AGM 2021

May 27, 2021

Good morning, and welcome to the 2021 Annual Shareholders Meeting of Northrop Bancorp Inc. I'm Joe Sheerhorn, President, CEO, COO and Chairman of Northrop Bancorp. Only ballots of valid shareholders of record can be counted this morning. With me on the call today are Jed Ballard, Executive Vice President, Chief Financial Officer of North Rim Bancorp and North Rim Bank Mike Martin, Executive Vice President, General Counsel and Corporate Secretary of Northland Bancorp with the same titles for Northland Bank as well as our Chief Operating Officer for the bank. Mark Edwards, Executive Vice President, Chief Credit Officer and Bank Economist and Mike Houston, Executive Vice President, Chief Lending Officer. I also want to recognize the additional members of our executive team. Audrey Amundsen, EVP, Director of Accounting, Treasury and Financial Planning Ben Craig, EVP, Chief Information Officer and Amber Zins, EVP, Chief Administrative Officer. The level of expertise of our management team has been an integral part of our success. Our executive group has over 100 years at Northrim and a total of 188 years in banking or finance. Our senior vice presidents have a combined 168 years at the bank and 303 years in the industry. This longevity and experience continues to be a point of pride for us and a significant source of strength of the organization. Board members who are present this morning include Tony Draback, David Karp, David McCabridge, Joseph Maruschak, Crystal Nelson, Chris Swalling, Linda Thomas, David White, Larry Cash. And so I thank them for attending this virtual shareholders meeting. There may be others that join in the course of the meeting, but I'm leading off those that we are showing as in attendance at this point in time. I'd also like to recognize Louisa Hanson with Moss Adams, our independent registered public accounting. Additionally, we have representatives from our affiliates attending today. Larry Hood, CEO and President of Pacific Portfolio Consulting and Steve Aldrich, CEO and President of Residential Mortgage and Chris Haney, Chief Financial Officer for Residential Mortgage. We have enjoyed a long time relationship with each of these companies and appreciate the diverse products and services that they provide our customers. Also on the call is our independent Inspector of Election, Lew Larsen of L Square Elections LLC. Mr. Larson will canvas the votes for the shareholder proposals and will accurately report the results of such votes. Now I'd like to review this morning's agenda. First, we'll conduct the official business of the meeting, which will include approval of the 2020 Annual Meeting Minutes and the 2020 Annual Report. We will have several presentations this morning. Mark Edwards will give an update on Alaska's economy. Then Jed Ballard, Mike Barton and Mike Hewson will report on our results and activities. The shareholder votes and proxy items will then be announced. At the end of the meeting, we will answer questions from shareholders. If you would like to ask a question, please type it into the question box within the online meeting screen and be sure to state your name at the start of your question. At this time, I formally call the 2021 Northland Bancorp Inc. Annual Meeting to order. Please note that 82.96 percent of shareholders of record are present either online or by proxy and that this constitutes a quorum for the transaction of business today. Copies of the minutes from last year's annual meeting are available on the virtual meeting website during this meeting. At this time, is there a motion to waive the reading of the minutes from the 2020 Annual Meeting and accept them as written? Mr. Scherhorn, this is Chris Swalling. I move to waive the reading of the minutes of the 2020 annual meeting and to move their approval. Thank you. Is there a second? Mr. Sheerhorn, this is Linda Thomas and I second the motion. Opposed the same? The motion carries. The minutes are approved. Thank you. When you receive your proxy statement, you should have also received our 2020 Annual Report. Electronic copies are available on the virtual meeting website during this meeting. At this time, is there a motion to waive the reading of the 2020 Annual Report and accept it as written? Mr. Schierhorn, this is Chris Swallink. I move the waiver of the reading of the 2020 annual report and the approval of the 2020 Annual Report. Thank you. Is there a second? Mr. Scherhorn, this is Linda Thomas. I second the motion. Opposed to saying? Motion carries. To be fully compliant, I want to point out the following statement displayed on the screen. In short, there's a lot of information there, but in short, be aware that due to unforeseen changes in the economy, interest rates or other factors, any forward looking statements or future events we discuss today may not happen exactly as we anticipate. As a community bank, Miller's room is a reflection of our economy. And over the years, we think we've done a good job of advocating for sound economic development and fiscal policies. We do this partly through our financial support for studies to help educate the public on Alaskan's economy. We are proud to host our annual economic luncheons each year in all the markets we serve and maintain our Alaskanomics blog reporting on current economic issues. Furthermore, our affiliates help us in our outreach to go beyond what many traditional financial institutions offer. From advising us and our customers on the global economy and investment markets to mortgage lending and wealth management, Our affiliates give us a broader depth of expertise and help us inform ourselves and our customers. Now I'd like to introduce Mark Edwards to give us a look into Alaska's economy. Northam has invested in people like Mark and in other organizations and programs to help us better understand our economy. We think that's 1 of the many things that differentiates us from our competitors. Mark will now address Alaska's economy. Thank you, Mr. Sheerhorn. 