UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Park National Corporation

(Exact name of registrant as specified in its charter)

Ohio		31-1179518
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
Incorporation or organization)

50 North Third Street, Newark, Ohio 43055

(740) 349-8451

N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicated by check mark whether the registrant has submitted electronically and posted on its corporate Web Site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
			(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

13,971,713 Common shares, no par value per share, outstanding at April 30, 2009.

 

 

PARK NATIONAL CORPORATION

CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements			3-23
Consolidated Condensed Balance Sheets as of March 31, 2009 and December 31, 2008 (unaudited)			3
Consolidated Condensed Statements of Income for the Three Months Ended March 31, 2009 and 2008 (unaudited)			4-5
Consolidated Condensed Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2009 and 2008 (unaudited)			6
Consolidated Condensed Statements of Cash Flows for the Three Months Ended March 31, 2009 and 2008 (unaudited)			7-8
Notes to Unaudited Consolidated Condensed Financial Statements			9-23
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24-41
Item 3. Quantitative and Qualitative Disclosures About Market Risk			41-42
Item 4. Controls and Procedures			42
PART II. OTHER INFORMATION			43-48
Item 1. Legal Proceedings			43
Item 1A. Risk Factors			43-44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			45-46
Item 3. Defaults Upon Senior Securities			46
Item 4. Submission of Matters to a Vote of Security Holders			46-47
Item 5. Other Information			47
Item 6. Exhibits			47-48
SIGNATURES			49
Exhibit 12
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PARK NATIONAL CORPORATION

Consolidated Condensed Balance Sheets (Unaudited)
(dollars in thousands, except per share data)

		March 31,				December 31,
		2009				2008
Assets:
Cash and due from banks		$	108,523			$	150,298
Money market instruments			17,843				20,963
Cash and cash equivalents			126,366				171,261
Interest bearing deposits			1				1
Securities available-for-sale, at fair value (amortized cost of $1,443,125 and $1,513,223 at March 31, 2009 and December 31, 2008)			1,501,904				1,561,896
Securities held-to-maturity, at amortized cost (fair value of $477,407 and $433,435 at March 31, 2009 and December 31, 2008)			464,799				428,350
Other investment securities			68,919				68,805
Loans			4,561,508				4,491,337
Allowance for loan losses			(101,279	)			(100,088	)
Net loans			4,460,229				4,391,249
Bank premises and equipment, net			68,177				68,553
Bank owned life insurance			133,992				132,916
Goodwill and other intangible assets			84,608				85,545
Other real estate owned			34,173				25,848
Mortgage loan servicing rights			8,762				8,306
Accrued income and other assets			107,245				127,990
Total assets		$	7,059,175			$	7,070,720
Liabilities and Stockholders’ Equity:
Deposits:
Noninterest bearing		$	746,594			$	782,625
Interest bearing			4,173,619				3,979,125
Total deposits			4,920,213				4,761,750
Short-term borrowings			485,311				659,196
Long-term debt			853,375				855,558
Subordinated debentures			40,000				40,000
Accrued expenses and other liabilities			104,058				111,553
Total liabilities			6,402,957				6,428,057
COMMITMENTS AND CONTINGENCIES
Stockholders’ equity:
Preferred stock (200,000 shares authorized at March 31, 2009 and December 31, 2008; 100,000 shares issued at March 31, 2009 and December 31, 2008 with $1,000 per share liquidation preference)			95,912				95,721
Common stock (No par value; 20,000,000 shares authorized; 16,151,137 shares issued at March 31, 2009 and 16,151,151 shares issued at December 31, 2008)			301,210				301,210
Common stock warrant			4,297				4,297
Retained earnings			445,320				438,504
Treasury stock (2,179,424 shares at March 31, 2009 and 2,179,424 shares at December 31, 2008)			(207,665	)			(207,665	)
Accumulated other comprehensive income, net of taxes			17,144				10,596
Total stockholders’ equity			656,218				642,663
Total liabilities and stockholders’ equity		$	7,059,175			$	7,070,720

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

PARK NATIONAL CORPORATION

Consolidated Condensed Statements of Income (Unaudited)
(dollars in thousands, except per share data)

		Three Months Ended
		March 31,
		2009				2008
Interest and dividend income:
Interest and fees on loans		$	69,088			$	79,010
Interest and dividends on:
Obligations of U.S. Government, its agencies and other securities			23,828				20,705
Obligations of states and political subdivisions			422				654
Other interest income			27				99
Total interest and dividend income			93,365				100,468
Interest expense:
Interest on deposits:
Demand and savings deposits			2,905				7,358
Time deposits			14,374				19,199
Interest on borrowings:
Short-term borrowings			1,186				4,751
Long-term debt			6,667				7,676
Total interest expense			25,132				38,984
Net interest income			68,233				61,484
Provision for loan losses			12,287				7,394
Net interest income after provision for loan losses			55,946				54,090
Other income:
Income from fiduciary activities			2,860				3,573
Service charges on deposit accounts			5,161				5,784
Other service income			5,546				3,077
Other			5,643				8,605
Total other income			19,210				21,039
Gain on sale of securities			—				309

Continued

PARK NATIONAL CORPORATION
Consolidated Condensed Statements of Income (Unaudited)
(Continued)
(dollars in thousands, except per share data)

		Three Months Ended
		March 31,
		2009				2008
Other expense:
Salaries and employee benefits		$	25,487			$	24,671
Occupancy expense			3,158				3,025
Furniture and equipment expense			2,378				2,317
Other expense			14,839				13,264
Total other expense			45,862				43,277
Income before income taxes			29,294				32,161
Income taxes			7,904				9,183
Net income		$	21,390			$	22,978
Preferred stock dividends			1,440				0
Income available to common shareholders		$	19,950			$	22,978
Per Common Share:
Income available to common shareholders
Basic		$	1.43			$	1.65
Diluted		$	1.43			$	1.65
Weighted average common shares outstanding
Basic			13,971,720				13,964,572
Diluted			13,971,720				13,964,572
Cash dividends declared		$	0.94			$	0.94

