UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016 or2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                toFOR THE TRANSITION PERIOD FROM_____TO_____

 

Commission file number File Number 001-37416

 

PEOPLE’S UTAH BANCORP

(Exact name of registrantRegistrant as specified in its charter)Charter)

 

 

UTAH

 

87-0622021

(State or other jurisdiction of

incorporation or organization)

 

(IRSI.R.S. Employer
Identification No.)

incorporation or organization)

Identification No.)

1 East Main Street

American Fork, UtahUT

 

84003

(Address of principal executive offices)

 

(Zip Code)

(801) 642-3998

Registrant’s telephone number, including area codecode: (801) 642-3998

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common shares, $0.01Stock, par value $0.01 per share

 

NASDAQ Capital Market

(Title of each class)PUB

 

(Name of each exchange on which registered)The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: NONENone

Indicate by check mark if the registrantRegistrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES   Yes    NoNO 

Indicate by check mark if the registrantRegistrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES  NO   Yes    No  

Indicate by check mark whether the registrantRegistrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrantRegistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES  Yes    NoNO 

Indicate by check mark whether the registrantRegistrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrantRegistrant was required to submit and post such files). YES  Yes    NoNO 

Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”,filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by checkmarkcheck mark whether the registrantRegistrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES  Yes    NoNO 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant atRegistrant, based on the closing price of the shares of common stock on The NASDAQ Stock Market on June 30, 2016 (the last business day of the most recent second quarter),2019, was $224,844,045 (based on the price at which common equity was last sold as quoted on the NASDAQ Capital Market at the close of business on that date).  $484,493,507.

The number of theshares of Registrant’s common sharesCommon Stock outstanding onas of February 24, 201729, 2020 was 17,896,702. No preferred shares are issued or outstanding.

Documents incorporated by Reference18,907,153.

Portions of the 2017Registrant’s Definitive Proxy Statement relating to the Annual Meeting Proxy Statement relatedof Shareholders, scheduled to the shareholder meeting scheduled forbe held on May 17, 201727, 2020, are incorporated by reference into Part III of this Form 10-K.

 

 


 


TABLE OF CONTENTS

 

 

 

Page

PART I

 

 

Item 1

Business

3

Item 1A

Risk Factors

2124

Item 1B

Unresolved Staff Comments

3539

Item 2

Properties

3539

Item 3

Legal Proceedings

3539

Item 4

Mine Safety Disclosures

3639

PART II

 

 

Item 5

Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

3640

Item 6

Selected Financial Data

3842

Item 7

Management’s Discussion and Analysis of Financial Condition and Results of Operations

4044

Item 7A

Quantitative and Qualitative Disclosure about Market Risk

6364

Item 8

Financial Statements and Supplementary Data

6667

 

Report of Independent Registered Public Accounting Firm

6769

 

Consolidated Balance Sheets

6872

 

Consolidated Statements of Income

6973

 

Consolidated Statements of Comprehensive Income

7074

 

Consolidated Statements of Changes in Shareholders’ Equity

7175

 

Consolidated Statements of Cash Flows

7276

 

Notes to Audited Consolidated Financial Statements

7377

Item 9

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

101118

Item 9A

Controls and Procedures

101118

Item 9B

Other Information

101118

PART III

 

 

Item 10

Directors, Executive Officers and Corporate Governance

102119

Item 11

Executive Compensation

102119

Item 12

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

102119

Item 13

Certain Relationships and Related Transactions, and Director Independence

102119

Item 14

Principal Accounting Fees and Services

102119

PART IV

 

120

Item 15

Exhibits, Financial Statement Schedules

102120

 

 

 

SIGNATURES

 

105122

 

 

 


 

PART I

PART I

Item 1. Business

Organizational Structure

People’s Utah Bancorp (“PUB” or the “Company”) is a Utah registered bank holding company formedorganized in 19981998.  As a Utah registered bank holding company, PUB is subject to regulation, supervision and headquartered in American Fork,examination by the Board of Governors of the Federal Reserve System and by the Utah which is located on the I-15 corridor between the citiesDepartment of Salt Lake City and Provo. We have 18 retail banking locations, two residential mortgage offices, and other support facilities operatedFinancial Institutions (“UDFI”).  The Company operates all business activities through ourits wholly-owned banking subsidiary, AltabankTM (the “Bank”), formerly known as People’s Intermountain Bank, (“PIB” orwhich was organized in 1913.  The Bank is a Utah state-chartered bank subject to primary regulation, supervision and examination by the “Bank”Federal Deposit Insurance Corporation (“FDIC”). Prior and by the UDFI.  The Company plans to seek the formationrequired shareholder approval to change the name of PUB, the Bank operatedPeople’s Utah Bancorp to AltabancorpTM as a separate legal entity as discussed in “Subsidiaries” below. We provide full-service retail banking in manypart of the leading population centers2020 Annual Meeting, as well as requisite regulatory approvals.  In addition, the Company has reserved with NASDAQ the ticker symbol, “ALTA” and intend to change the ticker symbol in conjunction with an approved name change of the holding company around June 30, 2020.  The Company is in the stateprocess of Utah, includingseeking federal trademark approval for the operating bank and holding company name and accompanying logos.

AltabankTM is the largest community bank in Utah.  AltabankTM, a wide range of bankingfull-service bank, provides loans, deposit and relatedcash management services to locally-owned businesses professional firms, real-estate developers, residential home builders, high net-worthand individuals investorsthrough 26 branch locations from Preston, Idaho to St. George, Utah. Our clients have direct access to bankers and other customers. Our primary customers are smalldecision-makers who work with clients to understand their specific needs and medium-sized businesses that require highly personalized commercial banking products and services. Our business customers are involved in a variety of industries. We also provide a broad range of banking services and products to individuals.

Subsidiaries

The Company includes the parent holding company and one wholly-owned subsidiary, PIB. The Company’s subsidiaries historically included Bank of American Fork (“BAF”) and Lewiston State Bank (“LSB”).  LSB was acquired in October 2013. Those subsidiaries began offering banking services in 1913 and 1905, respectively. On September 29, 2015, the Company merged the charters of the two subsidiaries and renamed the combined bank People’s Intermountain Bank. PIB will continue to do business using Bank of American Fork (“BAF”) and Lewiston State Bank (“LSB”) as registered names. In 2016, the Bank formed a separate leasing division, GrowthFunding Equipment Finance, which began to originate leases during the year. The Bank operated three divisions in 2016: BAF, LSB and GrowthFunding Equipment Finance. Prior to 2016, we historically purchased commercial-equipment lease paper through our banking division. Over their lives, BAFoffer customized financial solutions. AltabankTM has expanded to 14 branches and a mortgage operation within Utah and LSB has expanded to three branchesbeen serving communities in Utah and one branch in Idaho. As of December 31, 2016, the Company’s subsidiary was not engaged in any operations in foreign countries.southern Idaho for more than 100 years.

Market Area

We currently operate through 18 full-service banking locations, including 17Most of the major business and economic activity in Utah is located in Utah and one located in Preston, Idaho, which is near Logan, Utah. Utah is one of the fastest growing states in the United States in terms of population, ranking first in 2016 percentage growth according to the U.S. Census Bureau. Based on 2015 data, overcounties where AltabankTM branches are located.  Over 75% of Utah’s population is concentrated along Interstate 15, specifically within Davis, Weber, Salt Lake and Utah Counties. The next largest population centers in the state are in Washington and Cache Counties. These six counties make up approximately 84.7%85% of Utah’s population.  MostAltabankTM has benefited from strong economic performance in the State of Utah. The following table highlights some of the major business and economic activity inmetrics for Utah:

According to the 2019 Economic Report to the Governor (Utah), Utah is ranked first in the nation for economic diversity;

In the 2019 Economic Report to the Governor (Utah), Utah had 6% personal income growth versus 3.7% nationally;

Utah’s GDP growth was 6.5% versus 5.4% nationally, according to the 2019 Economic Report to the Governor (Utah);

According to a U.S. Census Bureau report in December 2019, Utah’s unemployment rate was 2.4% versus 3.5% nationally;

Utah had 3.0% job growth during 2019 versus 1.5% nationally according to the U.S. Bureau of Labor Statistics, December 2019;

According to the U.S. Bureau of Labor Statistics Data in January 2020, Utah was number one in the nation for construction growth;

Utah ranked number four “Best State” according to U.S. News and World Report, 2019 Best States Ranking, January 2020; and

In Forbes Best States for Business, 2019, CNBC America’s Top States for Business and U.S. News and World Report, January 2020, Utah ranked in the top 5 states for business.


We have successfully grown organically and through strategic acquisition opportunities.  In 2017, we completed the acquisition of $257 million in loans and seven Utah branch locations with $160 million in low-cost core deposits from Banner Corporation’s subsidiary, Banner Bank.  The seven Utah Banner branches were located in Salt Lake City, Provo, South Jordan, Woods Cross, Orem, Salem, and Springville.  The Woods Cross and Orem branches were consolidated into our existing AltabankTM Bountiful and Orem branches, respectively.

In 2017, we also completed the counties where we currently have branches.acquisition of Town & Country Bank, located in St. George, Utah. This included the acquisition of $117 million in loans and the assumption of $124 million in deposits.  We also hold loans which are located throughoutconsolidated the United States, primarily though our leasing division.AltabankTM and Town & Country branches into one branch.

Competition

The banking and financial services business in our market areas is highly competitive. We compete for loans, deposits and customersclients with other commercial banks, local community banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market funds, credit unions and other non-bank financial services providers. Many of these competitors are much larger in total assets and capitalization than we are; have greater access to capital markets than we do; and offer a broader range of financial services than we can offer.

Our

The competition for deposit and loan products is strong and directly affects the pricing of those products and the terms on which we offer them to customers.our clients. Price competition for deposits may adversely affect our ability to generate low-cost core deposits in our primary market areasmarkets sufficient to fund our asset growth. As a result, we may seek alternative funding through borrowings and weother borrowings.  We may also need to price our deposit products more aggressively, which would result in an increase in our costs of funding and a reduction inreduce our net interest margin. Whilemargins. Both our


deposit base hasand overall market share have increased over the past several years.  However, larger banksfinancial institutions have also grown their respective deposit market shareshares in our markets faster than we have, resulting in a declining relative deposit market share for us in some of our existing markets. We believe our declining relative market share in deposits has resulted primarily from aggressive marketing and advertising, branch expansion, expanded delivery channels, and rates that are more attractive rates offered byhave allowed larger bank competitors.banks to continue to increase their overall market share. Technological innovation continues to contributehas also contributed to greater competition in domestic and internationalthe overall financial services markets.sector.

The market shareshares of PUBAltabankTM and ourits largest competitorcompetitors in Utah, as ofranked by deposit market share at June 30, 20162019, as reported by SNL: Briefing Book: 2016 DepositS&P Global Market Share – Banks, excluding non-retail branches (SNL Report), isIntelligence are as follows:

 

Number

Deposit

 

Largest

of

Market

 

Competitor

Branches

Share

 

Wells Fargo & Co.

116

 

30.72

%

Zions Bancorp.

99

 

25.20

%

JPMorgan Chase & Co.

53

 

20.73

%

KeyCorp

34

 

6.84

%

U.S Bancorp

72

 

3.61

%

People's Utah Bancorp

18

 

2.13

%

Cache Valley Bancorp

13

 

1.37

%

BOU Bancorp

13

 

1.31

%

 

 

Number

 

 

Deposit

 

Largest

 

of

 

 

Market

 

Competitor

 

Branches

 

 

Share

 

Zions Bank

 

 

99

 

 

 

27.40

%

JPMorgan Chase Bank

 

 

48

 

 

 

21.70

%

Wells Fargo Bank

 

 

94

 

 

 

20.30

%

Key Bank

 

 

32

 

 

 

7.10

%

U.S Bank

 

 

63

 

 

 

4.30

%

AltabankTM

 

 

25

 

 

 

3.20

%

Cache Valley Bank

 

 

15

 

 

 

1.90

%

Bank of Utah

 

 

18

 

 

 

1.80

%

Our Business Activities

Our principal businessWe believe that in order to be competitive with larger financial institutions it is imperative that we provide superior client service.  Key elements to utilize depositsour superior client service includes: i) seasoned relationship managers who understand our clients’ financial needs; ii) direct access to decision makers; iii) the products and other funding sources in making loans which generate interest income. The principal sources of fundsservices our clients need; iv) unparalleled responsiveness to our clients; and v) technology solutions that make it easier for our loans and investments are demand, time, savings and other deposits, repayment of loans and borrowings. The principal expenses associatedclients to transact with banking are interest paid on deposits, employee compensation, office expenses and other operating expenses. We do not currently offer trust or fiduciary services.us.


We provide banking services throughoutto primarily small-to-medium sized businesses, and individuals in our primary market area to real estate developers, contractors and small- to medium-sized businesses in our market. Many of our real estate customers are involved in the development, construction and resale of commercial and residential properties primarily inmarkets including Utah, Salt Lake, Davis, Cache, Box Elder, and Washington counties.Counties. Our business customersclients are involved in a variety of industries including light manufacturing,residential and commercial acquisition development and construction; manufacturing; distribution and other services. We also provide a broad range of banking services and products to individuals, including residential mortgage lending, personal checking and savings accounts and other consumer banking products, including electronic banking.

Lending

While our historical focus has been on real estate lending, we alsoWe offer a full rangevariety of short-lending products including acquisition, development and long-termconstruction; commercial and industrial (“C&I”); multifamily residential; single-family residential; home equity lines; equipment finance; and other consumer lending products and services.loans.  We have established portfolio thresholds for each of our lending categories and regularly monitor and evaluate the diversification of our portfolio. We originate a variety of loans, including real estate construction, land acquisition and development, commercial real estate, residential real estate, commercial and industrial, and to a lesser extent consumer based loans. Beginning in 2016, we also provide direct equipment lease financing for customers.  From time to time, we purchase and sell non-consumer loan participations to or from other banks within our market area.banks. Loan participations purchased by us have been underwritten using our standard and customary underwriting criteria.

Our customersclients are generally comprised of the following groups:

Real estate developers and contractors in need of land, construction and permanent financing for commercial and residential developments;

Small- to medium-sizedSmall-to-medium sized businesses in need of secured and unsecured lines of credit through SBASmall Business Association (“SBA”) financing or conventional C&I term loans and lines of credit, equipment financing, owner occupied or investor-commercial real estate loans;

Individuals in need of equipment leasing financing;residential construction loans, residential mortgages and consumer loan products; and


Individuals in need of residential mortgage products and consumer loan products; and

Professionals and professional firms, such as medical, architectural, engineering, and insurance and financial firms in need of operating facilities.

Our lending activities are concentrated in two main categories: real estate and commercial / industrial.

Real Estate

We are focusedfocus on commercial and residential real estate lending throughout a project’s life-cycle,life cycle, including acquisition and development loans, construction loans, and permanent, long-term mortgage financing.

Construction, Acquisition and Development Loans. LoansOur construction loan portfolio consists of single-family residential properties, multi- familymultifamily properties and commercial projects. Construction lending entails significant additional risks compared with residential mortgage lending. Construction loans often involve larger loan balances concentrated with single borrowers or groups of related borrowers. Construction loans also involve additional risks sinceas funds are advanced while the property is under construction, and hasmay have uncertain value prior to the completion of construction. Thus,Therefore, it is more difficult to evaluate accurately the total loan fundsproceeds required to complete a project andproject.  It is also more difficult to know whether related loan-to-value ratios will be sufficient to compensate for fluctuations in the real estate marketvalues in order to minimize the risk of loss. Maturities for construction loans generally range from six to 12twelve months for residential property and from 12twelve to 18eighteen months for commercial and multifamily properties.

Our development loans are secured by the entire propertyproperties being platted and developed. Lending on raw land carries a significant risk of a change in market conditions during the development process. Our borrowers’ projects currentlygenerally range from small plats of two to six lots to subdivisions with up to 60forty lots. We alsooccasionally consider development loans for larger projects. During the development process, we fund costs for site clearing, and grading, and infrastructure, including utilities and roads. We focus on lending to developers with the experience and financial wherewithal to successfully complete the project.  Lot release minimum prices are agreed upon at loan closing. Repayment of the development loan is generally structured to require net sale proceeds from lot sales orof a minimum of 125% of the bank’sBank’s per-lot exposure. We target most development loans to be paid off at no more than 80% of total development sales. Loan-to-value ratios on development loans typically range from 55% to 70%, depending on the financial strength and experience of the developer. Most development loans have maturities of 12twelve to 24twenty-four months.


Commercial Real Estate Loans. We also originate mortgages for commercial real estate properties. These loans are primarily secured by commercial real estate, including office, retail, warehouse, industrial, and other non-residential properties and are made to the owners or occupants of such properties. The majority of these loans have maturities generally ranging from three to 10ten years and loan amortizations from fifteen to twenty-five years.

Commercial real estate lending entails significant additional risk compared with the residential mortgage lending. Commercial mortgage loans typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. Additionally, the repayment of loans secured by income-producing properties is typically dependent on the successful operation of a business or a real estate project and thus may be subject, to a greater extent than is the case with residential mortgage loans, to adverse conditions in the commercial real estate market or in the general economy. Our commercial real estate loan underwriting criteria requires an examination of debt service coveragedebt-service-coverage ratios, the borrowers’ creditworthiness and prior credit history and reputation, and wereputation.  We generally require personal guarantees or endorsements with respect to these loans. In the loan underwriting process, we also carefully consider the location of the property that will beserving as collateral, foras well as the loan.tenants occupying the property.

Loan-to-value ratios for non-owner occupied commercial mortgage loans generally do not exceed 75%. We permit loan-to-value ratios of up to 75% if the property is owner-occupied and the borrower has strong liquidity, net worth, and positive cash flow.flows. We have been active in both the construction lending and permanent financing of our commercial real estate portfolio. Construction and raw land loans are short-term in nature and generally do not exceed 18eighteen months. Permanent commitments are primarily restricted to no greater than 10ten year maturities with rate adjustment periods primarily every three to five years when fixed commitments exist.  Occasional ten year fixed rates loans are offered on owner occupied commercial real estate. Loan amortizations are typically between fifteen to twenty-five years.

Residential Mortgage Loans. Our residential mortgage loans consist of residential first and second mortgage loans, residential construction loans and home equity lines of credit and term loans secured by first and second


mortgages on the residences of borrowers. Second mortgage loans and home equity lines of credit are used for home improvements, education and other personal expenditures. We make mortgage loans with a variety of terms, including fixed, floating and variable interest rates and a variety of loan maturities. We sell substantially all of the first lien residential mortgage loans that we originate to larger financial institutions. We provide loan servicing for FNMA and Freddie Macsome of our mortgage loans.loans, depending upon the relationship of the borrower to us.

Residential mortgage loans generally are made based on the basis of the borrowers’ ability to repay the loan from his or herthe borrower’s salary and other income and areincome.  The loan is secured by residential real estate, thewhich value of which is generally readily ascertainable. These loans are made consistent with our appraisal and real estate lending policies, which detail maximum loan-to-value ratios and maturities. Home equity lines of credit secured by owner-occupied property generally are made with a loan-to-value ratio of up to 80%, including the first mortgage, if applicable.

Commercial and Industrial:Industrial (non-real estate):

Commercial and Industrial Loans. We make C&I loans to qualified businesses in our market area. Our commercial lending portfolio consists primarily of C&I loans for the financing of accounts receivable, inventory, property, plant and equipment. We also offer loans guaranteed by the SBA.

C&I loans typically are made on the basis of the borrower’s ability to repay the loan from the cash flow fromflows of its business and are secured by business assets with less easily determinable or achievable value, such as accounts receivable, equipment and inventory. Lines of credit typically have a twelve month commitment with a variable rate andrate.  The loans are secured by the assetassets that isare being financed. In cases of larger commitments, a borrowing base certificate may beis required to determine eligible collateral and advance parameters. Term loans seldom exceed 84eighty-four months, but in no case exceed the depreciable life of the tangible asset being financed. C&I loans generally include personal guarantees as additional support.


To manage these risks, our policy is to secure the commercial loans we make with both the assets of the borrowing business and other additional collateral and guarantees that may be available. In addition, we actively monitor certain measures of the borrower, including advance rate,rates, cash flow,flows, overall capital leverage, collateral value and other appropriate credit factors.

Leasing. In 2012, we developed relationships with several private leasing companies located in Utah. Through such relationships, we purchased leases that fit our policies and procedures. Our lease portfolio consists primarily of various types of mission-critical equipment utilized by commercial and industrial customers, which are located throughout the U.S.  We have lending officers who have extensive backgrounds in leasing. Leases are purchased directly from the lease originator, or in some cases a loan is made to the originator and the lease secures the loan. We underwrite lease portfolios prior to purchase.

In 2016, we formed our GrowthFunding Equipment Finance division to increase our leasing portfolio and scale diversification of the commercial and industrial loan portfolio. This division began to underwrite equipment leases nationwide.  These leases are used to purchase equipment essential to the operations of our borrowers/lessees and are secured by the specific equipment financed.  We intend to grow our lease portfolio in a careful, measured way with an emphasis on sound underwriting standards based on our current leasing policy.  Our leasing program is subject to the same general risks as our lending activities, including credit and interest rate risks, and the difficulty of attracting necessary personnel, among others.  Starting a new line of business may require significant investment in personnel, which if the business in not successful, may not be recovered.  

Leasing is traditionally based on cash flow lending. Cash flow lending involves lending money to a customer based primarily on the expected cash flow, profitability and enterprise value of a customer rather than on the value of its assets or resale of the collateral for the loan or lease.   Total lease financing outstanding as of December 31, 2016 was approximately $40 million.

For some types of leases, the Bank will own and have risk of loss on the leased property and the customer will make rental lease payments over a set lease period. The lease payments are determined, in part, based on the expected residual value of the property at the end of the lease. At the end of the lease, the Bank must sell or re-lease the property to the lessee or a third party. Leases with significant residual values have higher risk than many other types of lending because the economics of the lease also rely on the leased property’s value in addition to the other


sources of repayment from the lease. We may be unable to re-lease or sell the property within a reasonable timeframe or may experience market price changes in the expected residual value of the leased property over the lease term. If we do not properly manage residual values of the leased property we may not be able to recover our investment.

Consumer Loans

Consumer Loans. Our consumer loans consist primarily of installment loans made to individuals for personal, family and household purposes. The specific types of consumer loans we make include home equity loans, home improvement loans, automobile loans, debt consolidation loans and general consumer lending.

Consumer loans may entail greater risk than real estate loans, particularly in the case of consumer loans that are unsecured, such as lines of credit, or secured by rapidly depreciable assets, such as automobiles. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a resultbecause of the greater likelihood of damage, loss or depreciation. The remaining deficiency often does not warrant further substantial collection efforts against the borrower. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness, or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans. A loan may also give rise to claims and defenses by a consumer loan borrower against an assignee of such loan, such as a bank, and a borrower may be able to assert against such assignee claims and defenses that it has against the seller of the underlying collateral.

Our policy for consumer loans is to accept moderate risk while minimizing losses, primarily through a careful credit and financial analysis of the borrower. In evaluating consumer loans, we require our lending officers to review the borrower’s level and stability of income, past credit history, amount of debt currently outstanding and the impact of these factors on the ability of the borrower to repay the loan in a timely manner. In addition, we require our banking officers to maintain an appropriate margin between the loan amount and collateral value.

We also issue credit cards to certain of our customers.clients. In determining to whom we will issue credit cards, we evaluate the borrower’s level and stability of income, past credit history and other factors. Finally, we make additional loans that are not classified in one of the above categories. In making such loans, we attempt to ensure that the borrower meets our loan underwriting standards.

SBA Loans

We have been an SBA Preferred Lender since 2002. As a Preferred Lender, we can approve a loan within the authority delegated to us by the SBA and are not be required to go through the SBA directly on a per loan basis.

SBA loans fall into two categories (i) loans originated under the SBA’s 7(a) Program, or SBA 7(a) Loans, and (ii) loans originated under the SBA’s 504 Program or SBA 504 Loans.Program. Through SBA 7(a) Loans, funds can be utilized to purchase or construct real property; however, we primarily use the 7(a) Program for working capital, inventory, or equipment needs and loans, which are included in our C&I loans.  

SBA 504 loans typically do not have an SBA guaranty, but rather, a low 50% loan to value ratio due to the assistance of the 504 program. For this reason, we generally record the SBA 504 loans are generally classified as commercial real estate.

  However, a 504 loan may be used to finance long-lived equipment.  Our SBA lending program, and portions of our real estate lending, are dependent on the continual funding and programs of certain federal agencies or quasi-government corporations, including the SBA.


Loan Underwriting and Credit Policies:Policies

Our Board of DirectorsCredit Department establishes our lending policies, andwhich are approved by the Bank adopts such policies with further modifications to fit their respective markets.Board of Directors. These lending policies are reviewed at least annually and evaluated from time to time by senior lending management and our Board of Directors.management. Key elements of our current policies are debt service coverage, balance sheet analysis, monitoring concentration levels, and maintaining strict approval, and underwriting procedures.


Debt Service Coverage. Our risk management philosophy is to extend credit only when an applicant has proven cash flow to service the proposed debt. Additionally, it is generally necessary for the applicant to demonstrate an independent secondary source of repayment.

Balance Sheet Analysis.  Additional repayment support, such as liquidity, working capital, and sufficient equity is found on the balance sheet.  For this reason, the balance sheets of our borrowers are analyzed in the underwriting process.

Monitor Concentration Levels. We have established maximum concentrations for each loan type and regularly monitor and evaluate the diversification of our loan portfolio. We have significant concentration in real estate loans.

Loans to One Borrower. In addition to the maximum concentration for loan types, state bankingstate-banking law generally limits the aggregate extensions of credit that a bank may make to a single borrower. Under Utah law, the aggregate extensions of credit that a bank may make to a single borrower generally may not exceed 15% of the bank’sBank’s Tier 1 capital.  

Approval and Underwriting Procedures. All loan requests must be approved under specified approval guidelines, based upon Board approved authorities.guidelines. Credit approval authority has four levels, asauthorities are listed below from lowest to highest level. Management believes the current authority levels are appropriate to ensure overall credit quality, while ensuring we are able to respond in a timely manner to lending opportunities. Any conditions placed on loans in the approval process must be satisfied before our credit administration will release loan documentation for execution. Our credit administration works independently of loan production and has full responsibility for all loan disbursements.

Bank Lending Authorities:

Individual Authorities — Branch Managers typically have credit approval authority to loan up to $300,000$50,000 for securedconsumer loans provided there are no exceptions to loan policy. Within this authority, there are typically sub-limits for unsecured loans, equipment secured, accounts receivable and inventory secured loans, and other types of loans.

BAF Division Regional Loan CommitteeAuthorities Region Managers have credit approval authority to approve real estate secured loans up to $500,000, non-real estate loans up to $250,000, and unsecured loans up to $50,000.

Senior Credit Risk Officer Authorities – The BAF Division Regional Loan Committee meets as needed, and consistsBank has two Senior Credit Risk Officers who have credit authority to approve all loan relationships up to $5,000,000. Loans with policy exceptions require an approval at the next highest level.

Chief Credit Officer Authorities – The Chief Credit Officer of the Senior Vice President — Regional Managers and Branch Managers within each region. The committeeBank has credit approval authority to approve secured loansall loan relationships up to $1,250,000 and unsecured loans up to $50,000.$10,000,000. Loans with policy exceptions require an approval at the next highest level.

LSB Division Loan CommitteeCombined Authorities – -- The LSB Division Loan Committee meets as needed and consists of the LSB President, Senior Vice President – Chief Credit Officer and other senior lending officers.  The committee has credit approval authority to approve secured loans up to $4.0 million and unsecured loans up to $500,000.

Loan Committee — The Loan Committee which generally meets twice a week, and consistsone of the Senior Vice President — Chief Credit Officer, the Senior Vice President — Loan Administration, the President/Chief Operations Officer and other senior lending officers. The committee has unlimited creditRisk Officers can combine approval authority for secured loans and unsecured loans, subjectauthorities to ratification by the Board Loan Committee for real estate securedapprove loan total aggregate debt relationships over $4.0 million and non-real estate secured loan total aggregate debt relationships over $2.5 million. If a credit decision requires immediate attention, a Senior Committee (consisting of the Chief Credit Officer, Chief Credit Administration Officer, and one Senior Vice President/Region Loan Manager) has the same approval authority as the Loan Committee.up to $15,000,000.