2020 was a challenging year for the global economy as health policies led to significant disruption in normal business activity. It is counterintuitive to have a year where payroll jobs declined by 8.5 percent and gross state product fell nearly 5% in Alaska, yet personal income rose over 3% and housing prices and sales activity increased substantially. This was only possible because 1, 000, 000, 000 of dollars of federal stimulus money reached Alaska and helped support businesses and individuals through the most challenging times. Record low interest rates and low levels of building activity also contributed to a home price increase. Oil prices were shocked much lower at the beginning of 2020 at the height of virus fears and low level of travel activity. However, as the year progressed, oil prices returned to a more stable level and oil production levels in Alaska also followed a similar path. The demand for energy increased as the transportation and tourist sectors accelerated. March 2021 employment data from the Alaska Department of Labor shows a 6.9% reduction in total payroll jobs, a decline of 21, 900 jobs compared to March of 2020. Leisure and hospitality was hit hard from travel restrictions, down 23% year over year, a loss of 7, 200 jobs. Direct oil and gas jobs fell 36% or 3, 600 jobs. A decline in public education positions led to a 2, 000 job decrease in local government. Transportation, warehousing and utilities declined 10% or 2, 000 jobs since last March. According to the Department of Labor report, state government was the only sector to grow year over year. The 1% or 200 job increase was attributed to hiring people for contact tracing and to process unemployment insurance claims. The level of unemployment claims in the 2nd week of March was 5 times higher than the same week in 2020. Alaska's Real Growth Day product or GSP was $52, 000, 000, 000 in 2020 compared to $55, 000, 000, 000 in 20 19. According to the Federal Bureau of Economic Analysis, Alaska's reduction was 5% and the worst state was Hawaii at 8%. Those states were more negatively affected by travel restrictions reducing tourists. The U. S. GDP declined 3.5% in 2020. Alaska's GSP declines in 2020 came from transportation and warehousing followed by accommodations in food services, oil and gas and healthcare. All of these sectors showed positive recovery in the Q4 of 2020 in Alaska, helping place it 9th fastest growing for the quarter of the 50 U. S. States. Alaska's seasonally adjusted personal income for 2020 was $47, 000, 000, 000 compared to $46, 000, 000, 000 in 2019, according to another report released by the DDA. Personal income in the U. S. In 2020 increased 6% and Alaska rose 3%. Per capita income in the U. S. Was $59, 700 compared to $64, 800 in Alaska. This places Alaska the 9th highest income of the 50 U. S. States. In a typical year, the majority of personal income is derived from wage earnings. However, in 2020, earnings from wages and investments decreased in Alaska. Income growth in Alaska and across the U. S. Was almost entirely from a net 1.1 $1, 000, 000, 000, 000 increase in government transfer payments. About half of the transfer payment increase was from unemployment insurance. Direct stimulus payments accounted for a large part of the remainder. In Alaska, earnings from wages decreased 1.5% or $435, 000, 000 last year and investment income fell 1% or $65, 000, 000 Government transfer payments, however, rose 24% or $1, 900, 000, 000 over 2019 levels in Alaska. By far, the largest drop in wage earnings came from followed by state and local government and oil and gas. There were positive increases in wages in the professional and technical services industry and healthcare. Alaska's North Slope crude oil had monthly averages in 2018 2019 ranging from $59 to $80 a barrel. Prices fell quickly at the beginning of 2020 responding to fears that COVID would devastate the global economy and reduce the demand for travel. The low month was April when A and S Alaska North Slope crude averaged $16 a barrel. However, by June, the oil market stabilized and for the last 6 months, the average monthly price remained between $40 $50 In the 1st 4 months of 2021, the monthly average has climbed from $55 to over $65 a barrel. Alaska's crude oil production averaged 485, 000 barrels a day in fiscal year 2020, which ended in June. The State Department of Revenue forecasted production on the North Slope to increase nearly 1% in FY 2021 to 489, 000 barrels per day, the average production in the Q1 of 2021 has been higher than that forecast. Alaska's home mortgage delinquency and foreclosure levels continue to be better than most of the nation. According to the Mortgage Bankers Association, percentage of delinquent mortgage loans at the end of 2019 in Alaska was 2.9%. This increased considerably to 6.2% at the end of 2020. In the Q1 of 2021, it has improved to 5.4%. The comparable delinquency rate for the entire country remains higher than Alaska at 6 0.1% in the Q1 of 2021. The Mortgage Bankers Survey reported that Alaska's foreclosure rate improved from 0.63% at the end of 2019 to 0.45% at the end of 2020. In the Q1 of 2021, it improved again slightly to 0.41%. The comparable national average rate was higher than Alaska at 0.54% in the Q1 of 2021. According to the Multiple Listing Services or MLS, the average sales price of a single family home in Anchorage rose 5.9% in 2020 to $397, 000 This is following increases of 0.5% and 2.3% in 2019 2018 respectively. Average sales prices in the Matanuska and Sytna borough rose 9.9% in 2020, continuing a decade of consecutive price gains there. These 2 markets represent where the vast majority of North Rim's residential building activity occurs. The low interest rate environment has been a major factor in rising prices. According to the Federal Reserve Bank of St. Louis, the average 30 year fixed rate mortgage in the U. S. Hit an all time record low last year. Rates began in 2020 at 3.7% in the 1st week of January and fell 1% to 2.7% by the end of the year. Rates began to rise in the Q1 of 2021 and finished March at 3.2%. However, in April, they declined slightly back to 3%. The number of homes sold in Anchorage was up significantly in 2020 by 19.5%. The main difference was a record number of sales that occurred in the last quarter of the year when sales activity typically declines in the winter. The Matanuska Susitna borough also had strong sales activity of 9.7% in 2020. The Mathew also had stronger than normal sales in the second half of the year. Inflation is generally caused when there is an increase in the money supply that outpaces economic growth. 