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Consolidated Condensed Statements of Changes in Stockholders’ Equity (Unaudited)
(dollars in thousands, except share data)

																		Accumulated
														Treasury				Other
		Preferred				Common				Retained				Stock				Comprehensive				Comprehensive
Three Months ended March 31, 2009 and 2008		Stock				Stock				Earnings				at Cost				Income (loss)				Income
BALANCE AT DECEMBER 31, 2007		$	0			$	301,213			$	489,511			$	(208,104	)		$	(2,608	)
Net Income											22,978											$	22,978
Other comprehensive income (loss), net of tax:
Unrealized net holding (loss) on cash flow hedge, net of taxes $(306)																			(568	)			(568	)
Unrealized net holding gain on securities available-for-sale, net of taxes $7,432																			13,803				13,803
Total comprehensive income																						$	36,213
Cash dividends on common stock at $.94 per share											(13,081	)
Cumulative effect of new accounting pronouncement pertaining to endorsement split-dollar life insurance											(11,634	)
SFAS No.158 measurement date adjustment, net of taxes $(178)											(331	)
BALANCE AT MARCH 31, 2008		$	0			$	301,213			$	487,443			$	(208,104	)		$	10,627
BALANCE AT DECEMBER 31, 2008		$	95,721			$	305,507			$	438,504			$	(207,665	)		$	10,596
Net Income											21,390											$	21,390
Other comprehensive income (loss), net of tax:
Unrealized net holding (loss) on cash flow hedge, net of taxes $(10)																			(20	)			(20	)
Unrealized net holding gain on securities available-for-sale, net of taxes $3,538																			6,568				6,568
Total comprehensive income																						$	27,938
Cash dividends on common stock at $.94 per share											(13,134	)
Amortization of discount on preferred stock			191								(191	)
Preferred stock dividends											(1,249	)
BALANCE AT MARCH 31, 2009		$	95,912			$	305,507			$	445,320			$	(207,665	)		$	17,144

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

PARK NATIONAL CORPORATION

Consolidated Condensed Statements of Cash Flows (Unaudited)
(dollars in thousands)

		Three Months Ended
		March 31,
		2009				2008
Operating activities:
Net income		$	21,390			$	22,978
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, accretion and amortization			518				(128	)
Provision for loan losses			12,287				7,394
Other than temporary impairment on investment securities			238				—
Stock dividends on Federal Home Loan Bank stock			—				(725	)
Realized net investment security gains			—				(309	)
Amortization of core deposit intangibles			937				1,006
Changes in assets and liabilities:
Decrease (increase) in other assets			7,350				(7,908	)
(Decrease) increase in other liabilities			(8,043	)			1,884
Net cash provided by operating activities			34,677				24,192
Investing activities:
Proceeds from sales of available-for-sale securities			0				25,309
Proceeds from maturity of:
Available-for-sale securities			120,472				106,059
Held-to-maturity securities			946				164
Purchases of:
Available-for-sale securities			(50,000	)			(319,139	)
Held-to-maturity securities			(37,394	)			(41,882	)
Net increase in other investments			(114	)			(730	)
Net increase in loans			(80,533	)			(36,299	)
Purchases of bank owned life insurance, net			—				(8,100	)
Purchases of premises and equipment, net			(1,489	)			(4,076	)
Net cash used for investing activities			(48,112	)			(278,694	)

Continued

PARK NATIONAL CORPORATION
Consolidated Condensed Statements of Cash Flows (Unaudited)
(Continued)
(dollars in thousands)

		Three Months Ended
		March 31,
		2009				2008
Financing activities:
Net increase in deposits		$	158,463			$	80,517
Net decrease in short-term borrowings			(173,885	)			(5,365	)
Proceeds from issuance of long-term debt			—				200,000
Repayment of long-term debt			(2,183	)			(2,897	)
Cash dividends paid on common and preferred stock			(13,855	)			(26,254	)
Net cash (used for) provided by financing activities			(31,460	)			246,001
Decrease in cash and cash equivalents			(44,895	)			(8,501	)
Cash and cash equivalents at beginning of year			171,261				193,397
Cash and cash equivalents at end of period		$	126,366			$	184,896
Supplemental disclosures of cash flow information:
Cash paid for:
Interest		$	25,888			$	38,396
Income taxes		$	0			$	1,000

SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

PARK NATIONAL CORPORATION

Note 1 — Basis of Presentation

The accompanying unaudited consolidated condensed financial statements included in this report have been prepared by Park National Corporation (the “Registrant”, “Corporation”, “Company”, or “Park”) and all of its subsidiaries. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of results of operations for the interim periods included herein have been made. The results of operations for the three months ended March 31, 2009 are not necessarily indicative of the operating results to be anticipated for the fiscal year ending December 31, 2009.

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and footnotes necessary for a fair presentation of the condensed balance sheets, condensed statements of income, condensed statements of changes in stockholders’ equity and condensed statements of cash flows in conformity with U.S. generally accepted accounting principles (“GAAP”). These financial statements should be read in conjunction with the consolidated financial statements incorporated by reference in the Annual Report on Form 10-K of Park for the fiscal year ended December 31, 2008 from Park’s 2008 Annual Report to Shareholders.

Park’s significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in Park’s 2008 Annual Report to Shareholders. For interim reporting purposes, Park follows the same basic accounting policies, as updated by the information contained in this report, and considers each interim period an integral part of an annual period.

Note 2 — Recent Accounting Pronouncements

Adoption of New Accounting Pronouncements:

Accounting for Business Combinations: On December 4, 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141(R), “Business Combinations,” with the objective to improve the comparability of information that a company provides in its financial statements related to a business combination. SFAS No. 141(R) establishes principles and requirements for how the acquirer: (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The statement does not apply to combinations between entities under common control. The adoption of this statement on January 1, 2009, had no impact on Park’s financial statements and applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.

Noncontrolling Interests in Consolidated Financial Statements: In December 2007, the FASB issued Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements,” which amends Accounting Research Bulletin No. 51 “Consolidated Financial Statements” (“ARB 51”). A noncontrolling interest, also known as a “minority interest”, is the portion of equity in a subsidiary not attributable to a parent. The objective of this statement is to improve upon the consistency of financial information that a company provides in its consolidated financial statements. Consistent with SFAS No. 141(R), SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. The adoption of this Statement on January 1, 2009 did not have a material impact on Park’s consolidated financial statements.

