Park National (US:PRK)2021-11-03 20:16PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited consolidated condensed financial statements and key notes, including the adoption of the CECL accounting standard Consolidated Condensed Balance Sheets Total assets grew to $10.03 billion, driven by increases in cash and investment securities, while liabilities and equity also saw growth Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Assets | $10,034,018 | $9,279,021 | $755,000 | 8.1% | | Cash and cash equivalents | $877,395 | $370,474 | $506,921 | 136.8% | | Total investment securities | $1,609,303 | $1,124,806 | $484,497 | 43.1% | | Net loans | $6,820,288 | $7,092,110 | ($271,822) | -3.8% | | Total Liabilities | $8,966,106 | $8,238,765 | $727,341 | 8.8% | | Total deposits | $8,364,385 | $7,572,358 | $792,027 | 10.5% | | Total Shareholders' Equity | $1,067,912 | $1,040,256 | $27,656 | 2.7% | Consolidated Condensed Statements of Income Net income increased significantly for the nine-month period to $117.4 million, driven by a recovery of credit loss provision Key Income Statement Data (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $81,602 | $83,840 | $246,187 | $241,309 | | Provision for (recovery of) credit loss | $1,972 | $13,836 | $(6,923) | $31,213 | | Total Other Income | $32,411 | $36,558 | $97,738 | $90,008 | | Net Income | $35,434 | $30,846 | $117,397 | $82,723 | | Diluted EPS | $2.16 | $1.88 | $7.14 | $5.04 | Consolidated Condensed Statements of Cash Flows Net cash increased by $506.9 million for the nine-month period, primarily due to financing activities and a net increase in deposits Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $112,635 | $52,436 | | Net cash used in investing activities | $(186,221) | $(531,770) | | Net cash provided by financing activities | $580,507 | $566,087 | | Increase in cash and cash equivalents | $506,921 | $86,753 | Notes to Unaudited Consolidated Condensed Financial Statements The notes detail the adoption of the CECL standard, its impact on retained earnings, and potential pandemic-related effects on key estimates - The company adopted ASU 2016-13 (CECL) on January 1, 2021, using the modified retrospective method, resulting in a net decrease to retained earnings of $8.0 million3338 - The COVID-19 pandemic is noted to have a potential meaningful impact on significant estimates such as the allowance for credit losses, goodwill, and MSRs, with particular attention to loan concentrations in hotels, restaurants, and retail shopping centers32 Impact of ASC 326 (CECL) Adoption on Jan 1, 2021 (in thousands) | Account | Impact of Adoption | | :--- | :--- | | Total ACL on loans | $6,090 | | ACL on off-balance sheet commitments | $3,866 | | Net deferred tax liability | $(2,115) | | Shareholders' equity | $(7,956) | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the significant year-over-year increase in net income, driven by credit loss provision recovery and improved economic forecasts - Net income for the nine months ended Sep 30, 2021, was $117.4 million, a 41.9% increase from $82.7 million in the same period of 2020, largely driven by a $35.9 million positive swing in the provision for credit losses at the PNB segment265275285 - The company participated extensively in the Paycheck Protection Program (PPP), originating a total of $768.5 million in loans across two rounds, with a remaining balance of $131.5 million as of Sep 30, 2021254269270 - Total assets grew by 8.1% to $10.03 billion in the first nine months of 2021, driven by increases in cash and investment securities, while loans decreased by 3.8% (or 0.9% excluding PPP loans)424297 Critical Accounting Policies Management identifies the Allowance for Credit Losses (ACL), Fair Value measurements, and Goodwill as critical policies requiring significant judgment - The determination of the Allowance for Credit Losses (ACL) is considered a critical accounting policy due to its reliance on material estimates, including default probabilities, loss given default, and forecasted economic conditions257 - Goodwill is evaluated for impairment annually in Q2, and the qualitative analysis performed as of April 1, 2021, determined that goodwill for the PNB reporting unit was not impaired260 Comparison of Results of Operations Year-to-date net income rose to $117.4 million, primarily due to a $6.9 million recovery of credit losses versus a $31.2 million provision in 2020 Net Income and EPS Comparison | Period | Net Income (2021) | Net Income (2020) | Diluted EPS (2021) | Diluted EPS (2020) | | :--- | :--- | :--- | :--- | :--- | | Q3 | $35.4M | $30.8M | $2.16 | $1.88 | | YTD | $117.4M | $82.7M | $7.14 | $5.04 | - The company recorded a recovery of credit losses of $6.9 million for the first nine months of 2021, a significant reversal from the $31.2 million provision for credit losses in the same period of 2020, reflecting improved economic outlooks314359 - Other expense for the nine months ended Sep 30, 2021 increased by $6.8 million, driven by a $14.3 million increase in data processing fees and a $4.0 million contribution to Park's charitable foundation401402 Comparison of Financial Condition Total assets grew 8.1% to $10.03 billion, fueled by deposit growth, while net loans decreased due to PPP loan forgiveness - Total assets increased by $755.0 million (8.1%) during the first nine months of 2021, primarily due to a $506.9 million increase in cash and cash equivalents and a $484.5 million increase in investment securities424 - Total deposits increased by $792.0 million (10.5%) to $8.36 billion, and the company utilized an off-balance sheet program holding an additional $818.3 million in insured cash sweep deposits425300 - Shareholders' equity increased by $27.7 million to $1.07 billion, driven by $117.4 million in net income, offset by $54.4 million in dividends and a $13.4 million decline in AOCI426 Quantitative and Qualitative Disclosures About Market Risk The company maintains an asset-sensitive position, with net income projected to rise by 6.6% in a +200 bps rate scenario - At September 30, 2021, the twelve-month cumulative rate sensitivity gap was a positive $1,871.8 million, representing 20.3% of total interest earning assets, indicating an asset-sensitive position441 - An earnings simulation model at September 30, 2021, projected that a gradual 200 bps increase in rates over 12 months would increase net income by 6.6%, while a 200 bps decrease would reduce net income by 13.5%443 Controls and Procedures Management concluded that disclosure controls and procedures were effective, noting control modifications related to the adoption of CECL - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the quarter444 - In relation to the adoption of CECL (ASU 2016-13) on January 1, 2021, the company designed new controls and modified existing ones over financial reporting, particularly concerning model governance, assumptions, and loan-level data445 PART II. OTHER INFORMATION Legal Proceedings The company is not a party to any material legal proceedings outside of routine litigation incidental to its business - There are no pending legal proceedings considered to be material, except for routine legal proceedings incidental to business448 Risk Factors No material changes to risk factors are reported since the last Annual Report on Form 10-K - The report refers to the detailed discussion of risk factors in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020, indicating no material changes449 Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 137,659 common shares during the quarter, with 1,195,088 shares remaining under its repurchase programs Issuer Purchases of Equity Securities (Q3 2021) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2021 | 0 | N/A | | August 2021 | 75,000 | $118.21 | | September 2021 | 62,659 | $114.60 | | Total | 137,659 | $116.57 | - As of September 30, 2021, the maximum number of common shares that may yet be purchased under the company's various repurchase programs is 1,195,088451 Exhibits This section lists all filed exhibits, including required CEO/CFO certifications and Inline XBRL financial data - The filing includes CEO and CFO certifications as required by Sarbanes-Oxley Sections 302 and 906457462 - Financial statements and notes are provided in Inline XBRL format as required by the SEC462