1, 000, 000, 000, 000 of dollars in COVID related deficit spending expanded the money supply and diluted the value of existing money. Spending on a home mortgage or rent is the largest expense for consumers. The rapid rise in home prices across the nation in 2020 is a large inflationary force. The 2nd largest consumer expense is energy for home heating and transportation. The price of gasoline in Anchorage rose 55.6% year over year through April of 2021. The increase in oil prices have been good for the Alaskan economy, but are a major part of rising inflation figures. The CPI or consumer price index rose 4.2% between April of 2020 April of 2021. This is the largest 12 month increase since September of 2, 008. This acceleration in inflation will be 1 of the most important economic indicators to track this year. Since the 2, 008 recession, we have benefited from a prolonged low inflation environment averaging only 1.7% a year over the last 12 years. 2% is the Federal Reserve's long term target rate for inflation and many observers feel sustained inflation over 3% will be problematic for the economy unless GDP growth also accelerates concurrently. Inflation in Alaska is measured in Anchorage by the Bureau of Labor Statistics. The CPI in Anchorage for all items rose 4.8 percent between April of 2020 April of 2021. Year over year transportation rose 16%, clothing 10%, medical care 5%, food 3% and housing was up over 2%. Supply chain disruptions have slowed the pace of economic recovery. Most impactful is a dramatically lower level of workforce productivity due to millions of workers losing their jobs. Trade with our leading partners Canada and Mexico have been affected by cross border restrictions slowing the supply of many goods and raw materials. Numerous companies did not have sufficient IT infrastructure in place to quickly react to a work from home scenario. Government permitting and regulation approvals took longer than normal in many instances. Significant storms such as the 1 that hit Texas hurt chemical production and other manufacturing. Global cargo shipping had embarrassing setbacks. These and other factors resulted in high commodity prices and low product availability throughout the world. An economic rebound is definitely occurring and is just slightly disorganized. 1, 000, 000, 000, 000 of dollars in federal stimulus money should continue to drive consumer spending and force companies to work out kinks in the supply chain to meet a growing demand for goods and services. Abundant cash is also driving investment into the stock market and leading to a slow recovery of jobs. However, it has also created inflation by expanding the money supply and diluting the value of existing money. This is putting upward pressure on interest rates as investors want to maintain a real rate of return after factoring in the effects of inflation. The yield curve is still flat and near record lows for maturities less than 2 years. However, it is getting steeper for medium and long term rates. The 5 year U. S. Treasury rate has increased 0.5% in the last year. The 10 30 year treasuries have both increased slightly over 1% since April 30, 2020. The economic roller coaster of 2020 was not a normal business cycle. It was created by governments around the world forcing millions of businesses to close or seriously constrain business activity. The economy was also rescued by massive deficit spending that reached consumers and businesses quickly to stop a serious problem. Fears of higher taxes to pay back the large deficit spending is also dampening the enthusiasm of investors and led many to question if this short run economic growth will be sustainable. At least for the near term, it appears the massive liquidity in the financial system should spur on an economic rebound. Government health regulations, changing tax rates and monetary policies will be the largest variables impacting inflation, interest rates and stock market in 2021. Companies that are nimble in a changing environment, well prepared to meet technological and distribution issues and have financial resources available can still succeed in these challenging times. Thank you. I will now turn over the presentation to Mr. Jed Ballard, our Chief Financial Officer. Thank you, Mr. Edwards. Good morning, everyone. I'm happy to be here to discuss with you Northland Bank's financial results for 2020 and the Q1 of 2021. As a reminder, you can access this slide presentation as well as all other Investor Relations documents at our website at www dotnorphram.comunderinvestorrelations. 2020 was an exceptional year with $32, 900, 000 of net income or $5.11 per share with a return on average equity of 15.5%. The bank's efforts with our customers as well as non customers through the Paycheck Protection Program, core loan growth of almost 10% and leading mortgage production by our wholly owned subsidiary Residential Mortgage provided the revenues to achieve these results. When looking at Northrop's results over the last 10 years, we have historically had solid profits and earnings metrics. However, over the last 3 years, our execution of our growth goals has helped to generate significant earnings. The financial results for 2020 place North Rim in the top 10 percent of our peer banks with assets between $1, 000, 000, 000 $5, 000, 000, 000 in terms of our return on average assets. Over the last 10 years, North Rim's tangible book value has grown by 82% with growth of 13% in 2020. As we have grown over the years and increased earnings, so has our stock price. The decrease in the average stock price the last couple of years is more reflective of the overall banking industry and not the financial performance of Northland. As of the end of Q1, 2021, our stock price was back above book value at $42.51 with a tangible book value of 34 point $0.71 or 1.22 times tangible book, which is back at the level of 2019. This slide shows the net income for the last 9 quarters, which typically would demonstrate the seasonality that is inherent in our consolidated operations. However, with the significant mortgage production from residential mortgage starting in Q2 2020 and the loan forgiveness of the 1st round of the PPP program beginning in Q4 of 2020, this was definitely not a normal year. The 1 point $3, 000, 000, 000 of loans originated in 2020 by residential mortgage resulted in significant profits for Q2 through Q4 2020 that were actually more than the Community Banking segment generated. Net income for Q1 2020 was down considerably as a result of increased provisions from the uncertainties around the potential impact from the pandemic and also the volatility in the mortgage market reducing prices for mortgage, which we sell on the secondary market. The positive trends from 2020 have carried over to Q1 of 2021 with strong mortgage production and fees from PPP loan forgiveness. However, Q1 of this year also included the reversal of the provision for credit losses as a result of improvements in credit quality and the economic factors impacting our allowance for credit losses. Over the last 4 quarters, the company has generated $44, 000, 000 of net income. 