Disclosures about Derivative Instruments and Hedging Activities: In March 2008, FASB issued SFAS No. 161 “Disclosures about Derivative Instruments and Hedging Activities” — an amendment to SFAS No. 133. This statement requires enhanced disclosures about an entity’s derivative and hedging activities and therefore should improve the transparency of financial reporting. This new accounting standard is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The adoption of this Statement on January 1, 2009, did not have a material impact on Park’s consolidated financial statements.

Recently Issued but not yet Effective Accounting Pronouncements:

Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly: On April 9, 2009, the FASB issued FASB Staff Position (FSP) FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” The FSP provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, “Fair Value Measurements”, when the volume and level of activity for the asset or liability have significantly decreased. The FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. Further, the FSP emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. The FSP amends Statement 157 to require certain additional disclosures in interim and annual periods to discuss the inputs and valuation technique(s) used to measure fair value. This FSP is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009, and shall be applied prospectively. Park will adopt this new accounting pronouncement in the second quarter of 2009. Management is still evaluating the impact of FSP 157-4.

Interim Disclosures about Fair Value of Financial Instruments: On April 9, 2009, the FASB issued FASB FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” This FSP amends FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments”, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, “Interim Financial Reporting”, to require those disclosures in summarized financial information at interim reporting periods. This FSP is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. Park will adopt this new accounting pronouncement in the second quarter of 2009. Management is still evaluating the impact of FSP FAS 107-1 and APB 28-1.

Recognition and Presentation of Other-Than-Temporary Impairments: On April 9, 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” This FSP amends the other-than-temporary impairment guidance in GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. The FSP is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. Park will adopt this new accounting pronouncement in the second quarter of 2009. Management is still evaluating the impact of FSP FAS 115-2 and FAS 124-2.

Note 3 — Goodwill and Intangible Assets

SFAS No. 142, “Goodwill and Other Intangible Assets (as amended)” requires goodwill to be tested for impairment on an annual basis, or more frequently if circumstances indicate that an asset might be impaired, by comparing the fair value of such goodwill to its recorded or carrying amount. If the carrying amount of the goodwill exceeds the fair value, an impairment charge must be recorded in an amount equal to the excess. Park’s management performed the annual goodwill impairment analysis as of March 31, 2009. Based on this analysis, the Company concluded that goodwill is not considered impaired.

Additional information pertaining to Park’s goodwill and intangible assets is disclosed in Note 1 and Note 2 of the Notes to Consolidated Financial Statements included in Park’s 2008 Annual Report to Shareholders.

The following table shows the activity in goodwill and core deposit intangibles for the three months ended March 31, 2009.

						Core Deposit
(In Thousands)		Goodwill				Intangibles				Total
December 31, 2008		$	72,334			$	13,211			$	85,545
Amortization			—				<937	>			<937	>
March 31, 2009		$	72,334			$	12,274			$	84,608

The core deposit intangibles are being amortized to expense principally on the straight-line method, over periods ranging from six to ten years. Management expects that the core deposit intangibles amortization expense will be approximately $.9 million per quarter for the second, third and fourth quarters of 2009.

Core deposit intangibles amortization expense is projected to be as follows for each of the following years:

		Annual
(In Thousands)		Amortization
2009		$	3,746
2010			3,422
2011			2,677
2012			2,677
2013			689
Total		$	13,211

Note 4 — Allowance for Loan Losses

The allowance for loan losses is that amount management believes is adequate to absorb probable incurred credit losses in the loan portfolio based on management’s evaluation of various factors including overall growth in the loan portfolio, an analysis of individual loans, prior and current loss experience, and current economic conditions. A provision for loan losses is charged to operations based on management’s periodic evaluation of these and other pertinent factors.

The following table shows the activity in the allowance for loan losses for the three months ended March 31, 2009 and 2008.

		Three Months Ended
		March 31,
(In Thousands)		2009				2008
Average Loans		$	4,549,313			$	4,229,423
Allowance for Loan Losses:
Beginning Balance		$	100,088			$	87,102
Charge-Offs:
Commercial, Financial and Agricultural			1,386				421
Real Estate — Construction			6,488				2,611
Real Estate — Residential			1,763				3,599
Real Estate — Commercial			421				1,100
Consumer			3,170				2,270
Total Charge-Offs			13,228				10,001
Recoveries:
Commercial, Financial and Agricultural			401				216
Real Estate — Construction			506				—
Real Estate — Residential			503				64
Real Estate — Commercial			250				17
Consumer			471				1,050
Lease Financing			1				6
Total Recoveries			2,132				1,353
Net Charge-Offs			11,096				8,648
Provision for Loan Losses			12,287				7,394
Ending Balance		$	101,279			$	85,848
Annualized Ratio of Net Charge-Offs to Average Loans			.99	%			.82	%
Ratio of Allowance for Loan Losses to End of Period Loans			2.22	%			2.02	%

Note 5 — Earnings Per Common Share

The following table sets forth the computation of basic and diluted earnings per common share for the three months ended March 31, 2009 and 2008.

		Three Months Ended
		March 31,
(Dollars in Thousands, Except per Share Data)		2009				2008
Numerator:
Income Available to Common Shareholders		$	19,950			$	22,978
Denominator:
Denominator for Basic Earnings Per Share (Weighted Average Common Shares Outstanding)			13,971,720				13,964,572
Effect of Dilutive Securities			—				—
Denominator for Diluted Earnings Per Share (Weighted Average Common Shares Outstanding Adjusted for the Dilutive Securities)			13,971,720				13,964,572
Earnings Per Common Share:
Basic Earnings Per Common Share		$	1.43			$	1.65
Diluted Earnings Per Common Share		$	1.43			$	1.65

For the three-month periods ended March 31, 2009 and 2008, options to purchase a weighted average 440,070 and 601,919 common shares, respectively, were outstanding under Park’s stock option plans. Additionally, a warrant to purchase 227,376 common shares was outstanding at March 31, 2009, related to our participation in the U.S. Treasury Capital Purchase Program (“CPP”). The shares represented by the options and the warrant, totaling 667,446 and 601,919 at March 31, 2009 and 2008, were not included in the computation of diluted earnings per common share because the respective exercise prices exceeded the market value of the underlying common shares such that their inclusion would have had an anti-dilutive effect.

