Park National Corp.’s (PRK) third-quarter 2013 operating earnings came in at $1.23 per share, beating the Zacks Consensus Estimate of $1.21. Further, this compares favorably with the year-ago earnings of 78 cents.
Results were driven by a substantial fall in operating expenses, improved profitability ratios, and a better asset quality. However, decline in net interest income and other income were the headwinds for the quarter.
Tax equivalent net income stood at $19 million compared with $12 million in the prior-year quarter.
Performance in Detail
Park National Corp’s total revenue came in at $82.8 million, down 6.6% from the prior-year quarter.
Net interest income decreased 5.3% year over year to $55.0 million. The decline mainly came on the back of lower interest and fees on loans, partially offset by declining interest expenses. Further, net interest margin fell 23 basis points from the prior-year quarter to 3.52%.
Other income declined 3.8% from the prior-year quarter to $17.4 million.
Non-interest expense dropped 2.1% year over year to $44.7 million. The fall was primarily attributable to a decline in professional fees and services expenses, marketing costs and insurance costs.
The efficiency ratio rose to 61.57% from 58.71% recorded in the prior-year quarter. The rise indicates deterioration in profitability.
Asset quality exhibited an improvement during the quarter with total nonperforming assets decreasing 13.6% on a year-over-year basis to $197.9 million.
Annualized net charge-off rate was a recovery of 0.02% of average loans compared with net charge-off rate of 1.79% in the year-ago period.
Likewise, provision for credit losses declined 85% from the prior-year quarter to $2.5 million. However, allowance for loan losses rose 4.2% year over year to $57.9 million.
Loans and Deposits
As of Sep 30, 2013, Park National Corp’s total loans were $4.6 billion, up 3.9% from the previous-year quarter. Total deposits were $4.9 billion, increasing 1.2% year over year.
The company’s capital ratios remained strong in the quarter. As of Sep 30, 2013, common equity ratio as a percentage of period end assets was 9.44% compared with 9.76% in the year-ago quarter. Further, tangible common equity ratio as a percentage of tangible assets was 8.45% compared with 8.78% in the prior-year quarter.
Park National Corp’s profitability ratios improved during the third quarter. The return on average assets, on a non-GAAP basis was 1.13%, compared with 0.71% as of Sep 30, 2012.
As of Sep 30, 2013, on a non-GAAP basis, return on average equity came in at 13.36%, up from 8.07% as of Sep 30, 2012. However, book value per common share on a non-GAAP basis was $36.36, down from $38.06 at the end of the year-ago period.
Concurrent with the earnings release, Park National Corp announced a quarterly cash dividend of 94 cents per share to be paid on Dec 10 to shareholders of record as of Nov 22.
Park National Corp’s consistent organic growth, improving credit quality and a strong balance sheet are impressive. However, mounting expenses, the prevailing low interest rate environment and a stringent regulatory landscape remain major near-term concerns.
The company currently carries a Zacks Rank #2 (Buy). Besides Park National Corp,, some better-performing banking stocks in the Mid-West region include Private Bancorp Inc. (PVTB), Tower Financial Corporation (TOFC) and First Midwest Bancorp Inc. (FMBI), all carrying a Zacks Rank #1 (Strong Buy).