1 of our main long term goals of the bank is to grow, increasing our loans and deposits to generate more revenue. We made a significant step towards accrual in 2020 with total assets increasing $478, 000, 000, 000 to 2, 100, 000, 000 dollars growth of nearly 30%. We had growth in deposits of 33% and growth in loans of 38% and 9% excluding PPP loans. At the end of Q1 of 2021, as a result of increasing our relationships with our new customers from PPP and the impacts from the 2nd round of PPP, assets continued to grow to reach nearly $2, 400, 000, 000 an increase of nearly 40% over the last 12 months. The composition of our balance sheet has changed significantly as a result of the PPP loans originated. As of quarter end, 17% of our balance sheet related to PPP loans. When these loans are forgiven, it will result in increased liquidity for the company to be used for continued lending growth and long term investments. Our balance sheet at the beginning of the pandemic was strong. And as a result of growth and profitability over the last 12 months, our balance sheet continues to be in a very strong position. The bank's strong capital position was very important to get through the uncertainty with the pandemic as well as support the significant balance sheet growth. During 2020, many banks needed to raise capital to support the increases in assets and the uncertainties in their loan portfolios as they didn't have the capital and profits to support these items. North Rand started 2020 in a strong capital position and along with profits over the last 12 months continues to have a solid capital levels with total capital ratio well above well capitalized level. Capital levels had been consistently increasing since the purchase of both Alaska Pacific Bancshares and the remaining portion of residential mortgage in 2014. The result of increasing dividends, our share repurchase program as well as asset growth has reduced capital levels from the highs of 2017 through 2019. Capital management continues to be a priority for the bank. We are dedicated to maintaining a strong capital position, but balance this with managing the return to our shareholders and we continue to look at our growth initiatives, dividend and stock repurchase policies and opportunities for strategic expansion and acquisition. In addition to a strong capital position, the bank also continues to have a strong liquidity levels, which have increased over the last couple of months as a result of the PPP forgiveness. The main reason for this is due to the growth in deposits and the solid deposit base of the bank. The bank's loan to deposit ratio has stayed between 75% 83% over the last couple of years. The bank also closely monitors the level of unused loan commitments, which has actually increased over the last few quarters as a result of excess liquidity with some customers and them not needing to use their lines of credit or paying them down. The bank's short term investments have ranged from $55, 000, 000 to $183, 000, 000 over the last 5 quarters and provides the cash for the bank for funding operations, with the recent increases being the result of strong deposit growth as well as the PPP forgiveness. Overall, the bank's liquidity is in a very strong position. This slide shows the growth of the bank's deposit and loan portfolio over the last year. The loan portfolio has grown to over $1, 500, 000, 000 with over $414, 000, 000 of PPP loans at the end of the quarter. Core loan growth slowed slightly in Q1 of this year as a result of more than normal loan pay downs and payments on lines of credit balances. However, growth for the core loan portfolio was still over 6% compared to Q1 of last year and was over 9% for all of 2020. Deposit growth has been tremendous over the last year at $656, 000, 000 or 47%. Deposit balances got a huge lift from PPP program and the entire bank been working hard to bring over the full banking relationship from the over 1800 new customers we have obtained from the program, as well as increasing the deposit relationships from our existing customers. Our investments in the prior years in the products and services these customers need has been key to bringing over these new customers to the bank. However, without our responsiveness and customer first service, we would not be seeing this much growth. 1 key aspect to the bank's solid balance sheet is our base of core deposits with non interest bearing accounts at 37% of total deposits, up from 33% last year. This indicates that the bank has been able to grow demand deposits faster than the overall deposit balances. Demand deposits have grown by 68% compared to the overall growth of deposits of 47%. With the significant drop in interest rates in March of last year, the company has also dropped our deposit rates, which continue to be among the lowest of our peer banks. The bank's cost of deposits dropped from 64 basis points in Q1 of last year to 32 basis points this last quarter or 50%. This pie chart shows a breakout of the mix of portfolio loans as of the end of Q1 of 2021, which shows our high concentration in commercial and commercial real estate lending as well as large amount of PPP loans generated both in 2020 and through Q1 of 2021. As a result of the PPP loans, the allocation of the other loan categories have decreased. However, we have continued to see solid growth in these areas too. Commercial loans have grown by $14, 000, 000 or 3% compared to Q1 of 2020. And when looking at growth of commercial loans for 2020, it was $57, 000, 000 or 14%. Commercial real estate has also had solid growth as those balances are up $44, 000, 000 or 9% since Q1 of last year. For Q1 of 2021, the average yield on our loan portfolio was 5.08%, down from 5.69% for Q1 of 2020. As a result of the decrease in interest rates, the large amount of PPP loans, which have an interest rate of 1% and this was partially offset by the impact of recognizing the deferred loan fees upon PPP forgiveness. However, with all these downward pressures, our loan yields remain among the highest in our peer group. The PPP program has been very helpful for pandemic, the program enabled employers to continue to operate and pay their employees. North Rim was the 1st bank in the state to open up the program to customers and non customers. We worked very closely with businesses in our community throughout