Note 6 — Segment Information

The Corporation is a multi-bank holding company headquartered in Newark, Ohio. The operating segments for the Corporation are its two chartered bank subsidiaries, The Park National Bank (headquartered in Newark, Ohio) (“PNB”) and Vision Bank (headquartered in Panama City, Florida) (“VIS”). SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information (as amended)” requires management to disclose information about the different types of business activities in which a company engages and also information on the different economic environments in which a company operates, so that the users of the financial statements can better understand a company’s performance, better understand the potential for future cash flows, and make more informed judgments about the company as a whole. Park has two operating segments in accordance with SFAS No. 131, as: (i) there are two separate and distinct geographic markets in which Park operates, (ii) discrete financial information is available for each operating segment and (iii) the segments are aligned with internal reporting to Park’s chief operating decision maker. The financial information for the three months ended March 31, 2008 has been reclassified to be consistent with the presentation of the financial information for the three months ended March 31, 2009.

Operating Results for the Three Months Ended March 31, 2009
(In Thousands)

		PNB				VIS				All Other				Total
Net Interest Income		$	58,059			$	7,315			$	2,859			$	68,233
Provision for Loan Losses			3,252				8,500				535				12,287
Other Income			18,053				1,069				88				19,210
Other Expense			36,131				6,358				3,373				45,862
Net Income (Loss)			24,753				<3,969	>			606				21,390
Balances at March 31, 2009
Assets		$	6,216,227			$	942,346			$	<99,398	>		$	7,059,175

Operating Results for the Three Months Ended March 31, 2008
(In Thousands)

		PNB				VIS				All Other				Total
Net Interest Income		$	52,453			$	6,846			$	2,185			$	61,484
Provision for Loan Losses			2,094				4,800				500				7,394
Other Income and Security Gains			20,114				1,082				152				21,348
Other Expense			33,830				6,128				3,319				43,277
Net Income (Loss)			24,495				<1,832	>			315				22,978
Balances at March 31, 2008
Assets		$	5,947,587			$	917,869			$	<84,091	>		$	6,781,365

The operating results of the Parent Company and Guardian Financial Services Company (GFC) in the “All Other” column are used to reconcile the segment totals to the consolidated condensed statements of income for the periods ended March 31, 2009 and 2008. The reconciling amounts for consolidated total assets for both of the periods ended March 31, 2009 and 2008, consist of the elimination of intersegment borrowings and the assets of the Parent Company and GFC which are not eliminated.

Note 7 — Stock Option Plans

Park did not grant any stock options during the three month periods ended March 31, 2009 and 2008. Additionally, no stock options vested during the first three months of 2009 or 2008.

The following table summarizes stock option activity during the first three months of 2009.

						Weighted
						Average Exercise
		Stock Options				Price Per Share
Outstanding at December 31, 2008			452,419			$	102.33
Granted			—				—
Exercised			—				—
Forfeited/Expired			<12,349	>			107.55
Outstanding at March 31, 2009			440,070			$	102.18

All of the stock options outstanding at March 31, 2009 were exercisable. The aggregate intrinsic value of the outstanding stock options at March 31, 2009 was $0.

No stock options were exercised during the first three months of 2009 or 2008. The weighted average contractual remaining term was 1.3 years for the stock options outstanding at March 31, 2009.

All of the common shares delivered upon exercise of incentive stock options granted under the Park National Corporation 2005 Incentive Stock Option Plan (the “2005 Plan”) and the Park National Corporation 1995 Incentive Stock Option Plan (the “1995 Plan”) are to be treasury shares. At March 31, 2009, incentive stock options (granted under both the 2005 Plan and 1995 Plan) covering 439,498 common shares were outstanding. The remaining outstanding stock options at March 31, 2009, covering 572 common shares, were granted under a stock option plan (the “Security Plan”) assumed by Park in the acquisition of Security Banc Corporation in 2001. At March 31, 2009, Park held 1,008,681 treasury shares that are allocated for the stock option plans (including the Security Plan).

Note 8 — Loans

The composition of the loan portfolio was as follows at the dates shown:

		March 31,				December 31,
(In Thousands)		2009				2008
Commercial, Financial and Agricultural		$	715,566			$	714,296
Real Estate:
Construction			520,931				533,788
Residential			1,576,757				1,560,198
Commercial			1,091,252				1,035,725
Consumer			653,264				643,507
Leases			3,738				3,823
Total Loans		$	4,561,508			$	4,491,337

Nonperforming loans are summarized as follows:

		March 31,				December 31,
(In Thousands)		2009				2008
Impaired Loans
Nonaccrual		$	140,435			$	138,498
Restructured			148				2,845
Total Impaired Loans			140,583				141,343
Other Nonaccrual Loans			18,283				21,014
Total Nonaccrual and Restructured Loans		$	158,866			$	162,357
Loans Past Due 90 Days or More and Accruing			7,807				5,421
Total Nonperforming Loans		$	166,673			$	167,778

The allowance for loan losses, specifically related to impaired loans at March 31, 2009 and December 31, 2008 was $9.5 million and $8.9 million, respectively.

Note 9 — Mortgage Loans Held For Sale

Mortgage loans held for sale are carried at their fair value as of March 31, 2009 and at the lower of cost or fair value at December 31, 2008. Due to the significant increase in mortgage originations during the first quarter, and to better match the change in fair value of commitments to sell these loans, Park elected the fair value option of accounting for mortgage loans held for sale that were originated after January 1, 2009, as permitted under SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). At March 31, 2009, Park had approximately $33.5 million in mortgage loans held for sale, which is an increase of approximately $24 million during the first three months of 2009. At December 31, 2008, Park had approximately $9.6 million in mortgage loans held for sale. These amounts are included in loans on the consolidated condensed balance sheet. (See Note 13-Derivative Instruments.) The impact of adopting the fair value option for mortgage loans held for sale added $.4 million to other service income during the quarter ended March 31, 2009.

