ASM 2021

May 4, 2021

Hello, and welcome to the Annual Meeting of Stockholders of Heart Bancorp Inc. Please note that today's meeting is being recorded. During the meeting, we'll have a question and answer session. You can submit questions or comments at any time It is now my pleasure to turn today's meeting over to Chad Pennoni, Chairman of the Board. Mr. Pennoni, the floor is yours. Thank you very much. The meeting will now come to order. Welcome to the annual meeting of shareholders of Park Bank Incorporated. This meeting is being held by means of remote communications as a result of the COVID-nineteen pandemic. Any questions from stockholders attending the webcast will be addressed while the voting is underway. I am Chuck Pennoni, Chairman of the Board of Directors of the company, and I will act as Chairman of the meeting. Linda A. Kiser, Corporate Secretary of the company, will act as Secretary of the meeting. I would like to introduce members of your Board of Directors present today who are also participating in the meeting by remote communications. Daniel Dalton, Fred Choate, Arret Dobson, Doctor. Edward Infantilino, Anthony Giannetti, Jeffrey Kripits, Elizabeth Malovski, Vito Pantaleone, who is also our President and Chief Executive Officer, and you'll hear from Vito later on and Jack Shepherd. The Board of Directors has previously appointed Guy Gallo as the Inspector of Election to act at this meeting and any adjournments. The oath of the Inspector of Election will be attached to the minutes of this meeting. We posted the meeting procedures and rules for conduct of the annual meeting on the meeting web page for your review. In order to conduct an orderly meeting, we ask that you please follow these rules. The company has prepared a list of shareholders entitled to vote at the annual meeting as of the close of business on March 10, 2021, the record date for voting. The records of the company show there are 11,883,000 365 shares of common stock outstanding on the record date and entitled to vote at this meeting. We have previously received an affidavit that the notice of meeting and a form of proxy were mailed on or about April 2, 2021 to each holder of record on the close of business on March 10, 2021. A copy of the affidavit will be attached to the minutes of this meeting. The company has delivered to the Inspector of Election the list of shareholders and all proxies that have been received. The shareholder list will be available for inspection throughout this meeting. The Secretary has informed me that more than a majority of the shares entitled to vote at the meeting are present online or by proxy. The Inspector of Election is making an exact count and will submit a formal report on the number of shares present during the course of the meeting. A quorum is declared present subject to confirmation of that fact by the Inspector of the Elections Report. In order to save time at this meeting, we have arranged the proceedings so that the votes will be taken at this time. And while the Inspector is counting the ballots, we will continue with other business. If you have already voted by proxy, by mail, by telephone by Internet, you need not vote in person at this meeting. Shareholders participating in the webcast may vote on the web page as indicated by Vote Here and selecting the Vote Now button. I'll repeat that. Stockholders participating in the webcast may vote on the web page as indicated by Vote Here and selecting the Vote Now button. Now I would like to officially open the polls. At this time, no additional proxies may be voted. The voting by Internet on the meeting web page will close in a few minutes after we have discussed the proposals to be voted on today and those attending the meeting at the at the meeting as stated in the notice of the annual meeting is the election of 3 directors as follows: Daniel J. Dalton, Arret F. Dobson and Anthony J. Giannetti, each to serve for a 3 year term expiring in 2024 and until their successors have been elected and qualified. Under the company's bylaws, no nominations may be made at the meeting. Therefore, I declare the nominations to be closed. The vote will now be taken on the election of directors. Remember, if you have already voted by proxy, you do not need to vote today unless you want to change your vote. In order to vote today, please press the Vote Now button on our meeting web page and follow the directions. I'll repeat that. In order to vote today, please press the vote now button on our meeting web page and follow the directions. At this time, while the online voting is underway, we will take questions from meeting participants through our meeting web page. If you have a question regarding Proposal 1, All right. There are no questions at this time. The last item of business on the agenda is the ratification of the appointment of RSM US LLP as the company's independent auditor for the fiscal year ending December 31, 2021. The vote will now be taken on this proposal. Remember, if you've already voted by proxy, you do not need to vote today unless