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EverydayInvestor (< 20)

Park National Bank (PRK): TastyLunch finds another loser bank

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June 27, 2008 – Comments (15) | RELATED TICKERS: PRK , KEY , NCC

In response to TastyLunch's comment on my last blog post, I looked into Park National (PRK). Here's Tasty's comments:

"However I think I may have found one a candidate for you that you haven't seem to have picked, Park National Bank (PRK). It's based out of Central Ohio which as you know is a very bad state for RE right now and if my 5 minute crunching is right it has a texas ratio of about 62%  (I'm not sure if "bank owned life insurance" counts as intangible. I counted it that way. Also I counted the Vision Bancshares {which they acquired in 2007} NP loans in the numerator).

I hope those guys pull through . I know a lot of people at that bank.

at any rate the 10Q might be worth a look for you

http://www.sec.gov/Archives/edgar/data/805676/000095015208003535/l31341ae10vq.htm"

 

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Now here is my take:
(unless otherwise noted, data from most recent 10Q):

Shares outstanding: 13.96456m
Stock Price (current bid): $56.00
Market Cap: $782m

(data for Ohio Banks & Vision Bank combined)
NPLs: $111.3 million
OREOs: $20.1 million
NPAs: $131.4 million

Shareholders' equity: $591.2m
Goodwill & Intangibles: $143.5m
Bank owned life insurance: $128.7m

(I include this because this is being used as a way to provide benefits to officers. I will remove half the value from my adjusted book value calculation becaue most likely these have some value).

"At March 31, 2008, Park and its subsidiary banks owned $128.7 million of bank owned life insurance policies. These life insurance policies are generally subject to endorsement split-dollar life insurance arrangements. These arrangements were designed to provide a pre-and postretirement benefit for senior officers and directors of Park and its subsidiary banks. Park’s management has completed its evaluation of the impact of the adoption of EITF Issue No. 06-4 on Park’s consolidated financial statements. On January 1, 2008, Park charged approximately $11.6 million to retained earnings and recorded a corresponding liability for the same amount."

Adjusted tangible book: $383.4m
Loan loss reserves: $85.9m
Denominator of Texas ratio: $469.3m
Numerator of Texas ratio: $131.4m

Texas Ratio: 28%
P/B ratio: 2.03

Loan portfolio composition:

Commercial, Financial and Agricultural   $ 616,844    


Real Estate:                 Construction     531,657      

Residential     1,504,305      
  Commercial     997,026      
  Consumer     596,847      
  Leases     6,684      
        Total Loans   $ 4,253,363    

 

 From the 10K: "At December 31, 2007, Park’s subsidiary banks had outstanding approximately $2,017.6 million in residential real estate, home equity lines of credit and construction mortgages, representing approximately 48% of total loans outstanding. Of this amount, approximately $1,229.0 million represented residential real estate loans, $252.2 million represented home equity lines of credit and $536.4 million represented construction loans."

Vision bank is based in "the Gulf Coast communities in Baldwin County, Alabama and the Florida panhandle" which makes the following information even worse:

"At December 31, 2007, Vision Bank had approximately $295.7 million outstanding in construction loans, or 55% of Park’s consolidated total at the end of 2007. In addition to construction loans, Vision Bank had approximately $134.2 million of residential real estate loans and $31.2 million of home equity lines of credit."

Overall, Park National (PRK) looks like an easy short. It has a decent percentage of risky loans, high NPAs, and a high valuation. Simply put, if you love your money, keep it away from PRK; investing in it would be more foolish than betting on a comeback for the following band:

I Believe in a Thing Called Love - The Darkness

Disclosure: No position in PRK ... yet. I will likely short some soon after this article is published.

 

15 Comments – Post Your Own

#1) On June 27, 2008 at 10:24 AM, EverydayInvestor (< 20) wrote:

If you care, here is my new multi-monitor setup. Notice CAPS on the middle monitor:

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#2) On June 27, 2008 at 10:29 AM, EverydayInvestor (< 20) wrote:

Random note: Jerome Kerviel is 'psychologically balanced' according to Le Monde (french article). I really wouldn't mind having his French nickname: "Le trader fou" (The Crazy Trader or The Mad Trader).

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#3) On June 27, 2008 at 10:30 AM, EverydayInvestor (< 20) wrote:

erggh. Twitpic doesn't allow inlining. Here is the link to my computer, all pretty and set up.

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#4) On June 27, 2008 at 10:37 AM, EverydayInvestor (< 20) wrote:

Oh, and earnings for Park National: they are still profitable, and their earnings last quarter were $1.65 per share. Annualized, that is $6.60, or a P/E of 8.5.

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#5) On June 27, 2008 at 10:53 AM, EverydayInvestor (< 20) wrote:

Bah. PRK was up 2% on the day when I finished the article and is now down 2%. I chased it down a bit but did not get a fill on my short order.

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#6) On June 27, 2008 at 11:39 AM, slm05k (< 20) wrote:

Nice setup...is that thinkorswim running? I use them for option trading. Could you look at this bank and run some of the same analysis on it? OFG & NBG. These are the only two financials that I am long and I am short 3 of them and wouldnt touch pretty much any of the others. I feel like they are getting absolutely killed for no reason. One is in Puerto Rico and the other in Greece. Construction loans and HELOC loans shouldnt be a problem with them. Am I completely off base? The market is sure telling me I am.