Note 10 — Investment Securities

The amortized cost and fair values of investment securities are shown in the following table. Management evaluates investment securities on a quarterly basis for other-than-temporary impairment.

Management follows the principles of Staff Accounting Bulletin No. 59 (“SAB No. 59”) when performing the quarterly evaluation of investment securities for any other-than-temporary impairment. During 2008, Management determined that Park’s unrealized losses in the stocks of several financial institutions were other-than-temporarily impaired due to the duration and severity of the losses. Therefore, Park recognized losses of $980,000 during 2008. For the three month period ended March 31, 2009, Park has recognized impairment charges of $238,000 related to certain investments which triggered other-than-temporary impairment during 2008. These impairment charges represent the difference between each investment’s cost and fair value on March 31, 2009. No impairment charges were deemed necessary during the first quarter of 2008.

(In Thousands)

						Gross				Gross
March 31, 2009						Unrealized				Unrealized				Estimated Fair
Securities Available-for-Sale		Amortized Cost				Holding Gains				Holding Losses				Value
Obligations of U.S. Treasury and Other U.S. Government Sponsored Entities		$	126,577			$	986			$	—			$	127,563
Obligation of States and Political Subdivisions			25,691				608				35				26,264
U.S. Government Sponsored Entities’ Asset-Backed Securities and Other Asset-Backed Securities			1,289,521				56,876				5				1,346,392
Equity Securities			1,336				466				117				1,685
Total		$	1,443,125			$	58,936			$	157			$	1,501,904

						Gross				Gross
March 31, 2009						Unrecognized				Unrecognized				Estimated
Securities Held-to-Maturity		Amortized Cost				Holding Gains				Holding Losses				Fair Value
Obligations of States and Political Subdivisions		$	10,097			$	72			$	—			$	10,169
U.S. Government Sponsored Entities’ Asset-Backed Securities and Other Asset-Backed Securities			454,702				12,706				170				467,238
Total		$	464,799			$	12,778			$	170			$	477,407

(In Thousands)

						Gross				Gross
December 31, 2008						Unrealized				Unrealized				Estimated
Securities Available-for-Sale		Amortized Cost				Holding Gains				Holding Losses				Fair Value
Obligations of U.S. Treasury and Other U.S. Government Sponsored Entities		$	127,628			$	1,060			$	—			$	128,688
Obligation of States and Political Subdivisions			26,424				503				33				26,894
U.S. Government Sponsored Entities’ Asset-Backed Securities and Other Asset-Backed Securities			1,357,710				47,050				229				1,404,531
Equity Securities			1,461				428				106				1,783
Total		$	1,513,223			$	49,041			$	368			$	1,561,896

						Gross				Gross
December 31, 2008						Unrecognized				Unrecognized				Estimated
Securities Held-to-Maturity		Amortized Cost				Holding Gains				Holding Losses				Fair Value
Obligations of States and Political Subdivisions		$	10,294			$	79			$	—			$	10,373
U.S. Government Sponsored Entities’ Asset-Backed Securities and Other Asset-Backed Securities			418,056				5,035				29				423,062
Total		$	428,350			$	5,114			$	29			$	433,435

The unrealized losses on debt securities are primarily the result of interest rate changes, credit spread widening on agency-issued mortgage related securities, general financial market uncertainty and unprecedented market volatility. Management believes these conditions will not prohibit Park from receiving its contractual principal and interest payments on its debt securities.

Note 11 — Other Investment Securities

Other investment securities consist of stock investments in the Federal Home Loan Bank and the Federal Reserve Bank. These restricted stock investments are carried at their redemption value.

		March 31,				December 31,
(In Thousands)		2009				2008
Federal Home Loan Bank Stock		$	62,043			$	61,929
Federal Reserve Bank Stock			6,876				6,876
Total		$	68,919			$	68,805

Note 12 — Pension Plan

Park has a noncontributory defined benefit pension plan covering substantially all of its employees. The plan provides benefits based on an employee’s years of service and compensation.

Park’s funding policy is to contribute annually an amount that can be deducted for federal income tax purposes using a different actuarial cost method and different assumptions from those used for financial reporting purposes. Park made a pension plan contribution of $20.0 million in January 2009.

The following table shows the components of net periodic benefit expense:

		Three Months Ended
		March 31,
(In Thousands)		2009				2008
Service Cost		$	953			$	863
Interest Cost			858				789
Expected Return on Plan Assets			<1,089	>			<1,152	>
Amortization of Prior Service Cost			8				8
Recognized Net Actuarial Loss			511				—
Benefit Expense		$	1,241			$	508

Note 13 — Derivative Instruments

SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”), as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Additionally, SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (SFAS No. 161), an amendment of SFAS No. 133, requires enhanced disclosures about an entity’s derivative and hedging activities. As required by SFAS No. 133, the Company records all derivatives on the consolidated balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings) and subsequently reclassified into earnings when the hedged transaction affects earnings, with any ineffective portion of changes in the fair value of the derivative recognized directly in earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged item or transaction.

During the first quarter of 2008, the Company executed an interest rate swap to hedge a $25 million floating-rate subordinated note that was entered into by Park during the fourth quarter of 2007. The Company’s objective in using this derivative is to add stability to interest expense and to manage its exposure to interest rate risk. Our interest rate swap involves the receipt of variable-rate amounts in exchange for fixed-rate payments over the life of the agreement without exchange of the underlying principal amount, and has been designated as a cash flow hedge.

As of March 31, 2009, no derivatives were designated as fair value hedges or hedges of net investments in foreign operations. Additionally, the Company does not use derivatives for trading or speculative purposes.

At March 31, 2009, the derivative’s fair value of <$2.0> million was included in other liabilities. No hedge ineffectiveness on the cash flow hedge was recognized during the quarter. At March 31, 2009, the variable rate on the $25 million subordinated note was 3.23% (3-month LIBOR plus 200 basis points) and Park was paying 6.01% (4.01% fixed rate on the interest rate swap plus 200 basis points).