you want to change your vote. In order to vote today, please press the vote now button on our meeting web page and follow the directions. At this time, while the online voting is underway, we'll take questions from meeting participants regarding the proposal to through our meeting webpage. If you have a question, please click on the question button on the meeting webpage and text your question to me. No questions at this time. Has everyone had an opportunity to vote? If so, I declare the polls closed for proposal 2. While the Inspector of Election is counting the votes, our President and Chief Executive Officer, Mr. Vito Pantaleone, will report on the affairs of the company for fiscal year ending December 31, 2020. Mr. President, Vito? Thank you, Chuck. Good morning. I want to welcome everyone to our Annual Shareholders Meeting. But unfortunately, it's our 2nd annual meeting in a row that we have to hold virtually. Hopefully, this pandemic craziness is going to get out of the way and next year we can go back to meeting in person. So once again, the presentation will be considerably shorter and pretty basic. But before we start reviewing our company's financial performance in 2020, I want to report some changes that we made in our senior management team. As most of you know, we have had some challenges with our BSA, which is Bank Secrecy Act and compliance operation at Park Bank. We're very fortunate that we were able to hire a top examiner from the State of New Jersey Department of Banking, Donald Copeland. Donald is our Senior Vice President and BSA Officer. Don is well underway in upgrading our BSA and compliance procedures, policies and training. We had another retirement in 2020, John Hawkins. John was our Executive Vice President and our CFO. As everyone knows, John really did a great job for our company for more than 10 years. Although we're really going to miss him, we certainly wish John the best in his retirement. Replacing John Hawkins is John Kaufman. John Kaufman is our Senior Vice President and Chief Financial Officer. John was CFO for Millington Bank and that bank was recently sold. We're confident that John Coughton will continue providing us accurate, timely and transparent financials as we move forward. So let's take a look at Park Bank's financial performance in 2020 and we're going to start off with assets. We experienced strong asset growth in 2020. However, for one of the few times in our history and possibly our first time, our growth was driven by the increase in our deposits and not the increase in our loans. Our assets grew 23% in 2020 from $1,680,000,000 to 2.07 $1,000,000,000 We did experience loan growth in 2020 from $1,400,000,000 to 1.56 $1,000,000,000 and that's an 11.4% increase. However, a portion of that growth was through the funding of the government PPP loan program and that brings us to loan growth. $95,000,000 of our loans originated in 2020 were funded through the government's PPP and that stands for Payroll Protection Program and that's a government program that was established to help businesses survive the pandemic. And that accounted for 27% of our total loans originated in 2020. Although the PPP program has been very difficult for banks to say the least, There have been daily changes to the rules and there's a 1% interest rate. But we participated in the program in order to provide much needed financial support to our small business customers and our communities. We're also working very hard with our Triple P customers to obtain the loan forgiveness that is offered in this program. And I've updated this slide a little bit. We've assisted now in over $25,000,000 in loan forgiveness for our customers and that process continues. We also provided a loan payment deferral program for our consumer and commercial loan customers. Those customers that made their loan payments as required as of December 31, 2019 would have been adversely affected by the COVID-nineteen pandemic in 2020 or provided the opportunity to defer their principal and interest payments for up to 6 months. The amount that was deferred was added to the loan balance in order to provide time for our customers to recover from their financial hardship, excuse me, not heart shape, dollars 400,000,000 in loans participated in our loan payment deferral program. I'm happy to report that today the vast majority of these loans are back to paying full principal and interest payments and I think we're down to about $55,000,000 that are still on deferral and that's less than 15% of the original balance. We have and we continue to be cautious in generating new loans in the current economic environment. High unemployment and closed businesses make it very difficult to accurately underwrite the available cash flow with many businesses, especially in the high risk loan sectors of a loan portfolio. Regional and National Analysis identified hotels, restaurants and retail centers as those sectors most adversely affected by the pandemic. We always carefully monitor our loan portfolio, but we do have a little extra level of focus on these high risk loan sectors. 