AGM 2021

May 27, 2021

Welcome to the Annual Meeting for Sierra Bancorp. Our host for today's call is Kevin MacPhail, President and CEO. At this time, all participants will be in a listen only mode. I will now turn the call over to your host, Mr. MacPhail. You may begin, sir. Great. Thank you very much, Paul, and again, welcome to all of our shareholders. We will call the Annual Meeting of Shareholders for Sierra Bancorp to order. We have some introductions to make. We're excited to have our directors on the line from Sierra Bancorp, starting with Morris Tharp, our Chairman our Vice Chairman, Jim Holly then on to our directors, Susan Abundis Doctor. Albera, Julie Castle, Vaughn Christensen, Larry Duto, Rob Evans, Linda Searcy and Gordon Woods. Great to have them all on the call with us today. In addition, we have our independent accountants from Ide Bailey LLP, our partner, Mike Sosa and Senior Manager, Karen Kaboor. We also have our Corporate Legal Counsel, Ken Moore from Stewart, Moore and Stahb. In addition, we have our Executive Officer team, Hugh Boyle, our Chief Credit Officer Jennifer Johnson, our Chief Administrative Officer Matt Mesia, our Chief Risk Officer Mike Olague, our Chief Banking Officer and Christopher Treece, our Chief Financial Officer, who will be participating on the call with me today. To support the health and well-being of our employees, shareholders and communities, this year's annual meeting includes a virtual format. This is just 1 example of the many adjustments we have made to help combat the virus, while continuing to fulfill our responsibilities. If you are attending the meeting online, please take a moment to review the rules of conduct set forth for this meeting. These are made available to each shareholder in the Files section in the lower left of the screen. These rules offer guidance on a variety of aspects of the meeting, including what to do in the events we experience technology challenges, as well as considerations related to voting through the meeting site and parameters for asking questions during the meeting. During the meeting, all those participating virtually will be in listen only mode. Registered shareholders attending the meeting virtually can submit questions at any time during the meeting by clicking on the dialog icon in the upper right corner of the meeting center screen. Questions generally will be answered following the conclusion of the business portion of the meeting. Please note your name will be announced along with the question. Guests attending the meeting virtually are in registered listen only mode and will not be able to submit questions. Finally, if you are attending the virtual meeting component as a registered shareholder and have not yet voted by proxy, the online voting system will allow you to lodge your vote during the meeting until we close the voting polls. This meeting is being held pursuant to the call of the Board of Directors and the legal notice of the annual meeting dated April 15, 2021. Absent a request from a shareholder, we will dispense with the reading of the legal notice of the meeting. Next, I would like to announce that pursuant to the company's bylaws that I as President of the company will serve as Chairman of the meeting and Alexandra Blazer as Secretary of the Corporation, will serve as Secretary of the meeting. I would also like to announce that Christopher Treese, our Chief Financial Officer, has been selected by the Board of Directors to serve as Inspector of Election to tabulate the results of the voting and announce the preliminary results of the voting at this meeting. As you know, from the notice of this meeting you received, there are 4 legal actions to be taken at today's Annual Meeting of Shareholders. The election of the company's Class 2 directors, the ratification of appointment of our independent accountants, the ratification of indemnification agreements with our directors and executive officers, and finally, the advisory vote on executive compensation. Before we turn to the legal actions to be taken today, I would like to call on the Inspector of Election for the quorum report to make sure we have a valid meeting. Mr. Treece, can you tell me the number of shares issued and outstanding as of the record date for the meeting? Yes, there were 15, 410, 763 shares. And the number of shares present and voting by proxy or otherwise. Prior to the start of this meeting, we had approximately 12, 250, 000 shares, which represents 79.5% of the issued and outstanding shares. Thank you. We do have a quorum and a valid meeting. So we will now proceed to the election of directors and other business items. For those of you who have not voted by proxy or wished to cast your votes at this time, if you're attending the meeting as a registered shareholder online, you may vote using the online voting platform. Additionally, if you have already voted by proxy and wish to change your votes, if you're attending the meeting as a registered shareholder online, you may update your vote using the online voting