For the three months ended March 31, 2009, the change in the fair value of the derivative designated as a cash flow hedge reported in other comprehensive income was <$20> thousand (net of taxes of $10 thousand). Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt.

On January 1, 2008, Park implemented SEC Staff Accounting Bulletin No. 109, “Written Loan Commitments Recorded at Fair Value through Earnings” (“SAB 109”). As reported in Park’s Form 10-K for the year ended December 31, 2008, the implementation of SAB 109 was not material to Park’s financial statements for the year ended December 31, 2008.

As of March 31, 2009, Park had mortgage loan rate lock commitments outstanding of approximately $77.0 million. Park has specific forward contracts to sell each of these loans to a third party investor. In accordance with SFAS No. 157 and SAB 109, the loan commitments represent derivative instruments, which are required to be carried at fair value. The derivative instruments used are not designated as hedges under SFAS No. 133. At March 31, 2009, the fair value of the derivatives was approximately $.8 million. The fair value of the derivatives are included within loans held for sale and the corresponding income is included within other service income. Gains and losses resulting from expected sales of mortgage loans are recognized when the respective loan contract is entered into between the borrower, Park, and the third party investor. The fair value of Park’s mortgage interest rate lock commitments (IRLCs) is based on current secondary market pricing.

Note 14 — Loan Servicing

Park serviced sold mortgage loans of $1,391 million at March 31, 2009, compared to $1,402 million at March 31, 2008. At March 31, 2009, $62.6 million of the sold mortgage loans were sold with recourse compared to $65.9 million at March 31, 2008. Management closely monitors the delinquency rates on the mortgage loans sold with recourse. At March 31, 2009, management determined that no liability was deemed necessary for these loans.

When Park sells mortgage loans with servicing rights retained, servicing rights are initially recorded at fair value. Park adopted SFAS No. 156, “Accounting for Servicing of Financial Assets - an amendment of FASB Statement No. 140”, on January 1, 2007, and selected the “amortization method”, whereby the servicing rights capitalized are amortized in proportion to and over the period of estimated future servicing income of the underlying loan. At the end of each reporting period, the carrying value of mortgage servicing rights (“MSRs”) is assessed for impairment with a comparison to fair value. MSRs are carried at the lower of their cost or fair value.

Activity for MSRs and the related valuation allowance follows:

		Three Months Ended
		March 31,
(In Thousands)		2009
Mortgage Servicing Rights:
Carrying Amount, Net, Beginning of Period		$	8,306
Additions			1,838
Amortization			<1,586	>
Changes in Valuation Inputs & Assumptions			204
Carrying Amount, Net, End of Period		$	8,762
Valuation Allowance:
Beginning of Period		$	<1,645	>
Changes Due to Fair Value Adjustments			204
End of Period		$	<1,441	>

Servicing fees included in other service income was $1.3 million for the three months ended March 31, 2009.

Note 15 — Fair Value

SFAS No. 157 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. SFAS No. 157 describes three levels of inputs that Park uses to measure fair value:

•

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

•

Level 2: Level 1 inputs for assets or liabilities that are not actively traded. Also consists of an observable market price for a similar asset or liability. This includes the use of “matrix pricing” used to value debt securities absent the exclusive use of quoted prices.

•

Level 3: Consists of unobservable inputs that are used to measure fair value when observable market inputs are not available. This could include the use of internally developed models, financial forecasting, etc.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability between market participants at the balance sheet date. When possible, the Company looks to active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, the Company looks to observable market data for similar assets and liabilities. However, certain assets and liabilities are not traded in observable markets and Park must use other valuation methods to develop a fair value. The fair value of impaired loans is based on the fair value of the underlying collateral, which is estimated through third party appraisals or internal estimates of collateral values.

Mortgage loans held for sale are carried at their fair value as of March 31, 2009 and at the lower of cost or fair value at December 31, 2008 (see Note 9 — Mortgage Loans Held for Sale). On January 1, 2009, Park elected the fair value option of accounting for mortgage loans held for sale, as promulgated under SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”).

The following methods and assumptions were used by the Corporation in estimating its carrying amount for financial instruments:

Investment securities: Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. The table below excludes Park’s Federal Home Loan Bank stock and Federal Reserve Bank stock, which are carried at the redemption value, as it is not practicable to calculate their fair values.

Interest rate swaps: The fair value of interest rate swaps represents the estimated amount Park would pay or receive to terminate the agreements, considering current interest rates and the current creditworthiness of the counterparties.

Mortgage Loans Held for Sale: Mortgage loans held for sale are estimated using security prices for similar product types, and therefore, are classified in Level 2.

Mortgage Servicing Rights: MSRs do not trade in active, open markets with readily observable prices. For example, sales of MSRs do occur, but precise terms and conditions typically are not readily available. Accordingly, MSRs are classified as Level 2.

Interest Rate Lock Commitments: IRLCs are based on current secondary market pricing and are classified as Level 2.

Assets and Liabilities Measured on a Recurring Basis:

The following table presents financial assets and liabilities measured on a recurring basis:

Fair Value Measurements at March 31, 2009 Using:
(In Thousands)

														Balance at
Description		Level 1				Level 2				Level 3				March 31, 2009
Assets
Available-for-Sale Securities		$	1,685			$	1,497,366			$	2,853			$	1,501,904
Mortgage Loans Held for Sale			—				33,523				—				33,523
Mortgage IRLCs			—				798				—				798
Liabilities
Interest Rate Swap		$	—			$	<1,967	>		$	—			$	<1,967	>

Fair Value Measurements at December 31, 2008 Using:
(In Thousands)

														Balance at
Description		Level 1				Level 2				Level 3				December 31, 2008
Assets
Available-for-Sale Securities		$	1,783			$	1,557,408			$	2,705			$	1,561,896
Liabilities
Interest Rate Swap		$	—			$	<1,937	>		$	—			$	<1,937	>

The table below is a reconciliation of the beginning and ending balances of the Level 3 inputs:

Fair Value Measurements at Reporting Date Using
Significant Unobservable Inputs (Level 3)

		Available for
(In Thousands)		Sale Securities
Beginning Balance, at January 1, 2009		$	2,705
Total Gains/(Losses)
Included in Earnings			—
Included in Other Comprehensive Income			148
Ending Balance March 31, 2009		$	2,853
Beginning Balance, at January 1, 2008		$	2,969
Total Gains/(Losses)
Included in Earnings			—
Included in Other Comprehensive Income			<107	>
Ending Balance March 31, 2008		$	2,862

Assets and Liabilities Measured on a Nonrecurring Basis:

The following table presents financial assets and liabilities measured on a nonrecurring basis:

Fair Value Measurements at March 31, 2009 Using
(In Thousands)

														Balance at
Description		(Level 1)				(Level 2)				(Level 3)				March 31, 2009
SFAS No. 114 Impaired Loans		$	—			$	—			$	88,199			$	88,199
Mortgage Servicing Rights			—				8,762				—				8,762

Fair Value Measurements at December 31, 2008 Using
(In Thousands)

														Balance at
Description		(Level 1)				(Level 2)				(Level 3)				December 31, 2008
SFAS No. 114 Impaired Loans		$	—			$	—			$	75,942			$	75,942
Mortgage Servicing Rights			—				8,306				—				8,306

Impaired loans, which are usually measured for impairment using the fair value of the collateral, had a carrying amount of $140.6 million at March 31, 2009. Of these, $88.2 million were carried at fair value, as a result of partial charge-offs of $32.5 million and a specific valuation allowance of $9.5 million. At December 31, 2008, impaired loans had a carrying amount of $141.3 million. Of these, $75.9 million were carried at fair value, as a result of partial charge-offs of $30.0 million and a specific valuation allowance of $8.9 million. The specific valuation allowance for those loans has increased from $8.9 million at December 31, 2008 to $9.5 million at March 31, 2009.

MSRs, which are carried at lower of cost or fair value, are recorded at a fair value of $8.8 million, including a valuation allowance of $1.4 million, at March 31, 2009. At December 31, 2008, MSRs were recorded at a fair value of $8.3 million, including a valuation allowance of $1.6 million.

Note 16 — Subsequent Events

On April 16, 2009, the Company signed an agreement to sell approximately $208 million in U.S. Government agency mortgage backed securities. The transaction is scheduled to settle in June 2009 and the Company expects to record a gain on sale of approximately $7.5 million.

Note 17 — Participation in the U.S. Treasury Capital Purchase Program

On December 23, 2008, Park issued $100 million of cumulative perpetual preferred shares, with a liquidation preference of $1,000 per share (the “Senior Preferred Shares”). The Senior Preferred Shares constitute Tier 1 capital and rank senior to Park’s common shares. The Senior Preferred Shares pay cumulative dividends at a rate of 5% per annum through February 14, 2014 and will reset to a rate of 9% per annum thereafter. For the period ended March 31, 2009, Park recognized a charge to retained earnings of $1.4 million, representing the preferred stock dividend and accretion of the discount on the warrant, associated with its participation in the CPP.

As part of its participation in the CPP, Park also issued a warrant to the U.S. Treasury to purchase 227,376 common shares having an exercise price of $65.97, which is equal to 15% of the aggregate amount of the Senior Preferred Shares purchased by the U.S. Treasury. The warrant has a term of 10 years.

A company that participates must adopt certain standards for executive compensation, including (a) prohibiting “golden parachute” payments as defined in the Emergency Economic Stabilization Act of 2008 (EESA) to senior Executive Officers; (b) requiring recovery of any compensation paid to senior Executive Officers based on criteria that is later proven to be materially inaccurate; (c) prohibiting incentive compensation that encourages unnecessary and excessive risks that threaten the value of the financial institution, and (d) accept restrictions on the payment of dividends and the repurchase of common stock.

ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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: governmental intervention in the U.S. financial system; changes in consumer spending, borrowing and savings habits; deterioration in the asset value of Park’s loan portfolio may be worse than expected; Park’s ability to execute its business plan successfully and within the expected timeframe; Park’s ability to successfully integrate acquisitions into Park’s operations; general economic and financial market conditions, specifically the real estate market, either national or in the states in which Park and its subsidiaries do business, are less favorable than expected; Park’s ability to convert its Ohio-based divisions to one operating system; deterioration in credit conditions in the markets in which Park’s subsidiary banks operate; changes in the interest rate environment reduce net interest margins; competitive pressures among financial institutions increase significantly; 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; the effect of critical accounting policies and judgments; demand for loans in the respective market areas served by Park and its subsidiaries, and other risk factors relating to the banking industry as detailed from time to time in Park’s reports filed with the Securities and Exchange Commission including those described in “Item 1A. Risk Factors” of Part I of Park’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and in “Item 1A. Risk Factors” of Part II of this Quarterly Report on Form 10-Q. Undue reliance should not be placed on the forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. 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 is made, or reflect the occurrence of unanticipated events, except to the extent required by law.

Critical Accounting Policies

Note 1 of the Notes to Consolidated Financial Statements included in Park’s 2008 Annual Report to Shareholders lists significant accounting policies used in the development and presentation of Park’s consolidated financial statements. The accounting and reporting policies of Park conform with U.S. generally accepted accounting principles and general practices within the financial services industry. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.

Park considers that the determination of the allowance for loan losses involves a higher degree of judgment and complexity than its other significant accounting policies. The allowance for loan losses is calculated with the objective of maintaining a reserve level believed by management to be sufficient to absorb probable incurred credit losses in the loan portfolio. Management’s determination of the adequacy of the allowance for loan losses is based on periodic evaluations of the loan portfolio and of current economic conditions. However, this evaluation is inherently subjective as it requires material estimates, including expected default probabilities, 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 individual impaired loans reflects expected losses resulting from analyses developed through specific credit allocations for individual loans. The specific credit allocations are based on regular analyses of commercial, commercial real estate and construction loans where the internal credit rating is at or below a predetermined classification. These analyses involve a high degree of judgment in estimating the amount of loss associated with specific impaired loans.