1 of the bright spots in our loan portfolio and the economy during the recession are residential construction loans. The housing market has exploded during this pandemic. These loans have experienced very strong sales, increased sale prices, but unfortunately also increased construction costs. If you take a look at this slide, it illustrates the loan growth of our portfolio when eliminating the PPP loans. And our loan growth without these loans was approximately 5% and that's much less than in previous years. As always, asset quality is one of the most important factors in the financial strength of a bank. Park Bank's non performing loans to assets ratio was reduced by 43% in 2020. However, the concern regarding this pandemic economy supports a conservative approach in protecting our company with a strong ALLL and that's allowance for loan and lease losses. When eliminating our PPP loans, which by the way are 100 percent guaranteed by the SBA, our allowance for loan loss reserve is over 2% of our loan portfolio. We're going to continue building our loan loss allowance until we're confident that the economy is recovering and the asset quality remains stable. As I mentioned at the beginning of my presentation, we had strong growth in our deposit balances in 2020. Our deposits grew 19 percent from $1,340,000,000 in 20 19 to $1,590,000,000 in 2020. The growth in our deposits is partly due to all the cash been generated by the various government stimulus plans and that's combined with the increase in our cannabis deposits. As of year end 2020, we had $260,000,000 in cannabis deposits. Due to the uncertainty of the cannabis industry as it is still being classified as a Schedule 1 drug by the federal government, we maintain these deposits in cash. However, there's a lot of discussion that the legalization of cannabis will be approved by the current administration and possibly sometime this year. In fact, the House has already passed Safe Harbor legislation that protects banks that are doing business in the cannabis industry. And the Senate leader has already said that he wants to take steps to legalize cannabis. So we're going to see how long this all takes. But New Jersey and several other states have approved cannabis for recreational purposes. The potential growth in this industry is substantial and it's drawing a lot of attention from other banks and other credit unions. In fact, just recently, we've seen some pretty big banks that have stuck their toe in the cannabis lake to see how that see if they're going to get involved. And that's to me, that's pretty interesting on the banks getting involved in this very, very volatile industry. There's substantial fees generated by these accounts. You can look at the slide and see that we made $2,200,000 in 2020, but there are also substantial costs. The regulatory BSA and compliance requirements are extensive and that requires Park Bank to substantially enhance these programs and that costs a lot of money. Hopefully, if the government approves the legalization of cannabis, monitoring and compliance requirements will be more normalized and costs could possibly be reduced. But we're not going to be betting on that. The next slide is one of the most important, especially for the participants in this meeting and that's the net income of your company. In 2020, we had strong earnings of $28,400,000 or $2.30 per diluted common share, although that is slightly less than our record earnings of $29,800,000 in 2019. This was accomplished while increasing our loan loss provision $5,000,000 over 20 nineteen's loan loss provision. One of the key factors of our strong earnings, especially when experiencing the decline of our interest margins and certainly the troubled economy, continues to be our tight controls of our expenses. Our cost efficiency ratio, which is one of the best indicators of the bank's control of expenses was once again one of the best in the banking industry at 30%. Another very important slide to the participants today is the growth in our shareholders' equity. Our shareholders' equity grew 13% in 2020 to $201,000,000 from $178,000,000 in 2019. Although not included in the shareholders' equity calculation, we provided additional support to our regulatory capital by raising $30,000,000 through the issuance of subordinated notes. The company's tangible book value per common share is $16.91 as of December 31, 2020. A strong capital position of our company really helps protect the financial strength of our bank, especially in these challenging times. But in addition, it also provides the capital needed to take advantage of opportunities that may become available in the market. We also saw an increase of bank stock values in 2020 and Park Bank stock price participated in the increase. Our stock price in 2020 went from a low of $9.62 per share to a high of $21.43 and that's an increase of 123% in value. Let's take a quick look at our company's financial performance in the Q1 of 2021 and we're going to compare the results to our Q1 results of 2020. And your company had a pretty good Q1 in 2021. In fact, it was a record quarter in earnings. So let's jump down to that important line and you can see we had about a 31% increase in net income from $7,200,000 in the Q1 2020 to $9,400,000 in the Q1 of 2021. 