this program. As a result, we generated a tremendous number and value of PPP loans last year at 2, 900 loans for $376, 000, 000 This level of production was unprecedented and equated to years of production during only a couple of month period. Nearly everyone in the bank participated in the process and took pride in helping our customers. Round 2 of the PPP program continued to be very busy with more new customers applying for loans, which resulted in over 2, 100 loans for $204, 000, 000 as of the end of March 2021. The financial impact resulting from these loans has been very significant to the bank. In 2020, the program resulted in $5, 600, 000 in fees as well as $2, 500, 000 in interest. That totals 11% of the bank's net interest income for 2020. Round 2 of the PPP program has not yet had a significant impact on the income statement as those fees are deferred and a majority of the incomes will not be recognized until the loans are forgiven. For both rounds of the PPP program, the bank has over $12, 000, 000 of fees that will be either advertised over the period of the loan or recognized income when the loans are forgiven. The onset of the pandemic and the uncertainties around the potential impact on our customers and their industries resulted in management taking a heightened approach towards monitoring and assessing the company's industry concentration in our loan portfolio and disclosing those concentrations to our shareholders and potential investors. The loan portfolio is relatively diverse with no 1 industry having more than 8% concentration. The diversity of our locations in Alaska has also helped to limit our concentration risk as South Central Alaska, the Interior and Southeast Alaska have not all been impacted by the pandemic at the same level. Certain industries were impacted more by the pandemic, including tourism and accommodations. And the bank has been very proactive in working with these customers and all customers to help them get through the slowdown in their cash flows by providing either interest only payment options or full payment deferrals. We have also been working closely with our customers to assist them in other options, including additional government funding resources that are available to them. Northland has a strong focus on asset quality and the bank has worked hard to improve loan quality over the last couple of years. The items within non performing assets all relate to borrower specific issues as opposed to any economic or any specific industry issues. Over the last 2 years, we have seen a solid improvement in non performing assets, decreasing from $25, 500, 000 in Q1 of 2019 to $16, 300, 000 at the end of 2020, an improvement of 36%, with the balances bouncing back up slightly during Q1 of this year. This improvement in credit quality has had a significant impact on the overall financial results of the company, with the reversal of the provision for loan loss of $1, 200, 000 in 20.19 and a provision for loan loss of only $2, 400, 000 in 2020, given the nearly $100, 000, 000 of core loan growth and the shutdown of many businesses as a result of the pandemic. There are still many uncertainties remaining, especially in Southeast Alaska, which will have limited cruise activity this summer. However, we will continue to support our customers and work with them to be successful over the long term. Over the last year, the net interest margin has decreased to 3.92%. However, it remains 1 of the highest among our peers. This movement in the net interest margin is a combination of several factors, including the decrease in rates, the impact from a significant amount of PPP loans originated and the fees recognized from the forgiveness of those loans, the decrease in our cost of funds and also the increased liquidity of the bank. As discussed earlier, the mix of the earning assets of the bank has changed significantly, with the investment portfolio at over $300, 000, 000 as of the end of Q1 2021, up 13% from last year. The yield on the investment portfolio is also down considerably as a result of the dropping rates. Short term investments have increased a tremendous amount since last year as well and are at $183, 000, 000 at the end of Q1 of this year, up 2 30% from last year and the yield on short term investments has dropped from 1 point 3 7% in Q1 of last year to 0.12% this last quarter and was actually at those low levels for most of 2020. However, even with the drop in the net interest margin as a result of decreasing rates and changes in the mix of our earning assets, net interest income continued to climb as a result of interest rates and fees from PPP loans and the overall increase in our earning assets. For Q1 of 2020, earning assets were approximately 1, 500, 000 dollars and for Q1 of this year, average earning assets have surpassed the $2, 000, 000, 000 mark. Looking forward, management focused on using the bank's liquidity to fund loan growth in order to offset the short term financial benefit from the PPP interest and fees had to continue to increase our net interest income. The financial results over the last year have a large part to do with success of residential mortgage. Non interest income typically accounts for approximately a third of the total revenue of the company, a majority of which relates to mortgage banking income, which is a combination of net realized gains from sale of mortgages and from mortgage servicing revenue from those mortgages, which bank maintains the servicing rights. However, in 2020, other operating income accounted for almost 50% of total revenue as a result of the decrease in interest rates and therefore increased production at residential mortgage. Mortgage banking income accounted for $53, 000, 000 or 37 percent of revenues for 2020 compared to $24, 000, 000 or 23% in 2019. This level of mortgage banking income differentiates North Rim from other community banks. Another differentiator of our bank relates to the receivable factoring operations from our division in Bellevue, Washington, which provides purchase receivable income to the bank. The operations of both residential mortgage and Northland Funding Services offer excellent services for our customers. They diversify our revenues and help contribute to the overall success of the bank. This slide demonstrates the impact of the interest rate environment on mortgage production. As the bank sees lower margins from the drop in interest rates, residential mortgage sees the opposite result and increased revenues. 