Pools of unimpaired commercial loans and pools of homogeneous loans with similar risk characteristics are also assessed for probable losses. A loss migration analysis is performed on certain commercial, commercial real estate and construction loans. These are loans above a fixed dollar amount that are assigned an internal credit rating. Generally, residential real estate loans and consumer loans are not individually graded. The amount of loan loss reserve assigned to these loans is dependent on their net charge-off history.

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

Park’s recent adoption of SFAS No. 157 (See Note 15 — Fair Value of the Notes to Unaudited Consolidated Condensed Financial Statements in this Quarterly Report on Form 10-Q) on January 1, 2008 required management to establish a fair value hierarchy, which has the objective of maximizing the use of observable market inputs. SFAS No. 157 also requires enhanced disclosures regarding the inputs used to calculate fair value. These are classified as Level 1, 2, and 3. Level 3 inputs are largely unobservable inputs that reflect a company’s own assumptions about the market for a particular instrument. Some of these inputs could be based on internal models and cash flow analysis. At March 31, 2009, the Level 3 inputs for Park had an aggregate fair value of approximately $91.1 million. This was 5.6% of the total amount of assets measured at fair value as of the end of the first quarter. The fair value of impaired loans was approximately $88.2 million (or 97%) of the total amount of Level 3 inputs. The large majority of Park’s Level 2 inputs consist of available-for-sale (“AFS”) securities. The fair value of these AFS securities is obtained largely by the use of matrix pricing, which is a mathematical technique widely used in the financial services industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities.

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

At March 31, 2009, on a consolidated basis, Park had core deposit intangibles of $12.3 million subject to amortization and $72.3 million of goodwill, which was not subject to periodic amortization, and recorded at The Park National Bank. At March 31, 2009, the core deposit intangible asset recorded on the balance sheet of The Park National Bank was $4.0 million and the core deposit intangible asset at Vision Bank was $8.3 million. During the first quarter of 2009, Park’s management evaluated the goodwill for Park’s Ohio-based bank for impairment and concluded that the fair value of the goodwill for Park’s Ohio-based bank exceeded the carrying value of $72.3 million and accordingly was not impaired. Please see Note 3 — Goodwill and Intangible Assets of the Notes to Unaudited Consolidated Condensed Financial Statements in this Quarterly Report on Form 10-Q for additional information on intangible assets.

Comparison of Results of Operations
For the Three Months Ended March 31, 2009 and 2008

Summary Discussion of Results

Net income for the three months ended March 31, 2009 was $21.4 million compared to $23.0 million for the first quarter of 2008, a decrease of $1.6 million or 6.9%.

Net income available to common shareholders (which excludes the preferred stock dividends) was $20.0 million for the first quarter of 2009 compared to $23.0 million for the three months ended March 31, 2008. Preferred stock dividends and accretion of the discount on the warrant, pertaining to the $100 million of preferred stock issued to the U.S. Treasury on December 23, 2008, were $1.44 million for the first quarter of 2009. The decrease in net income available to common shareholders for the first quarter of 2009 compared to the first quarter of 2008 was $3.0 million or 13.2%.

Diluted earnings per common share were $1.43 for the first quarter of 2009 compared to $1.65 for the first quarter of 2008, a decrease of $.22 per share or 13.3%.

The following tables compare the components of net income for the first quarter of 2009 with the first quarter of 2008. This information is provided for Park, Vision Bank and Park excluding Vision Bank.

Park-Summary Income Statement

		Three Months Ended
		March 31,				March 31,				%
(In Thousands)		2009				2008				Change
Net Interest Income		$	68,233			$	61,484				11.0	%
Provision for Loan Losses			12,287				7,394				66.2	%
Other Income			19,210				21,039				<8.7	%>
Gain on Sale of Securities			—				309				<100.0	%>
Other Expense			45,862				43,277				6.0	%
Income Before Taxes		$	29,294			$	32,161				<8.9	%>
Income Taxes			7,904				9,183				<13.9	%>
Net Income		$	21,390			$	22,978				<6.9	%>

On March 11, 2009, Park issued a press release and filed a Current Report on Form 8-K which provided guidance on Park’s expected earnings for the first quarter. This guidance indicated that net income was projected to be $19.3 million. The actual net income for the quarter was $21.4 million, a positive variance of $2.1 million or 10.9%. The actual results for net interest income were $1.2 million higher than projected and the actual results for other income were $1.8 million higher than the projected amount.

For the first quarter of 2008, other income includes $3.1 million of income that was recognized by Park’s Ohio-based banking divisions as a result of the initial public stock offering by Visa. This positive “one-time” item added $2.0 million to net income for the first quarter of 2008.

Vision Bank — Summary Income Statement

		Three Months Ended
		March 31,				March 31,				%
(In Thousands)		2009				2008				Change
Net Interest Income		$	7,315			$	6,846				6.9	%
Provision for Loan Losses			8,500				4,800				77.1	%
Other Income			1,069				1,082				<1.2	%>
Gain on Sale of Securities			—				—				—
Other Expense			6,358				6,128				3.8	%
Income (Loss) Before Taxes		$	<6,474	>		$	<3,000	>			<115.8	%>
Income Taxes			<2,505	>			<1,168	>			<114.5	%>
Net Income (Loss)		$	<3,969	>		$	<1,832	>			<116.6	%>

For the three months ended March 31, 2009, net interest income and other income for Vision Bank were a little better than expected. However, the provision for loan losses of $8.5 million was higher than anticipated by management.

Park Excluding Vision Bank — Summary Income Statement

		Three Months Ended
		March 31,				March 31,				%
(In Thousands)		2009				2008				Change
Net Interest Income		$	60,918			$	54,638				11.5	%
Provision for Loan Losses			3,787				2,594				46.0	%
Other Income			18,141				19,957				<9.1	%>
Gain on Sale of Securities			—				309				<100.0	%>
Other Expense			39,504				37,149				6.3	%
Income Before Taxes		$	35,768			$	35,161				1.7	%
Income Taxes			10,409				10,351				.6	%
Net Income		$	25,359			$	24,810				2.2	%