1 of the primary reasons is our continued control of expenses in addition to lowering our cost of deposits. Our assets grew 15.8 percent to $2,103,000,000 And again, I guess this the second time it was more due to our deposit growth than our loan growth. But our loans grew 5.4 percent to $1,540,000,000 But in the Q1 of 2021, about $25,000,000 of that loan growth was from the funding of the 2nd round PPP loans. And our deposits grew 17.8 percent to over $1,700,000,000 We continued to support our loan loss reserve with a $500,000 loan loss provision. The future is still uncertain. The COVID-nineteen pandemic is still playing a major role in the weakness of the economy and it certainly raises a lot of questions about the future. Although the vaccination process is well underway and depending on what show you watch or what article you read, supposedly over 50% of the country have been vaccinated. And yet, we're still seeing some increased positive COVID-nineteen tests and that's certainly confusing and a concern. We need to constantly be aware of the continued effect of this pandemic. Many states and cities are beginning to open up business and capacities, but it's a very, very slow process And there are other states and cities that have stated, if the COVID-nineteen positive tests continue to increase, tighter restrictions will be put back in place. Unemployment is still unacceptably high, although it is slowly coming down. You also have to be aware of the inflationary pressure that we're seeing, especially in the economy with increased costs in the construction industry and also the impact from the many stimulus programs that are in place and those that are still being put into place. This is substantially increasing our nation's debt and this could make it pretty difficult for the Feds to maintain their current position of keeping interest rates low for the foreseeable future. Higher interest rates could really help the banking industry with their net interest margin, but it also could have a negative effect on the economy and especially in the housing market and other interest rate sensitive industries. As I mentioned, I haven't seen a housing market like this in a long time. We have houses that sell in one day. They're selling for over list price. And I just don't see that being able to continue in the near future. We don't see strong loan growth in 2021 and that's excluding any round 2 PPP funding. As I mentioned earlier, the uncertainty of the economy makes it difficult to evaluate the feasibility of many businesses and industries. The Park Bank will continue to work very hard at controlling our expenses, maintaining strong reserves and carefully monitoring the market for potential opportunities. We're well positioned with continued strong earnings and strong capital to take advantage if any of those opportunities do come into the market, while we protect the financial strength of the company. So once again, I want to thank everyone for taking time out of your busy schedules to join this meeting today, and I'm going to see if we have had any questions sent our way while I was making the presentation. Well, I must have put all you guys to sleep because there's no questions. So again, I want to thank everyone for participating. And Mr. Pannoni, it's back to you. Okay. Thank you very much, President Vito Pantaleone, for that excellent and very comprehensive report. The bank had an excellent Q1 and you and your staff are to be commended. Thank you for your great work. The Inspector of Election has completed the account, and I will now read the report. The report of the Inspector of Election confirms that a quorum is and has been in attendance at this meeting for all purposes. The report shows that Daniel Dalton, Eric Dobson and Anthony Giannetti have each been elected to serve for a 3 year term expiring 2024 and until their successors are qualified and elected. The report shows that more than a majority of the shares present have been voted in favor of proposal 2, ratification of the appointment of RSM US LLP as company's independent auditor for the fiscal year ending December 31, 20 21. The report of Inspector of Election has been accepted and approved and will be attached to the minutes of the meeting. There being no further business to come before the meeting, a motion to adjourn is in order. Director, Doctor. Edward Infantilone has moved adjournment. Director, Eric Dobson has seconded the motion. The vote in favor has been unanimous. The motion is carried and the meeting is adjourned. Thank you for coming. We look forward to seeing you next year. And again, I want to congratulate our President and the staff for the excellent job they have done this past year and in the Q1. Meeting is adjourned. This concludes the meeting. You may now disconnect.