Management Committee Authorities — The AltabankTM Loan Committee meets as needed and consists of the Chief Credit Officer, Chief Lending Officer, Chief Banking Officer, and two Senior Credit Risk Officers. This committee has credit approval authority for loan relationships up to $20,000,000. Loans with policy exceptions require an approval at the next highest level. The loans approved in this committee are reported to the Board of Directors.

Board Loan Committee — The Board Loan Committee is comprised of eight directors, including our Chairman, Vice Chairman, President and Chief Executive Officer, with five committee members required for a quorum. All real estate secured loans and/or aggregate real estate loan secured relationships of $4.0 million and above or total aggregate non-real estate secured debt relationships exceeding $2.5 million require the ratification of this committee. The committee meets weekly to ratify loans approved by the Bank’s Loan Committee. This committee has approval authority up to our legal lending limit, which was approximately $28.3 million as of December 31, 2016.

Board Committee Authorities — The Board Loan Committee is comprised of four directors, with three committee members required for a quorum. All loan relationships in excess of $20,000,000 require the approval of this committee. The committee meets weekly, as needed, to review loans approved by the AltabankTM Committee. This committee has approval authority up to our legal lending limit, which was approximately $53.8 million as of December 31, 2019.


Loan Grading and Loan Review. We seek to quantify the risk in our lending portfolio by maintaining a loan grading system consisting of nine different categories (Grades 1-9). The grading system is used to determine, in part,


the provisionlevel of allowance for loan losses.losses held by us. The first five grades in the system are considered satisfactory. The othernext four grades range from a “Special Mention” category to a “Loss” category.

The originating loan officer initially assigns a grade to each credit as part of the loan approval process. Such grade may be changed as a loan application moves through the approval process. In addition to any dollar limitations that may require higher credit approval authority, each loan that is graded “Substandard” or worse requires prior approval of the Bank’s senior lending officers.Chief Credit Officer.

The grade on each individual loan is subject to review from time to time, and may be changed if warranted. The Bank’s senior lending officers meet quarterly to review monthly a listingthe Bank’s criticized loans.  This consists of “Watch List”all loans consisting ofgraded substandard, or worse, along with all loans over 60 days past due, graded 6special mention for six months or higher or that are past due and can make changes to the loan grades.longer. Additionally, changes in the grade for a loan may occur through any of the following means:

review of monthly delinquency reports by Region Managers, Senior Credit Risk Officers, and the Chief Credit Officer;

specific changes in loan grades by the loan officer, upon receiving new information that adversely impacts the borrower’s credit standing or other perceived credit risks;

random reviews of the loan portfolio conducted by senior lending officers;

loan reviews conducted by an outside loan reviewer and the internal loan reviewer;

bank regulatory examinations; andor

monthly action plansquarterly criticized loan reports submitted to the Chief Credit OfficerCommittee by the responsible lending officers for each credit onreviewed in the Watch List.quarterly Credit Committee.

Special Mention — Grade 6. Generally acceptable asset quality, but frequent and thorough monitoring is required as temporary credit weaknesses may extend beyond financial into managerial and demographic issues. Borrowers may have strained cash flow and less-than-less than anticipated performance. Borrowers may have possible management weaknesses, perhaps demonstrated by an irregular flow of adequate or timely performance information required to support the credit. Borrowers may have a plausible plan to correct problems in the near future without material uncertainties. Borrowers may lack reserve capacity, so their risk rating will generally either improve or decline in a relatively short time frameperiod since results of corrective actions should be apparent within 6six months or less. These loans exhibit an increasing reliance on collateral for repayment.

Loan Delinquencies.  When a borrower fails to make a committed payment, we attempt to cure the deficiencydelinquency by contacting the borrower to seek payment. HabitualThe Chief Credit Officer regularly reviews habitual delinquencies and loans delinquent 60 days or more are reviewed by the Chief Credit Officer regularly for possible changes in grading. Trends in loan delinquencies and non-performing loans are reviewed by our Board of Directors at each monthly board meeting.its risk rating. Our Special Asset Department was formed during the recession andCredit Committee meets quarterly to review classified assets. The Special Asset DepartmentCredit Committee is comprised of senior lendingexecutive officers PIB President, PUB Chief Executive Officer, other senior officers and selected members of our Board of Directors.the Bank.


Classified Assets. Federal regulations require that each insured bank classify its assets on a regular basis. In addition, in connection with examinations of insured institutions, examiners have authority to identify problem assets, and, if appropriate, classifyreclassify them. We use grades 7 through 9 of our loan grading system to identify potential problem assets.

The following describes grades 7 through 9 of our loan grading system:

Substandard — Grade 7. Unacceptable business credit; asset is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Though no loss is envisioned, the outlook is sufficiently uncertain to preclude ruling out the possibility; some liquidation of assets will likelymay be necessary as a corrective measure. Assets in this category may demonstrate performance problems such as cash flow deterioration trends including current or long-term debt service deficiencies with no immediate relief; borrower’s inability to adjust to prolonged and unfavorable industry or economic trends; management character and/or effectiveness have become suspect.

Doubtful — Undesirable credit with loss potential. An asset classified doubtful has all the weaknesses inherent in one classified substandard with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors, which may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and refinancing plans. At the point where a loss is identified, all or that portion deemed a loss is immediately classified as “Loss” and charged off.

Doubtful — Grade 8. Undesirable credit with loss potential. An asset classified doubtful has all the weaknesses inherent in one classified substandard with the added characteristics that the weaknesses


make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors which may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and refinancing plans. At the point where a loss is identified, all or that portion deemed a loss is immediately classified as “Loss” and charged off.

Loss — Grade 9. Total loss is expected. An uncollectible asset or one of such little value that it does not warrant classification as an active, earning asset. Such an asset may, however, have recovery or salvage value, but not to the point of deferring full write-off, even though some recovery may occur in the future. Our policy is to charge off such assets as a loss during the accounting period in which they were identified. These assets have been determined to have identifiable, uncollectible components. Typically, a partial charge-off of the loss will have occurred, and the balance remaining would be reflective of management’s best estimate of collectability.

Our Investment Activities

Our investment strategy is designed to be complementary to and interactive with our cash position; borrowed funds; quality, maturity, stability and earnings of loans; nature and stability of deposits; capital and tax planning. Investment securities consist primarily of U.S. Agency issues, mortgage-backed securities, and municipal bonds. In addition, for bank liquidity purposes, we use Federal Funds Sold, which areis temporary overnight sales of excess funds to correspondent banks. Our securities portfolio is managed in accordance with guidelines set by our investment policy. Specific day-to-day transactions affecting the securities portfolio are managed by the treasury officersTreasurer of the Bank. These securities activities are reviewed monthly by our Board of Directors.

Our general objectives with respect to our investment portfolio are to:

provide liquidity necessary to meet cyclical and long-term changes in the mix of assets and liabilities;

achieve an acceptable asset/liability gap position based on our separate policy related to asset and liability management that provides guidance for how investments are to be used to manage asset and liability gaps;

maintain collateral for pledging requirements;

manage interest rate risk;

provide a suitable balance of quality and diversification to our assets;

provide liquidity necessary to meet cyclical and long-term changes in the mix of assets and liabilities;

provide a stable flow of dependable earnings;earnings.

maintain collateral for pledging requirements; and

manage interest rate risk.


Deposit Products and Other Sources of Funds

Our primary sources of funds for use in our lending and investing activities consist of:

deposits;

maturities and principal and interest payments on loans and securities; and

other short-term borrowings.

We closely monitor rates and terms of competing sources of funds and utilize those sources we believe to be the most cost-effective, consistent with our asset and liability management policies.

An important balance sheet component affecting our net interest margin is the composition and cost of our deposit base. We can improve our net interest margin to the extent that growth in deposits can be focused in theis from less volatile and somewhat more traditional core deposits or total deposits less CDs greater than $100,000,$250,000, commonly referred to as Jumbo CDs. We attempt to price our deposit products competitively with other financial institutions in our marketplace in order to promote deposit growth and satisfy our liquidity requirements and offer a variety of deposit products in order to satisfy our customers’clients’ needs.


We provide a wide array of deposit products. We have historically relied upon, and expect to continue to rely upon, deposits to satisfy our needs for sources of funds. We offer regular checking, rewards checking, savings, and money market deposit accounts. We also offer fixed-rate, fixed maturity retail CDs ranging in terms from 30 days to six years, individual retirement accounts and Jumbo CDs. The primary sources of deposits are small-and medium-sizedsmall-to-medium sized businesses and individuals within our target market. Senior management has the authority to set rates within specified parameters in order to remain competitive with other financial institutions in our market area. All deposits are insured by the Federal Deposit Insurance Corporation, or FDIC up to the maximum amount permitted by law. We have a service fee schedule, which we believe is competitive with other financial institutions in our market, covering, such matters asamong others, maintenance fees on checking accounts, per item processing fees on checking accounts, returned check charges and other similar fees.

We also have  a deposit product named “MyRate” Checking. This product allows a customer to earn a premium interest rate by meeting certain account requirements, including a minimum monthly amount of electronic transfers and debit card usage and only receiving electronic statements for this account. Although the rate paid is higher, the overall net costs on this product are lower.

We intend to continue our efforts at attractingto attract deposits from our business lending relationships in order to reduce our cost of funds and improve our net interest margin. Also, weWe also believe that we have the ability to attract sufficient additional funding by re-pricing the yields on our CDs in order to meet loan demands during times that growth in core deposits differs from loan demand. In order toTo fund loan demand, we have also utilized funding from two programs offered by Promontory Interfinancial Network called Certificate of Deposit Registry Service or CDARS and Insured Cash Sweep or ICS. This relationship allows the Bank to utilize a national network of banks to offer deposit insurance coverage for large depositors. This protection occurs in deposit increments of less than $250,000 per participating bank to ensure that both principal and interest are eligible for full FDIC insurance. We initiated an Internet-based deposit product in 2007, which we branded as “SaveSmart”, where we have attracted deposits by offering competitive rates on savings accounts.

In addition to our traditional marketing methods, we attract new customersclients and deposits by:

expanding long-term business customerclient relationships, including referrals from our customers;clients; and

deploying business development personnel to work new leads with loan officers and branch managers to obtain new business customers.clients.

Other Borrowings. We may occasionally use our overnight credit to support liquidity needs created by seasonal deposit flows, to temporarily satisfy temporary funding needs from increased loan demand, and for other short-term purposes.  We have an unsecured line of credit with a regional correspondent financial institution pursuant to which we can borrow funds generally on an overnight basis.  The correspondent financial institution may impose collateral requirements or terminate the line of credit at any time.  We have the collateral capacity to borrow from the Federal Reserve. We can also borrow from the FHLBFederal Home Loan Bank (“FHLB”) pursuant to an existing commitment based on the value of the collateral pledged which generally consists of certain real estate loans.loans and investment securities. (Refer to Note 6 – Short-term Borrowingsborrowings in the audited financial statementsAudited Consolidated Financial Statements under Item 88. Financial Statements and Supplementary Data for additional information).  


Other Products and Services

We offer a variety of other products and services, including:

Mobile and Internet Banking. We believe there is a strong demand within our market for mobile and Internet banking. These services allow both consumer and business customersclients to access detailed account information and manage their accounts, including on-line balance transfers and bill payment. These services enable our customers to conduct their banking business and monitor their bank accounts from remote locations at any time. We believe our mobile and Internet banking services are invaluable in attracting and retaining customersclients and we encourage customersclients to consider us for all their banking and financial needs.

Automatic Teller Machines or ATMs. We provide ATM services at all of our branches and, with certain accounts, offer ATM fee reimbursement to our clients, allowing them to use various ATM networks nationwide without paying a per transaction fee. Each eligible account has a monthly reimbursement limit. Our ATMs provide services for cash withdrawals, balance transfers and inquiries, and check or cash deposits.

Automatic Teller Machines, or ATMs. We provide ATM services at all of our branches and offer ATM fee reimbursement to our customers, allowing them to use certain ATM networks nationwide without


paying a per transaction fee. Each checking and deposit account has a monthly reimbursement limit. Our ATMs provide for cash withdrawals, balance transfers and inquiries, and check or cash deposits.

Treasury Management Services. We offer cash management systems and services to assist our business customersclients with their day-to-day funds management. This includesThese services include the ability to originate electronic payments and withdrawals, create wire transfers, and request stop payments.

Remote Deposit Capture. This product, brandedBranded “ExpressDeposit” and “Merchant Check Capture”, this product allows businesses to send their deposits electronically to the Bank, which allows us to reach a larger group of business customersclients that are not close to one of our physical locations. We believe this product gives us an edge in gaining new customersclients and it contributes to the growth of our deposits. We primarily target professional service companies, preferably with multiple offices including real estate offices, attorneys, doctors, dentists and accountants.

Bill Pay. We offer a user-friendly bill payment product that was designed to meet our customers’clients’ needs. This payment system allows our customersclients to pay bills electronically or by check. CustomersClients can also utilize the bill presentment feature or future date their bills for a time periodtime-period such as a vacation when they may not be accessible at the time their bills are due.

Other Products. We offer other banking-related specialized products and services to our customers,clients, such as cashier’s checks, money orders, credit and debit cards, and safe deposit services.

Risk Management

We are committed to maintaining internal controls toeffectively identify and manage theour overall enterprise risk associated with our growth and concentrations in real estate loans.exposure.  We have identified lending/strategic, reputation, credit, riskmarket, liquidity, operational (including cyber related risks), and operational riskcompliance risks as the two areas that could have the greatest impact on capital.materially and adversely affect our business, financial condition, results of operations, or business prospects.  In order to mitigate and actively manage these areas of risk, we have established sound procedures and committed experienced human resourcespersonnel to this effort.

We have focused our enterprise risk management in the following areas:

Our Board established the Enterprise Risk ManagementOversight Committee to monitor all materialenterprise risks of PUB;the Company;

Our Vice President - Enterprise RiskExecutive Management actively monitors materialCommittee assesses enterprise risks in the Bank;and takes appropriate action to mitigate such risks, if necessary;

Our executiveWe have a dedicated enterprise risk management reviews material risks monthly;team that actively monitors enterprise risks.


Our loan administration is managed by PIB’s Senior Vice President — Loan Administration and staffed to maintain all credit policies and procedures, loan documentation, disbursement of loan proceeds and to review

Our credit department is staffed to maintain all credit policies and procedures, loan documentation, disbursement of loan proceeds, and manage the integrity of the credit risk rating system;

Our finance department is staffed with experienced personnel to manage market and liquidity risk;

Our operations administration is managed by PIB’s President and Chief Operations Officer and includesdepartments include staff experienced in compliance with banking regulations and in information technology and related security issues;

Our Internal Audit Departmentlegal and compliance departments coordinate efforts regarding legal and compliance matters, and;

Our internal audit department reports its independent audit findings directly to our Board’s Audit and Compliance Committee. This department performs audits and reviews of loan grades, loan documentation, regulatory compliance and other areas of higher risk profile; and

Our general counsel coordinates the efforts of our compliance officers with respect to our risk management programs.

We believe that our organization allows management to maintain an accurate understanding of risk levels at all times. With this level of understanding, strategic plans are developed with the risk parameters designed to protect our capital.

The FDIC has givenprovided guidance recommending that if the sum of (i) certain categories of commercial real estate, or CRE, loans and (ii) acquisition, development and construction, or ADC, loans exceeds 300% of total risk-based capital, or if ADC loans exceed 100% of total risk based capital, heightened risk management practices should be employed to mitigate risk. Our concentration in ADC loans is cyclical and tends to increase in the second and


third quarters of each year as demand for ADC loans increases. An increase in ADC loan concentration could cause our ratio for ADC loans to increase and even exceed the FDIC’s guideline. We have exceeded these guidance ratios at times in the past and may do so in the future.  We actively monitor and believe that we effectively manage our CRE and ADC loan concentrations.  If we exceed the FDIC’s guidelines and do not effectively manage the risk of our CRE and ADC loans, we may be subject to regulatory scrutiny including a requirement to raise additional capital, reduce our loan concentrations or undertake other remedial actions.

Branch Expansion

We have a current branch located in a grocery store in Preston, Idaho and currently have an additional branch with drive-up facilities under construction. Additionally, we have a branch facility under construction in Bountiful, Utah.  Both branches are scheduled to open in the first half of 2017.  Estimated combined construction costs for these two new branches are expected to be approximately $1.8 million.

Employees

We refer to our employees as “associates.” We had a total of 385 full-time equivalent associates and 430 total associates490 employees as of December 31, 2016.2019. Our associatesemployees are not represented by aany labor organization, and we are not aware of any activity to seek such organization. The Company and the Bank provide their associatesprovides our employees with a comprehensive benefit program, including health, dental and vision insurance, life and accident insurance, long-term disability coverage, vacation and sick leave, 401(k) plan, profit-sharing planEmployee Stock Ownership Plan (“ESOP”), and a stock-based compensation plan. The Company considers its associateemployee relations to be excellent.positive. See Note 11 in the Audited Consolidated Financial Statements in “Item 8. Financial Statements and SupplementarySupplemental Data” for information regarding associateemployee benefit plans and profit sharing.

Website Access

Copies of the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge through the Company’s website (www.peoplesutah.com)(www.peoplesutah.com) as soon as reasonably practicable after the Company has filed the material with, or furnished it to, the United States Securities and Exchange Commission (“SEC”). Copies can also be obtained by accessing the SEC’s website (www.sec.gov).

Supervision and Regulation  

The following is a general summary of the material aspects of certain statutes and regulations that are applicable to us. These summary descriptions are not complete, and you should refer to the full text of the statutes, regulations, and formal and informal interpretive guidance for more information. Currently applicable statutes and regulations are subject to change, and additional statutes, regulations, and corresponding interpretative guidance may be adopted. We are unable to predict these future changes or the effects, if any, that these changes could have on our business or our revenues.


General

As a Utah registered bank holding company, PUB is subject to regulation, supervision and examination by the Board of Governors of the Federal Reserve System and by the Utah Department of Financial Institutions (“UDFI”).UDFI. In addition, as a Utah state-chartered bank that is not a member of the Federal Reserve, the Bank is subject to primary regulation, supervision and examination by the Federal Deposit Insurance Corporation (“FDIC”)FDIC and by the UDFI. Supervision, regulation, and examination of PUB and the BankAltabankTM by the regulatory agencies are intended primarily for the protection of consumers, bank depositors and the Deposit Insurance Fund (“DIF”), rather than for holders of our capital stock.

Recent Changes as a Result of the Dodd-Frank Act

Banking and other financial services statutes, regulations and policies are continually under review by Congress, state legislatures and federal and state regulatory agencies. In addition to laws and regulations, state and federal bank regulatory agencies may issue policy statements, interpretive letters and similar written guidance applicable to PUB and AltabankTM. Any change in the frameworkstatutes, regulations or regulatory policies applicable to PUB and AltabankTM, including changes in their interpretation or implementation, could have a material effect on its business or organization.

Both the scope of regulationthe laws and regulations and the intensity of the supervision referenced above,to which PUB and AltabankTM are subject have increased in recent years in response to the financial crisis, as well as other factors, such as technological and market changes. Regulatory enforcement and fines have also increased across the banking and financial services sector. Many of these changes have occurred as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), created and its implementing regulations, most of which are now in place.

While PUB and AltabankTM will likely remain subject to extensive regulation and supervision, the regulatory environment has entered a period of rebalancing of the post financial crisis framework.  For example, on May 24, 2018, the Economic Growth, Regulatory Relief and Consumer Financial Protection Bureau (“CFPB”Act (the “EGRRCPA”), was signed into law. Among other regulatory changes, the EGRRCPA amended various sections of the Dodd-Frank Act. The EGRRCPA includes a new federal regulatory agencynumber of provisions, that are favorable to bank holding companies with broad authority to regulate the offering and provisiontotal consolidated assets of financial products and services to consumers. However, the primary authority to examine depository institutions withless than $10


billion, or less in assets, such as the Bank, for compliance with federal consumer-protection laws remains with our federal regulator,Company, and makes changes to consumer mortgage and credit reporting regulations and to the FDIC, and with the UDFI.

As a resultauthorities of the Dodd-Frank Act,agencies that regulate the regulatory framework under which PUB and the Bank operate has changed and will continue to change substantially over the next several years. Manyfinancial industry. Because a number of the provisions of the Dodd-Frank Act became effective upon enactment, while others are subject to further study, rulemaking, and the discretion of regulatory bodies and have only recently taken effect or will take effectincluded in the coming years. In light of these significant changes andEGRRCPA require the discretion afforded to federal banking regulators, we cannotagencies to undertake notice and comment rulemaking, it will likely take some time before these provisions are fully predict the effect that compliance with the Dodd-Frank Act or any of its implementing regulations will have on our business or on our ability to pursue future business opportunities.implemented.

Holding Company Regulation

Permitted Activities

Under the federal Bank Holding Company Act (“BHCA”), a bank holding company is generally permitted to engage in, or acquire, direct or indirect control of more than five percent of any class of the voting shares of any company that is not a bank or bank holding company and that is engaged in certain enumerated activities that are related to banking. We are engaged in some of those activities. While the Federal Reserve has treated those activities as acceptable in the past for other bank holding companies, the Federal Reserve in the future may not allow us to conduct any or all of these activities. The Federal Reserve has the authority to order a bank holding company or its subsidiaries to terminate any of those activities or to terminate its ownership or control of any subsidiary when it has reasonable cause to believe that the bank holding company’s continued ownership, activity or control constitutes a serious risk to the financial safety, soundness or stability of it or any of its bank subsidiaries.


Acquisitions Subject to Prior Regulatory Approval

The BHCA requires the prior approval of the Federal Reserve for a bank holding company to acquire substantially all the assets of a bank or to acquire direct or indirect ownership or control of more than 5% of any class of the voting shares of any bank, bank holding company or savings association, or to increase any such non-majority ownership or control of any bank, bank holding company or savings association, or to merge or consolidate with any bank holding company.  In determining whether to approve a proposed bank acquisition, federal bank regulators will consider a number of factors, including the effect of the acquisition on competition, financial condition and future prospects (including current and projected capital ratios and levels); the competence, experience and integrity of management and its record of compliance with laws and regulations; the convenience and needs of the communities to be served (including the acquiring institution’s record of compliance under the Community Reinvestment Act (“CRA”)); the effectiveness of the acquiring institution in combating money laundering activities; and the extent to which the transaction would result in greater or more concentrated risks to the stability of the United States banking or financial system. In addition, approval of interstate transactions requires that the acquirer satisfy regulatory standards for well-capitalized and well-managed institutions.

Bank Holding Company Obligations to Bank Subsidiaries

Under current law and Federal Reserve policy, a bank holding company is expected to act as a source of financial and managerial strength to its depository institution subsidiaries and to maintain resources adequate to support such subsidiaries, which could require PUB to commit resources to support the Bank in situations where additional investments in a bank may not otherwise be warranted. A bank holding company may be required to contribute additional capital to its subsidiaries in the form of capital notes or other instruments that qualify as capital under applicable regulatory rules. Any such loan from a holding company to a subsidiary bank is likely to be unsecured and subordinated to the bank’s depositors and perhaps to other creditors of the bank. If PUB were to enter bankruptcy, any commitment by us to a federal bank regulatory agency to maintain the capital of the Bank would be assumed by the bankruptcy trustee and entitled to a priority of payment. Under the Federal Deposit Insurance Act, or FDIA, under certain circumstances, we may be responsible for the liabilities of the Bank and may be responsible for damages to the FDIC.

Restrictions on Bank Holding Company Dividends

The Federal Reserve’s policy regarding dividends is that a bank holding company should not declare or pay a cash dividend whichthat would impose undue pressure on the capital of any bank subsidiary or which would be funded only through borrowing or other arrangements that might adversely affect a bank holding company’s financial position. As a general matter, the Federal Reserve has indicated that the Boardboard of Directorsdirectors of a bank holding company should consult with the Federal Reserve and eliminate, defer or significantly reduce the bank holding company’s dividends if:

its net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends;


its prospective rate of earnings retention is not consistent with its capital needs and overall current and prospective financial condition; or

its prospective rate of earnings retention is not consistent with its capital needs and overall current and prospective financial condition; or

it will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.

Should an insured depository institution controlled by a bank holding company be “significantly undercapitalized” under the applicable federal bank capital ratios, or if the bank subsidiary is “undercapitalized” and has failed to submit an acceptable capital restoration plan or has materially failed to implement such a plan, banking regulators (in the case of the Bank, the FDIC and the UDFI) may choose to require prior Federal Reserve approval for any capital distribution by the bank holding company. In addition, since we are a legal entity separate and distinct from the Bank and do not conduct stand-alone operations, an ability to pay dividends depends on the ability of the Bank to pay dividends to us and the FDIC and the UDFI may, under certain circumstances, prohibit the payment of dividends to us from the Bank as described below in “Bank Regulation—Bank Dividends.”


Capital Regulations – U.S. Basel III Capital Rules

In July 2013, federal banking regulators, including the Federal Reserve and the FDIC, adopted the U.S. Basel III Capital Rules, implementing many aspects of the Basel III Capital Standards. The U.S. Basel III Capital Rules impose higher risk-based capital and leverage requirements than those previously in place. In order to avoid restrictions on capital distributions or discretionary bonus payments to executives, a covered banking organization must maintain a capital conservation buffer on top of its minimum risk-based capital requirements. This buffer must consist solely of Tier 1 Common Equity, but the buffer applies to all three measurements (Common Equity Tier 1, Tier 1 Capital and total capital). The capital conservation buffer will be phased in incrementally over time, becoming fully effective on January 1, 2019, and will consist of an additional amount of common equity equal to 2.5% of risk-weighted assets. The U.S. Basel III Capital Rules also increase the risk weight for certain assets, meaning that more capital must be held against such assets. For example, commercial real estate loans that do not meet certain new underwriting requirements must be risk-weighted at 150% rather than the current 100%.

Additionally, the Basel III Capital Standards provide for the deduction of three categories of assets: (i) deferred tax assets arising from temporary differences that cannot be realized through net operating loss carrybacks (net of related valuation allowances and of deferred tax liabilities),; (ii) mortgage-servicing assets (net of associated deferred tax liabilities); and (iii) investments in more than 10% of the issued and outstanding common shares of unconsolidated financial institutions (net of associated deferred tax liabilities). Accumulated other comprehensive income (“AOCI”) is presumptively included in Common Equity Tier 1 Capital and often would operate to reduce this category of capital. The U.S. Basel III Capital Rules provided a one-time opportunity at the end of the first quarter of 2015 for covered banking organizations to opt out of much of this treatment of AOCI. We opted out of this treatment.

In December 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-crisis regulatory reforms, which standards are commonly referred to as Basel IV. Among other things, these standards revise the Basel Committee’s standardized approach for credit risk (including the recalibration of the risk weights and the introduction of new capital requirements for certain “unconditionally cancellable commitments,” such as unused credit card lines of credit) and provides a new standardized approach for operational risk capital. Under the Basel framework, these standards will generally be effective on January 1, 2022, with an aggregate output floor phasing in through January 1, 2027. Under the current U.S. capital rules, operational risk capital requirements and a capital floor apply only to advanced approaches institutions, and not to the Bank. The impact of Basel IV on us will depend on the manner in which it is implemented by the federal bank regulators.

For a detailed discussion of PUB and the Bank’s actual capital ratios and capital adequacy, see “Capital Resources” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Note 9 – Regulatory Capital Matters” in Item“Item 8. Financial Statements and Supplementary Data.”

Bank Regulation

The BankAltabankTM is a Utah state-chartered commercial bank, and is subject to supervision and regulation by the UDFI and the FDIC. The UDFI and the FDIC supervise and regulate all areas of the Bank’s operations, including, without limitation, the making of loans, deposit operations, the conduct of the Bank’s corporate affairs, and the satisfaction of capital-adequacy requirements, the payment of dividends, and the establishment or closing of banking offices. The UDFI and the FDIC periodically examine the Bank’s operations and financial condition and compliance with federal consumer-protection laws. In addition, the Bank’s deposit accounts are insured by the FDIC to the maximum extent permitted by law, and the FDIC has certain enforcement powers over the Bank.AltabankTM.