1 factor contributing to residential mortgages long term success is that they focus on home purchases. In 2018, less than 10 percent of production related to refinancing. However, in 2020, with the drop in interest rates to historically low levels, residential mortgage had a tremendous amount of both purchase and refinance activity, generating $1, 300, 000, 000 of mortgages, helping the bank to obtain record profits. The strong production has continued during the Q1 of 2021 with a spike in refinancing activity as a result of speculation around interest rates potentially beginning to increase. In closing, this last slide represents the performance of North Rim stock and illustrates the volatility in the stock over the last year, dropping from $40 a share in mid February of last year to $20 a share in mid May and now back up to around $45 a share. This volatility in stock price has been consistent with the overall volatility of the market as well as the volatility of the regional banking index. From March 31 last year to March 31 this year, Northrend's stock price was up 57% with the Dow Jones Industrial Average being up 50% for the same period. At a price of around $45 a share, the dividend yield of Northrop stock is just over 3%. As we go forward, management will continue to work towards growing the bank and increasing profits in order to continue to provide solid value for our shareholders. Thank you. And now I'll turn the presentation over to Mike Martin, our Corporate Secretary and General Counsel. Thank you, Jed. I'm Mike Martin, EVP, Chief Operating Officer, General Counsel and Corporate Secretary. It is my honor to provide to you today an update on the operations of your bank. In early 2020, we quickly pivoted to non branch employees working remotely, while our branches remained open utilizing COVID-nineteen precautions to ensure we continue providing uninterrupted customer service to our customers. As you know, bank employees are classified as and proud to be essential workers, ensuring our customers have access to financial services during the pandemic. We continue to operate both in person and remotely as vaccines become more available and our focus continues to be on safeguarding our employees and customers. I'm proud to report that our employees across the entire bank came together and worked around the clock to provide Paycheck Protection Program loans for our existing customers as well as earning the business of customers of other financial institutions. We were busy over the last year expanding and upgrading our operations. Originally planned for the fall of 2020, our newest branch, the Fairbanks West Community branch opened in February 2021 with an efficient interior space of 1600 Square Feet and located in the Safeway University Avenue Complex. Having a second location in Fairbanks has been a long time request from customers and our newest location has been well received by the local community, which has led to the opportunity to grow our bank. We have a strong customer base throughout Interior Alaska and are pleased to provide another location for customers to bank with us. The strong experienced team in Fairbanks has been instrumental in our customer outreach for this new branch. In mid April, our Jewel Lake branch in Anchorage relocated to a new location in the Kars Jewel Lake West Shopping Center. This new location allowed us to right size the branch for efficiency and implement our Branch of the Future blueprint featuring the new Tellerpod design. This location provides ample parking and easy access for our customers and includes an exterior walk up ATM and night depository. The new Jol Lake branch features a fresh and contemporary design and color palette complementing the numerous lakes in the area with a streamlined layout for workflow efficiency, distancing safety measures for our employees and customers and implementation of new technology and equipment upgrades. In March, our Huffman branch in Anchorage began its transformation to a modern banking facility. It was time for a refresh and upgrade as our last full renovation was completed 16 years ago in 2004. The redesign maximizes the 500 square foot space for workflow efficiencies and implementation of privacy and distancing safety measures for our employees and customers. The new floor plan incorporates a teller pod and 2 areas for customers that will provide additional privacy. The remodel will provide an opportunity to update the branch infrastructure with implementation of new technology equipment upgrades, including card access, security cameras, VoIP telecommunications, a cash recycler, a new ATM and Knight depository to better serve our customers. The branch is scheduled to reopen in mid June of this year. As part of our mission, vision, values, Northland strives to be Alaska's employer of choice. Our investment in our people includes professional development opportunities on the job and educational benefits for employees. The vision is for employees to have the knowledge, skills and ability to meet the current challenges and to be empowered to lead our industry into the future. Our professional development programs start with each new employee attending an orientation to understand Northland's culture, policies and foundational information. On a monthly basis, executive management meets with all new employees as part of the orientation process. We believe that it is important to talk with each new employee about the bank's history, our culture, our goals and the future. Each employee has a personal responsibility to meet those standards and endeavor to achieve more in our overall service levels. This is an important component of our business model and we continue to focus on providing the very highest level of service. Superior customer first service has been a core value at NorthReap from the beginning. It's why we started and why we've grown. Customer service is a key part of our mission, vision and values. It's the foundation of our relationship with our customers and our fellow employees. In addition to providing superior customer first service to our customers, North Rim employees give their time to help our neighbors. In 2020, our employees volunteered over 1100 hours throughout Alaska. We all benefit by helping build communities and engaging with fellow employees for volunteer opportunities. Northland Bank started with an initial investment of $8, 000, 000 and in our history, we have given much more than that initial investment back to communities in which we operate. These contributions have gone to local