058,822				452,771				106,769				2,447				2,222,537
Other			1,290				—				—				—				—				1,290
Total deposits			1,440,566				1,058,822				1,682,205				106,769				2,447				4,290,809
Short-term borrowings			324,219				—				—				—				—				324,219
Long-term debt			—				17,560				31,960				1,000				603,861				654,381
Subordinated debentures/ notes			15,000				—				25,000				35,250				—				75,250
Total interest bearing liabilities			1,779,785				1,076,382				1,739,165				143,019				606,308				5,344,659
Interest rate sensitivity gap			(36,195	)			561,308				156,759				488,379				31,371				1,201,622
Cumulative rate sensitivity gap			(36,195	)			525,113				681,872				1,170,251				1,201,622
Cumulative gap as a percentage of total interest earning assets			–0.55	%			8.02	%			10.42	%			17.88	%			18.36	%