Capital Adequacy

See “Holding Company Regulation—Capital Regulations” above.


Capitalization Levels and Prompt Corrective Action

Federal law and regulations establish a capital-based regulatory scheme designed to promote early intervention for troubled banks and require the FDIC to choose the least expensive resolution of bank failures. The


capital-based regulatory framework contains five categories of regulatory capital requirements, including “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” To qualify as a “well capitalized” institution, a bank must have a leverage ratio of no less than 5%5.0%, a common equity to Tier 1 Capital ratio of no less than 6.5%, a Tier 1 Capital ratio of no less than 6%8.0%, and a total risk-based capital ratio of no less than 10%10.0%, and a bank must not be under any order or directive from the appropriate regulatory agency to meet and maintain a specific capital level. Generally, a financial institution must be “well capitalized” before the Federal Reserve will approve an application by a bank holding company to acquire a bank or merge with a bank holding company, and the FDIC applies the same requirement in approving bank merger applications.  As of December 31, 2019, AltabankTM met these capital levels.

Immediately upon becoming undercapitalized, a depository institution becomes subject to the provisions of Section 38 of the Federal Deposit Insurance Act, or the FDIA, which:which, among other things: (i) restrictrestricts payment of capital distributions and management fees; (ii) requirerequires that the FDIC monitor the condition of the institution and its efforts to restore its capital; (iii) requirerequires submission of a capital restoration plan; (iv) restrictrestricts the growth of the institution’s assets; and (v) requirerequires prior approval of certain expansion proposals. Bank holding companies controlling depository institutions can be called upon to increase the depository institution’s capital and to partially guarantee the institutions’institution’s performance under their capital restoration plans. The appropriate federal banking agency for an undercapitalized institution also may take any number of discretionary supervisory actions if the agency determines that any of these actions is necessary to resolve the problems of the institution at the least possible long-term cost to the FDIC’s Deposit Insurance Fund, subject in certain cases to specified procedures. These discretionary supervisory actions include: (i) requiring the institution to raise additional capital; (ii) restricting transactions with affiliates; (iii) requiring divestiture of the institution or the sale of the institution to a willing purchaser; (iv) requiring the institution to change and improve its management; (v) prohibiting the acceptance of deposits from correspondent banks; (vi) requiring prior Federal Reserve approval for any capital distribution by a bank holding company controlling the institution; and (vii) any other supervisory action that the agency deems appropriate. These and additional mandatory and permissive supervisory actions may be taken with respect to significantly undercapitalized and critically undercapitalized institutions.

The Bank currently exceedsAs of December 31, 2019, AltabankTM exceeded the requirements contained in the applicable regulations, policies and directives pertaining to capital adequacy to be classified as “well capitalized.” Rapid growth, poor loan portfolio performance, or poor earnings performance, or a combination of these or other factors, could change the Bank’s capital position in a relatively short period, of time, making additional capital infusions necessary.

Notably, the thresholds for each of the five categories for regulatory capital requirements were recently revised pursuant to the U.S. Basel III Capital Rules. Under these rules, which took effect on January 1, 2015, a well-capitalized insured depository institution is one (i) having a total risk-based capital ratio of 10 percent or greater, (ii) having a Tier 1 risk-based capital ratio of 8 percent or greater, (iii) having a Core Equity Tier 1 capital ratio of 6.5 percent or greater, (iv) having a leverage capital ratio of 5 percent or greater and (v) that is not subject to any order or written directive to meet and maintain a specific capital level for any capital measure. We meet these revised capital levels.

It should be noted that the minimum ratios referred to above in this section are merely guidelines, and the bankBank regulators possess the discretionary authority to require higher capital ratios.

Bank Reserves

The Federal Reserve requires all depository institutions, even if not members of the Federal Reserve, to maintain reserves against some deposit accounts. The balances maintained to meet the reserve requirements imposed by the Federal Reserve may be used to satisfy liquidity requirements. An institution may borrow from the Federal Reserve Bank “discount window” as a secondary source of funds, provided thatif the institution meets the Federal Reserve Bank’s credit standards.

Bank Dividends

Utah law places restrictions on the declaration of dividends by Utah state-chartered banks to their shareholders. This may decrease any amount available for the payment of dividends in a particular period if the surplus funds for the Bank failsfail to comply with this limitation. The FDIC and the UDFI may, under certain


circumstances, prohibit the payment of dividends to PUB from the Bank.AltabankTM. Utah corporate law also requires that dividends can only be paid out of funds legally available therefor.


Limitations on Brokered Deposits

Applicable rules regarding capital requirements under the FDIC’s prompt corrective action regulations limit the ability of banks to raise funds that meet the definition of “brokered deposits” under that regulation. To avoid the applicability of this limitation, the Bank must maintain the status of a “well capitalized” institution.

Insurance of Accounts and Other Assessments

FDIC deposit insurance is critical to the continued operation of the Bank. The Bank pays deposit insurance assessments to the FDIC’s Deposit Insurance Fund, which isare determined through a risk-based assessment system. The Bank’s deposit accounts are currently insured by the Deposit Insurance Fund, generally up to a maximum of $250,000 per separately insured depositor. The Bank pays assessments to the FDIC for such deposit insurance. Under the current assessment system, the FDIC assigns an institution to a risk category based on the institution’s most recent supervisory and capital evaluations, which are designed to measure risk. Under the FDIA,Federal Deposit Insurance Act, the FDIC may terminate a bank’s deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, agreement or condition imposed by the FDIC.

Restrictions on Transactions with Affiliates

The Bank is subject to sections 23A and 23B of the Federal Reserve Act, or FRA, and the implementing of Regulation W by the Federal Reserve’s implementing Regulation W.Reserve. An affiliate of a bank is any company or entity that controls, is controlled by or is under common control with the bank.Bank. Accordingly, certain asset transactions and contracts, between PUB, the Bank and any non-bank subsidiaries are subject to a number of restrictions. All such transactions, as well as contracts entered into between the Bank and affiliates, must be on terms that are no less favorable to the Bank than those that would be available from non-affiliated third parties.

Loans to Insiders

Loans to executive officers, directors or principal shareholders are subject to restrictions under Sections 22(g) and 22(h) of the FRA and the Federal Reserve’s implementing Regulation O (collectively, “Reg. O”). From time to time, the Bank makes loans to executive officers, directors and principal shareholders on terms permitted by Reg. O. We believe the Bank is in compliance with Reg. O and, therefore, we believe we are in compliance with the Sarbanes-Oxley Act of 2002 (“SOX”). All loans from the Bank to executive officers, directors or principal shareholders are made in the ordinary course of business, are of a type generally made available to the public and are on market terms no more favorable than those offered to persons not related to the Bank, except for the waiver of certain loan fees and a minor reduction in certain loan interest rates as part of a benefit program as allowed by Reg. O.

Change in Control

Subject to certain exceptions, the BHCA and the Change in Bank Control Act require prior approval from the Federal Reserve and/or the FDIC for any person or company to acquire “control” of a bank or a bank holding company. Control is conclusively presumed to exist if an individual or company acquires 25% or more of any class of voting securities, and in general is presumed to exist if a person acquires 10 percent or more, but less than 25%, of any class of voting securities. In certain cases, a company may also be presumed to have control under the BHCA if it acquires 5% or more of any class of voting securities. Control may also be deemed to exist where a person or company is found to hold “controlling influence” over a bank or bank holding company.

Community Reinvestment Act

The Community Reinvestment Act (“CRA”)CRA and its implementing regulations are intended to encourage banks to help meet the credit needs of their service areas, including low- and moderate-income neighborhoods, consistent with safe and sound operations. The prudential bank regulatory agencies are required to assign and make public a rating of a bank’s performance under the CRA as either “outstanding,” “satisfactory,” “needs to improve,”


or “substantial noncompliance.” The federal banking agencies consider a bank’s CRA rating when a bank submits an application to establish banking centers, merge, or acquire the assets and assume the liabilities of another bank. In the case of a bank holding company, the CRA performance record of all banks involved in the merger or acquisition are reviewed in connection with the filing of an application to acquire ownership or control of shares or assets of a bank or to merge with any other financial holding company. A less-than-satisfactory rating can substantially delay, block or impose conditions on the transaction. In its last CRA examination, the BankAltabankTM received a rating of “outstanding.“satisfactory.


In April 2018, the United States Department of Treasury issued a memorandum to the Federal banking regulators with recommended changes to the CRA’s implementing regulations to reduce their complexity and associated burden on banks. Leaders of the federal banking agencies recently have indicated their support for revising the CRA regulatory framework, and on August 28, 2018, the Office of the Comptroller of the Currency (“OCC”) issued an advance notice of proposed rulemaking to solicit ideas for building a new CRA framework. Subsequently, the FDIC joined the OCC in a joint notice of proposed rulemaking in December 2019.  The joint rule issued by the OCC and FDIC will be applicable to the Bank upon completion.

Interstate Branching

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Riegle-Neal Act”) provides that adequately capitalized and managed bank holding companies are permitted to acquire banks in any state. In addition, banks are permitted to establish branches in any state if that state would permitpermits the establishment of the branch by a state bank chartered in that state, although branchingsetting up a branch remains subject to applicable regulatory approval and adherence to applicable legal requirements.

Anti-Money Laundering and Economic Sanctions

The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”) provides the federal government with additional powers to address terrorist threats. This has been implemented through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements. By way of amendments to the Bank Secrecy Act, or the BSA, the USA PatriotPATRIOT Act imposed new requirements that obligate financial institutions, such as banks, to take certain steps to monitor and control the risks associated with money laundering and terrorist financing.

Among other requirements, the USA PatriotPATRIOT Act and implementing regulations require banks to establish anti-money laundering programs that include, at a minimum:

internal policies, procedures and controls designed to implement and maintain the bank’s compliance with all of the requirements of the USA PatriotPATRIOT Act, the BSA and related laws and regulations;

systems and procedures for monitoring and reporting of suspicious transactions and activities;

a designated compliance officer;

employee training;

an independent audit function to test the anti-money laundering program;

procedures to verify the identity of each customerclient upon the opening of accounts; and

heightened due diligence policies, procedures and controls applicable to certain foreign accounts and relationships.

Additionally, the USA PatriotPATRIOT Act requires each financial institution to develop a customer identification program, or CIP, as part of its anti-money laundering program. The key components of the CIP are identification, verification, government list comparison, notice and record retention. The purpose of the CIP is to enable the financial institution to determine the true identity and anticipated account activity of each customer.client. To make this determination, among other things, the financial institution must collect certain information from customersclients at the time they enter into the customerclient relationship with the financial institution. This information must be verified within a reasonable time through documentary and non-documentary methods. Furthermore, all customersclients must be screened against any CIP-related government lists of known or suspected terrorists. Financial institutions are also required to comply with various reporting and recordkeeping requirements. The Federal Reserve and the FDIC consider an applicant’s effectiveness in combating money laundering, among other factors, in connection with an application to approve a bank merger or acquisition of control of a bank or bank holding company.


Likewise, the Office of Foreign Assets Control, or OFAC, is responsible for helping to ensure that U.S. entities do not engage in transactions with the subjects of U.S. sanctions, as defined by various Executive Orders, laws, regulations, treaties, and related interpretations. OFAC assembles and provides lists of names of persons and


organizations suspected of aiding, harboring or engaging in terrorist acts. If either Banka bank finds a name on any transaction, account or wire transfer that is on an OFAC list, it must freeze such account, file a suspicious activity report and notify appropriate authorities.

The Bank has adopted policies, procedures and controls to comply with the BSA, the USA PatriotPATRIOT Act and OFAC regulations.

Regulatory Enforcement Authority

Federal and state banking laws grant substantial enforcement powers to federal and state banking regulators. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to initiate injunctive actions against banking organizations and “institution-affiliated parties,” such as management, employees and agents. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with regulatory authorities. When issued by a banking regulator, cease-and-desistcease and desist and similar orders may, among other things, require affirmative action to correct any harm resulting from a violation or practice, including restitution, reimbursement, indemnifications or guarantees against loss. A bank may also be ordered to restrict its growth, dispose of certain assets, rescind agreements or contracts, or take other actions determined to be appropriate by the ordering regulatory agency.

Loan Concentrations

The FDIC has issued guidance recommending that if certain categories of commercial real estate (“CRE”) loans and acquisition, development and construction (“ADC”) loans exceed certain thresholds, then heightened risk management practices should be employed to mitigate risk. As of December 31, 2016,2019, our ADC and CRE and ADC loans did not exceed those thresholds. An increase in ADC loan concentration could cause our ratio for ADC loans to increase and even exceedwere within the thresholds.thresholds set by the FDIC. We have exceeded these thresholds at times in the past and may do so again in the future. If we exceed the thresholds and do not manage the risk of our CRE and ADC loans, we may be subject to regulatory scrutiny, such as a requirement to raise additional capital, reduce our loan concentrations or undertake other remedial actions.

Federal Home Loan Bank System

In 2015 the Federal Home LoanThe Bank of Des Moines and the Federal Home Loan Bank of Seattle completed their merger. As a result, the Bank is now a member of and owns stock in the Federal Home Loan Bank of Des Moines.

Privacy and Data Security

Federal and state law contains extensive consumer privacy protection provisions.  Under the Gramm–Leach–Bliley Act, also known as the Financial Services Modernization Act of 1999 (“GLBA”), federal banking regulators adopted rules limiting the ability of financial institutions to disclose non-public information about consumers to non-affiliated third parties. The rules require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to non-affiliated third parties. The GLBA also directed federal regulators to prescribe standards for the security of consumer information. The Bank is subject to such standards, as well as standards for notifying customersclients in the event of a security breach.

Other federal and state laws and regulations affect the Company’s and the Bank’s ability to share certain information with affiliates and non-affiliates for marketing and/or non-marketing purposes, or to contact clients with marketing offers.

Like other lenders, the Bank uses credit bureau data in its underwriting activities. Use of such data is regulated under the Fair Credit Reporting Act (the “FCRA”), and the FCRA also regulates reporting information to credit bureaus, prescreening individuals for credit offers, sharing of information between affiliates, and using affiliate data for marketing purposes. Similar state laws may impose additional requirements on the Company and the Bank.


Cybersecurity

The federal banking regulators, as well as the SEC and related self-regulatory organizations, regularly issue guidance regarding cybersecurity that is intended to enhance cybersecurity risk management among financial institutions. A financial institution is expected to establish lines of defense and to ensure that its risk management processes also address the risk posed by potential threats to the institution. A financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the institution’s operations after a cyberattack. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations if the institution or its critical service providers fall victim to a cyberattack.

To control cyber-security risk, we maintain active information security programs that are designed to conform with Federal Financial Institutions Examination Council (“FFIEC”) guidance. These information security programs are aligned with our operational risks and are overseen by executive management, and the Board. These programs involve the assessment of risks, continual monitoring and review of threats, the evaluation of the effectiveness of controls to mitigate risks, and review of incident response plans for each identified threat. We also utilize appropriate cybersecurity insurance that protects against certain losses, expenses, and damages associated with cybersecurity risk.

Further, we recognize our role in the overall industry, and have adopted a comprehensive model based off of the National Institute of Standards and Technology's Cyber Security Framework. We also fully participate in the federally recognized financial sector information sharing organization structure, known as the Financial Services Information Sharing and Analysis Center. Digital technology is constantly evolving, and new and unforeseen threats and actions by others may disrupt operations or result in losses beyond our risk control thresholds. Although we invest substantial time and resources to manage and reduce cybersecurity risk, it is not possible to completely eliminate this risk.

We believe that effective management of operational risk, defined as the risk of loss resulting from inadequate or failed internal processes, people, and systems, or from external events, plays a major role in both the level and the stability of our profitability. Our Enterprise Risk Management department oversees an enterprise-wide framework intended to identify, assess, control, monitor, and report on operational risks. These processes support our goals to minimize future operational losses and strengthen our performance by maintaining sufficient capital to absorb operational losses that are incurred.

Consumer Laws and Regulations

The Bank is also subject to a number of other federal and state consumer laws and regulations that are designed to protect consumers in transactions with banks. While the list set forth below is not exhaustive, these laws and regulations include the Truth-in-Lending Act, the Truth-in-Savings Act, the Electronic FundsFund Transfer Act, the Expedited Funds Availability Act, the Check Clearing for the 21st Century Act, the Fair Credit Reporting Act,FRCA, the Fair Debt Collection Practices Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Home Mortgage Disclosure Act, the Fair and Accurate Credit Transactions Act, the Servicemembers Civil Relief Act, the Military Lending Act, and the Real Estate Settlement Procedures Act, among others.Act. These laws and regulations mandate certain


disclosure requirements and regulate the manner in which financial institutions must deal with consumers when offering consumer financial products and services.

Rulemaking authority for most federal consumer-financial-protection laws rests with the CFPB.Consumer Financial Protection Bureau (“CFPB”). The CFPB also has broad authority to prohibit unfair, deceptive andor abusive acts andor practices, or UDAAP, and to investigate and penalize financial institutions that violate this prohibition. While the statutory language of the Dodd-Frank Act sets forth the standards for acts and practices that violate the prohibition on UDAAP, certain aspects of these standards are untested, and thus it is currently not possible to predict how the CFPB will exercise this authority.


The Dodd-Frank Act also authorized the CFPB to establish certain minimum standards for the origination of residential mortgages, including a determination of the borrower’s ability to repay. The rules also impose both underwriting standards and limits on the terms, including pricing, of such loans. In 2014, the CFPB adopted regulations that combine mortgage disclosures required by the Real Estate Settlement Procedures Act and its implementing Regulation X, and the Truth-in-Lending Act and its implementing Regulation Z. This new disclosure scheme requiresrequired mortgage lenders such as the Bank to substantially revise their loan-origination and disclosure systems in order to comply with the new regulations. The Bank has implemented necessary modifications in order to meet these requirements. In 2018, portionsPortions of a significant expansion of the Home Mortgage Disclosure Act and its implementing Regulation C will take effect.took effect in 2018.

Other Dodd-Frank Act Reforms

Volcker Rule

The Volcker Rule prohibits insured depository institutions, such as the Bank, and their affiliates, such as PUB, from (i) engaging in “proprietary trading,” and (ii) investing in or sponsoring certain types of funds, or covered funds, in each case subject to certain limited exceptions. The final rules impose significant compliance and reporting obligations on banking entities.

In May 2018, the five federal agencies with rulemaking authority with respect to the Volcker Rule released a proposal to revise the Volcker Rule. The Federal Reserve recently extendedproposal would tailor the conformance period forVolcker Rule’s compliance requirements to the amount of a firm’s trading activity, revise the definition of trading account, clarify certain covered fundskey provisions in the Volcker Rule, and modify the information companies are required to July 21, 2017. provide the federal agencies. If adopted, the proposed changes to the definition of a trading account would likely expand the scope of investing and trading activities subject to the Volcker Rule’s restrictions.

PUB is reviewing the scope of any compliance program that may be required but is of the view that the impact of the Volcker Rule will not be material to its business operations.

Executive Compensation and Corporate Governance

The Dodd-Frank Act requires public companies to include, at least once every three years,years; a separate non-binding “say-on-pay” vote in their proxy statement by which shareholders may vote on the compensation of the public company’s named executive officers. In addition, if such public companies are involved in a merger, acquisition, or consolidation, or if they propose to sell or dispose of all or substantially all of their assets, shareholders have a right to an advisory vote on any golden parachute arrangements in connection with such transaction. Other provisions of the act may impactaffect our corporate governance. In addition, the act requires the SEC to adopt rules requiring all exchange-traded companies to adopt claw-back policies for incentive compensation paid to executive officers in the event of accounting restatements based on material non-compliance with financial reporting requirements. We are an “Emerging Growth Company” under the JOBS Act and therefore subject to reduced disclosure requirements related to executive compensation.


Future Legislative and Regulatory Developments

Various legislative acts are from time to time enacted by Congress or by the Utah Legislature. Additionally, regulatory agencies frequently modify or create new regulationregulations and guidance. Such acts and modifications or new regulation and guidance may change the environment in which PUB and the Bank operate in substantial and unpredictable ways. We cannot determine the ultimate impact that potential legislation, if enacted, or implementing regulations and guidance with respect thereto, would have upon PUB’s or the Bank’s financial condition or results of operations. Finally, on February 3, 2017, President Trump signed an executive order pursuant to which he ordered the Secretary of the Treasury to consult with the heads of the member agencies of the Financial Stability Oversight Council on the extent to which existing laws, treaties, regulations, guidance, reporting and recordkeeping requirements, and other government policies promote certain core principles laid out in the executive order. This may result in repeals of or amendments to existing laws, treaties, regulations, guidance, reporting and recordkeeping requirements and other government policies.


State Corporate Law Restrictions

As Utah corporations, PUB and the Bank are subject to certain limitations and restrictions under applicable Utah corporate law. For example, state-lawstate law restrictions in Utah include limitations and restrictions relating to indemnification of directors; distributions to shareholders; transactions involving directors, officers, or interested shareholders; maintenance of books, records, and minutes; and observance of certain corporate formalities.

Corporate Governance and Accounting Legislation

SOX established a new accounting oversight board that enforces auditing standards and restricts the scope of services that accounting firms may provide to their public-company audit clients. Among other things, SOX also (i) requires chief executive officers and chief financial officers to certify to the accuracy of periodic reports filed with the SEC; (ii) imposes new disclosure requirements regarding internal controls, off-balance-sheet transactions, and pro forma (non-GAAP) disclosures; (iii) accelerates the time frame for reporting of insider transactions and periodic disclosures by public companies; and (iv) requires companies to disclose whether or not they have adopted a code of ethics for senior financial officers and whether the audit committee includes at least one “audit committee financial expert.” As a public reporting company, we are subject to requirements under SOX and related rules and regulations issued by the SEC and NASDAQ. We incur additional expense as a result of SOX and these rules and regulations.

Effects of Government Monetary Policy

Our earnings and growth are affected not only by general economic conditions, but also by the fiscal and monetary policies of the Federal Government, particularly the Federal Reserve. The Federal Reserve can and does implement national monetary policy for such purposes as curbing inflation, combating recession, and facilitating the national debt. The nature and impact of future changes in monetary policies and their impact on us cannot be predicted with certainty.

 


Item 1A. RiskRisk Factors

An investment in the Company’s common shares involves certain risks. The following is a discussion of the most significant risks and uncertainties that may affect the Company’s business, financial condition and future results.

Risks Relating to Our Business and Market

As a business operating in the financial services industry, our business and operations may be adversely affected in numerous and complex ways by weak economic conditions.

Our businesses andbusiness operations, which primarily consist of lending money to customersclients in the form of loans, borrowing money from customersclients in the form of deposits and investing in securities, are sensitive to general business and economic conditions in the United States. If the U.S. economy weakens, our growth and profitability from our lending, deposit and investment operations could be constrained. Uncertainty about the federal fiscal policymaking process, the mediumthree to ten year and long-termlonger fiscal outlook of the federal government,economy, and future tax rates is a concern for businesses, consumers and investors in the United States. In addition, economic conditions in foreign countries could affect the stability of global financial markets, which could hinder U.S. economic growth. Weak economic conditions are characterized by deflation,by: i) deflation; ii) fluctuations in debt and equity capital markets,markets; iii) a lack of liquidity and/or depressed prices in the secondary market for mortgage loans,loans; iv) increased delinquencies on mortgage, consumer and commercial loans,loans; v) residential and commercial real estate price declinesdeclines; and vi) lower home sales and commercial activity. The current economic environment is also characterized by interest rates at historically low levels, which impacts our ability to attract deposits and to generate attractive earnings through our investment portfolio. All of these factors are detrimental toadversely affect our business, and the interplay between these factors can be complex and unpredictable. Our business is also significantly affected by monetary and related policies of the U.S. federal government and its agencies. Changes in any of these policies are influenced by macroeconomic conditions and other factors that are beyond our control. Adverse economic conditions and government policy responses to such conditions could have a material adverse effect on our business, financial condition and results of operations.


We were affected negatively by the weak economic conditions present during the recent financial crisis that began in 2008, and our total assets and annual net income dropped to lows of $810.9 million and $3.1 million, respectively in 2009 and 2008, due to these economic conditions. A future crisis or similar weak economic conditions could affect us similarly, which would negatively impact our business, financial condition and results of operations.

A substantial majority of our loans and operations are in Utah, Salt Lake, Davis, Cache, Box Elder and Washington counties, andCounties; therefore, our business is particularly vulnerable to a downturn in the local economies of those counties.

Unlike larger financial institutions that are more geographically diversified, our business is concentrated primarily in the state of Utah. As of December 31, 2016,2019, approximately 79.6%82.1% of our loans were secured by real estate, the substantial majority of which are located in Utah, Salt Lake, Davis, Cache, Box Elder, and Washington counties. If the local economy, and particularly the real estate market, declines, the rates of delinquencies, defaults, foreclosures, bankruptcies and losses in our loan portfolio would likely increase. This risk increases for our variable rate loans, which represent 63.5%79.2% of our loans. As a result of this lack of diversification in our loan portfolio, a downturn in the local economy generally and real estate market specifically could significantly reduce our profitability and growth and adversely affect our financial condition.condition and operations.

A large portion of our loan portfolio is tied to the real estate market and we may be negatively impacted by downturns in that market.

The majority of loans in our loan portfolio are real estate related, includingconsisting of loans for construction and land development projects, and for the purchase, improvement or refinancing of residential and commercial real estate. A downturn in the real estate market could increase loan delinquencies, defaults and foreclosures, and significantly impair the value of our collateral and our ability to sell the collateral upon foreclosure. The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrowerclient and may deteriorate in value during the time the credit is extended. If real estate values decline, it is also more likely that we would be required to increase our allowance for loan losses. If during a period of reduced real estate values we are required to liquidate the property collateralizing a loan to satisfy the debt or to increase our allowance for loan losses, it could materially reduce our profitability and adversely affect our financial condition.


As of December 31, 2016, 21.4%2019, 16.3% of our loan portfolio consisted of real estate construction, and acquisition and land development loans, which generally have a higher degree of risk than long-term financing of existing properties because repayment depends on the completion of the project and usually on the sale or long term financing of the property. In addition, these loans are often “interest-only loans,” which normally require only the payment of interest accrued prior to maturity. Interest-only loans carry greater risk than principal and interest loans because no principal is paid prior to maturity. This risk is particularly apparent during periods of rising interest rates and declining real estate values. If there is a significant decline in the real estate market due to a material increase in interest rates or for other reasons, many of these loans could default and result in foreclosure. Moreover, most of these loans are for projects located in our primary market area. If we are forced to foreclose on a project prior to completion, we may not be able to recover the entire unpaid portion of the loan or we may be required to fund additional money to complete the project or hold the property for an indeterminate period of time.period. Any of these outcomes may result in losses and reduce our earnings.

The FDIC has given guidance recommending that if the sum of (i) certain categories of commercial real estate, or CRE loans and (ii) acquisition, development and construction, or ADC loans exceeds 300% of total risk-based capital, or if ADC loans exceed 100% of total risk- based capital, heightened risk management practices should be employed to mitigate risk. As of December 31, 2016,2019, our ratio for the sum of CRE and ADC loans was 202.0%204% and our ratio for ADC loans was 101.8%84%.  Our concentration in ADC loans is cyclical and tends to increase in the second and third quarters of each year as demand for ADC loans increases. An increase in ADC loan concentration could cause our ratio for ADC loans to increase and even exceed the FDIC’s guideline. We have exceeded these guidance ratios at times in the past and may do so in the future.  We actively monitor and believe that we effectively manage our CRE and ADC loan concentrations.  If we exceed the FDIC’s guidelines and do not effectively manage the risk of our CRE and ADC loans, we may be subject to regulatory scrutiny, including a requirement to raise additional capital, reduce our loan concentrations or undertake other remedial actions.


We are a community bank and our ability to maintain our reputation is critical to the success of our business and the failure to do so may materially and adversely affect our performance.

