Summary of PARK NATIONAL CORP /OH/

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.

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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.

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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%.

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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 %>

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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 %

Net interest income and other income (for Park excluding Vision Bank) were stronger in the first quarter of 2009 than anticipated by management. The average balance of earning assets and the yield on earning assets were higher than anticipated. Other income also was stronger than anticipated as the volume of fixed rate residential mortgage loans that were originated and sold during the quarter was larger than management had projected.
As previously noted, other income for the first quarter of 2008 included $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.
Net Interest Income Comparison for the First Quarter of 2009 and 2008 Net interest income (the difference between total interest income and total interest expense) is Park's principal source of earnings, making up approximately 78.0% of total revenue for the first quarter of 2009 and 74.5% of total revenue for the first quarter of 2008. Net interest income increased by $6.7 million or 11.0% to $68.2 million for the first quarter of 2009 compared to $61.5 million for the first quarter of 2008.

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The following table compares the average balance and tax equivalent yield on interest earning assets and the average balance and cost of interest bearing liabilities for the first quarter of 2009 with the first quarter of 2008.

                                                           Three Months Ended March 31,
                                                    2009                                 2008
                                         Average             Tax              Average             Tax
(In Thousands)                           Balance         Equivalent %         Balance         Equivalent %
Loans                                  $ 4,549,313                6.18 %    $ 4,229,423                7.53 %
Taxable Investments                      1,937,334                4.99 %      1,644,411                5.06 %
Tax Exempt Investments                      36,288                6.89 %         56,236                6.74 %
Money Market Instruments                    23,746                 .48 %         11,500                3.47 %

Interest Earning Assets                $ 6,546,681                5.81 %    $ 5,941,570                6.83 %

Interest Bearing Deposits              $ 4,055,678                1.73 %    $ 3,768,060                2.83 %
Short-Term Borrowings                      576,724                 .83 %        571,553                3.34 %
Long-Term Debt                             893,884                3.03 %        771,655                4.00 %

Interest Bearing Liabilities           $ 5,526,286                1.84 %    $ 5,111,268                3.07 %
Excess Interest Earning Assets         $ 1,020,395                   -      $   830,302                   -
Net Interest Spread                                               3.97 %                               3.76 %
Net Interest Margin                                               4.26 %                               4.19 %

Average interest earning assets for the first quarter of 2009 increased by $605 million or 10.2% to $6,547 million compared to $5,942 million for the first quarter of 2008. The average yield on interest earning assets decreased by 102 basis points to 5.81% for the first quarter of 2009 compared to 6.83% for the first quarter of 2008.
Average interest bearing liabilities for the first quarter of 2009 increased by $415 million or 8.1% to $5,526 million compared to $5,111 million for the first quarter of 2008. The average cost of interest bearing liabilities decreased by 123 basis points to 1.84% for the first quarter of 2009 compared to 3.07% for the first quarter of 2008.

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Interest Rates
During 2008, the Federal Open Market Committee ("FOMC") of the Federal Reserve aggressively lowered the targeted federal funds rate from 4.25% at the beginning of the year to a range of 0% to .25% in December 2008. The targeted federal funds rate remained at 0% to .25% through the first quarter of 2009. The average federal funds rate was .18% for the first quarter of 2009 compared to 3.18% for the first quarter of 2008.
The sharp reduction in the targeted federal funds rate in 2008 by the FOMC was in response to weakness in the U.S. economy. The annualized change in the U.S. gross domestic product ("GDP") in 2008 was a positive .9% in the first quarter, a positive 2.8% in the second quarter, a negative .5% in the third quarter and a negative 6.3% in the fourth quarter. Economic conditions continue to be weak in the U.S. and the annualized change in GDP for the first quarter of 2009 is expected to be a negative 5.0%. As a result, management expects that the targeted federal funds rate will be 0% to .25% for most, if not all, of 2009. Discussion of Loans, Investments, Deposits and Borrowings Average loan balances increased by $320 million or 7.5% to $4,549 million for the three months ended March 31, 2009, compared to $4,229 million for the same period in 2008. The average yield on the loan portfolio decreased by 135 basis points to 6.18% for the first quarter of 2009 compared to 7.53% for the first quarter of 2008.
The average prime lending rate decreased by 296 basis points to 3.25% for the first quarter of 2009 compared to 6.21% for the first quarter of 2008. Management has negotiated floor interest rates on many commercial and commercial real estate loans which has prevented the yield on the loan portfolio from decreasing as much as the decrease in the prime lending rate. Management expects that the yield on the loan portfolio will be approximately 6.05% for the second quarter of 2009.
Loans outstanding increased by $70.2 million during the first quarter of 2009 and were $4,562 million at March 31, 2009. The annualized growth rate for loans was 6.3% for the first quarter of 2009. Management expects that loan growth for the remainder of 2009 will be slower, at about 3% to 4%, due to the weakness in the economy.
Long-term fixed interest rates on residential mortgage loans were extraordinarily low during most of the first quarter of 2009, with 30 year fixed interest rates at 4.75% to 5.00% and 15 year fixed interest rates at 4.25% to 4.50%. As a result of these very low rates, Park originated $182 million in fixed rate residential mortgage loans in the first quarter of 2009 compared to $56 million for the first quarter of 2008. These loans are sold in the secondary market, but Park maintains the servicing on these loans. Generally, the origination and sale of fixed rate residential mortgage loans would not have any impact on Park's balance sheet. However, due to the extraordinary volume during the first quarter of 2009, residential mortgage loans held-for-sale increased by $24 million to $34 million and contributed to Park's loan growth. Management expects that loans held-for-sale will decrease to $10 million by the end of the second or third quarter of 2009.
The average balance of taxable investment securities increased by $293 million or 17.8% to $1,937 million for the first quarter of 2009 compared to $1,644 million for the first quarter of 2008. The average yield on taxable investment securities was 4.99% for the first quarter of 2009 compared to 5.06% for the first quarter of 2008.