organizations that help support low income families that create community and economic development opportunities and to higher education across Alaska. Notable this year, our United Way employee match campaign pledged over $140, 000 which is an 18% increase over last year. We also continue to support business organizations that work to bring community and economic development areas in which we operate. Northrend's long term strategic objective is to grow our market share within Alaska. Annually, the FDIC updates the deposit market share information for banks in the state releasing updated numbers at the end of September. In total, the deposit market share in Alaska grew this past year and we are pleased to report outstanding growth for Northrop. For the period ending June 30, 2020, North Rim's total market share grew to 12.3% from 11.1% over the previous year. This is a 34% increase in deposits and a market share change as a percent of market share of 11.3%, the largest market share increase of any bank in Alaska. This outstanding growth is a direct result of our employees' dedicated work with our customers. We will continue to be responsive, flexible and available to our customers and prospects in order to continue growing the bank and to reach our goal. Thank you. And I now turn the presentation over to Mike Houston, our Chief Lending Officer. Thank you, Mike, and good morning, everyone. I am Mike Houston, Chief Lending Officer, and I'd like to start by saying that even in an unusual year, I'm pleased to report that our positive core loan growth of over 9%, a number which does not include an additional $375, 000, 000 in Paycheck Protection Program loans. I continue to attribute this growth to our value proposition, being responsive, flexible, trusted, optimistic and invested in our customers' success. Helping us achieve our growth this past year has been our continued expansion of our lending teams across the state. While new to Nordstrom, these bankers have brought years of experience and local market knowledge with them. First, we have Melissa Galloway, who joined our team in Philadelphia and has already been instrumental in securing a large loan and deposit relationship with an Alaska Native tribe. At our recently opened loan production office in Kodiak, the addition of Jeff Sanford doubled our number of lenders in that market. Next, the considerable experience and leadership of Bond Stewart as added strength to our commercial real estate team. Finally, we created a new Treasury Services Director position and hired Craig Tihonan to lead this group that includes commercial cash management. The expansion of our lending teams helped us to deliver considerable support to our borrowers in 2020. With each new program created by various governmental agencies, our bankers quickly learned the details and became experts, providing guidance to our borrowers as they navigated sometimes complicated application process. The loan modifications we offered to all borrowers early on in pandemic, such as interest only or completely deferred payments, provided much needed relief as they adapted to new challenges within their industry. We also worked individually with our customers to tailor solutions that best fits their needs, Utilizing programs such as the Main Street Lending Program, the USDA Business and Industry CARES Act Program, the Alaska Industrial Development and Export Authority's 8 ks SAFE program, and of course, the SBA's Paycheck Protection Program or PPP, as I to it, for both rounds 12. So for many small businesses, the PPP was the most important lifeline this past year. Initiated in April 2020, the program kept us on our coast while the rules were constantly revised and we adapted our processes. We continue to support our communities and customers through this essential program when round 2 opened in January of 2021. Internally, we streamlined and further automated processes we developed in the 1st round to enhance our service to applicants. We remain open to all Alaska businesses regardless of whether they were an existing Northern customer, resulting in over 1800 new customers to our institution. The numbers on this slide demonstrate the tremendous volume of applications we were able to process. As of March 31, 2021, we have processed over 5, 000 PPP loans or 25% of the total number of PPP loans approved in Alaska. Totaling $580, 000, 000 these loans represent 30% of all PPP loan dollars in Alaska. Our work assisting businesses through PPP and other programs has provided opportunities to grow our relationships with new customers over the past year. Here are a few specific examples of customers we partnered with. Prior to the pandemic, we were in discussions with Alaska Shirt Company about a line of credit, but it was our processing of 2 PPP loans for this prospect that secured our relationship. By refinancing some term loans and providing a line of credit for working capital, we provided sufficient funds to allow them to bridge the gap created by the loss of cruise ship passengers. For this season, independent travelers and the potential for large ship cruises in July provides Alaska Shirt Company as well as many other Southeast tourism businesses some real hope for their industry. Fairbanks Urology was a PPP referral from a highly respected area CPA firm. After securing their PPP loan, we were able to assist Doctor. Nemo with a commercial real estate loan to relocate and expand his medical clinic. Here, we were able to find a solution to the complex situation for the customer. Impressed with our capability, the customer moved their deposit relationship to North Rim and now has a full suite of services with us. In the Matanuska Susitna Valley, Robert Young Homes was a prospect before asking to assist with his complex PPP loan. Through this process, we gained his trust, listened to his needs and provided additional financing for his business through a line of credit to support his new home construction projects. We developed a strong relationship with the customer and are supporting him during a very busy and challenging 2021 construction season as the industry contends with rising material prices. Similarly, we have been developing a deposit relationship with the Alaska Native Heritage Center before assisting them with the 1st round PPP loan. Our team's expertise helped them secure even more funding during the 2nd round. The trust and communication that we have built has resulted in a growing relationship managed by our commercial cash management team and highlights