platform. Please note that it is not necessary to fill to vote online if you have already voted by proxy. The first legal item on the agenda is the election of directors. Initially, I would like to inform you that we have not received any notices of intention to nominate a director pursuant to the bylaws. I would also like to remind you that the company does not have cumulative voting in the election of directors. And since we have a staggered or classified Board of Directors, only 6 of our 11 directors are up for reelection this year. The following individuals have been nominated to serve as Class 2 directors until the 2023 meeting of shareholders and until their successors are elected and have qualified. Those are Albert Barra, Julie Castle, Von Christensen, Larry Duto, Kevin McPhail, Gordon Woods. Now I would like to call on the inspector for the preliminary results of the voting for our Class II directors. As you probably know, your proxy card gives you the ability to vote against individual candidates in addition to being able to vote in favor of or against the whole slate of nominees. As a result, different nominees may have different numbers of votes. Mr. Treece, could you please tell me if all nominees have been elected to serve as Class II directors? Thank you. Yes, all 6 Class II directors have officially been elected or reelected to serve for an additional 2 year term. Thank you very much, Christopher. The next item on the agenda is the ratification appointment of our independent accountants. As indicated in the proxy statement, this proposal is not legally required, but the Board has chosen to voluntarily give the shareholders the opportunity to ratify or not ratify the Audit Committee's appointment of the independent accountants for the upcoming year. The Audit Committee is still required to be the body that makes the ultimate decision about the selection of the company's independent directors, but it is interested in the opinion of the shareholders concerning its decision. Now I would like to call on the Inspector again for the preliminary results of the voting. Can you tell me the number of shares voted for and against this proposal? Yes. We had approximately 12, 200, 000 shares vote for this proposal. And the number abstaining? Just 6, 000 shares upstate. And can you also tell me the percentage of shares represented and voting that were in favor of this proposal? 99.8 percent. All right. That sounds like a pass to me. Yes. The 3rd item on the agenda is the shareholder ratification of indemnification agreements with our directors and executive officers as more fully described in our proxy statements. On January 28, 2021, the Board of Directors of the company adopted indemnification agreements with each of its non employee directors and each of its executive officers, Kevin MacPhail, Christopher Treese, Hugh Boyle, Mike Ilagy, Jennifer Johnson and Matt Mesilla, all of whom I will collectively refer to as the indemnified parties. The agreements are intended to indemnify the indemnified parties from and against liability incurred in any proceeding in which he or she is made party because he or she is a director or officer of the company and are further intended to encourage the indemnified parties to excel in their respective positions with the company, which includes making business decisions deemed necessary for the long term success of the company. The proxy statement contained a detailed description of the agreements and the company's reasons for putting them in place, and our Board believes it is in the best interest of the shareholders to ratify the agreements. Now I would like to call on the Inspector again for the preliminary results of the voting. Can you tell me the number of shares voted for and against this proposal? Yes, Kevin. There were 8, 626, 000 shares voted for and approximately 679, 800 voted against this proposal. And the number abstaining? 77, 636 shares of state. And can you also tell me the percentage of shares represented and voted that were voted and voting that were voted in favor of this proposal? Yes. That ratio is 92.7% in favor of the proposal. Thank you. This proposal has been approved. The last item on the agenda is the advisory vote on executive compensation. As indicated in the proxy statement, this proposal gives our shareholders the opportunity to endorse or not endorse the executive pay program and policies compensation discussion and analysis, the executive compensation tables and any related disclosures contained in the proxy statement you receive. The compensation committee intends to take the views of the shareholders into account in making its compensation decisions. Now I would like to call on the Inspector again for the preliminary results of the voting. Can you tell me the number of shares voted for and against this proposal? Yes, there were 8, 588, 102 shares voted for the proposal, 700 and 28, 443 against. And the number abstaining? 