We operate community banks, and our reputation is one of the most valuable components of our business. As such, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and retaining associates who share our core values of being an integral part of the communities we serve, delivering superior service to our customers and caring about our customers and associates. If our reputation is negatively affected by the actions of our associates or otherwise, our business and, therefore, our operating results may be materially and adversely affected.

We could suffer material credit losses if we do not appropriately manage our credit risk.

There are risks inherent in making any loan, including risks inherent in dealing with individual borrowers,clients, risks of non-payment, risks resulting from uncertainties as to the future value of collateral and risks resulting from changes in economic and industry conditions. Changes in the economy canmay cause the assumptions that we made at origination to change and canmay cause borrowersclients to be unable to make payments on their loans, and significantloans.  Significant changes in collateral values canmay cause us to be unable to collect the full value of loans we make. There is no assurance that our credit risk monitoring and loan approval procedures are or will be adequate or will reduce the inherent risks associated with lending. Our credit administration personnel, and policies and procedures may not adequately adapt to changes in economic or any other conditions affecting customersclients and the quality of our loan portfolio. Any failure to manage such credit risks may materially adversely affect our business, financial condition and results of operations.

The small- to medium-sizedsmall-to-medium sized businesses that we lend to may have fewer resources to weather adverse business developments, which may impair their ability to repay a loan, and such impairment could adversely affect our results of operations and financial condition.

We focus our business development and marketing strategy primarily on small-to medium-sizedsmall-to-medium sized businesses. Small-to medium-sizedSmall-to-medium sized businesses frequently have smaller market shares than their competition, may be more vulnerable to economic downturns, often need substantial additional capital to expand or compete and may experience substantial volatility in operating results, any of which may impair a borrower’sclient’s ability to repay a loan. In addition, the success of a small-small to medium-sizedmedium sized business often depends on the management skills, talents and efforts of one or two people or a small group of people, and the death, disability or resignation of one or more of these people could have a material adverse impact on the business and its ability to repay its loan. If general economic conditions negatively impactaffect Utah and small- to medium-sizedsmall-to-medium sized businesses are adversely affected or our borrowersclients are otherwise affected by adverse business conditions or developments, our business, financial condition and results of operations could be adversely affected.


If we are not able to maintain our past levels of growth, our future prospects and competitive position could be diminished and our profitability could be reduced.

We may not be able to sustain our deposit, loan, and asset growth at the rate we have enjoyed during the past several years. Our growth over the past several years has been driven primarily by a strong residential housing and commercial real estate market in our market areas and our ability to identify attractive expansion opportunities. Although the local economic market conditions are not exhibiting signs of slowing, we are seeing credit opportunities tightening.  A downturn in local economic market conditions, particularly in the real estate market, a failure to attract and retain high performing associates,employees, heightened competition from other financial services providers, and an inability to attract additional core deposits and lending customers,clients, among other factors, could limit our ability to grow as rapidly as we have in the past and as such could have a negative effect on our business, financial condition and results of operations.

If we are unable to manage our growth effectively, we may incur higher-than-anticipatedhigher than anticipated costs, and our ability to execute our growth strategy could be impaired.

We expect to continue to grow our assets and deposits by increasing our product and service offerings and expanding our operations through new branches and possibly acquisitions. Our ability to manage growth successfully will depend on our ability to:

identify suitable markets for expansion;

attract and retain qualified management;


attract funding to support additional growth;

attract funding to support additional growth;

maintain asset quality and cost controls;

maintain adequate regulatory capital and profitability to support our lending activities; and

find attractive acquisition candidatestargets and successfully acquire and integrate the acquisitions in an efficient manner.

If we do not manage our growth effectively, we may be unable to realize the benefit from the investments in technology, infrastructure, and personnel that we have made to support our expansion. In addition, we may incur higher costs and realize less revenue growth than we expect, which would reduce our earnings and diminish our future prospects, and we may not be able to continue to implement our business strategy and successfully conduct our operations. Risks associated with failingFailing to maintain effective financial and operational controls as we grow, such as maintaining appropriate loan underwriting procedures, determining adequate allowances for loan losses and complyingcompliance with regulatory accounting requirements, includingcould have a negative effect on our financial condition and operations, such as increased loan losses, reduced earnings and potential regulatory penalties and restrictions on growth, all could have a negative effect on our business, financial condition and results of operations.growth.

We may grow through mergers or acquisitions, which strategy may not be successful or, if successful, may produce risks in successfully integrating and managing the merged companies or acquisition and may dilute our shareholders.

As part of our growth strategy, we may pursue mergers and acquisitions of banks and nonbank financial services companies within and outside of our principal market area. Although we regularly identify and explore specific acquisition opportunities as part of our ongoing business practices, we have no present agreements or commitments to merge with or acquire any financial institution or any other company, and may not find a suitable merger or acquisition opportunities.opportunity. Mergers and acquisitions involve numerous risks, any of which could harm our business, including:

difficulties in integrating the operations, technologies, existing contracts, accounting processes and personnel of the target and realizing the anticipated synergies of the combined businesses;

difficulties in supporting and transitioning customersclients of the target company;

diversion of financial and management resources from existing operations;


the price we pay or other resources that we devote may exceed the value we realize, or the value we could have realized if we had allocated the purchase price or other resources to another opportunity;

the price we pay or other resources that we devote may exceed the value we realize, or the value we could have realized, if we had allocated the purchase price or other resources to another opportunity;

entering new markets or areas in which we have limited or no experience;

potential loss of key associatesemployees and customersclients from either our business or the target’s business;

assumption of unanticipated problems or latent liabilities of the target; and

inability to generate sufficient revenue to offset acquisition costs.

Mergers and acquisitions also frequently result in the recording of goodwill and other intangible assets, which are subject to potential impairments in the future and that could harm our financial results. In addition, if we finance acquisitions by issuing convertible debt or equity securities, our existing shareholders may be diluted, which could affect the market price of our common shares. As a result, if we fail to properly evaluate mergers, acquisitions or investments, we may not achieve the anticipated benefits of any such merger or acquisition, and we may incur costs in excess of what we anticipate. The failure to successfully evaluate and execute mergers, acquisitions or investments or otherwise adequately address these risks could materially harm our business, financial condition and results of operations.

Our allowance for loan losses may not be adequate to cover actual losses.

A significant source of risk arises from the possibility that we could sustain losses due to loan defaults and non-performance on loans. We maintain an allowance for loan losses in accordance with accounting principles generally accepted in the United States to provide for such defaults and other non-performance. As of December 31,


2016, 2019, our allowance for loan losses (“ALLL”) as a percentage of gross loans held for investment was 1.46%1.87%.  The determination of the appropriate level of loan loss allowance is an inherently difficult process and is based on numerous assumptions. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, which may be beyond our control. In addition, our underwriting policies, adherence to credit monitoring processes, and risk management systems and controls may not prevent unexpected losses. Our allowance for loan losses may not be adequate to cover actual loan losses. Moreover, any increase in our allowance for loan losses will adversely affect our earnings.

In June 2016, the FinancialFASB issued Accounting Standards Board (“FASB”) amended FASB ASC Topic 326, Update 2016-13, Measurement of Credit Losses on Financial Instruments - Credit Losses. (“ASU 2016-13”).  ASU 2016-13 became effective January 1, 2020, and will substantially change the accounting for credit losses on loans and other financial assets held by banks, financial institutions and other organizations. The amendments in this Update replace the currentstandard replaces existing incurred loss model withimpairment guidance and establishes a methodology that reflects expectedsingle allowance framework for financial assets carried at amortized cost. Upon adoption of ASU 2016-13, companies must recognize credit losses on these assets equal to management’s estimate of credit losses over the life of the loanfull remaining expected life. Companies must consider all relevant information when estimating expected credit losses, including details about past events, current conditions, and requires consideration of a broader range of reasonable and supportable informationforecasts. In December 2018, the Federal Reserve, OCC and FDIC released a final rule to calculaterevise their regulatory capital rules to address this upcoming change to the treatment of credit loss estimates.expense and allowances. The amendments are effective for public business entitiesfinal rule provides an optional three-year phase-in period for the first interimday-one adverse regulatory capital effects upon adopting the standard. The standard is likely to result in increases to the level of allowance held by us and annual reporting periods beginningour overall capital position after December 15, 2019.adoption in 2020 as regulatory agencies have limited the amount of ALLL that may be included in regulatory capital calculations.  The Company is currently evaluating the impact of these amendments to the Company’s financial position and results of operations and currently does not know or cannot reasonably quantify the impact of the adoption of the amendments as a result of the complexity and extensive changes from the amendments. The ALLL is a material estimate of the Company and given the change from an incurred loss model to a methodology that considers the credit loss over the life of the loan, there is the potential for an increase in the ALLL at adoption date. The Company is anticipating a significant change in the processes and procedures to calculate the ALLL, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. The Company will also developdeveloping new procedures for determining an allowance for credit losses relating to held-to-maturityheld to maturity investment securities.  In addition, the current accounting policy and procedures for other-than-temporary impairment on available-for-saleavailable for sale investment securities will be replaced with an allowance approach.  However, we are still evaluating the overall impact that adopting this new accounting standard will have on both our financial condition and regulatory capital position. It is also highly likely that PUB’s ongoing reported earnings and lending activities will be negatively impacted in periods following adoption.


As a community bank, our ability to maintain our positive reputation is critical to the success of our business.  The Companyfailure to maintain that reputation may materially and adversely affect our financial performance.

Our reputation is expectingone of the most valuable components of our business. As such, we strive to begin developingconduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and implementing processesretaining employees who share our core values of being an integral part of the communities we serve, delivering superior service to our clients and procedures duringcaring about our clients and employees. If our reputation is negatively affected by the next two years to ensure it is fully compliant with the amendments at adoption date.actions of our employees or otherwise, our business and, therefore, our operating results may be materially and adversely affected.

We may have difficulty attracting additional necessary personnel, which may divert resources and limit our ability to successfully expand our operations.

Our business plan includes, and is dependent upon, our hiring and retaining highly qualified and motivated associatesemployees at every level. In addition, we anticipate that the reporting and related obligations to which we will become subject as a public reporting company may require us to hire additional accounting and finance staff. We expect to experience substantial competition in identifying, hiring and retaining top-quality associates.employees due to Utah’s low unemployment rate and new financial institutions entering our markets. If we are unable to hire and retain qualified associatesemployees, we may be unable to successfully execute our business strategy and manage our growth.

The unexpected loss of key officers would materially and adversely affect our ability to execute our business strategy, and diminish our future prospects.

Our success to date and our prospects for success in the future are substantially dependent on our senior management team. The loss of key members of our senior management team could materially and adversely affect our ability to successfully implement our business plan and, as a result, our future prospects. The loss of senior management without qualified successors who can execute our strategy would also have an adverse impact on us.

Our financial and accounting estimates and risk management framework rely on analytical forecasting and models.

The processes we use to estimate our inherent loan losses and to measure the fair value of financial instruments, as well as the processes used to estimate the effects of changing interest rates and other market measures on our financial condition and operations, depend upon the use of analytical and forecasting models. Some of our tools and metrics for managing risk are based upon our use of observed historical market behavior. We rely on quantitative models to measure risks and to estimate certain financial values. Models may be used in such processes as determining the pricing of various products, grading loans and extending credit, measuring interest rate and other market risks, predicting losses, assessing capital adequacy and calculating regulatory capital levels, as well as estimating the value of financial instruments and balance sheet items. Poorly designed or implemented models present the risk that our business decisions based on information incorporating such models will be adversely affected due to the inadequacy of that information. Moreover, our models may fail to predict future risk exposures if the information used in the model is incorrect, obsolete or not sufficiently comparable to actual events as they occur. We seek to incorporate appropriate historical data in our models, but the range of market values and behaviors reflected in any period of historical data is not at all times predictive of future developments in any particular period and the period of data we incorporate into our models may turn out to be inappropriate for the future period being modeled. In such case, our ability to manage risk would be limited and our risk exposure and losses could be significantly greater than our models indicated. In addition, if existing or potential clients believe our risk management is inadequate, they could take their business elsewhere. This could harm our reputation as well as our revenues and profits. Finally, information we provide to our regulators based on poorly designed or implemented models could also be inaccurate or misleading. Some of the decisions that our regulators make, including those related to capital distributions to our stockholders, could be affected adversely due to their perception that the quality of the models used to generate the relevant information is insufficient.


Our profitability depends on interest rates generally, and we may be adversely affected by changes in market interest rates.

Our profitability depends in substantial part on our net interest income. Our net interest income depends on many factors that are partly or completely outside of our control, including competition, federal economic, monetary and fiscal policies, and economic conditions generally. Our net interest income will be adversely affected if market interest rates change so that the interest we pay on deposits and borrowings increases faster than the interest we earn on loans and investments. In addition, an increase in interest rates could adversely affect borrowers’clients’ ability to pay the principal or interest on existing loans or reduce their desire to borrow more money. This may lead to an increase in our non-performing assets, a decrease in loan originations, or a reduction in the value of and income from our loans, any of which could have a material and negative effect on our results of operations. Fluctuations in market rates and other market disruptions are neither predictable nor controllable and may adversely affect our financial condition and earnings.  In response to market concerns arising from the spread of COVID-19, among other domestic and global events, interest rates in the U.S. have recently declined. Interest rates may decrease further as a result of such events, which could adversely affect our financial condition and earnings.


The ratio of variable to fixed-rate loans in our loan portfolio, the ratio of short-term (maturing at a given time within 12 months) to long-term loans, and the ratio of our demand, money market and savings deposits to CDs (and their time periods), are the primary factors affecting the sensitivity of our net interest income to changes in market interest rates. The composition of our rate-sensitive assets or liabilities is subject to change and could result in a more unbalanced position that would cause market rate changes to have a greater impact on our earnings.

In periods of rising interest rates, commercial and consumer demand for new residential mortgageslending and re-financings decreases, which, in turn adversely impactsaffects our mortgage business.lending activities.

If we need additional capital in the future to continue our growth, we may not be able to obtain it on terms that are favorable.

We may need to raise additional capital in the future to support our continued growth and to maintain our capital levels. Our ability to raise capital through the sale of additional securities will depend primarily upon our financial condition and the condition of financial markets at that time. Accordingly, we may not be able to obtain additional capital in the amounts or on terms satisfactory to us. Our growth may be constrained if we are unable to raise additional capital as needed.

Our funding sources may prove insufficient to provide liquidity, replace deposits and support our future growth.

We rely on customerclient deposits, advances from the FHLB, the Federal Reserve System and lines of credit at other financial institutions and the Federal Reserve System to fund our operations. Although we have historically been able to replace maturing deposits and advances if desired, we may not be able to replace such funds in the future if our financial condition, the financial condition of the FHLB or market conditions were to change. Our financial flexibility will be severely constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. Finally, if we are required to rely more heavily on more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs. In this case, our profitability would be adversely affected.

FHLB borrowings and other current sources of liquidity may not be available or, if available, not sufficient to provide adequate funding for operations. Furthermore, our own actions could result in a loss of adequate funding. For example, our availability at the FHLB could be reduced if we are deemed to have poor documentation or processes. Accordingly, we may be required to seek additional higher-cost debt in the future to achieve our long- termlong-term business objectives. Additional borrowings, if sought, may not be available to us or, if available, may not be available on favorable terms. If additional financing sources are unavailable or are not available on reasonable terms, our growth and future prospects could be adversely affected.


We may be adversely affected by the lack of soundness of other financial institutions or financial market utilities.

Our ability to engage in routine funding and other transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial institutions are interrelated as a resultbecause of trading, clearing, counterparty or other relationships. Defaults by, or even rumors or questions about, one or more financial institutions or financial market utilities, or the financial services industry generally, may lead to market-wide liquidity problems and losses of depositor,client, creditor and counterparty confidence and could lead to losses or defaults by us or by other financial institutions.

Impairment of investment securities could require charges to earnings, which would negatively impact our results of operations.

We maintain a significant amount of our assets in investment securities, and must periodically test our investment securities for impairment in value. In assessing whether the impairment of investment securities is other-than-temporary, we considerconsider; i) the length of time and extent to which the fair value has been less than cost, ii) the financial condition and near- term prospects of the issuer, and iii) the intent and ability to retain itsour investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value in the near term. If we conclude that impairment of investment securities is required, we could be required to incur charges to earnings, which would result in a negative impact on our results of operations. The impact of these impairment matters could have a material adverse effect on our business, results of operations,financial condition and financial condition.operations.

We face strong competition from banks, credit unions and other financial services providers that offer banking services, which may limit our ability to attract and retain banking customers.clients.

Competition in the banking industry generally, and in our geographic market specifically, is intense.strong. Competitors include banks, as well as other financial services providers, such as savings and loan institutions, consumer finance companies, brokerage firms, insurance companies, credit unions, mortgage banks and other financial intermediaries. In particular, our competitors include several larger national and regional financial institutions whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous banking locations and ATMs, to offer a wider array of banking services and to conduct extensive promotional


and advertising campaigns. Additionally, banks and other financial institutions with larger capitalization and financial intermediaries not subject to bank regulatory restrictions have larger lending limits and are thereby able to serve the credit needs of a broader customerclient base than us. Larger competitors may also be able to offer better lending and deposit rates to customers,clients, and could increase their competition as we become a public companyincrease in asset size and our growth becomesbecome more visible. Moreover, larger competitors may not be as vulnerable as uswe are to downturns in the local economy and real estate market since they have a broader geographic area and their loan portfolio is more diversified. While our deposit base has increased, several larger banks have grown their deposit market share in our markets faster than we have resulting in a declining relative deposit market share for us in our existing markets. We believe our declining relative market share in deposits has resulted primarily from aggressive marketing and advertising, branch expansion, expanded delivery channels and more attractive rates offered by larger bank competitors. We also compete against community banks, credit unions and non-bank financial services companies that have strong local ties. These smaller institutions are likely to cater to the same small-small to medium-sizedmedium sized businesses that we target. Additionally, financial technology companies (“Fintech”) have developed technology whichthat allows customersclients to obtain loans via the internetInternet in an expeditious manner and couldhave become competitors to us.  If we are unable to attract and retain banking customers,clients, we may be unable to continue to grow our loan and deposit portfolios and our results of operations and financial condition may otherwise be adversely affected. Ultimately, we may be unable to compete successfully against current and future competitors.

Cyber-attacks or other security breaches could have a material adverse effect on our business.

In the normal course of business, we collect, process, and retain sensitive and confidential information regarding our customers.clients. We also have arrangements in place with other third parties through which we share and receive information about their customersclients who are or may become our customers.clients. Although we devote significant resources and management focus to ensuring the integrity of our systems through information security and business continuity programs, our facilities and systems, and those of third party service providers, are vulnerable to external or internal security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming or human errors or other similar events.


Information security risks for financial institutions like us have increased recently in part because of new technologies, the use of the Internet and telecommunications technologies (including mobile devices) to conduct financial and other business transactions and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists and others. In addition to cyber-attacks or other security breaches involving the theft of sensitive and confidential information, hackers recently have engaged in attacks against large financial institutions, particularly denial of service attacks that are designed to disrupt key business services, such as customer-facingclient-facing websites. We are not able to anticipate or implement effective preventive measures against all potential security breaches, of these types, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources. We employ detection and response mechanisms designed to contain and mitigate security incidents, but early detection may be thwarted by sophisticated attacks and malware designed to avoid detection.

We also face risks related to cyber-attacks and other security breaches in connection with credit and debit card transactions that typically involve the transmission of sensitive information regarding our customersclients through various third parties, including merchant acquiring banks, payment processors, payment card networks and our core processors. Some of these parties have in the past been the target of security breaches and cyber-attacks, and because the transactions involve third parties and environments such as the point of sale that we do not control or secure, future security breaches or cyber-attacks affecting any of these third parties could impact us through no fault of our own, and in some cases we may have exposure and suffer losses for breaches or attacks relating to them. We also rely on numerous other third party service providers to conduct other aspects of our business operations and face similar risks relating to them. While we regularly conduct security assessments on these third parties, we cannot be sure that their information security protocols are sufficient at all times to withstand a cyber-attack or other security breach.

The access by unauthorized persons to, or the improper disclosure by us of, confidential information regarding our customersclients or our own proprietary information, software, methodologies, and business secrets could result in significant legal and financial exposure, supervisory liability, damage to our reputation or a loss of confidence in the security of our systems, products and services, which could have a material adverse effect on our business, financial condition or results of operations. In addition, recentlyRecently, there have been a number of well-publicized attacks or


breaches affecting others in our industry that have heightened concern by consumersconsumers.  These concerns generally aboutrevolve around the security of using credit and debit cards, which have caused some consumers, including our customers,clients, to use our credit and debit cards less in favor of alternative methods of payment andpayment.  This has led to increased regulatory focus on, and potentially new regulations relating to, these matters. FurtherFurthermore, cyber-attacks or other breaches in the future, whether affecting usothers or others,us, could intensify consumer concern and regulatory focus and result in reduced use of our cards and increased costs, all of which could have a material adverse effect on our business. To the extent we are involved in any future cyber-attacks or other breaches, our brand and reputation could be affected, and this could also have a material adverse effect on our business, financial condition or results of operations.

If we experience a cyber-attack, our insurance coverage may not cover all of our losses, and furthermore, we may experience a loss of reputation.

Our risk management framework may not be effective in mitigating risks and losses to us.

Our risk management framework is comprised of various processes, systems and strategies, and is designed to manage the types of risk to which we are subject, including, among others, credit, market, liquidity, interest rate and compliance. Our framework also includes financial or other modeling methodologies that involve management assumptions and judgment. Our risk management framework may not be effective under all circumstances and may not adequately mitigate any risk of loss to us. If our framework is not effective, we could suffer unexpected losses and our business, financial condition, results of operations or business prospects could be materially and adversely affected. We may also be subject to potentially adverse regulatory consequences.


We are subject to certain operating risks, related to customerclient or employee fraud which could harm our reputation and business.

Employee error, andor employee and customeror client misconduct, could subject us to financial losses or regulatory sanctions and seriously harm our reputation. Misconduct by our employees could include hiding unauthorized activities from us, improper or unauthorized activities on behalf of our customersclients or improper use of confidential information. It is not always possible to prevent employee error and misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases. Employee error could also subject us to financial claims for negligence.

If our internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured, excess insurance coverage is denied or not available, it could have a material adverse effect on our business, financial condition and results of operations.

If we need additional capital in the future to continue our growth, we may not be able to obtain it on terms that are favorable.

Our business strategy calls for continued growth. We anticipate that we will be able to support this growth through the net proceeds from our initial public offering, as well as by adding deposits at existing and new branch locations. However, we may need to raise additional capital in the future to support our continued growth and to maintain our capital levels. Our ability to raise capital through the sale of additional securities will depend primarily upon our financial condition and the condition of financial markets at that time. Accordingly, we may not be able to obtain additional capital in the amounts or on terms satisfactory to us. Our growth may be constrained if we are unable to raise additional capital as needed.

If third parties infringe upon our intellectual property or if we were to infringe upon the intellectual property of third parties, we may expend significant resources enforcing or defending our rights or suffer competitive injury.

We rely on a combination of copyright, trademark, trade secret laws and confidentiality provisions to establish and protect our proprietary rights. If we fail to successfully maintain, protect and enforce our intellectual property rights, our competitive position could suffer. Similarly, if we were to infringe on the intellectual property rights of others, our competitive position could suffer. Third parties may challenge, invalidate, circumvent, infringe or misappropriate our intellectual property, or such intellectual property may not be sufficient to permit us to take advantage of current market trends or otherwise to provide competitive advantages, which could result in costly redesign efforts, discontinuance of certain product or service offerings or other competitive harm. We may also be required to spend significant resources to monitor and police our intellectual property rights. Others, including our


competitors may independently develop similar technology, duplicate our products or services or design around our intellectual property, and in such cases we could not assert our intellectual property rights against such parties. Further, our contractual arrangements may not effectively prevent disclosure of our confidential information or provide an adequate remedy in the event of unauthorized disclosure of our confidential or proprietary information. We may have to litigate to enforce or determine the scope and enforceability of our intellectual property rights, trade secrets and know-how, which could be time-consuming and expensive, could cause a diversion of resources and may not prove successful. The loss of intellectual property protection or the inability to obtain rights with respect to third party intellectual property could harm our business and ability to compete. In addition, because of the rapid pace of technological change in our industry, aspects of our business and our products and services rely on technologies developed or licensed by third parties, and we may not be able to obtain or continue to obtain licenses and technologies from these third parties on reasonable terms or at all.

In some instances, litigation may be necessary to enforce our intellectual property rights and protect our proprietary information, or to defend against claims by third parties that our products, services or technology infringe or otherwise violate their intellectual property or proprietary rights. Third parties may have, or may eventually be issued, patents that could be infringed by our products, services or technology. Any of these third parties could bring an infringement claim against us with respect to our products, services or technology. We may also be subject to third party infringement, misappropriation, breach or other claims with respect to copyright, trademark, license usage or other intellectual property rights. In addition, in recent years, individuals and groups, including patent holding companies have been purchasing intellectual property assets in order to make claims of infringement and attempt to extract settlements from companies in the banking and financial services industry. Any litigation or claims brought by or against us, whether with or without merit, could result in substantial costs to us and divert the attention of our management, which could harm our business and results of operations. In addition, any intellectual property litigation or claims against us could result in the loss or compromise of our intellectual property and proprietary rights, subject us to significant liabilities, including damage awards, result in an injunction prohibiting us from marketing or selling certain of our services, require us to redesign affected products or services, or require us to seek licenses which may only be available on unfavorable terms, if at all, any of which could harm our business and results of operations.

We are exposed to risk of environmental liabilities with respect to properties to which we take title.

Approximately 79.6%82.1% of our outstanding loan portfolio was secured by real estate as of December 31, 2016 was secured by real estate.2019.  In the course of our business, we may foreclose and take title to real estate, and could be subject to environmental liabilities with respect to these properties. We may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. In addition, if we are the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. If we ever become subject to significant environmental liabilities, our business, financial condition, liquidity and results of operations could be materially and adversely affected.

We rely on our information technology and telecommunications systems and third party servicers, and the failure of these systems could adversely affect our business.

Our business is highly dependent on the successful and uninterrupted functioning of our information technology and telecommunications systems and third party servicers. Our primary banking and accounting systems are third party software platforms operated on an in-house basis:basis; however, we outsource certain of our information technology systems including our electronic funds transfer, or EFT, ATM and debit card processing, credit and debit card and transaction processing, and our online Internet bill payment and banking services. We rely on these systems to process new and renewal loans, provide customerclient service, facilitate collections and share data across our organization. The failure of these systems, or the termination of a third party software license or service agreement on which any of these systems is based, could interrupt our operations. Because our information technology and telecommunications systems interface with and depend on third party systems, we could experience service denials if demand for such services exceeds capacity or such third party systems fail or experience interruptions. If sustained or repeated, a system failure or service denial could result in a deterioration of our ability to process new and renewal loans and provide customerclient service or compromise our ability to collect loan payments in a timely manner.


In addition, our  Our ability to adopt new information technology and technological products needed to meet our customers’clients’ banking needs may be limited if our third party servicers are slow to adopt or choose not to adopt such new technology and products. Such a failure to provide this technology and products to our customersclients could result in a loss of customers,clients, which would negatively impactaffect our businessfinancial condition and results of operations.

We depend on the accuracy and completeness of information about customersclients and counterparties.

In deciding whether to extend credit or enter into other transactions with customersclients and counterparties, we may rely on information furnished to us by or on behalf of customersclients and counterparties, including financial statements and other financial information. We also may rely on representations of customersclients and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. In deciding whether to extend credit, we may rely upon our customers’clients’ representations that their financial statements conform to U.S. generally accepted accounting principles, or GAAP, and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer.client. We also may rely on customerclient representations and certifications, or other auditors’ reports, with respect to the business and financial condition of our customers.clients. Our financial condition, results of operations, financial reporting and reputation could be negatively affected if we rely on materially misleading, false, inaccurate or fraudulent information.

Our planned growth in our leasing division includes increased risks, including risks related to collateralizing leases, our relative inexperience in this area,information provided by or about clients and complying with state lending and other requirements with which we are unfamiliar.