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#7) On June 27, 2008 at 11:46 AM, EverydayInvestor (< 20) wrote:

slm09k -Yep. IB on the left screen, TOS on the right (with a website's chat window with it).

Banks aren't really my thing. The only reason I feel comfortable shorting a few is because I feel that I understand the housing bust more than the bankers or the analysts. I really couldn't offer much wisdom on banks that do not have exposure to high-risk loans.

I lost a bit of money on a Puerto Rican bank a year ago--WHI--the island is over-banked.

PRK dropped some more. It's down 4% from when I published this article. I've got a sell order sitting out $1.50 above the ask right now.

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#8) On June 27, 2008 at 12:15 PM, anchak (99.85) wrote:

Michael....I picked PRK also during my bank shorts in CAPS....I think they have ways to go.....their NPAs tripled if I am not correct in 2 quarters.

And they have about 1.5 BN in Construction and Land exposure. 

My only problem with them is they are not optionable.

slm05k..... Not sure about OFG....if you badly need ..I can look. I looked at DRL .....they are in bad shape. But they had about $600MM in equity infusion and actually their losses decreased. But NPAs are one of the highest - Comparable to Downey - and construction exposure - I do not know what it says about Puerto Rico - my feeling is with a T&L based economy and most commercial real estate oriented towards that - PR doesnt sound too great.

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#9) On June 27, 2008 at 1:36 PM, slm05k (< 20) wrote:

Nice setup...is that thinkorswim running? I use them for option trading. Could you look at this bank and run some of the same analysis on it? OFG & NBG. These are the only two financials that I am long and I am short 3 of them and wouldnt touch pretty much any of the others. I feel like they are getting absolutely killed for no reason. One is in Puerto Rico and the other in Greece. Construction loans and HELOC loans shouldnt be a problem with them. Am I completely off base? The market is sure telling me I am.

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#10) On June 27, 2008 at 1:42 PM, Tastylunch (30.02) wrote:

Ah ok Looks like I was over aggressive in my calculations. That makes me feel better at any rate for the people I know at PRK.

So you didn't subtract

Other assets     131,826  


from TEC? That's probably a major reason why my number was so far off.

 

My guess is Park will survive. They have a rep around Ohio as being the most risk averse bank in the state, but i fear their asset  quality is pretty poor depsite their efforts just due to the local economy. Still I think they could lose 20%+ from where they are at stock price wise.

that monitor setup is pretty sick, but your desk looks like it's sick. Treat your new rig better man! Get something better to put it on! :-)

have a good weekend!

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#11) On June 27, 2008 at 1:53 PM, EverydayInvestor (< 20) wrote:

Tasty - it's always hard to tell what is in "other assets". Sometimes decent stuff, sometimes not. I like to be conservative in my analyses--if I were considering longing PRK, I would subtract "other assets".

Here's the details on "other assets" from the 10k:

Other assets:                 Bank owned life insurance     119,472      
  Goodwill     127,320      
  Other intangible assets     17,236      
  Premises and equipment, net     66,634      
  Accrued interest receivable     30,646      
  Other real estate owned     13,443      
  Mortgage loan servicing rights     10,204      
  Other     82,614      
    Total other assets     467,569      
 

 Some of those are decent assets: premises and equipment, interest receivable, OREOs, servicing rights. I like "other" as a sub-item of "other assets". Great disclosure there.

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#12) On June 27, 2008 at 2:45 PM, AnomaLee (29.33) wrote:

I've red-thumbed other Ohio(where I stay) banks but the main reason I have been shy to red thumb Park National Bank is because there were rumors that PRK was a candidate for a M&A when the stock price was above $70. I saw this being discussed on CNBC many moons ago and the rumors seemed to be very credible....

Obviously, this never happened and I assume the industry has scared away investors much like J.C. Flowers with Sallie Mae. Besides anything with the word bank is going to get taken behind the shed and shot, but I'm with Tasty. I think they will survive, but I'm sure the stock price has further to fall.

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#13) On June 27, 2008 at 3:03 PM, EverydayInvestor (< 20) wrote:

M&A in the bank sphere is dead because of mark to market accounting rules for acquired banks. What few acquisitions there will be will be at fire-sale prices.

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#14) On June 27, 2008 at 4:01 PM, EverydayInvestor (< 20) wrote:

I finally got my short sale of PRK filled ... not bad because it was above the ask.

[$&@@] It Feels Good to be a Gangsta - Geto Boys

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#15) On June 27, 2008 at 6:42 PM, Tastylunch (30.02) wrote:

Makes sense. I was doing it quick and dirty so i didn't look at the 10-K for the breakout.

"Other Other Assets" might be my new favorite accouting term of the month. :-)

yeah you are totally right about M&A . The old adage was "banks aren't bought, they are sold", implying that banks rarely go under and they eventually get sold when they can't keep up with their peers. Somehow I don't think that's going to happen much in the next two years or so.

Heh your music tastes are as ecletic as mine. No wonder we get along :-)

GL on your PRK short, glad it got filled.

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