67, 105 shares And can you also tell me the percentage of shares represented in voting that were voted in favor of this proposal? There were 92.2% in favor of the proposal. Thank you. This proposal has been approved. I now declare the voting polls officially closed. If there are any remaining ballots to be turned in, please do so as soon as possible. Mr. Therese and I will now provide our reports on the company and following those presentations take and answer questions. So now we have the formalized part of the agenda done. And so for those of you that are online, there are some slides that you can follow along with. For those of you that are on the telephone, we will verbally be going through these as well. So it's always a fun time to talk a little bit about what's going on with the bank here. And so we're excited to do that. This first slide here that Alex has put up on the screen is our Safe Harbor statement. And this is a standard Safe Harbor statement. Just reminding you that this presentation contains forward looking statements and to keep that in mind that those are those could vary as we go forward. So please do take some time to read through that when you have an opportunity. Go on to the next, Alex. All right. So as we look at some of the key metrics here for the bank and where we stand right now in terms of stock performance, Our recent stock price is $27.88 You look at the price to our earnings is $11, 020, 000 price to tangible book is about $1, 360, 000 and our most recent dividend $0.21 which gives a dividend yield, very strong dividend yield actually of a little over 3% and market cap just shy of 430, 000, 000 dollars You can see where we've tracked relative to the KBW Bank Index as well as the NASDAQ Bank Index. And you can see we've tracked along pretty well. With that, we do believe that there is some upside potential though as well. Onto the next, Alex. So the company background, just for those of you that may be new to Sierra Banc Corp, we opened in Porterville, California in 1978. It's a single branch bank with just $1, 500, 000 in capital. And if you remember, I said our market cap is down just shy of $430, 000, 000 So quite a return from the beginning. We formed our holding company in 'one. We have now reached $3, 300, 000, 000 in assets and that growth includes 2 relatively recent whole bank acquisitions. We've actually made 3 whole bank acquisitions over the last 5, 6 years. And we continue to work on maintaining our reputation as a service oriented and customer focused community bank. On the next slide, you can see our reach here throughout the state. I like seeing the northern part there. We actually have now a loan production office up in the Sacramento market and this has worked out quite well for us. But you can see that as we go from Fresno County all the way down into through Tulare, Kings, Kern over to Ventura, Santa Barbara County and up through San Luis Obispo County. We have nice coverage throughout those markets and continue to work on building market share throughout our area. Onto the next, Alex. So we have a long history as being a community bank here in the South Central Valley and really the lead community bank in the California South Central Valley. I mentioned our loan production office in Rockland as well as our team down in Southern California. We have a strong net interest margin and we have a favorable mix in earning assets that we will talk a little bit about here in just a little bit when I turn it over to Christopher. We have very low cost deposit base. Another thing that Christopher will point out here in just a moment as well. Onto the next, Alex. And so our management team, executive management team consists of myself, Christopher Treece, who you'll hear from a little bit more than just number of shares and yes and no in just a few moments, get a chance to hear him. And so you'll hear from him in a moment. Michael Lagee is our Chief Banking Officer and has been with us for a number of years. Hugh Boyle is our Chief Credit Officer and he is relatively new to the bank. He's the newest executive that is on our team following Jim Guardugno, our Chief Credit Officer, who was with us. He retired in January this year and we brought Hugh on in December, had a little bit of overlap there and Hugh is really a great addition to the team. Jennifer Johnson is our Chief Administrative Officer and fills a wonderful role overseeing IT, HR and Corporate Operations. And then Matt Mesilla is our Chief Risk Officer. Onto the next, Alex. And for this, for the financial highlights, I will turn it over to our Chief Financial Officer, Christopher Trice. Over to you, Christopher. Thank you, Kevin. Looking at our 5 year profitability trends, you can see in 2020 that our profitability or return on average assets did come down a little bit as we faced some pretty strong headwinds with the economic uncertainty created by the pandemic that mostly impacted our net interest margin as a result of lower rates in 2020, but also like a lot of other banks, we've ended up providing quite a bit in our provision for loan losses, which impacted our overall profitability. But