We intend to grow our leasing business by originating direct leases on a national level through our newly formed GrowthFunding Equipment Finance division.  We have acquired rental streams of payments on leases from third-party leasing companies for approximately four years but to this point the negotiation and administration of such leases have been handled by third-party leasing companies. We formed our GrowthFunding Equipment Finance division in 2016 to increase our leasing portfolio and scale diversification of the commercial and industrial loan portfolio. This division will seek to underwrite leases nationwide. These leases are used to purchase equipment essential to the operations of our borrowers/lessees and are secured by the specific equipment financed. Because this division is a new line of business to the Bank, we are not certain how quickly the new, nationwide customer base will accept this new business venture, or if it will be subject to new state lending laws that are unfamiliar to us, which will result in a greater regulatory burden on the Bank. Starting a new line of business may require significant investment in personnel which, if the business is not successful, may not be recovered.   While we have hired personnel with experience in leasing, there is no assurance we will be profitable or will be able to properly administer the lease portfolio. Finally, this new division is subject to state lending requirements and other laws with which we are unfamiliar, and failure to comply with these requirements and laws could result in significant penalties to the Bank.

Leasing is traditionally based on cash flow lending. Cash flow lending involves lending money based primarily on the expected cash flow, profitability and enterprise value of a business rather than on the value of its assets or resale of the collateral for the loan or lease. When cash flow loans or leases become non-performing, our primary resource to recover some, or all, of the principal of our loan or lease is to liquidate the collateral. If there is a shortfall in the collateral value, the Bank must pursue the corporate or personal guarantors, the sale of the entire company as a going concern, or restructure the company in a way we believe would enable us to generate sufficient cash flow over time to repay our loan or lease. These alternatives may not generate enough proceeds to repay the loan or lease.

For some types of leases, the Bank will own and have risk of loss on the leased property and the customer will make rental lease payments over a set lease period. The lease payments are determined, in part, based on the expected residual value of the property at the end of the lease. At the end of the lease, the Bank must sell or re-lease the property to the lessee or a third party. Leases with significant residual values have higher risk than many other types of lending because the economics of the lease also rely on the leased property’s value in addition to the other sources of repayment from the lease. We may be unable to re-lease or sell the property within a reasonable timeframe or may experience market price changes in the expected residual value of the leased property over the lease term. If we do not properly manage residual values of the leased property we may not be able to recover our investment.counterparties.


Catastrophic events including, but not limited to, hurricanes, tornadoes, earthquakes, fires, floods, prolonged drought, and pandemics may adversely affect the general economy, financial and capital markets, specific industries, and the Bank.

The Bank has significant operations and a significant customer base in regions where natural and other disasters may occur. These regions are known for being vulnerable to natural disasters and other risks, such as hurricanes, tornadoes, earthquakes, fires, floods, and prolonged drought. These types of natural catastrophic events at times have disrupted the local economy, the Bank’s business and clients, and could pose physical risks to the Bank’s property. In addition, catastrophic events, such as natural disasters or global pandemics, occurring in other regions of the world may have an impact on the Bank’s clients and in turn on the Bank. Although we have business continuity and disaster recovery programs in place, a significant catastrophic event could materially adversely affect the Bank’s operating results.

Our financial condition and results of operations for fiscal 2020 may be adversely affected by the recent coronavirus outbreak.

If a pandemic, epidemic or outbreak of an infectious disease occurs in the United States or globally, our business may be adversely affected. In December 2019, a novel strain of COVID-19 was reported to have surfaced in Wuhan, China. The virus continues to spread globally and, at the time of this filing, has spread to over 50 countries, including the United States. Our operations could be adversely affected to the extent that coronavirus or any other epidemic harms the world economy or Utah economy in general. Our operations may experience disruptions, such as temporary closure of our offices and/or suspension of services, which may materially and adversely affect our business, financial condition and operational results. The duration of the business disruption and related financial impact cannot be reasonably estimated at this time but may materially affect our ability to operate our business and result in additional costs. Such events could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in lost revenue, or cause us to incur additional expenses. The extent to which the coronavirus or other health epidemic may impact our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.

Risks Related to Our Regulatory Environment

We are subject to regulation, which increases the cost and expense of regulatory compliance, and therefore reduces our net income and may restrict our growth and our ability to acquire other financial institutions.

Supervision, regulation, and examination of PUB and the Bank by the bank regulatory agencies are intended primarily for the protection of consumers, bank clients and the Deposit Insurance Fund of the FDIC, rather than holders of our common shares.

As a bank holding company under federal law, we are subject to regulation under the Bank Holding Company Act of 1956, as amended, or the BHCA, and the examination and reporting requirements of the Federal Reserve. In addition to supervising and examining us, the Federal Reserve, through its adoption of regulations implementing the BHCA, places certain restrictions on the permissible activities that are deemed permissible for bank holding companies to engage in.companies. Changes in the number or scope of permissible activities could have an adverse effect on our ability to realize our strategic goals.

As a Utah state-chartered bank that is not a member of the Federal Reserve System, the Bank is separately subject to regulation by both the FDIC and the Utah Department of Financial Institutions, or UDFI. The FDIC and UDFI regulate numerous aspects of the Bank’s operations, including adequate capital and financial condition, permissible types and amounts of extensions of credit and investments, permissible non- bankingnon-banking activities and restrictions on dividend payments. The Bank undergoes periodic examinations by the FDIC and UDFI. Following such examinations, the Bank may be required, among other things, to change its respective asset valuations or the amounts of required loan loss allowances or to restrict its respective operations, as well as increase its respective capital levels, which could adversely affect our results of operations.

Supervision, regulation, and examination of PUB and the Bank by the bank regulatory agencies are intended primarily for the protection of consumers, bank depositors and the Deposit Insurance Fund of the FDIC, rather than holders of our common shares.

Particularly as a result of new regulations and regulatory agencies under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, weWe may be required to invest significant management attention and resources to evaluate and make any changes necessary to comply with applicable laws and regulations. This allocation of resources, as well as any failure to comply with applicable requirements, may negatively impactaffect our results of operations and financial condition.


Banking agencies periodically conduct examinations of our business, including compliance with laws and regulations, and our failure to comply with any regulatory actions to which we become subject because such examinations could materially and adversely affect us.

The UDFI, the FDIC, and the Federal Reserve periodically conduct examinations of our business, including compliance with laws and regulations. Accommodating such examinations may require management to reallocate resources that would otherwise be used in the day-to-day operation of other aspects of our business. If, as a result of an examination, the UDFI or a federal banking agency were to determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of our operations had become unsatisfactory, or that we or our management were in violation of any law or regulation, it may take a number of different remedial actions as it deems appropriate. These actions could include the power to enjoin “unsafe or unsound” practices, to require affirmative actions to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil monetary penalties against us, our officers or directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to clients, to terminate our deposit insurance. FDIC deposit insurance is critical to the continued operation of the Bank. If we become subject to such regulatory actions, our business operations could be materially and adversely affected.

Changes in laws, government regulation and monetary policy may have a material adverse effect on our results of operations.

Financial institutions have been the subject of significant legislative and regulatory changes and may be the subject of further significant legislation or regulation in the future, none of which is within our control. For example, on February 3, 2017, President Trump signed an executive order pursuant to which he ordered the Secretary of the Treasury to consult with the heads of the member agencies of the Financial Stability Oversight Council on the extent to which existing laws, treaties, regulations, guidance, reporting and recordkeeping requirements, and other government policies promote certain core principles laid out in the executive order. This may result in repeals of or amendments to, existing laws, treaties, regulations, guidance, reporting, and recordkeeping requirements, and other government policies.  Significant new laws or regulations or changes in, or repeals of, existing laws or regulations, including those with respect to federal and state taxation, may cause our results of operations to differ materially. In addition, the costs and burden of compliance could adversely affect our ability to operate profitably. Further, federal monetary policy significantly affects the Bank’s credit conditions, as well as for the Bank’s borrowers,clients, particularly as implemented through the Federal Reserve, primarily through open market operations in U.S. government securities, the discount rate for bank borrowings and reserve requirements. A material change in any of these conditions could have a material impact on us, the Bank and the Bank’s borrowers,clients, and therefore on our results of operations.


The continuing enactment, potential repeal or amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 may have a material effect on our operations.

In 2010, the Dodd-Frank Act was adopted, which imposes significant regulatory and compliance changes. The key effects of the Dodd-Frank Act on our business are, or may include:

increases in regulatory capital requirements and additional restrictions on the types of instruments that may satisfy such requirements;

creation of new government regulatory agencies (particularly the Consumer Financial Protection Bureau, or CFPB, which develops and enforces rules for bank and non-bank providers of consumer financial products);

changes to deposit insurance assessments;

regulation of debit interchange fees we earn;

changes in retail banking regulations, including potential limitations on certain fees we may charge;

changes in regulation of consumer mortgage loan origination and risk retention; and

changes in corporate governance requirements for public companies.


In addition, the Dodd-Frank Act restricts the ability of banks to engage in certain proprietary trading or to sponsor or invest in private equity or hedge funds. The Dodd-Frank Act also contains provisions designed to limit the ability of insured depository institutions, their holding companies and their affiliates to conduct certain swaps and derivatives activities and to take certain principal positions in financial instruments.

Some provisionsFurthermore, while PUB and AltabankTM will likely remain subject to extensive regulation and supervision, including; because of the Dodd-Frank Act, have not been completely implemented. In addition, President Trump’s new administrationthe regulatory environment has discussedentered a period of rebalancing of the possibility of repealing or amendingpost-financial crisis framework.  For example, on May 24, 2018, the Dodd-Frank Act andEGRRCPA was signed into law. Among other regulatory changes, the February 3, 2017 executive order could lead to such repeals or amendments.  The changes resulting from this executive order and the continuing implementationEGRRCPA amended various sections of the Dodd-Frank Act may impactAct. The EGRRCPA includes a number of provisions, which are favorable to bank holding companies with total consolidated assets of less than $10 billion, such as the profitabilityCompany, and makes changes to consumer mortgage and credit reporting regulations and to the authorities of our business activities or otherwise adverselythe agencies that regulate the financial industry. Because a number of the provisions included in the EGRRCPA require the federal banking agencies to undertake notice and comment rulemaking, it will likely take some time before these provisions are fully implemented and we do not know how these will ultimately affect our business. Failure to comply with the requirements may negatively impact our results of operations and financial condition.us. While we cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on us, these changes could be materially adverse to us and investors in our common shares.

Rulemaking changes implemented by the CFPB will result in higher regulatory and compliance costs related to originating and servicing mortgages and may adversely affect our results of operations.

The CFPB has finalized a number of significant rules which will impact nearly every aspect of the lifecycle of a residential mortgage. These rules implement the Dodd-Frank Act amendments to the Equal Credit Opportunity Act, the Truth in Lending Act and the Real Estate Settlement Procedures Act. The final rules require banks to, among other things: (i) develop and implement procedures to ensure compliance with a new “reasonable ability to repay” test and identify whether a loan meets a new definition for a “qualified mortgage;” (ii) implement new or revised disclosures, policies and procedures for servicing mortgages including, but not limited to, early intervention with delinquent borrowers and specific loss mitigation procedures for loans secured by a borrower’s principal residence; (iii) comply with additional restrictions on mortgage loan originator compensation; and (iv) comply with new disclosure requirements and standards for appraisals and escrow accounts maintained for “higher priced mortgage loans.” These new rules create operational and strategic challenges for us, as we are both a mortgage originator and a servicer. For example, business models for cost, pricing, delivery, compensation, and risk management will need to be re-evaluated and potentially revised, perhaps substantially. Some of these new rules became effective in June 2013, while others became effective in January 2014 and August 2015.  Forthcoming additional rulemaking affecting the residential mortgage business is also expected.

New and future rulemaking by the CFPB and other regulators, as well as enforcement of existing consumer protection laws, may have a material effect on our operations and operating costs.

The CFPB has the authority to implement and enforce a variety of existing federal consumer protection statutes and to issue new regulations but,regulations.  However, with respect to institutions of our size, it does not have primary examination


and enforcement authority with respect to such laws and regulations. The authority to examine depository institutions with $10.0$10 billion or less in assets, such as the Bank, for compliance with federal consumer laws remains largely with our primary federal regulator, the FDIC. However, the CFPB may participate in examinations of smaller institutions on a “sampling basis” and may refer potential enforcement actions against such institutions to their primary regulators. In some cases, regulators such as the Federal Trade Commission, or FTC, and the Department of Justice also retain certain rulemaking or enforcement authority, and we also remain subject to certain state consumer protection laws. As an independent bureau within the Federal Reserve, the CFPB may impose requirements more severe than the previous bank regulatory agencies. The CFPB has placed significant emphasis on consumer complaint management and has established a public consumer complaint database to encourage consumers to file complaints they may have against financial institutions. We are expected to monitor and respond to these complaints, including those that we deem frivolous, and doing so may require management to reallocate resources away from more profitable endeavors.

Pursuant toThe CFPB has a number of significant rules that affect nearly every aspect of the lifecycle of a residential mortgage. These rules implement the Dodd-Frank Act amendments to the CFPB issuedEqual Credit Opportunity Act, the Truth in Lending Act and the Real Estate Settlement Procedures Act. The rules require banks to, among other things: (i) develop and implement procedures to ensure compliance with a series of final rules in January 2013 relatednew “reasonable ability to repay” test and identify whether a loan meets a new definition for a “qualified mortgage”; (ii) implement new or revised disclosures, policies and procedures for servicing mortgages including, but not limited to, early intervention with delinquent clients and specific loss mitigation procedures for loans secured by a client’s principal residence; (iii) comply with additional restrictions on mortgage loan originationoriginator compensation; and mortgage loan servicing. These final rules, most provisions of which became effective January 2014, and August 2015, prohibit creditors, such as the Bank, from extending mortgage loans without regard for a consumer’s ability to repay and add restrictions and requirements to mortgage origination and servicing practices. In addition, these rules restrict the application of prepayment penalties and compensation practices relating to mortgage loan underwriting. Further, mortgage origination systems used by the Bank must be significantly modified to(iv) comply with extensive new loan origination disclosures. Compliance with thesedisclosure requirements and standards for appraisals and escrow accounts maintained for “higher priced mortgage loans.” These rules create operational and strategic challenges for us, as we are both a mortgage originator and a servicer. For example, business models for cost, pricing, delivery, compensation, and risk management will likely increase our overall regulatory compliance costsneed to be re-evaluated and require us to change our underwriting practices. Moreover, these rules may adversely affect the volume of mortgage loans that we underwrite and may subject the Bank to increased potential liability related to its residential loan origination activities.potentially revised, perhaps substantially.


As a result of the Dodd-Frank Act and recent rulemaking, we will becomeWe are subject to more stringent capital requirements.

Pursuant to the Dodd-Frank Act, the federal banking agencies adopted final rules, or the U.S. Basel III Capital Rules, to update their general risk-based capital and leverage capital requirements to incorporate agreements reflected in the Third Basel Accord adopted by the Basel Committee on Banking Supervision, or Basel III Capital Standards, as well as the requirements of the Dodd-Frank Act. The U.S. Basel III Capital Rules are described in more detail in “Supervision and Regulation — Basel III.” While weIn December 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-crisis regulatory reforms, which standards are continuingcommonly referred to prepareas Basel IV. Among other things, these standards revise the Basel Committee’s standardized approach for credit risk (including the recalibration of the risk weights and the introduction of new capital requirements for certain “unconditionally cancellable commitments,” such as unused credit card lines of credit) and provides a new standardized approach for operational risk capital. Under the Basel framework, these standards will generally be effective on January 1, 2022, with an aggregate output floor phasing in through January 1, 2027. Under the current U.S. capital rules, operational risk capital requirements and a capital floor apply only to advanced approaches institutions, and not to the Bank. The impact of Basel IV on us will depend on the U.S. Basel III Capital Rules,manner in which it is implemented by the U.S. Basel III Capital Rules may still have a material impact on our business, financial condition and results of operations. In addition, thefederal bank regulators.

The failure to meet the established capital requirements could result in one or more of our regulators placing limitations or conditions on our activities or restricting the commencement of new activities, and suchactivities.  Such failure could subject us to a variety of enforcement remedies available to the federal regulatory authorities, including limiting our ability to pay dividends, issuing a directive to increase our capital and terminating our FDIC deposit insurance. FDIC deposit insurance is critical to the continued operation of the Bank.

Our ability to raise additional capital, when and if needed, will depend on conditions in the capital markets, economic conditions and a number of other factors, including investor perceptions regarding the banking industry and market condition, and governmental activities, many of which are outside our control, and on our financial condition and performance. Accordingly, we may not be able to raise additional capital if needed or on terms acceptable to us. If we fail to meet these capital and other regulatory requirements, our financial condition, liquidity and results of operations would be materially and adversely affected. Higher capital levels could also lower our return on equity.

Our failure to meet applicable regulatory capital requirements, or to maintain appropriate capital levels in general, could affect customerclient and investor confidence, our ability to grow, our costs of funds and FDIC insurance costs, our ability to pay dividends on common shares, our ability to make acquisitions, and our business, results of operations and financial condition, generally.


We may be required to contribute capital or assets to the Bank that could otherwise be invested or deployed more profitably elsewhere.

Federal law and regulatory policy impose a number of obligations on bank holding companies that are designed to reduce potential loss exposure to the depositorsclients of insured depository subsidiaries and to the FDIC’s deposit insurance fund. For example, a bank holding company is required to serve as a source of financial strength to its FDIC-insured depository subsidiaries and to commit financial resources to support such institutions where it might not do so otherwise, even if we would not ordinarily do so and even if such contribution is to our detriment or the detriment of our shareholders.otherwise. These situations include guaranteeing the compliance of an “undercapitalized” bank with its obligations under a capital restoration plan, as described further in this prospectus.plan.

A capital injection into the Bank may be required at times when we do not have the resources to provide it at the holding-holding company level, and therefore we may be required to issue common shares or debt to obtain the required capital. Issuing additional common shares would dilute our current shareholders’ percentage of ownership and could cause the price of our common shares to decline. If we are required to issue debt, and in the event of a bankruptcy by PUB, the bankruptcy trustee would assume any commitment by us to a federal bank regulatory agency to maintain the capital of the Bank. Moreover, bankruptcy law provides that claims based on any such commitment will be entitled to a priority of payment over the claims of PUB’s general unsecured creditors including the holders of any note obligations.or equity holdings. Thus, any borrowing that must be done by PUB in order to make the required capital injection becomes more difficult and expensive and would adversely impactaffect our cash flows, financial condition, results of operations and prospects. Pursuant to applicable laws and regulations, the liabilities of the Bank could harm us. Under the Federal Deposit Insurance Act, or FDIA, we may, under certain circumstances, be responsible for liabilities of the Bank and may be responsible for damages to the FDIC.

Banking agencies periodically conduct examinations of our business including compliance with laws and regulations, and our failure to comply with any supervisory actions to which we become subject as a result of such examinations could materially and adversely affect us.prospects.


The UDFI, the FDIC, and the Federal Reserve periodically conduct examinations of our business, including compliance with laws and regulations. Accommodating such examinations may require management to reallocate resources, which would otherwise be used in the day-to-day operation of other aspects of our business. If, as a result of an examination, the UDFI or a federal banking agency were to determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of our operations had become unsatisfactory, or that we or our management was in violation of any law or regulation, it may take a number of different remedial actions as it deems appropriate. These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative actions to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil monetary penalties against us, our officers or directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance. FDIC deposit insurance is critical to the continued operation of the Bank. If we become subject to such regulatory actions, we could be materially and adversely affected.

We face a risk of non-compliance and enforcement actions with respect to the Bank Secrecy Act and other anti-money laundering statutes and regulations.

Like all U.S. financial institutions, we are subject to monitoring requirements under federal law, including anti-money laundering, or AML, and Bank Secrecy Act, or BSA matters. Since September 11, 2001, banking regulators have intensified their focus on AML and BSA compliance requirements, particularly the AML provisions of the USA PatriotPATRIOT Act. There is also increased scrutiny of compliance with the rules enforced by the U.S. Treasury Department’s Office of Foreign Assets Control, or OFAC, which involve sanctions for dealing with certain persons or countries. While the Bank has adopted policies, procedures and controls to comply with the BSA, other AML statutes and regulations and OFAC regulations, this aggressive supervision and examination and increased likelihood of enforcement actions may increase our operating costs, which could negatively affect our results of operations and reputation.


We are subject to federal and state fair lending laws, and failure to comply with these laws could lead to material penalties.

Federal and state fair lending laws and regulations, such as the Equal Credit Opportunity Act and the Fair Housing Act, impose non-discriminatory lending requirements on financial institutions. The FDIC, the Department of Justice, the CFPB and other federal and state agencies are responsible for enforcing these laws and regulations. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. A successful challenge to our performance under the fair lending laws and regulations could adversely impact our rating under the Community Reinvestment Act, or CRA, and result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on merger and acquisition activity and restrictions on expansion activity, which could negatively impact our reputation, business, financial condition and results of operations.

Regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information and adversely affect our business opportunities.

We are subject to various privacy, information security and data protection laws, including requirements concerning security breach notification, and wethese laws could be negatively impacted by these laws.affect us. For example, our business is subject to the Gramm-Leach-Bliley ActGLBA which, among other things: (i) imposes certain limitations on our ability to share non-public personal information about our customersclients with non-affiliated third parties; (ii) requires that we provide certain disclosures to customersclients about our information collection, sharing and security practices and afford customersclients the right to “opt out” of any information sharing by us with non-affiliated third parties (with certain exceptions) and (iii) requires that we develop, implement and maintain a written comprehensive information security program containing appropriate safeguards appropriate based on our size and complexity, the nature and scope of our activities, and the sensitivity of customerclient information we process, as well as plans for responding to data security breaches. Various state and federal banking regulators and states have also enacted data security breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement notification in certain circumstances in the event of a security breach. Moreover, legislators and regulators in the United States are increasingly adopting or revising privacy, information security and data protection laws that potentially could have a significant impact on our current and planned privacy, data protection and information security-related practices, our collection, use, sharing, retention and safeguarding of consumer or employee information, and some of our current or planned business activities. This could also increase our costs of compliance and business operations and could reduce income from certain business initiatives. This includes increased privacy-related enforcement activity at the federal level, by the FTC, as well as at the state level, such as with regard to mobile applications.


Compliance with current or future privacy, data protection and information security laws (including those regarding security breach notification) affecting customerclient or employee data to which we are subject could result in higher compliance and technology costs and could restrict our ability to provide certain products and services, which could have a material adverse effect on our business, financial conditions or results of operations. Our failure to comply with privacy, data protection and information security laws could result in potentially significant regulatory or governmental investigations or actions, litigation, fines, sanctions and damage to our reputation, which could have a material adverse effect on our business, financial condition or results of operations.

We may be unable to, or choose not to, pay dividends on our common shares.

We have declared an annual cash dividend for over 50 years. We began declaring quarterly cash dividends in 2015 with the dividend being declared after the end of each quarter. Our ability to pay dividends depends on the following factors, among others:

PUB is a legal entity separate and distinct from the Bank and does not conduct stand-alone operations, which means that AltabankTM must first pay dividends to PUB;

because PUB is a legal entity separate and distinct from the Bank and does not conduct stand-alone operations, our ability to pay dividends depends on the ability of the Bank to pay dividends to PUB and the FDIC, the UDFI and Utah state law may, under certain circumstances, prohibit the payment of dividends to us from the Bank;

The FDIC, the UDFI and Utah state law may, under certain circumstances, prohibit the payment of dividends to PUB from AltabankTM;

theThe Federal Reserve policy requires bank holding companies to pay cash dividends on common shares only out of net income available over the past year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition; and


Our Board of Directors may determine that, even though funds are available for dividend payments, retaining the funds for other internal uses, such as expansion of our operations, is necessary or appropriate in light of our business plan and objectives.

our Board of Directors may determine that, even though funds are available for dividend payments, retaining the funds for internal uses, such as expansion of our operations, is necessary or appropriate in light of our business plan and objectives.

Such a failure to pay dividends may negatively impactaffect your investment.

The price of our common shares may fluctuate significantly and our stock may have low trading volumes, which may make it difficult for you to resell common shares owned by you at times or prices you find attractive.

The stock market and, in particular, the market for financial institution stocks, has experienced significant volatility.  The markets may produce downward pressure on stock prices for certain issuers without regard to those issuers’ underlying financial strength.  As a result, the trading volume in our common shares may fluctuate and cause significant price variations to occur.  This may make it difficult for you to resell common shares owned by you at times or at prices you find attractive.  The low trading volume in our common shares on the NasdaqNASDAQ Capital Market means that our shares may have less liquidity than other publicly traded companies.  We cannot ensure that the volume of trading in our common shares or the price of our common shares will be maintained or will increase in the future.

 


Item 1B – UnresolvedUnresolved Staff Comments

None

Item 2 – Properties

We conduct our business through our executive office, located in American Fork, Utah with approximately 7,300 square feet of office space. We conduct our businessand through our 18 full-service branch offices26 full service retail branches in Utah, Salt Lake, Davis, Cache, Box Elder, and Washington countiesCounties in Utah and in Preston, Idaho. We also have a mortgage banking center and an information technology and operations center.center located in Utah County. We own all of our facilities except for foursix branch properties, which are leased. We also sublease portions of onethree of our buildings to other tenants under short-term lease arrangements. We believe that the leases to which we are subject are generally on terms consistent with prevailing market terms, and none of the leases areis with our affiliates.an affiliate. We believe that our facilities are in good condition and are adequate to meet our operating needs for the foreseeablenear future.

Item 3 – Legal Proceedings

There are no material pending legal proceedings to which weour subsidiaries or our subsidiarieswe are a party or to which any of our properties are subject. There are no material proceedings known to us to be contemplated by any governmental authority. We are involved in a variety of litigation matters in the ordinary course of our business and anticipate that we will become involved in new litigation matters from time to time in the future.

Item 4 – Mine Safety Disclosures

Not Applicable.


PartPART II

Item 5 – Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

The Company’s shares trade on the NASDAQ Capital Market under the symbol “PUB”. As of February 28, 2017,29, 2020, there were approximately 1,6932,054 shareholders of record for the Company’s common shares. The market range of high and low closing prices for the Company’s common shares for the periods indicated are shown below:


 

 

2016

 

 

2015

 

 

 

High

 

 

Low

 

 

High

 

 

Low

 

First quarter

 

$

17.23

 

 

$

14.33

 

 

 

 

 

 

 

 

 

Second quarter (1)

 

 

17.86

 

 

 

15.72

 

 

$

17.20

 

 

$

16.06

 

Third quarter

 

 

21.00

 

 

 

16.42

 

 

 

17.70

 

 

 

15.97

 

Fourth quarter

 

 

27.60

 

 

 

19.24

 

 

 

17.44

 

 

 

15.82

 

(1)

Our common stock did not trade publicly prior to June 11, 2015.

The following table summarizes the Company’s dividends declared per quarter for the periods indicated:

 

Years Ended December 31,

 

 

Years Ended December 31,

 

 

2016

 

 

2015

 

 

2019

 

 

2018

 

First quarter (1)

 

$

0.07

 

 

$

-

 

 

$

0.11

 

 

$

0.09

 

Second quarter

 

 

0.07

 

 

 

0.06

 

 

 

0.12

 

 

 

0.10

 

Third quarter

 

 

0.07

 

 

 

0.06

 

 

 

0.13

 

 

 

0.11

 

Fourth quarter

 

 

0.08

 

 

 

0.06

 

 

 

0.13

 

 

 

0.11

 

Total

 

$

0.29

 

 

$

0.18

 

 

$

0.49

 

 

$

0.41

 

 

(1)

In 2015 the Company began paying quarterly dividends, with the dividend being declared subsequent to the end of the quarter. In January 2016, the Company declared a dividend of $0.07 per share on earnings for the fourth quarter of 2015. This dividend was paid to shareholders in February 2016.

Future cash dividends will depend on a variety of factors, including net income, capital, asset quality, general economic conditions and regulatory considerations. Information regarding the regulation considerations is set forth under the heading “Supervision and Regulation” in “Item 1. Business.”Business”.

Unregistered securities

The following sets forth information regarding unregistered securities that were sold by the Registrant within the past three years.