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The average balance of tax exempt investment securities decreased by $20 million or 35.5% to $36 million for the first quarter of 2009 compared to $56 million for the first quarter of 2008. The tax equivalent yield on tax exempt investment securities was 6.89% for the first quarter of 2009 compared to 6.74% for the first quarter of 2008.
At March 31, 2009, total investments (on an amortized cost basis) were $1,977 million compared to $2,010 million at December 31, 2008. During the first quarter of 2009, management purchased U.S. Government Agency securities of $87 million. Proceeds from the maturity and monthly principal repayments on the investment portfolio were approximately $121 million for the first quarter of 2009.
On April 16, 2009, management entered into sales agreements on approximately $208 million of U.S. Government Agency mortgage-backed securities. These securities have a 4.50% coupon and were owned by Park at a discount for a book yield of approximately 4.65%. The securities were sold for delivery in the month of June and as a result will have no impact on net interest income for the months of April and May. Management expects to recognize a $7.5 million gain on the sale of these securities during the second quarter of 2009. These securities have a weighted average remaining life of about 3 years and were sold at a give-up yield of approximately 3.35%.
In addition to the proceeds from the sale of $208 million of U.S. Government Agency mortgage-backed securities, management expects to receive an additional $160 million of cash flow from the maturity and monthly principal repayments on the investment portfolio during the second quarter of 2009. Management expects to purchase approximately $150 million to $200 million of U.S. Government Agency securities during the second quarter of 2009. This projected investment activity for the quarter implies that Park's investment portfolio will decrease by $218 million to $168 million during the second quarter.
As previously mentioned, Park purchased $87 million of U.S. Government Agency securities during the first quarter of 2009. These securities consisted of $50 million of U.S. Government Agency callable notes and $37 million of U.S. Government Agency collateralized mortgage obligations. The $50 million of callable notes yield 4.75% and have a final maturity in 10 years, but are callable after 1 year. The $37 million of collateralized mortgage obligations yield 4.59% and have an average life of about 2 years. Management anticipates that the investment securities purchased during the second quarter of 2009 will be callable notes with a final maturity of about 10 years with call dates from 1 to 3 years. The yield on investment purchases during the second quarter of 2009 is expected to be about 4.25%.
Average interest bearing deposit account balances increased by $288 million or 7.6% to $4,056 million for the first quarter of 2009 compared to $3,768 million for the first quarter of 2008. The average interest rate paid on interest bearing deposits decreased by 110 basis points to 1.73% for the first quarter of 2009 compared to 2.83% for the first quarter of 2008.
The large increase in interest bearing deposits of $288 million was partially due to an increase in deposits obtained through the use of brokers. The average balance of these brokered deposits was $192 million for the first quarter of 2009 and management did not use this source of funding in the first quarter of 2008.

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Average total borrowings were $1,471 million for the three months ended March 31, 2009 compared to $1,343 million for the same period in 2008, an increase of 9.5%. The average interest rate paid on total borrowings was 2.17% . . .