even with that decline, we still remain extremely strong compared to peers with ROAA of 1.22% compared to peers of 0.82%. The same solid performance compared to peers also applies to return on equity and net interest margin, while our expense ratio stayed very consistent with peer levels. I also wanted to kind of point out that our net margin remained very strong given our loan demand in 2020 and our loan growth that we had. And this allowed us to improve our earning asset mix to include more higher yielding loans and less lower yielding investments and cash assets. Next slide please. As mentioned, 2020 was a strong growth year. Although 2020's growth year kind of outpaced our 5 year compounded annual growth, we still don't have double digit compounded growth looking back for the past 5 years for both loans and deposits. Next slide. The nearly 40% loan growth in 2020 resulted as a pretty significant increases in different categories of loans. In particular, we saw growth in our mortgage warehouse and in our PPP loans, we're at $119, 000, 000 at the end of the year. But the largest increase in 2020 came from our commercial real estate loans, in particular not owner occupied commercial real estate loans. Next slide, please. In 2020, we did see a slight increase in non performing assets, but they still remain well below where they were 5 years ago and significantly below where they were before that. The increase in NPAs is really caused by a handful of loans. As we continue on to the Q1 of 2021, I should point out that we still had a net recovery on loans for the Q1 of 2021. Next slide please. We continue to have a very strong core deposit base, which is consistent mostly in uninterest domain deposits and the lower interest bearing deposits as well as lower interest bearing savings. Our cost of deposits for the entire year of 2020 was 16 basis points. And at the end of the first at the end of the 4th quarter, it was actually under 10 basis points, it came in at 9 basis points for the 4th quarter and continued that way into the Q1 of 2021. Next slide. Looking at the year over year results of our deposit base, the growth in deposits came really from 3 different areas, both personal accounts, consumer type accounts as well as non personal, which is mostly business accounts. The growth in personal accounts was $217, 000, 000 or 26%. The non personal growth was $241, 000, 000 or 29 percent, so relatively similar growth in both categories in 2020. Next slide. Even though the growth came kind of from both personal and non personal accounts, as you can see from this slide, the vast majority of our customers are consumers, which we continue to serve through all of our branches. And last slide please. Last I've got to point out is our equity remains well above peers for all years here going back to 20 5 years. Although the capital ratio did come down a little bit in 2020, That was more due to the fact that our asset growth far exceeded our equity growth. Although that helped improve profitability in 2020, it did cause a decline in our overall capital ratios. We continue to be stronger than our peers on capital. And with that, I'll turn it back over to Kevin. Great. Thank you very much, Christopher. And so as we go to our last slide here, just a little bit of this is the 2020 Annual Meeting, but we thought we would point out a few things that happened as well during the Q1. We had very strong profitability, actually record profitability in the Q1 of 2021 with our diluted earnings per share of $0.72 which gave us a return on average assets of 1.4 percent and a strong return on average equity as well of 12.94%. We participated in round 2 of the SBA's Paycheck Protection Program. I'd note that we also participated in the 1st round of the PPP program during 2020 as well. Total assets as of the end of the first quarter were $3, 300, 000, 000 and that compares to $2, 700, 000, 000 dollars from just a year ago from that date. So growth, as Christopher pointed out, of $600, 000, 000 Net recoveries in the Q1, dollars 300, 000 it's really nice to see that and continued strength there in the loan portfolio. And we also continue to enhance our digital offerings as we strive to really be best in class, not just in person, but also online. And that is a really important element for us and for all financial institutions, but we believe it's particularly important for Sierra Bancorp and for Bank of the Sierra that we are able to certainly want to continue to meet and exceed those customer expectations, not just for in person service, but online as well. So with that, Alex, you can go to the last slide there. And this is typically where we would take questions and answers. There are no questions. So we don't have to provide any answers on those. But I do want to thank everybody for taking the time out and for attending our annual meeting of shareholders for Sierra Bancorp on for 2020. And so we're excited to see what lies ahead and we appreciate everybody attending. And so with that, we will adjourn the meeting.