On October 18, 2013, we issued 2,044,736 common shares to approximately 100 shareholders of Lewiston Bancorp in connection with the merger of Lewiston Bancorp into PUB, at an agreed upon value of approximately $20.2 million. The issuance of securities described above was made in reliance upon exemptions from federal securities registration under Section 3(a)(10) of the Securities Act, as a transaction in exchange for securities where the terms and conditions of such issuance and exchange were approved after a hearing upon the fairness of such terms and conditions by the State of Utah.

From January 1, 2013 to June 19, 2015 we issued 292,234 common shares to directors and associates in connection with stock option exercises for consideration of $1.4 million. The issuances of the securities described above were made in reliance upon exemptions from federal securities registration under Rule 701 as transactions completed pursuant to a written compensatory benefit plan for the participation of directors and associates, and under section 4(2) of the Securities Act, as transactions not constituting a public offering of securities because the shares were issued privately without general solicitation. Subsequent to June 19, 2015, all shares issued in conjunction with stock option exercises or the issuance of shares for vested RSU’s were registered under the Company’s Form S-8.

Use of Proceeds from Initial Public Offering

On June 11, 2015 the SEC declared effective our registration statement on Form S-1 registering common shares of the Company. On June 16, 2015, the Company completed the initial public offering of 2,657,000 common shares. Additionally, 218,000 common shares were sold by certain selling shareholders. The Company received net proceeds of $34.9 million from the offering, after deducting the underwriting discounts and offering expenses. The Company did not receivesell any proceeds fromunregistered securities during the saleyear ended December 31, 2019.

Issuer or affiliated purchaser stock purchases

Neither the Company nor any affiliated purchaser (as defined in the Exchange Act) made any stock repurchases during the fourth quarter of shares by2019.  As of the selling shareholders.date of this filing, the Company has not made any stock repurchase under the stock repurchase plan approved in September 2019 and previously disclosed in its 8-K filing dated September 26, 2019


There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus filed with the SEC on June 11, 2015.

Issuer stock purchases

The Company made no stock repurchases during 2016 and 2015.

Stock performance graphs

The following graphs compare the yearly cumulative total return of the Company’s common stock over the period since our initial public offering on June 11, 2015 with the yearly cumulative total return on the stocks included in 1) the Russell 2000 Index; and 2) the SNL Bank Index comprised of banks and bank holding companies with total assets between $1 billion and $5 billion. The stock performance graph is based upon an initial investment of $100 on June 11, 2015 and computed assuming the reinvestment of dividends at the frequency with which dividends were paid.

 


Item 6 – Selected Financial Data

You should read the selected financial data set forth below in conjunction with our historical consolidated financial statements and related notes and with “Item 7– Management’s Discussion and Analysis of Financial Condition and Results of Operations,”Operations”, included elsewhere in this annual report on FromForm 10-K.

 

 

 

As of December 31,

 

(Dollars in thousands)

 

2016

 

 

2015

 

 

2014

 

 

2013

 

 

2012

 

Selected Balance Sheet Information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

67,938

 

 

$

42,349

 

 

$

47,702

 

 

$

94,406

 

 

$

98,861

 

Investment securities

 

 

409,121

 

 

 

398,618

 

 

 

330,839

 

 

 

320,388

 

 

 

264,413

 

Total loans, net

 

 

1,123,988

 

 

 

1,050,365

 

 

 

937,578

 

 

 

829,882

 

 

 

592,924

 

Total assets

 

 

1,665,981

 

 

 

1,555,982

 

 

 

1,367,125

 

 

 

1,299,190

 

 

 

991,423

 

Total deposits

 

 

1,425,074

 

 

 

1,309,185

 

 

 

1,199,233

 

 

 

1,144,314

 

 

 

869,227

 

Shareholders’ equity

 

 

228,517

 

 

 

209,408

 

 

 

157,659

 

 

 

143,672

 

 

 

115,710

 

Average balances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average earning assets

 

 

1,516,139

 

 

 

1,391,108

 

 

 

1,250,156

 

 

 

981,661

 

 

 

847,362

 

Average assets

 

 

1,598,198

 

 

 

1,468,942

 

 

 

1,331,291

 

 

 

1,039,561

 

 

 

914,603

 

Average shareholders' equity

 

 

221,044

 

 

 

186,889

 

 

 

152,788

 

 

 

126,453

 

 

 

112,089

 

 

 

Years Ended December 31,

 

(Dollars in thousands except footnotes)

 

2016

 

 

2015

 

 

2014

 

 

2013

 

 

2012

 

Summary Income Statement Information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

72,755

 

 

$

64,601

 

 

$

58,203

 

 

$

45,657

 

 

$

42,010

 

Interest expense

 

 

2,874

 

 

 

2,961

 

 

 

3,260

 

 

 

3,337

 

 

 

3,629

 

Net interest income

 

 

69,881

 

 

 

61,640

 

 

 

54,943

 

 

 

42,320

 

 

 

38,381

 

Provision for loan losses

 

 

900

 

 

 

1,000

 

 

 

1,700

 

 

 

1,500

 

 

 

4,700

 

Net interest income after provision for loan losses

 

 

68,981

 

 

 

60,640

 

 

 

53,243

 

 

 

40,820

 

 

 

33,681

 

Non-interest income

 

 

16,879

 

 

 

16,004

 

 

 

15,241

 

 

 

14,271

 

 

 

11,613

 

Non-interest expenses

 

 

48,977

 

 

 

46,768

 

 

 

45,333

 

 

 

36,875

 

 

 

31,409

 

Income before income tax expense

 

 

36,883

 

 

 

29,876

 

 

 

23,151

 

 

 

18,216

 

 

 

13,885

 

Income tax expense

 

 

13,273

 

 

 

10,262

 

 

 

8,246

 

 

 

6,338

 

 

 

4,643

 

Net income

 

$

23,610

 

 

$

19,614

 

 

$

14,905

 

 

$

11,878

 

 

$

9,242

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share (1)

 

$

1.33

 

 

$

1.21

 

 

$

1.02

 

 

$

0.92

 

 

$

0.76

 

Diluted earnings per share (1)

 

 

1.30

 

 

 

1.17

 

 

 

0.98

 

 

 

0.89

 

 

 

0.74

 

Book value per share (1)

 

 

12.82

 

 

 

11.92

 

 

 

10.68

 

 

 

9.83

 

 

 

9.29

 

Tangible book value per share (1) (2)

 

 

12.79

 

 

 

11.88

 

 

 

10.63

 

 

 

9.75

 

 

 

9.29

 

Cash dividends per common share (1) (6)

 

 

0.29

 

 

 

0.18

 

 

 

0.22

 

 

 

0.13

 

 

 

0.11

 

Dividend ratio (6)

 

 

21.77

%

 

 

15.22

%

 

 

21.76

%

 

 

14.13

%

 

 

14.47

%

Selected financial ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest margin (3)

 

 

4.61

%

 

 

4.43

%

 

 

4.39

%

 

 

4.31

%

 

 

4.53

%

Efficiency ratio (4)

 

 

56.45

%

 

 

60.23

%

 

 

63.58

%

 

 

63.61

%

 

 

62.83

%

Non-interest income to average assets

 

 

1.06

%

 

 

1.09

%

 

 

1.14

%

 

 

1.37

%

 

 

1.27

%

Non-interest expense to average assets

 

 

3.06

%

 

 

3.18

%

 

 

3.41

%

 

 

3.55

%

 

 

3.43

%

Return on average assets

 

 

1.48

%

 

 

1.34

%

 

 

1.12

%

 

 

1.14

%

 

 

1.01

%

Return on average equity

 

 

10.68

%

 

 

10.49

%

 

 

9.76

%

 

 

9.39

%

 

 

8.25

%

Non-performing assets to total assets

 

 

0.34

%

 

 

0.51

%

 

 

0.70

%

 

 

1.61

%

 

 

2.46

%

Loan to deposits

 

 

78.87

%

 

 

80.23

%

 

 

78.18

%

 

 

72.52

%

 

 

68.21

%

Net charge-offs (recoveries) to average loans

 

 

-0.02

%

 

 

0.06

%

 

 

0.11

%

 

 

0.13

%

 

 

1.10

%

Capital Ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage capital

 

 

13.71

%

 

 

13.42

%

 

 

11.32

%

 

 

11.06

%

 

 

11.85

%

Total risk-based capital

 

 

20.19

%

 

 

19.02

%

 

 

16.01

%

 

 

16.27

%

 

 

18.52

%

Average equity to average assets

 

 

13.83

%

 

 

12.72

%

 

 

11.48

%

 

 

12.16

%

 

 

12.26

%

Tangible common equity to tangible assets (5)

 

 

13.69

%

 

 

13.42

%

 

 

11.48

%

 

 

10.98

%

 

 

11.67

%




 

 

As of December 31,

 

 

(Dollars in thousands except per share amounts)

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

2015

 

 

Selected Balance Sheet Information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

211,981

 

 

$

48,547

 

 

$

51,027

 

 

$

67,938

 

 

$

42,349

 

 

Investment securities

 

 

405,995

 

 

 

346,426

 

 

 

337,710

 

 

 

409,121

 

 

 

398,618

 

 

Total loans held for investment

 

 

1,680,918

 

 

 

1,678,902

 

 

 

1,627,444

 

 

 

1,119,877

 

 

 

1,047,975

 

 

Total assets

 

 

2,406,334

 

 

 

2,184,294

 

 

 

2,123,529

 

 

 

1,665,981

 

 

 

1,555,982

 

 

Total deposits

 

 

2,056,367

 

 

 

1,877,055

 

 

 

1,814,632

 

 

 

1,425,074

 

 

 

1,309,185

 

 

Shareholders’ equity

 

 

332,362

 

 

 

290,162

 

 

 

257,418

 

 

 

228,517

 

 

 

209,408

 

 

Average balances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average earning assets

 

 

2,176,476

 

 

 

2,046,851

 

 

 

1,700,790

 

 

 

1,521,594

 

 

 

1,391,108

 

 

Average assets

 

 

2,298,737

 

 

 

2,172,153

 

 

 

1,787,810

 

 

 

1,598,198

 

 

 

1,468,942

 

 

Average shareholders' equity

 

 

313,425

 

 

 

273,601

 

 

 

242,759

 

 

 

221,044

 

 

 

186,889

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Book value per share

 

 

17.61

 

 

 

15.49

 

 

 

13.91

 

 

 

12.82

 

 

 

11.92

 

 

Tangible book value per share (1)

 

 

16.09

 

 

 

13.94

 

 

 

12.29

 

 

 

12.79

 

 

 

11.88

 

 

Non-performing assets to total assets

 

 

0.37

%

 

 

0.21

%

 

 

0.18

%

 

 

0.34

%

 

 

0.51

%

 

Loans held for investment to deposits

 

 

81.74

%

 

 

89.44

%

 

 

89.68

%

 

 

78.58

%

 

 

80.05

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended December 31,

 

 

(Dollars in thousands except per share amounts and footnotes)

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

2015

 

 

Summary Income Statement Information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

119,049

 

 

$

115,352

 

 

$

83,980

 

 

$

72,755

 

 

$

64,601

 

 

Interest expense

 

 

9,131

 

 

 

7,174

 

 

 

3,342

 

 

 

2,874

 

 

 

2,961

 

 

Net interest income

 

 

109,918

 

 

 

108,178

 

 

 

80,638

 

 

 

69,881

 

 

 

61,640

 

 

Provision for loan losses

 

 

7,000

 

 

 

8,625

 

 

 

2,750

 

 

 

900

 

 

 

1,000

 

 

Net interest income after provision for

   loan losses

 

 

102,918

 

 

 

99,553

 

 

 

77,888

 

 

 

68,981

 

 

 

60,640

 

 

Non-interest income

 

 

15,181

 

 

 

15,129

 

 

 

14,394

 

 

 

14,610

 

 

 

13,987

 

 

Non-interest expense

 

 

60,272

 

 

 

61,996

 

 

 

55,959

 

 

 

46,708

 

 

 

44,751

 

 

Income before income tax expense

 

 

57,827

 

 

 

52,686

 

 

 

36,323

 

 

 

36,883

 

 

 

29,876

 

 

Income tax expense

 

 

13,503

 

 

 

12,054

 

 

 

16,477

 

 

 

13,273

 

 

 

10,262

 

 

Net income

 

$

44,324

 

 

$

40,632

 

 

$

19,846

 

 

$

23,610

 

 

$

19,614

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selected financial ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

2.35

 

 

$

2.18

 

 

$

1.10

 

 

$

1.33

 

 

$

1.21

 

 

Diluted earnings per share

 

 

2.33

 

 

 

2.14

 

 

 

1.08

 

 

 

1.30

 

 

 

1.17

 

 

Cash dividends per common share (4)

 

 

0.49

 

 

 

0.41

 

 

 

0.34

 

 

 

0.29

 

 

 

0.18

 

 

Dividend ratio (4)

 

 

20.81

%

 

 

18.84

%

 

 

30.77

%

 

 

21.77

%

 

 

15.22

%

 

Net interest margin (2)

 

 

5.05

%

 

 

5.29

%

 

 

4.74

%

 

 

4.59

%

 

 

4.43

%

 

Non-interest income to average assets

 

 

0.66

%

 

 

0.70

%

 

 

0.81

%

 

 

0.91

%

 

 

0.95

%

 

Non-interest expense to average assets

 

 

2.62

%

 

 

2.85

%

 

 

3.13

%

 

 

2.92

%

 

 

3.05

%

 

Efficiency ratio

 

 

48.18

%

 

 

50.28

%

 

 

58.88

%

 

 

55.28

%

 

 

59.17

%

 

Return on average assets

 

 

1.93

%

 

 

1.87

%

 

 

1.11

%

 

 

1.48

%

 

 

1.34

%

 

Return on average equity

 

 

14.14

%

 

 

14.85

%

 

 

8.18

%

 

 

10.68

%

 

 

10.49

%

 

Net charge-offs (recoveries) to average loans

 

 

0.05

%

 

 

0.10

%

 

 

0.09

%

 

 

-0.02

%

 

 

0.06

%

 

Capital Ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage capital

 

 

12.67

%

 

 

12.27

%

 

 

11.46

%

 

 

13.71

%

 

 

13.42

%

 

Total risk-based capital

 

 

18.43

%

 

 

16.36

%

 

 

14.67

%

 

 

20.19

%

 

 

19.02

%

 

Average equity to average assets

 

 

13.63

%

 

 

12.60

%

 

 

13.58

%

 

 

13.83

%

 

 

12.72

%

 

Tangible common equity to tangible

   assets (3)

 

 

12.77

%

 

 

12.11

%

 

 

10.87

%

 

 

13.69

%

 

 

13.42

%

 

 

(1)(

All per share data has been retroactively restated to give effect to a 44 to 1 share split which occurred in 2013.

(2)1)

Represents the sum of total shareholders’ equity less intangible assets all divided by common shares outstanding. Intangible assets were $28.6 million, $29.1 million, $29.9 million, $581,000, $679,000, $776,000 and $1.2 million$679,000 at December 31, 2019, 2018, 2017, 2016, and 2015, 2014 and 2013, respectively, and there were no intangible assets at December 31, 2012.respectively.


(3)(2)

Net interest margin is defined as net interest income divided by average earning assets.

(4)(

Represents the sum of non-interest expense less merger costs all divided by the sum of net interest income and non-interest income. Merger costs were $711,000 and $879,000 for 2014 and 2013, respectively. There were no merger costs in the years ended December 31, 2016, 2015 and 2012.

(5)3)

Represents the sum of total shareholders’ equity less intangible assets all divided by the sum of total assets less intangible assets.

(6)(4)

Dividends per common share for 2015 do not include a dividend on fourth quarter of 2015 earnings of $0.07 per share, which was declared and paid subsequent to December 31, 2015. Total dividends declared on 2015 earnings were $0.25 per share or a dividend yield of 21.52%.



Item 7 – Management’s Discussion and Analysis ofof Financial Condition and Results of Operations

The following discussion and analysis is intended to provide a more comprehensive review of the Company’sPeople’s Utah Bancorp’s (the “Company” or “PUB”) operating results and financial condition than can be obtained from reading the Consolidated Financial Statements alone.condition. The discussioninformation contained in this section should be read in conjunction with theAudited Consolidated Financial Statements and the notes thereto included in “Item 8.accompanying Notes to Consolidated Financial Statements and Supplementary Data.”in this Form 10-K.

FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K may contain certain forward-looking statements within the meaning of section 27A of the Securities Act of 1933, as amended, (“Securities Act”), and section 21E of the Securities Exchange Act of 1934, as amended, (“Exchange Act”}). These forward-looking statements reflect our current views and are not historical facts. These statements may include statements regarding projected performance for periods following the date of this report. These statements can generally be identified by use of phrases such as “believe,” “expect,” “will,” “seek,” “should,” “anticipate,” “estimate,” “intend,” “plan,” “target,” “project,” “commit” or other words of similar import. Similarly, statements that describe our future financial condition, results of operations, objectives, strategies, plans, goals or future performance and business are also forward-looking statements. Statements that project future finalfinancial conditions, results of operations and shareholder value are not guarantees of performance and many of the factors that will determine these results and values are beyond our ability to control or predict. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors, including, but not limited to, those described in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and other parts of this annual report on Form 10-K that could cause our actual results to differ materially from those anticipated in these forward-looking statements. The following is a non-exclusive list of factors, whichthat could cause our actual results to differ materially from our forward-looking statements in this annual report on Form 10-K:

changes in general economic conditions, either nationally or in our local market;

inflation, changes in interest rates, securities market volatility and monetary fluctuations;

increases in competitive pressures among financial institutions and businesses offering similar products and services;

higher defaults on our loan portfolio than we expect;

changes in management’s estimate of the adequacy of the allowance for loan losses;

risks associated with our growth and expansion strategy and related costs;

increased lending risks associated with our high concentration of real estate loans;

ability to successfully grow our business in Utah and neighboring states;

legislative or regulatory changes or changes in accounting principles, policies or guidelines;

technological changes;

regulatory or judicial proceedings; and

other factors and risks including those described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected, projected, intended, committed or believed.

Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in “Item 1A. Risk Factors.” Please take into account that forward-looking statements speak only as of the date of this Annual Report on Form 10-K (or documents incorporated by reference, if applicable). The Company does not undertake any obligation to publicly correct or update any forward-looking statement if it later becomes aware that actual results are likely to differ materially from those expressed in such forward-looking statement.

 


Overview  

We are a bankPUB is the holding company formed in 1998for AltabankTM (“Bank”).  AltabankTM is a full-service community bank providing loans, deposit and headquartered in American Fork, Utah, which is located on the I-15 corridor between the cities of Salt Lake City and Provo. We have 18 banking branches operating historically through two wholly-owned banking subsidiaries, BAF and LSB, which began offering banking services in 1913 and 1905, respectively. On September 29, 2015, the Company completed the merger of the charters of BAF and LSB and renamed the combined bank People’s Intermountain Bank. BAF and LSB will continue to do business as registered names of PIB and we believe this merger of charters will allow the Bank to improve efficiencies. We provide full-service retail banking in many of the leading population centers in the state of Utah, including a wide range of banking and relatedcash management services to locally-owned businesses, professional firms, real estate developers, residential home builders, high net-worth individuals investors and other customers.businesses. Our primary customersclients are small- to medium-sizedsmall-to-medium sized businesses that require highly personalized commercial banking products and services.  AltabankTM has 26 branch locations that have been serving communities in Utah and southern Idaho for more than 100 years.

We believe our recent loan growth is athe result of our ability to attractmergers and retain high-quality associates, add branches in attractive markets and provide good customer service,acquisitions, as well as dueorganic growth generated by our seasoned relationship managers and supporting employees who provide outstanding service and quick responsiveness to the expansion of our construction, land acquisition and development and commercial and industrial lending.clients.  The primary source of funding for our asset growth has been the generation of core deposits, which we accomplishedraised through a combination of competitive pricing for local deposits coupled with expansion ofacquisitions, as well as from our existing branch system.

Our results of operations are largely dependent on net interest income. Net interest income is the difference between interest income we earn on interest earning assets, which are comprised of loans, investment securities and short-term investments and the interest we pay on our interest bearing liabilities, which are primarily deposits, and, to a lesser extent, other borrowings. Deposits are our primary source of funding. Management strives to match the re-pricing characteristics of the interest earning assets and interest bearing liabilities to protect net interest income from changes in market interest rates and changes in the shape of the yield curve.

We measure our performance by calculating our net interest margin, return on average assets, and return on average equity. Net interest margin is calculated by dividing net interest income, which is the difference between interest income on interest earning assets and interest expense on interest bearing liabilities, by average interest earning assets. Net interest income is our largest source of revenue. Interest rate fluctuations, as well as changes in the amount and type of earning assets and liabilities, combine to affect net interest income. We also measure our performance by our efficiency ratio, which is calculated by dividing non-interest expense less merger-related costs by the sum of net interest income and non-interest income.

LSB Merger

On October 18, 2013, we completed our acquisition of LSB. Under the terms of the merger agreement, PUB issued 2,044,736 common shares and paid cash totaling $8.7 million to the former shareholders of Lewiston Bancorp. Lewiston Bancorp shareholders received $9.89 per share paid in PUB common shares and cash for an aggregate deal value of $28.9 million. Of the cash paid, $1.05 million was initially held in escrow as of the merger date. At December 31, 2016, $360,000 of this cash remains held in escrow pending the resolution of certain contingencies to be evaluated at December 31, 2017. In 2014, $297,000 of previously held escrow funds, plus accrued interest was paid to PUB.



Key Factors in Evaluating Our Financial Condition and Results of Operations

As a bank holding company, we focus on a number of key factors in evaluating our financial condition and results of operations including:

Return on average equity;

Return on average assets;

Asset quality;

Asset growth;

Capital and liquidity;

Net interest margin; and

Operating efficiency.

The chart below shows these key financial measures:

 

 

Years Ended December 31,

 

(Dollars in thousands except per share amounts)

 

2016

 

 

2015

 

 

2014

 

 

2013

 

 

2012

 

Net income

 

$

23,610

 

 

$

19,614

 

 

$

14,905

 

 

$

11,878

 

 

$

9,242

 

Basic earnings per share

 

 

1.33

 

 

 

1.21

 

 

 

1.02

 

 

 

0.92

 

 

 

0.76

 

Diluted earnings per share

 

 

1.30

 

 

 

1.17

 

 

 

0.98

 

 

 

0.89

 

 

 

0.74

 

Total loans, net

 

 

1,123,988

 

 

 

1,050,365

 

 

 

937,578

 

 

 

829,882

 

 

 

592,924

 

Total assets

 

 

1,665,981

 

 

 

1,555,982

 

 

 

1,367,125

 

 

 

1,299,190

 

 

 

991,423

 

Total deposits

 

 

1,425,074

 

 

 

1,309,185

 

 

 

1,199,233

 

 

 

1,144,314

 

 

 

869,227

 

Net interest margin

 

 

4.61

%

 

 

4.43

%

 

 

4.39

%

 

 

4.31

%

 

 

4.53

%

Efficiency ratio

 

 

56.45

%

 

 

60.23

%

 

 

63.58

%

 

 

63.61

%

 

 

62.83

%

Return on average assets

 

 

1.48

%

 

 

1.34

%

 

 

1.12

%

 

 

1.14

%

 

 

1.01

%

Return on average equity

 

 

10.68

%

 

 

10.49

%

 

 

9.76

%

 

 

9.39

%

 

 

8.25

%

Average equity to average assets

 

 

13.83

%

 

 

12.72

%

 

 

11.48

%

 

 

12.16

%

 

 

12.26

%

Non-performing assets to total assets

 

 

0.34

%

 

 

0.51

%

 

 

0.70

%

 

 

1.61

%

 

 

2.46

%

Liquidity ratio (1)

 

 

30.58

%

 

 

29.91

%

 

 

28.84

%

 

 

33.51

%

 

 

37.95

%

(1)

The liquidity ratio is the sum of cash equivalents and investment securities, less investment securities pledged as collateral against short-term borrowings, all divided by total liabilities. Pledged investment securities were $37.5 million, $38.2 million, $29.7 million, $27.5 million, and $31.0 million for each of the five years ended December 31, 2016, respectively.



Key ratios for 2016 and 2015

Return on Average Equity. We measure the return to our shareholders through a return on average equity, or ROE, calculation. Our net income for the year ended December 31, 2016 increased 20.4% to $23.6 million from $19.6 million for the comparable period in 2015. Net income for the year ended December 31, 2016 increased primarily due to an increase to net loans from loan growth, a higher net interest margin, an increase in non-interest income and a lower provision for loan losses. Basic earnings per share, or EPS, increased to $1.33 for the year ended December 31, 2016 compared to $1.21 for the comparable period in 2015. Diluted EPS increased to $1.30 per share for the year ended December 31, 2016 compared to $1.17 per share for the comparable period in 2015. ROE was 10.68% for the year ended December 31, 2016 compared to 10.49% for the comparable period in 2015.

Return on Average Assets. We measure asset utilization through a return on average assets, or ROA, calculation. For the year ended December 31, 2016 our ROA was 1.48% compared to 1.34% for the year ended December 31, 2015. The increase in the year ended December 31, 2016 compared to the comparable period in 2015 is primarily due to the higher growth in net income during the year.

Asset Quality. Since the majority of our performing assets are loans, we measure asset quality in terms of non-performing assets as a percentage of total assets. This measurement is used in determining asset quality and its potential effect on future earnings. Non-performing assets as a percentage of total assets were 0.34% as of December 31, 2016 compared to 0.51% as of December 31, 2015. The improvement in this ratio was due primarily to a decrease in non-performing assets of $2.4 million comparing December 31, 2016 to year-end 2015.  Nonperforming assets are loans that are 90 days or more past due or have been placed on nonaccrual status, or are other real estate owned, or OREO.

Asset Growth. Revenue growth and EPS are directly related to earning assets growth. In descending order, our earning assets are loans, investments and interest earning balances. As of December 31, 2016, total assets grew 7.1% from December 31, 2015, total loans held for investment increased by 6.9% and investment securities increased 2.6%. Loan growth in 2016 came primarily from the increased level of commercial real estate lending activities.

Capital and Liquidity. Maintaining appropriate capital and liquidity levels is imperative for us to continue our strong growth levels. We have been successful in maintaining capital levels well above the minimum regulatory requirements, which we believe has enabled our growth strategy. Our average equity to average assets ratio as of December 31, 2016 was 13.83% compared to 12.72% as of December 31, 2015. We monitor liquidity levels to ensure we have adequate sources available to fund our loan growth and to accommodate daily operations. The key measure we use to monitor liquidity is our liquidity ratio which is calculated as cash and cash equivalents plus unpledged investment securities divided by total liabilities. Our liquidity ratio was 30.58% as of December 31, 2016, compared to 29.91% as of December 31, 2015.

Net Interest Margin. Net interest margin is a metric that allows us to gauge our loan pricing and funding cost relationship. For the years ended December 31, 2016 and 2015, our net interest margin was 4.61% and 4.43%, respectively. The improvement in net interest margin is attributable primarily to higher loan yields, loans representing a higher mix of average earning assets, and lower costs of interest-bearing liabilities.

Operating Efficiency. Operating efficiency is the measure of how much it costs us to generate each dollar of revenue. A lower percentage indicates a better operating efficiency. Our efficiency ratio is calculated as the sum of non-interest expense less merger related expenses, if applicable, divided by the sum of net interest income and non-interest income and was 56.45% for the year ended December 31, 2016, as compared to 60.23% for the year ended December 31, 2015.  The improvement in the efficiency ratio during the current year is primarily attributable to higher revenue growth as compared to the increase in operating expenses.



Key ratios for 2015 and 2014

Return on Average Equity. We measure the return to our shareholders through a return on average equity, or ROE, calculation. Our net income for the year ended December 31, 2015 increased 31.6% to $19.6 million from $14.9 million for the comparable period in 2014. Net income for the year ended December 31, 2015 increased primarily due to an increase to net loans from loan growth, a higher net interest margin, an increase in non-interest income and a lower provision for loan losses. Basic earnings per share, or EPS, increased to $1.21 for the year ended December 31, 2015 compared to $1.02 for the comparable period in 2014. Diluted EPS increased to $1.17 per share for the year ended December 31, 2015 compared to $0.98 per share for the comparable period in 2014. Our increase in net income drove our ROE to 10.49% for the year ended December 31, 2015 compared to 9.76% for the comparable period in 2014. Future returns on average equity may be impacted in 2016 by the full year effect on the average equity balance of the additional equity from our initial public offering in June of 2015.

