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Park National Corp.’s (PRK - Snapshot Report) shares slid 1.6% in the intra-day trading on Jan 28 following the company’s release of its fourth-quarter 2013 results after the closing bell on Jan 27.  Earnings per share of $1.13 missed the Zacks Consensus Estimate of $1.23. However, the reported figure compared favorably with $1.06 earned in the prior-year quarter.

For the full year 2013, the company recorded earnings per share of $5.01 versus $4.88 in 2012. Moreover, earnings comfortably beat the Zacks Consensus Estimate of $4.81.

Results were negatively impacted by decline in net interest income and higher operating expense, partially offset by lower provision for loan losses and rise in non-interest income. However, improvement in credit quality and growth in loans and deposits were tailwinds for the quarter.

Net income was $17.5 million, up 7% year over year. Net income for the year 2013 was $77.2 million, up 20% year over year. Net income in 2012 excluded the gains related to the sale of Vision Bank business on Feb 2012.

Performance in Detail

Taxable equivalent net interest income was $56.2 million, down 2% from the prior-year quarter. The decline was largely due to lower interest income.

For 2013, taxable equivalent net interest income was $ 222.3 million, down 6% year over year.  

Other income was $17.8 million, up 3% on a year-over-year basis. The rise was mainly due to higher income from fiduciary activities and substantially lower other real estate owned (OREO) valuation adjustments.

Total other expenses moved up 7% to $51.1 million. The increase was mainly due to a rise in salaries and employee benefits expenses, professional fees and services expenses as well as net occupancy expenses.

Park National’s total loans improved 4% year over year to $4.6 billion as of Dec 31, 2013. Additionally, total deposits rose 2% year over year to $4.8 billion.

Credit Quality

Most of the credit quality metrics depicted an improvement in the quarter. Total nonperforming assets as a percentage of period end loans and OREO was 4.09%, down 90 basis points (bps) year over year. However, allowance for loan losses as a percentage of total loans was 1.29%, up 4 bps from the prior-year quarter.

Moreover, net loan recoveries were $1.7 million compared to charge-offs of $5.2 million in the prior-year quarter. Likewise, recovery of loan losses was $0.085 million, down from provisions of $5.2 million in the prior-year quarter.

Capital Ratios

Capital ratios improved in the quarter. As of Dec 31, 2013, the ratio of common equity to period end assets came in at 9.82%, up from 9.79% in the prior-year quarter. Tangible common equity to assets ratio as of Dec 31, 2013 was 8.82%, compared with 8.79% as of Dec 31, 2012.

Performance of Other Midwest Banks

Among other Midwest Banks, Commerce Bancshares, Inc. (CBSH - Analyst Report) missed the Zacks Consensus Estimate while Huntington Bancshares Inc. (HBAN - Analyst Report) and Associated Banc-Corp (ASBC - Analyst Report) beat the Estimate.

Our Viewpoint

The present near-zero interest rate levels, sluggish economic recovery and a stringent regulatory environment will continue to pressure the top line in the quarters ahead. Additionally, mounting expenses is a concern.

However, we remain optimistic about the company’s organic growth and efficient capital deployment activities aided by its sound capital base and solid liquidity.

Currently, Park National carries a Zacks Rank #4 (Sell).

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