the services we can provide to our community nonprofits and Alaska Native organizations. All of these examples highlight how we listen, we're responsive and created customized solutions to meet our customers' unique situation. And now I'd like to turn it back over to our Chairman, Joe Schierhorn. Thank you, Mike. As a result of our commitment to our customers and our work together, we accomplished many milestones in 2020. While adjusting to a very different work environment due to a global pandemic, North Rim and residential mortgage together have been number 1 in PPP loan originations, number 1 in mortgage loan originations and number 1 in deposit market share growth. The Paycheck Protection Program was a big opportunity for us and has been transformational as it has really brought the bank together and to focus on our customers. We saw a need in the community and we worked really hard to meet that need and support our communities. We acquired over 1800 new customers in this process. We made PPP loans to our existing customers and new customers right from the start of the program. This has taken a huge amount of effort on the part of many people, particularly in this 2nd round as we are processing a high volume of PPP loans and working with the 1st round PPP customers on their forgiveness. We were able to accomplish this task because of the skill and experience of our management team and the dedication and hard work of all of our employees. We leveraged our investments in our technology infrastructure to enable our employees to continue to deliver superior customer first service to both new and existing customers. This has been a total team effort, which is what it takes to move the bank forward. We are a different bank than we were a year ago and have learned a lot through the intensity of the work over this last year. In the end, it's the relationships that we have with each other and with our customers that have grown so much over this last year. I believe it will help us to keep growing as we expand our relationships with our customers and expand into new markets where we see great opportunity. We have the strength in our organization to capitalize on these opportunities and I'm very excited about that. At North Rim, we are proud to be Alaskan and support our state, whether that be through employing hundreds of Alaskans delivering customized solutions to grow small businesses to power our great state or sharing information to help inform decisions throughout Alaska. As we heard from Mark Edwards, there are opportunities within the current economy. The tremendous amount of federal money that has flown into the Alaskan economy will continue this year and will be beneficial to businesses and organizations throughout the state. That is an important part of the effort to stabilize our economy. And another element is a long term sustainable fiscal plan for our state. In recent surveys and prior studies, this is consistently a significant concern for business people throughout Alaska. Northam has long advocated for a sustainable fiscal policy that promotes a stable economy, a plan that provides certainty to businesses making long term investments in Alaska and a plan that helps attract investment to our state. A long term sustainable plan includes use of the earnings from the permanent fund according to a rules based approach. Senate Bill 26 was passed into law in 2018 and created the percent of market value method to manage the permanent fund, so that a set percentage of the fund is available each year. This percentage is currently 5% or approximately $3, 000, 000, 000 that is available to fund government services and the dividend to the people of the state. This $3, 000, 000, 000 now represents approximately 2 thirds of the state's operating budget. It's critical that we preserve the permanent fund and follow the POMV method so that we can maintain this source of revenue on a consistent basis well into the future. Other elements of the plan include measured cuts to government spending, new revenue sources and a more meaningful and impactful capital budget that addresses systemic deferred maintenance throughout our state and opens up other areas of Alaska to resource and general economic development. Investments in infrastructure and education form the foundation for future economic growth. We need to support education and we need to provide infrastructure to help develop our state and broaden our economy. Finally, a spending cap is needed to ensure that we do not absorb our revenue sources with unsustainable increases in the cost of government services and capital expenditures. We must live within our means and just as importantly provide a framework that welcomes investment and gives confidence to investors that we have the ability and the processes in place to sustain ourselves in the future. Working together and investing together, we can create a stronger, more sustainable economy going forward, 1 that is based on investing in our people and our infrastructure and that leverages our great natural resources. We have a long history of developing our natural resources in a safe and environmentally sound manner. We need to continue to encourage the development of our existing resources, while supporting the development of new ones to meet the demands of the changing economies around the world. There is huge potential in Alaska. These are long term plays that require long term vision and policies to support them. That forms the foundation for sustainable growth into the future. We have to take these steps to get us there and I believe that we can do it. Now let's turn to the results of the shareholder vote. We had 4 items to vote on this year. Excuse me, we had 3 items to vote on this year. We enjoyed approximately 83% voter turnout online. Thank you. Proposal number 1, election of directors, passes. All are reelected by an average positive vote of 93.95 percent of all the votes cast. Proposal number 2, advisory vote on executive compensation, passes by an average positive vote of 97.66 percent of all votes cast. Proposal number 3, ratify selection of independent registered public accounting firm Moss Adams. That passes by an average positive vote of 99.69% of all votes cast. Thank you. Now we will be happy to take questions from shareholders. At this time, it does not appear that we have any questions from our shareholders. So with that, I want to thank you for joining us at this meeting. And at this time, I'll declare the meeting adjourned. Thank you very much.