Return on Average Assets. We measure asset utilization through a return on average assets, or ROA, calculation. For the year ended December 31, 2015 our ROA was 1.34% compared to 1.12% for the year ended December 31, 2014. The increase in the year ended December 31, 2015 compared to the comparable period in 2014 is primarily due to higher net interest income and non-interest income, lower provision for loan losses and a lower effective tax rate of 34.3%.

Asset Quality. Since the majority of our performing assets are loans, we measure asset quality in terms of non-performing assets as a percentage of total assets. This measurement is used in determining asset quality and its potential effect on future earnings. Non-performing assets as a percentage of total assets were 0.51% as of December 31, 2015 compared to 0.70% as of December 31, 2014. The improvement in this ratio was due both to a decrease in non-performing assets of $1.6 million, or 16.3%, and an increase in total assets of $188.9 million or 13.8%. Nonperforming assets are loans that are 90 days or more past due or have been placed on nonaccrual status, or are other real estate owned, or OREO.

Asset Growth. Revenue growth and EPS are directly related to earning assets growth. In descending order, our earning assets are loans, investments and interest earning balances. As of December 31, 2015, total assets grew 13.8% from December 31, 2014, total net loans held for investment increased by 11.6% and cash and cash equivalents combined with investment securities increased 16.5%. Loan growth in 2015 came primarily from the increased level of commercial & industrial lending and commercial real estate lending activities.

Capital and Liquidity. Maintaining appropriate capital and liquidity levels is imperative for us to continue our strong growth levels. We have been successful in maintaining capital levels well above the minimum regulatory requirements, which we believe has enabled our growth strategy. We raised approximately $34.9 million in new capital from the initial public offering completed in June 2015. Our average equity to average assets ratio as of December 31, 2015 was 12.72% compared to 11.48% as of December 31, 2014. We monitor liquidity levels to ensure we have adequate sources available to fund our loan growth and to accommodate daily operations. The key measure we use to monitor liquidity is our liquidity ratio which is calculated as cash and cash equivalents plus unpledged investment securities divided by total liabilities. Our liquidity ratio was 29.91% as of December 31, 2015, compared to 28.84% as of December 31, 2014.

Net Interest Margin. Net interest margin is a metric that allows us to gauge our loan pricing and funding cost relationship. For the years ended December 31, 2015 and 2014, our net interest margin was 4.43% and 4.39%, respectively. The improvement in net interest margin is attributable primarily to higher loan volumes and lower costs of interest-bearing liabilities.

Operating Efficiency. Operating efficiency is the measure of how much it costs us to generate each dollar of revenue. A lower percentage indicates a better operating efficiency. Our efficiency ratio is calculated as the sum of non-interest expense less merger related expenses divided by the sum of net interest income and non-interest income and was 60.23% for the year ended December 31, 2015, as compared to 63.58% for the year ended December 31, 2014. We completed a conversion to a common information technology platform in late 2014, which contributed to an improvement in our efficiency ratio for the year ended in 2015 compared to the comparable period in 2014.


Results of Operations

Factors that determine the level of net income include the volume of earning assets and interest bearing liabilities, yields earned and rates paid, fee income, non-interest expense, the level of non-performing loans and other non-earning assets, and the amount of non-interest bearing liabilities supporting earning assets. Non-interest income includes service charges and other fees on deposits, and mortgage banking income. Non-interest expense consists primarily of employee compensation and benefits, occupancy, equipment and depreciation expense, and other operating expenses.

Average Balance and Yields. The following tables set forth a summary of average balances with corresponding interest income and interest expense as well as average yield, cost and net interest margin information for the periods presented. Average balances are derived from daily balances. Average non-accrual loans are derived from quarterly balances and are included as non-interest earning assets for purposes of these tables.

 

 

Years Ended December 31,

 

 

 

2016

 

 

2015

 

 

2014

 

 

 

 

 

 

 

Interest

 

 

Average

 

 

 

 

 

 

Interest

 

 

Average

 

 

 

 

 

 

Interest

 

 

Average

 

 

 

Average

 

 

Income/

 

 

Yield/

 

 

Average

 

 

Income/

 

 

Yield/

 

 

Average

 

 

Income/

 

 

Yield/

 

(Dollars in thousands, except footnotes)

 

Balance

 

 

Expense

 

 

Rate

 

 

Balance

 

 

Expense

 

 

Rate

 

 

Balance

 

 

Expense

 

 

Rate

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest earning deposits in other banks and federal funds sold

 

$

42,858

 

 

$

210

 

 

 

0.49

%

 

$

66,071

 

 

$

163

 

 

 

0.25

%

 

$

44,687

 

 

$

136

 

 

 

0.30

%

Securities: (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable securities

 

 

285,903

 

 

 

4,279

 

 

 

1.50

%

 

 

257,480

 

 

 

3,947

 

 

 

1.53

%

 

 

258,561

 

 

 

4,487

 

 

 

1.74

%

Non-taxable securities (2)

 

 

89,647

 

 

 

2,547

 

 

 

2.84

%

 

 

82,211

 

 

 

2,501

 

 

 

3.04

%

 

 

82,434

 

 

 

2,669

 

 

 

3.24

%

Loans (3) (4)

 

 

1,095,619

 

 

 

66,599

 

 

 

6.08

%

 

 

983,294

 

 

 

58,861

 

 

 

5.99

%

 

 

861,785

 

 

 

51,842

 

 

 

6.02

%

Non-marketable equity securities

 

 

2,112

 

 

 

11

 

 

 

0.52

%

 

 

2,052

 

 

 

4

 

 

 

0.19

%

 

 

2,689

 

 

 

3

 

 

 

0.11

%

Total interest earning assets

 

 

1,516,139

 

 

$

73,646

 

 

 

4.86

%

 

 

1,391,108

 

 

$

65,476

 

 

 

4.71

%

 

 

1,250,156

 

 

$

59,137

 

 

 

4.73

%

Allowance for loan losses

 

 

(16,036

)

 

 

 

 

 

 

 

 

 

 

(15,431

)

 

 

 

 

 

 

 

 

 

 

(14,454

)

 

 

 

 

 

 

 

 

Non-interest earning assets

 

 

98,095

 

 

 

 

 

 

 

 

 

 

 

93,265

 

 

 

 

 

 

 

 

 

 

 

95,589

 

 

 

 

 

 

 

 

 

Total average assets

 

$

1,598,198

 

 

 

 

 

 

 

 

 

 

$

1,468,942

 

 

 

 

 

 

 

 

 

 

$

1,331,291

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand and savings accounts

 

$

607,714

 

 

$

1,686

 

 

 

0.28

%

 

$

557,917

 

 

$

1,553

 

 

 

0.28

%

 

$

513,241

 

 

$

1,493

 

 

 

0.29

%

Money market accounts

 

 

150,028

 

 

 

354

 

 

 

0.24

%

 

 

143,766

 

 

 

326

 

 

 

0.23

%

 

 

137,829

 

 

 

311

 

 

 

0.23

%

Certificates of deposit, under $100,000

 

 

94,689

 

 

 

306

 

 

 

0.32

%

 

 

105,780

 

 

 

431

 

 

 

0.41

%

 

 

115,103

 

 

 

592

 

 

 

0.51

%

Certificates of deposit, $100,000 and over

 

 

73,860

 

 

 

488

 

 

 

0.66

%

 

 

82,653

 

 

 

645

 

 

 

0.78

%

 

 

91,878

 

 

 

862

 

 

 

0.94

%

Total interest bearing deposits

 

 

926,291

 

 

 

2,834

 

 

 

0.31

%

 

 

890,116

 

 

 

2,955

 

 

 

0.33

%

 

 

858,051

 

 

 

3,258

 

 

 

0.38

%

Short-term borrowings

 

 

12,072

 

 

 

41

 

 

 

0.34

%

 

 

2,607

 

 

 

6

 

 

 

0.23

%

 

 

1,299

 

 

 

2

 

 

 

0.15

%

Total interest bearing liabilities

 

 

938,363

 

 

$

2,875

 

 

 

0.31

%

 

 

892,723

 

 

$

2,961

 

 

 

0.33

%

 

 

859,350

 

 

$

3,260

 

 

 

0.38

%

Other non-interest bearing liabilities

 

 

438,791

 

 

 

 

 

 

 

 

 

 

 

389,330

 

 

 

 

 

 

 

 

 

 

 

319,153

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

221,044

 

 

 

 

 

 

 

 

 

 

 

186,889

 

 

 

 

 

 

 

 

 

 

 

152,788

 

 

 

 

 

 

 

 

 

Total average liabilities and shareholders’ equity

 

$

1,598,198

 

 

 

 

 

 

 

 

 

 

$

1,468,942

 

 

 

 

 

 

 

 

 

 

$

1,331,291

 

 

 

 

 

 

 

 

 

Net interest income (tax-equivalent)

 

 

 

 

 

$

70,771

 

 

 

 

 

 

 

 

 

 

$

62,515

 

 

 

 

 

 

 

 

 

 

$

55,877

 

 

 

 

 

Interest rate spread (tax-equivalent)

 

 

 

 

 

 

 

 

 

 

4.55

%

 

 

 

 

 

 

 

 

 

 

4.38

%

 

 

 

 

 

 

 

 

 

 

4.35

%

Net interest margin (tax-equivalent) (5)

 

 

 

 

 

 

 

 

 

 

4.67

%

 

 

 

 

 

 

 

 

 

 

4.49

%

 

 

 

 

 

 

 

 

 

 

4.47

%

(1)

Excludes average unrealized gains of $1.2 million, $1.7 million and $642,000 for the years ended December 31, 2016, 2015 and 2014, respectively which are included in non-interest earning assets.

(2)

Calculated on a fully tax equivalent basis using an assumed tax rate of 35%, which includes federal tax benefits relating to income earned on municipal securities totaling $893,000, $875,000 and $934,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

(3)

Loan interest income includes loan fees of $6.1 million, $4.9 million and $3.6 million for the year ended December 31, 2016, 2015 and 2014, respectively.

(4)

Average loans do not include average non-accrual loans of $5.5 million, $8.0 million and $11.2 million for year ended December 31, 2016, 2015 and 2014, respectively, which are included in non-interest earning assets.

(5)

Net interest margin is computed by dividing net interest income (tax-equivalent) by average interest earning assets.


Rate/Volume Analysis. The following table shows the change in interest income and interest expense and the amount of change attributable to variances in volume, rates and the combination of volume and rates based on the relative changes of volume and rates. For purposes of this table, the change in interest due to both volume and rate has been allocated to change due to volume and rate in proportion to the relationship of absolute dollar amounts of change in each.

 

 

Year Ended December 31,

 

 

Year Ended December 31,

 

 

 

2016 vs. 2015

 

 

2015 vs. 2014

 

 

 

Increase (Decrease) Due to:

 

 

Increase (Decrease) Due to:

 

(in thousands)

 

Volume

 

 

Rate

 

 

Net

 

 

Volume

 

 

Rate

 

 

Net

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest earning deposits in other banks and federal funds sold

 

$

(72

)

 

$

119

 

 

$

47

 

 

$

56

 

 

$

(29

)

 

$

27

 

Taxable securities

 

 

427

 

 

 

(95

)

 

 

332

 

 

 

(19

)

 

 

(521

)

 

 

(540

)

Non-taxable securities (1)

 

 

218

 

 

 

(172

)

 

 

46

 

 

 

(7

)

 

 

(161

)

 

 

(168

)

Loans

 

 

6,815

 

 

 

923

 

 

 

7,738

 

 

 

7,275

 

 

 

(256

)

 

 

7,019

 

Federal Home Loan Bank stock

 

 

-

 

 

 

7

 

 

 

7

 

 

 

(1

)

 

 

2

 

 

 

1

 

Total interest income (tax-equivalent)

 

 

7,388

 

 

 

782

 

 

 

8,170

 

 

 

7,304

 

 

 

(965

)

 

 

6,339

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand and savings accounts

 

 

138

 

 

 

(5

)

 

 

133

 

 

 

126

 

 

 

(66

)

 

 

60

 

Money market accounts

 

 

14

 

 

 

14

 

 

 

28

 

 

 

13

 

 

 

2

 

 

 

15

 

Certificates of deposit, under $100,000

 

 

(42

)

 

 

(83

)

 

 

(125

)

 

 

(45

)

 

 

(116

)

 

 

(161

)

Certificates of deposit, $100,000 and over

 

 

(64

)

 

 

(93

)

 

 

(157

)

 

 

(81

)

 

 

(136

)

 

 

(217

)

Short-term borrowings

 

 

31

 

 

 

4

 

 

 

35

 

 

 

3

 

 

 

1

 

 

 

4

 

Total interest expense

 

 

77

 

 

 

(163

)

 

 

(86

)

 

 

16

 

 

 

(315

)

 

 

(299

)

Net interest income (tax-equivalent)

 

$

7,311

 

 

$

945

 

 

$

8,256

 

 

$

7,288

 

 

$

(650

)

 

$

6,638

 

(1)

Tax equivalent income calculated on a fully tax-equivalent basis using an assumed tax rate of 35%.

Net interest income (tax-equivalent) increased $8.3 million for the year ended December 31, 2016 compared to the same period in 2015. The increase in interest income was primarily driven by increased volume on loans and improved loan yields, offset by lower yields on investment securities. Additionally, lower deposit cost of funds offset the additional interest expense resulting from deposit growth.

Net interest income (tax-equivalent) increased $6.6 million for the year ended December 31, 2015 compared to the same period in 2014. Increased loan volumes principally drove the increase in interest income during 2015, which was offset by decreases in interest income from lower average rates on loans and investment securities. Additionally, interest expense also decreased for the year ended December 31, 2015 compared to the same period in 2014 due to lower deposit interest rates, offsetting the additional interest expense resulting from deposit growth.


Financial Overview for the Years Ended December 31, 2016 and 2015

 

 

Years Ended

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

2016

 

 

2015

 

 

$ Change

 

 

% Change

 

Interest income

 

$

72,755

 

 

$

64,601

 

 

$

8,154

 

 

 

12.6

%

Interest expense

 

 

2,874

 

 

 

2,961

 

 

 

(87

)

 

 

(2.9

)%

Net interest income

 

 

69,881

 

 

 

61,640

 

 

 

8,241

 

 

 

13.4

%

Provision for loan losses

 

 

900

 

 

 

1,000

 

 

 

(100

)

 

 

(10.0

)%

Net interest income after provision for loan losses

 

 

68,981

 

 

 

60,640

 

 

 

8,341

 

 

 

13.8

%

Non-interest income

 

 

16,879

 

 

 

16,004

 

 

 

875

 

 

 

5.5

%

Non-interest expense

 

 

48,977

 

 

 

46,768

 

 

 

2,209

 

 

 

4.7

%

Income before income tax expense

 

 

36,883

 

 

 

29,876

 

 

 

7,007

 

 

 

23.5

%

Income tax expense

 

 

13,273

 

 

 

10,262

 

 

 

3,011

 

 

 

29.3

%

Net income

 

$

23,610

 

 

$

19,614

 

 

$

3,996

 

 

 

20.4

%

Net Income. Our net income grew by $4.0 million to $23.6 million for the year ended December 31, 2016 as compared to $19.6 million for the same period in 2015. This was attributable principally to increases in net interest income of $8.2 million, non-interest income of $875,000, and a decline of $100,000 in provision for loan loss. These increases to net income were offset by an increase of $2.2 million in non-interest expenses and a $3.0 million increase in income tax expense.

Net Interest Income and Net Interest Margin. The increase in net interest income for the year ended December 31, 2016 was primarily driven by interest earned on higher average balances in interest-earning assets attributable to internal growth. Interest expense for the year ended December 31, 2016 decreased $87,000 from the same period in 2015 due to lower deposit rates.

The tax-equivalent yield on our average interest earning assets was 4.86% for the year ended December 31, 2016 compared to 4.71% for the same period in 2015.  This is primarily attributable to a higher loan yield of 6.08% in 2016 compared to 5.99% in 2015 and average loans representing a higher percentage of average earning assets in 2016 compared to 2015.  

The cost of funding our earning assets declined from 0.33% in 2015 to 0.31% in 2016 because of lower rates paid on deposits and accretion of fair value adjustments to certificates of deposit.

Provision for Loan Losses. The provision for loan losses in each period is a charge against earnings in that period. The provision is the amount required to maintain the allowance for loan losses at a level that, in management’s judgment, is adequate to absorb loan losses inherent in the loan portfolio.

The provision for loan losses for the year ended December 31, 2016 was $900,000 compared to $1.0 million for the same period in 2015. We experienced net loan recoveries in 2016 of $258,000 compared to net loans charged-off of $594,000 in 2015.  The decrease in the provision for loan losses in 2016 compared to 2015 is primarily due to net recoveries, lower loss rates experienced based on improvements in the quality of the loan portfolio compared to December 31, 2015, and offset by additional reserves on increases in average loan balances.

Non-interest Income. The following table presents, for the periods indicated, the major categories of non-interest income:

 

 

Years Ended

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

2016

 

 

2015

 

 

$ Change

 

 

% Change

 

Service charges on deposit accounts

 

$

2,181

 

 

$

2,449

 

 

$

(268

)

 

 

(10.9

)%

Card processing

 

 

4,451

 

 

 

4,250

 

 

 

201

 

 

 

4.7

%

Mortgage banking

 

 

8,478

 

 

 

7,316

 

 

 

1,162

 

 

 

15.9

%

Other operating

 

 

1,769

 

 

 

1,989

 

 

 

(220

)

 

 

(11.1

)%

Total non-interest income

 

$

16,879

 

 

$

16,004

 

 

$

875

 

 

 

5.5

%


The increase in total non-interest income during the year ended December 31, 2016 compared to the same period in 2015 was primarily influenced by an increase of 15.9% in mortgage banking income resulting from higher volumes of residential mortgage loans originated and sold during the year.  We cannot assure you that growth in residential mortgage loans will continue in future periods because mortgage interest rates have risen in the fourth quarter of 2016 and the mortgage banking business has historically been a cyclical business. The decrease in service charges on deposit accounts is primarily due to reduced volume of processed and returned items. Other operating income in 2016 has declined from 2015 primarily because of approximately $510,000 of gains on sales of foreclosed assets in 2015 compared to $171,000 in 2016.

Non-interest Expense. The following table presents, for the periods indicated, the major categories of non-interest expense:

 

 

Years Ended

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

2016

 

 

2015

 

 

$ Change

 

 

% Change

 

Salaries and employee benefits

 

$

31,441

 

 

$

29,892

 

 

$

1,549

 

 

 

5.2

%

Occupancy, equipment and depreciation

 

 

4,296

 

 

 

3,953

 

 

 

343

 

 

 

8.7

%

Data processing

 

 

2,866

 

 

 

2,831

 

 

 

35

 

 

 

1.2

%

FDIC premiums

 

 

631

 

 

 

754

 

 

 

(123

)

 

 

(16.3

)%

Card processing

 

 

2,178

 

 

 

2,017

 

 

 

161

 

 

 

8.0

%

Marketing and advertising

 

 

1,044

 

 

 

853

 

 

 

191

 

 

 

22.4

%

Other

 

 

6,521

 

 

 

6,468

 

 

 

53

 

 

 

0.8

%

Total non-interest expense

 

$

48,977

 

 

$

46,768

 

 

$

2,209

 

 

 

4.7

%

Salaries and employee benefits of $31.4 million in the year ended December 31, 2016 represents 64.2% of our total non-interest expense, and increased 5.2% compared to the same period in 2015. This increase primarily resulted from an increase of nine average full-time equivalent new hires, salary increases, variable compensation costs to support our balance sheet and income growth and an expansion of our leasing division.

Occupancy, equipment and depreciation expenses increased during 2016 primarily because of the loss of a sublessee’s rental income.  We also experienced increases in our marketing, advertising, and card processing expenses primarily from expanding our marketing efforts and costs associated with higher card processing income. Non-interest expenses and the efficiency ratio in 2017 could be impacted by investments in new branches, which we plan to open during the first half of 2017.

Provision for Income Taxes. We recorded tax provisions of $13.3 million for the year ended December 31, 2016 compared to $10.3 million for the same period in 2015. Our effective tax rate was approximately 36.0% for 2016 and 34.3% for the same period in 2015. Any difference from the federal statutory rate in either period was primarily due to the non-taxable nature of income from municipal securities and bank-owned life insurance, tax credits and state income taxes. As of December 31, 2016, the Company had an uncertain tax position of $200,000 related to the rehabilitation credit recorded in 2015.  We believe this uncertain tax position will be resolved in 2017.


Financial Overview for the Years Ended December 31, 2015 and 2014

 

 

Years Ended

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

2015

 

 

2014

 

 

$ Change

 

 

% Change

 

Interest income

 

$

64,601

 

 

$

58,203

 

 

$

6,398

 

 

 

11.0

%

Interest expense

 

 

2,961

 

 

 

3,260

 

 

 

(299

)

 

 

(9.2

)%

Net interest income

 

 

61,640

 

 

 

54,943

 

 

 

6,697

 

 

 

12.2

%

Provision for loan losses

 

 

1,000

 

 

 

1,700

 

 

 

(700

)

 

 

(41.2

)%

Net interest income after provision for loan losses

 

 

60,640

 

 

 

53,243

 

 

 

7,397

 

 

 

13.9

%

Non-interest income

 

 

16,004

 

 

 

15,241

 

 

 

763

 

 

 

5.0

%

Non-interest expense

 

 

46,768

 

 

 

45,333

 

 

 

1,435

 

 

 

3.2

%

Income before income tax expense

 

 

29,876

 

 

 

23,151

 

 

 

6,725

 

 

 

29.0

%

Income tax expense

 

 

10,262

 

 

 

8,246

 

 

 

2,016

 

 

 

24.4

%

Net income

 

$

19,614

 

 

$

14,905

 

 

$

4,709

 

 

 

31.6

%

Net Income. Our net income grew by $4.7 million to $19.6 million for the year ended December 31, 2015 as compared to $14.9 million for the same period in 2014. This was attributable principally to increases in net interest income of $6.7 million, non-interest income of $763,000, and a decline of $700,000 in provision for loan loss. These increases to net income were offset by an increase of $1.4 million in non-interest expenses and a $2.0 million increase in income tax expense.

Net Interest Income and Net Interest Margin. The increase in net interest income for the year ended December 31, 2015 was primarily driven by interest earned on a higher volume in interest-earning assets attributable to internal growth. Interest expense for the year ended December 31, 2015 decreased $299,000 from the same period in 2014 due to lower deposit rates.

The tax-equivalent yield on our average interest earning assets was 4.71% for the year ended December 31, 2015 compared to 4.73% for the same period in 2014. Although we experienced a decrease in our yield on loans to 5.99% during the year ended December 31, 2015 from 6.02% during the year ended December 31, 2014 due to competitive market pressures, the income from the increased volume in loans offset the decrease in loan yield.

The cost of funding our earning assets declined from 0.38% in 2014 to 0.33% in 2015 because of lower rates paid on deposits and accretion of fair value adjustments to certificates of deposit.

Provision for Loan Losses. The provision for loan losses in each period is a charge against earnings in that period. The provision is the amount required to maintain the allowance for loan losses at a level that, in management’s judgment, is adequate to absorb loan losses inherent in the loan portfolio.

The provision for loan losses for the year ended December 31, 2015 was $1.0 million compared to $1.7 million for the same period in 2014. We experienced lower net loan charge-offs in 2015 of $594,000 compared to net loans charged-off of $939,000 in 2014. The decrease in the provision for loan losses in 2015 compared to 2014 is primarily due to lower loss rates experienced based on improvements in the quality of the loan portfolio compared to December 31, 2014, offset by additional reserves on increases in year-over-year loan balances.



Non-interest Income. The following table presents, for the periods indicated, the major categories of non-interest income:

 

 

Years Ended

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

2015

 

 

2014

 

 

$ Change

 

 

% Change

 

Service charges on deposit accounts

 

$

2,449

 

 

$

2,821

 

 

$

(372

)

 

 

(13.2

)%

Card processing

 

 

4,250

 

 

 

4,185

 

 

 

65

 

 

 

1.6

%

Mortgage banking

 

 

7,316

 

 

 

6,444

 

 

 

872

 

 

 

13.5

%

Other operating

 

 

1,989

 

 

 

1,791

 

 

 

198

 

 

 

11.1

%

Total non-interest income

 

$

16,004

 

 

$

15,241

 

 

$

763

 

 

 

5.0

%

The increase in total non-interest income during the year ended December 31, 2015 compared to the same period in 2014 was primarily influenced by higher volumes of residential mortgage loans originated and sold and the income is included in the category mortgage banking. We cannot assure you that growth in residential mortgage loans will continue in future periods because the mortgage banking business has historically been a cyclical business. The decrease in service charges on deposit accounts is primarily due to reduced volume of processed and returned items. Other operating income in 2015 includes approximately $510,000 of gains on sales of foreclosed assets compared to $467,000 in 2014.

Non-interest Expense. The following table presents, for the periods indicated, the major categories of non-interest expense:

 

 

Years Ended

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

2015

 

 

2014

 

 

$ Change

 

 

% Change

 

Salaries and employee benefits

 

$

29,892

 

 

$

27,584

 

 

$

2,308

 

 

 

8.4

%

Occupancy, equipment and depreciation

 

 

3,953

 

 

 

3,889

 

 

 

64

 

 

 

1.6

%

Data processing

 

 

2,831

 

 

 

2,792

 

 

 

39

 

 

 

1.4

%

FDIC premiums

 

 

754

 

 

 

810

 

 

 

(56

)

 

 

(6.9

)%

Card processing

 

 

2,017

 

 

 

2,136

 

 

 

(119

)

 

 

(5.6

)%

Marketing and advertising

 

 

853

 

 

 

934

 

 

 

(81

)

 

 

(8.7

)%

Merger related expenses

 

 

-

 

 

 

711

 

 

 

(711

)

 

 

(100.0

)%

Other

 

 

6,468

 

 

 

6,477

 

 

 

(9

)

 

 

(0.1

)%

Total non-interest expense

 

$

46,768

 

 

$

45,333

 

 

$

1,435

 

 

 

3.2

%

Salaries and employee benefits of $29.9 million in the year ended December 31, 2015 represents 63.9% of our total non-interest expense, and increased 8.4% compared to the same period in 2014. This increase primarily resulted from an increase of 5 average full-time equivalent new hires, salary increases, variable compensation costs to support our balance sheet and income growth and an expansion of our leasing division. Merger-related expenses in 2014 are primarily costs of terminating the information technology contracts with the previous LSB data processing provider.

Non-interest expenses in 2016 could be impacted by investments in new branches which we hope to open during the year, and the expansion of the leasing division. Historically since 2012 our leasing division has purchased lease paper from other originators.  We are expanding our leasing division to begin originating leases.  We plan to hire additional staff and incur expenses to accommodate the expansion.  We anticipate modest growth in 2016 from our current portfolio.  

Provision for Income Taxes. We recorded tax provisions of $10.3 million for the year ended December 31, 2015 compared to $8.2 million for the same period in 2014. Our effective tax rate was approximately 34.3% for 2015 and 35.6% for the same period in 2014. Any difference from the federal statutory rate in either period was primarily due to the non-taxable nature of income from municipal securities and bank-owned life insurance, tax credits and state income taxes. A tax credit of approximately $400,000 was a one-time credit for 2015, which is unlikely to repeat in future years and which will likely result in an increase to our effective tax rate going forward.


Financial Condition

Our total assets as of December 31, 2016 were $1.67 billion, an increase of 7.1% compared to December 31, 2015. Our total loans, net as of December 31, 2016 were $1.12 billion, an increase of 7.0% from December 31, 2015. Total deposits as of December 31, 2016 were $1.43 billion, an increase of 8.9% compared to December 31, 2015.

Loans

The following table sets forth information regarding the composition of the loan portfolio at the end of each of the periods presented.

 

 

December 31,

 

(Dollars in thousands)

 

2016

 

 

2015

 

 

2014

 

 

2013

 

 

2012

 

Loans held for sale

 

$

20,826

 

 

$

17,947

 

 

$

12,272

 

 

$

13,555

 

 

$

25,118

 

Loans held for investment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

 

582,029

 

 

 

577,804

 

 

 

521,536

 

 

 

455,827

 

 

 

328,476

 

Construction and land development

 

 

240,120

 

 

 

179,664

 

 

 

155,117

 

 

 

136,610

 

 

 

86,116

 

Total commercial real estate loans

 

 

822,149

 

 

 

757,468

 

 

 

676,653

 

 

 

592,437

 

 

 

414,592

 

Commercial and industrial

 

 

213,260

 

 

 

208,277

 

 

 

178,116

 

 

 

142,562

 

 

 

95,547

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

72,959

 

 

 

71,169

 

 

 

73,515

 

 

 

82,703

 

 

 

63,491

 

Consumer and other

 

 

15,678

 

 

 

14,945

 

 

 

15,421

 

 

 

15,238

 

 

 

9,117

 

Total consumer loans

 

 

88,637

 

 

 

86,114

 

 

 

88,936

 

 

 

97,941

 

 

 

72,608

 

Gross loans held for investment

 

 

1,124,046

 

 

 

1,051,859

 

 

 

943,705

 

 

 

832,940

 

 

 

582,747

 

Net deferred loan fees

 

 

(4,169

)

 

 

(3,884

)

 

 

(3,248

)

 

 

(2,223

)

 

 

(1,235

)

Loans held for investment

 

 

1,119,877

 

 

 

1,047,975

 

 

 

940,457

 

 

 

830,717

 

 

 

581,512

 

Allowance for loan losses

 

 

(16,715

)

 

 

(15,557

)

 

 

(15,151

)

 

 

(14,390

)

 

 

(13,706

)

Loans held for investment, net

 

 

1,103,162

 

 

 

1,032,418

 

 

 

925,306

 

 

 

816,327

 

 

 

567,806

 

Total loans, net

 

$

1,123,988

 

 

$

1,050,365

 

 

$

937,578

 

 

$

829,882

 

 

$

592,924

 

 

 

December 31,

 

(Percentage of gross loans held for investment)

 

2016

 

 

2015

 

 

2014

 

 

2013

 

 

2012

 

Loans held for investment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

 

51.7

%

 

 

54.9

%

 

 

55.3

%

 

 

54.7

%

 

 

56.4

%

Construction and land development

 

 

21.4

%

 

 

17.1

%

 

 

16.4

%

 

 

16.4

%

 

 

14.7

%

Total commercial real estate loans

 

 

73.1

%

 

 

72.0

%

 

 

71.7

%

 

 

71.1

%

 

 

71.1

%

Commercial and industrial

 

 

19.0

%

 

 

19.8

%

 

 

18.9

%

 

 

17.1

%

 

 

16.4

%

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

6.5

%

 

 

6.8

%

 

 

7.8

%

 

 

10.0

%

 

 

10.9

%

Consumer and other

 

 

1.4

%

 

 

1.4

%

 

 

1.6

%

 

 

1.8

%

 

 

1.6

%

Total consumer loans

 

 

7.9

%

 

 

8.2

%

 

 

9.4

%

 

 

11.8

%

 

 

12.5

%

Gross loans held for investment

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

We originate certain residential mortgage loans for sale to investors that are carried at cost. Due to the short period held, generally less than 90 days, we consider these loans held for sale to be carried at fair value.



The following table shows the amounts of outstanding loans, which, based on remaining scheduled repayments of principal, are due in one year or less, more than one year through five years, and more than five years. Lines of credit or other loans having no stated maturity and no stated schedule of repayments are reported as due in one year or less. In the table below, loans are classified as real estate related if they are collateralized by real estate. The tables also present, for loans with maturities over one year, an analysis with respect to fixed interest rate loans and adjustable interest rate loans.

Contractual maturities as of December 31, 2016 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rate Structure for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans Maturing Over

 

 

 

 

Maturity

 

 

One Year

 

 

 

 

 

 

 

 

One

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One

 

 

through

 

 

After

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year

 

 

Five

 

 

Five

 

 

 

 

 

 

 

 

 

 

Adjustable

 

 

(in thousands)

 

or Less

 

 

Years

 

 

Years

 

 

Total

 

 

Fixed Rate

 

 

Rate

 

 

Loans held for investment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

65,176

 

 

$

225,820

 

 

$

291,033

 

 

$

582,029

 

 

$

137,849

 

 

$

379,004

 

 

Construction and land development

 

 

196,990

 

 

 

40,059

 

 

 

3,071

 

 

 

240,120

 

 

 

19,472

 

 

 

23,658

 

 

Total commercial real estate loans

 

 

262,166

 

 

 

265,879

 

 

 

294,104

 

 

 

822,149

 

 

 

157,321

 

 

 

402,662

 

 

Commercial and industrial

 

 

91,692

 

 

 

90,390

 

 

 

31,178

 

 

 

213,260

 

 

 

82,780

 

 

 

38,788

 

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

12,228

 

 

 

21,972

 

 

 

38,759

 

 

 

72,959

 

 

 

11,558

 

 

 

49,173

 

 

Consumer and other

 

 

6,911

 

 

 

7,379

 

 

 

1,388

 

 

 

15,678

 

 

 

8,239

 

 

 

528

 

 

Total consumer loans

 

 

19,139

 

 

 

29,351

 

 

 

40,147

 

 

 

88,637

 

 

 

19,797

 

 

 

49,701

 

 

Gross loans held for investment

 

$

372,997

 

(1)

$

385,620

 

 

$

365,429

 

 

$

1,124,046

 

 

$

259,898

 

 

$

491,151

 

(1)

(1)

The sum of adjustable rate loans maturing after one year and total loans maturing within one year is $864 million or 76.9% of total loans at December 31, 2016.

Concentrations. As of December 31, 2016, in management’s judgment, a concentration of loans existed in real estate related loans. As of that date, real estate related loans comprised 79.6% of gross loans held for investment, of which commercial real estate represents 51.7%, 21.4% are construction and land development loans, and 6.5% are residential and home equity loans. Compared to the concentrations as of December 31, 2015, we experienced increases in the percentage mix in the real estate related loans of 0.8% and in construction and land development loans of 4.3%.  We require collateral on real estate lending arrangements and typically maintain loan-to-value ratios of no greater than 80%.  Within our real estate term portfolio, our largest concentration is in the category of office space representing $263.6 million or 23.5% of total gross loans held for investment.  

Non-Performing Assets. Loans are placed on non-accrual status when they become 90 days or more past due or at such earlier time as management determines timely recognition of interest to be in doubt. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, collection efforts, and the borrower’s financial condition, that the borrower will be unable to make payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received, or payment is considered certain. Loans may be returned to accrual status when all delinquent interest and principal amounts contractually due are brought current and future payments are reasonably assured.


The following table summarizes the loans for which the accrual of interest has been discontinued and loans more than 90 days past due and still accruing interest, including those non-accrual loans that are troubled-debt restructured loans, and OREO:

 

 

December 31,

 

(Dollars in thousands, except footnotes)

 

2016

 

 

2015

 

 

2014

 

 

2013

 

 

2012

 

Non-accrual loans, not troubled-debt restructured

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

2,386

 

 

$

2,961

 

 

$

1,465

 

 

$

3,943

 

 

$

2,612

 

Construction and land development

 

 

378

 

 

 

56

 

 

 

578

 

 

 

2,625

 

 

 

12,517

 

Commercial and industrial

 

 

1,211

 

 

 

1,176

 

 

 

1,787

 

 

 

2,147

 

 

 

380

 

Residential and home equity

 

 

142

 

 

 

631

 

 

 

428

 

 

 

612

 

 

 

1,348

 

Consumer and other

 

 

14

 

 

 

88

 

 

 

63

 

 

 

123

 

 

 

7

 

Total non-accrual, not troubled-debt restructured loans

 

 

4,131

 

 

 

4,912

 

 

 

4,321

 

 

 

9,450

 

 

 

16,864

 

Troubled-debt restructured loans non-accrual

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

 

808

 

 

 

1,153

 

 

 

1,106

 

 

 

4,801

 

 

 

3,048

 

Construction and land development

 

 

396

 

 

 

1,329

 

 

 

933

 

 

 

1,417

 

 

 

-

 

Commercial and industrial

 

 

-

 

 

 

21

 

 

 

1,200

 

 

 

-

 

 

 

-

 

Residential and home equity

 

 

-

 

 

 

-

 

 

 

289

 

 

 

1,138

 

 

 

1,056

 

Consumer and other

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total troubled-debt restructured, non-accrual loans

 

 

1,204

 

 

 

2,503

 

 

 

3,528

 

 

 

7,356

 

 

 

4,104

 

Total non-accrual loans (1)

 

 

5,335

 

 

 

7,415

 

 

 

7,849

 

 

 

16,806

 

 

 

20,968

 

Accruing loans past due 90 days or more

 

 

22

 

 

 

3

 

 

 

15

 

 

 

7

 

 

 

1,493

 

Total non-performing loans (NPL)

 

 

5,357

 

 

 

7,418

 

 

 

7,864

 

 

 

16,813

 

 

 

22,461

 

OREO

 

 

245

 

 

 

568

 

 

 

1,673

 

 

 

4,092

 

 

 

1,907

 

Total non-performing assets (NPA) (2)

 

$

5,602

 

 

$

7,986

 

 

$

9,537

 

 

$

20,905

 

 

$

24,368

 

Accruing troubled debt restructured loans

 

$

5,572

 

 

$

7,049

 

 

$

8,399

 

 

$

7,393

 

 

$

1,744

 

Non-accrual troubled debt restructured loans

 

 

1,204

 

 

 

2,503

 

 

 

3,528

 

 

 

7,356

 

 

 

4,104

 

Total troubled debt restructured loans

 

$

6,776

 

 

$

9,552

 

 

$

11,927

 

 

$

14,749

 

 

$

5,848

 

Selected ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NPL to total loans held for investment, net

 

 

0.49

%

 

 

0.72

%

 

 

0.84

%

 

 

2.03

%

 

 

3.79

%

NPA to total assets

 

 

0.34

%

 

 

0.51

%

 

 

0.70

%

 

 

1.61

%

 

 

2.46

%

(1)

We estimate that approximately $298,000 of interest income would have been recognized on loans accounted for on a non-accrual basis for the year ended December 31, 2016 had such loans performed pursuant to contractual terms.

(2)

As of December 31, 2016, non-performing assets had not been reduced by U.S. government guarantees of $16,000.

Impaired Loans. Impaired loans are loans for which it is probable that we will be unable to collect all principal and interest payments due according to the contractual terms of the loan agreement. We measure impairment based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral, if the loan is collateral-dependent.

In determining whether or not a loan is impaired, we consider payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. We determine the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all the circumstances surrounding the loan and borrower, including the length of delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Loans for which an insignificant shortfall in amount of payments is anticipated, but where we expect to collect all amounts due, are not considered impaired.


Troubled-debt Restructured Loans. A restructured loan is considered a troubled debt restructured loan, or TDR, if we, for economic or legal reasons related to the debtor’s financial difficulties, grant a concession in terms or a below-market interest rate to the debtor that we would not otherwise consider. We had TDR loans of $6.8 million and $9.6 million as of December 31, 2016 and 2015, respectively. Our TDR loans are considered impaired loans of which $1.2 million and $2.5 million as of December 31, 2016 and 2015, respectively, are designated as non-accrual.

Each restructured debt is separately negotiated with the borrower and includes terms and conditions that reflect the borrower’s prospective ability to service the debt as modified.

OREO Properties. OREO represents real property taken either through foreclosure or through a deed in lieu thereof from the borrower. All OREO properties are recorded by us at amounts equal to or less than the fair market value of the properties based on current independent appraisals reduced by estimated selling costs. The following table provides a summary of the changes in the OREO balance:

 

 

December 31,

 

(in thousands)

 

2016

 

 

2015

 

Balance, beginning of period

 

$

568

 

 

$

1,673

 

Additions

 

 

482

 

 

 

12

 

Write-downs

 

 

(53

)

 

 

(52

)

Sales

 

 

(752

)

 

 

(1,065

)

Balance, end of period

 

$

245

 

 

$

568

 

Allowance for Loan Losses

We maintain an adequate allowance for loan losses, or ALLL, based on a comprehensive methodology that assesses the losses inherent in the loan portfolio. Our ALLL is based on a continuing review of loans which includes consideration of actual loss experience, changes in the size and character of the portfolio, identification of individual problem situations which may affect the borrower’s ability to repay, evaluations of the prevailing and anticipated economic conditions, and other qualitative factors. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision, as more information becomes available.

Our ALLL is increased by charges to income and decreased by charge-offs (net of recoveries). While we use available information to recognize losses on loans, changes in economic conditions may necessitate revision of the estimate in future years.

The ALLL consists of specific and general components. The specific component relates to loans determined to be impaired that are individually evaluated for impairment. For impaired loans individually evaluated, an allowance is established when the discounted cash flows, or the fair value of the collateral if the loans are collateral-dependent, of the impaired loan are lower than the carrying value of the loan. The general component covers all loans not individually evaluated for impairment and is based on historical loss experience adjusted for qualitative factors. Various qualitative factors are considered including changes to underwriting policies, loan concentrations, volume and mix of loans, size and complexity of individual credits, locations of credits and new market areas, changes in local and national economic conditions, and trends in past due, non-accrual and classified loan balances.


The following table sets forth the activity in our ALLL for the periods indicated:

 

 

December 31,

 

(Dollars in thousands)

 

2016

 

 

2015

 

 

2014

 

 

2013

 

 

2012

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

15,557

 

 

$

15,151

 

 

$

14,390

 

 

$

13,706

 

 

$

15,462

 

Loans charged off:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

 

(17

)

 

 

(32

)

 

 

(705

)

 

 

(270

)

 

 

(1,602

)

Construction and land development

 

 

-

 

 

 

(396

)

 

 

(26

)

 

 

(772

)

 

 

(3,579

)

Commercial and industrial

 

 

(1,511

)

 

 

(350

)

 

 

(949

)

 

 

-

 

 

 

(1,199

)

Residential and home equity

 

 

(6

)

 

 

-

 

 

 

(16

)

 

 

(57

)

 

 

(882

)

Consumer and other

 

 

(240

)

 

 

(281

)

 

 

(356

)

 

 

(197

)

 

 

(215

)

Total

 

 

(1,774

)

 

 

(1,059

)

 

 

(2,052

)

 

 

(1,296

)

 

 

(7,477

)

Recoveries:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

 

621

 

 

 

80

 

 

 

498

 

 

 

45

 

 

 

130

 

Construction and land development

 

 

652

 

 

 

46

 

 

 

365

 

 

 

70

 

 

 

321

 

Commercial and industrial

 

 

441

 

 

 

191

 

 

 

91

 

 

 

133

 

 

 

326

 

Residential and home equity

 

 

92

 

 

 

67

 

 

 

37

 

 

 

35

 

 

 

77

 

Consumer and other

 

 

226

 

 

 

81

 

 

 

122

 

 

 

197

 

 

 

167

 

Total

 

 

2,032

 

 

 

465

 

 

 

1,113

 

 

 

480

 

 

 

1,021

 

Net loan recoveries (charged off)

 

 

258

 

 

 

(594

)

 

 

(939

)

 

 

(816

)

 

 

(6,456

)

Provision for loan losses

 

 

900

 

 

 

1,000

 

 

 

1,700

 

 

 

1,500

 

 

 

4,700

 

Ending balance

 

$

16,715

 

 

$

15,557

 

 

$

15,151

 

 

$

14,390

 

 

$

13,706

 

Gross loans

 

$

1,144,872

 

 

$

1,069,806

 

 

$

955,977

 

 

$

846,495

 

 

$

607,865

 

Average loans

 

 

1,095,619

 

 

 

983,294

 

 

 

861,785

 

 

 

648,025

 

 

 

587,012

 

Non-performing loans

 

 

5,357

 

 

 

7,418

 

 

 

7,864

 

 

 

16,813

 

 

 

22,461

 

Selected ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net charge-offs to average loans

 

 

-0.02

%

 

 

0.06

%

 

 

0.11

%

 

 

0.13

%

 

 

1.10

%

Provision for loan losses to average loans

 

 

0.08

%

 

 

0.10

%

 

 

0.20

%

 

 

0.23

%

 

 

0.80

%

Allowance for loan losses to loans outstanding at end of period

 

 

1.46

%

 

 

1.45

%

 

 

1.58

%

 

 

1.70

%

 

 

2.25

%

The decrease in ALLL as a percentage of total loans from 2012 to 2016 is attributable to overall improvement in the credit quality of the underlying loan portfolio.

Our construction and land development portfolio reflects some borrower concentration risk, and also carries the enhanced risks encountered with construction loans generally. We also finance contractors on a speculative basis. Construction and land development loans are generally more risky than permanent mortgage loans because they are dependent upon the borrower’s ability to generate cash to service the loan, and the value of the collateral depends on project completion when market conditions may have changed.

Our commercial real estate loans are a mixture of new and seasoned properties, retail, office, warehouse, and some industrial properties. Loans on properties are generally underwritten at a loan to value ratio of less than 75% with a minimum debt coverage ratio of 1.25 times.

We allocate our allowance for loan losses by assigning general percentages to our major loan categories (construction and land development, commercial real estate term, residential real estate, C&I and consumer), assigning specific percentages to each category of loans graded in accordance with the guidelines established by our regulatory agencies, and making specific allocations to impaired loans when factors are present requiring a greater reserve than would be required using the assigned risk rating allocation, which is typically based on a review of appraisals or other collateral analysis.


The following table indicates management’s allocation of the allowance and the percent of loans in each category to total loans as of each of the following dates:

 

 

December 31,

 

(in thousands)

 

2016

 

 

2015

 

 

2014

 

 

2013

 

 

2012

 

Commercial real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

6,770

 

 

$

6,783

 

 

$

5,181

 

 

$

7,268

 

 

$

5,189

 

Construction and land development

 

 

5,449

 

 

 

3,984

 

 

 

4,425

 

 

 

2,915

 

 

 

4,191

 

Total commercial real estate loans

 

 

12,219

 

 

 

10,767

 

 

 

9,606

 

 

 

10,183

 

 

 

9,380

 

Commercial and industrial

 

 

3,718

 

 

 

3,941

 

 

 

4,608

 

 

 

3,105

 

 

 

2,777

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

617

 

 

 

603

 

 

 

671

 

 

 

838

 

 

 

1,249

 

Consumer and other

 

 

161

 

 

 

246

 

 

 

266

 

 

 

264

 

 

 

300

 

Total consumer loans

 

 

778

 

 

 

849

 

 

 

937

 

 

 

1,102

 

 

 

1,549

 

Total

 

$

16,715

 

 

$

15,557

 

 

$

15,151

 

 

$

14,390

 

 

$

13,706

 

 

 

December 31,

 

(Percentage of gross loans held for investment)

 

2016

 

 

2015

 

 

2014

 

 

2013

 

 

2012

 

Commercial real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

 

51.7

%

 

 

54.9

%

 

 

55.3

%

 

 

54.7

%

 

 

56.4

%

Construction and land development

 

 

21.4

%

 

 

17.1

%

 

 

16.4

%

 

 

16.4

%

 

 

14.7

%

Total commercial real estate loans

 

 

73.1

%

 

 

72.0

%

 

 

71.7

%

 

 

71.1

%

 

 

71.1

%

Commercial and industrial

 

 

19.0

%

 

 

19.8

%

 

 

18.9

%

 

 

17.1

%

 

 

16.4

%

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

6.5

%

 

 

6.8

%

 

 

7.8

%

 

 

10.0

%

 

 

10.9

%

Consumer and other

 

 

1.4

%

 

 

1.4

%

 

 

1.6

%

 

 

1.8

%

 

 

1.6

%

Total consumer loans

 

 

7.9

%

 

 

8.2

%

 

 

9.4

%

 

 

11.8

%

 

 

12.5

%

Total

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

Investments

The carrying value of our investment securities totaled $409.1 million, $398.6 million and $330.8 million as of December 31, 2016, 2015 and 2014, respectively. Our portfolio of investment securities is comprised of both available-for-sale securities and securities that we intend to hold to maturity. As of December 31, 2016, we held no investment securities from any issuer which totaled over 10% of our shareholders’ equity.

The carrying value of our portfolio of investment securities was as follows:

 

 

December 31,

 

 

December 31,

 

 

December 31,

 

(in thousands)

 

2016

 

 

2015

 

 

2014

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agencies

 

$

118,603

 

 

$

103,990

 

 

$

43,034

 

Municipal securities

 

 

25,519

 

 

 

37,730

 

 

 

50,308

 

Mortgage-backed securities

 

 

181,821

 

 

 

181,386

 

 

 

192,084

 

Corporate securities

 

 

9,666

 

 

 

9,630

 

 

 

10,211

 

Total

 

 

335,609

 

 

 

332,736

 

 

 

295,637

 

Held to maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

 

 

73,512

 

 

 

63,650

 

 

 

32,970

 

Other securities

 

 

-

 

 

 

2,232

 

 

 

2,232

 

Total

 

 

73,512

 

 

 

65,882

 

 

 

35,202

 

Total investment securities

 

$

409,121

 

 

$

398,618

 

 

$

330,839

 


The following table shows the amortized cost for maturities of investment securities and the weighted average yields of such securities, including the benefit of tax-exempt securities:

Investment securities maturities as of December 31, 2016:

 

 

 

 

 

 

 

 

 

 

After One but

 

 

After Five but

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Within One Year

 

 

within Five Years

 

 

within Ten Years

 

 

After Ten Years

 

 

Total

 

(Dollars in thousands)

 

Amount

 

 

Yield

 

 

Amount

 

 

Yield

 

 

Amount

 

 

Yield

 

 

Amount

 

 

Yield

 

 

Amount

 

 

Yield

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agencies

 

$

12,283

 

 

 

0.97

%

 

$

97,081

 

 

 

1.16

%

 

$

9,838

 

 

 

2.37

%

 

$

-

 

 

 

0.00

%

 

$

119,202

 

 

 

1.24

%

Municipal securities

 

 

9,928

 

 

 

3.62

%

 

 

8,975

 

 

 

4.67

%

 

 

5,287

 

 

 

3.45

%

 

 

986

 

 

 

3.64

%

 

 

25,176

 

 

 

3.96

%

Mortgage-backed securities

 

 

-

 

 

 

1.72

%

 

 

1,646

 

 

 

1.41

%

 

 

74,347

 

 

 

1.50

%

 

 

106,874

 

 

 

1.79

%

 

 

182,867

 

 

 

1.67

%

Other securities

 

 

-

 

 

 

0.00

%

 

 

3,000

 

 

 

1.88

%

 

 

4,000

 

 

 

1.92

%

 

 

3,000

 

 

 

4.00

%

 

 

10,000

 

 

 

2.53

%

Total

 

 

22,211

 

 

 

2.16

%

 

 

110,702

 

 

 

1.47

%

 

 

93,472

 

 

 

1.72

%

 

 

110,860

 

 

 

1.87

%

 

 

337,245

 

 

 

1.71

%

Held to maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

 

 

10,099

 

 

 

2.02

%

 

 

46,310

 

 

 

2.32

%

 

 

12,403

 

 

 

2.92

%

 

 

4,700

 

 

 

3.41

%

 

 

73,512

 

 

 

2.45

%

Other securities

 

 

-

 

 

 

0.00

%

 

 

-

 

 

 

0.00

%

 

 

-

 

 

 

0.00

%

 

 

-

 

 

 

0.00

%

 

 

-

 

 

 

0.00

%

Total

 

 

10,099

 

 

 

2.02

%

 

 

46,310

 

 

 

2.32

%

 

 

12,403

 

 

 

2.92

%

 

 

4,700

 

 

 

3.41

%

 

 

73,512

 

 

 

2.45

%

Total investment securities

 

$

32,310

 

 

 

2.11

%

 

$

157,012

 

 

 

1.72

%

 

$

105,875

 

 

 

1.86

%

 

$

115,560

 

 

 

1.93

%

 

$

410,757

 

 

 

1.85

%

Expected maturities may differ from contractual maturities because issuers may have the right to call obligations with or without penalties.

We evaluate securities for other-than-temporary impairment at least on an annual basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) our intent and ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.



Deposits

Total deposits were $1.43 billion, $1.31 billion and $1.20 billion as of December 31, 2016, 2015 and 2014, respectively. The increase in total deposits is attributed primarily to our growth in existing markets and entering into new markets. Non-interest bearing demand deposits increased to $443.1 million, or 31.1% of total deposits as of December 31, 2016, from $408.5 million or 31.2% as of December 31, 2015 and $327.1 million or 27.3% as of December 31, 2014. Interest bearing deposits are comprised of money market accounts, regular savings accounts, certificates of deposit of under $100,000 and certificates of deposit of $100,000 or more.

The following table shows the average amount and average rate paid on the categories of deposits for each of the periods presented:

 

 

Year Ended

 

 

Year Ended

 

 

Year Ended

 

 

 

December 31, 2016

 

 

December 31, 2015

 

 

December 31, 2014

 

 

 

Average

 

 

Average

 

 

Average

 

 

Average

 

 

Average

 

 

Average

 

(Dollars in thousands)

 

Balance

 

 

Rate

 

 

Balance

 

 

Rate

 

 

Balance

 

 

Rate

 

Non-interest bearing deposits

 

$

426,487

 

 

 

0.00

%

 

$

379,468

 

 

 

0.00

%

 

$

309,225

 

 

 

0.00

%

Interest bearing deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing demand and savings

 

 

607,714

 

 

 

0.28

%

 

 

557,917

 

 

 

0.28

%

 

 

513,241

 

 

 

0.29

%

Money market

 

 

150,028

 

 

 

0.24

%

 

 

143,766

 

 

 

0.23

%

 

 

137,829

 

 

 

0.23

%

Certificates of deposit under $100,000

 

 

94,689

 

 

 

0.32

%

 

 

105,780

 

 

 

0.41

%

 

 

115,103

 

 

 

0.51

%

Certificates of deposit $100,000 and over

 

 

73,860

 

 

 

0.66

%

 

 

82,653

 

 

 

0.78

%

 

 

91,878

 

 

 

0.94

%

Total interest bearing deposits

 

 

926,291

 

 

 

0.31

%

 

 

890,116

 

 

 

0.33

%

 

 

858,051

 

 

 

0.38

%

Total

 

$

1,352,778

 

 

 

 

 

 

$

1,269,584

 

 

 

 

 

 

$

1,167,276

 

 

 

 

 

Additionally, the following table shows the maturities of CDs of $100,000 or more:

 

 

December 31,

 

(in thousands)

 

2016

 

Due in three months or less

 

$

13,450

 

Due in over three months through six months

 

 

11,796

 

Due in over six months through twelve months

 

 

16,140

 

Due in over twelve months

 

 

33,420

 

Total

 

$

74,806

 

Deposits are gathered from individuals, partnerships and corporations in our market areas. The interest rates paid are competitively priced for each particular deposit product and structured to meet our funding requirements. We will continue to manage interest expense through deposit pricing.  The average rate for interest bearing deposits has declined from 0.33% in 2015 to 0.31% in 2016.  In a rising rate environment, it is likely the cost of interest bearing deposits will rise in future periods.

Shareholders’ Equity

As of December 31, 2016, our shareholders’ equity totaled $228.5 million, an increase of $19.1 million or 9.1% since December 31, 2015. The increase in shareholders’ equity for the year ended December 31, 2016 resulted primarily from net income of $23.6 million for the year ended December 31, 2016, stock options exercised of $777,000 and less dividends declared during 2016 of $5.1 million.

We began paying quarterly dividends in 2015 with the dividend being declared after the end of each quarter. Dividends declared during 2016 represented a dividend payout ratio of 21.8% of net income for the year ended December 31, 2016.  Future cash dividends will depend on a variety of factors, including net income, capital, asset quality, general economic conditions and regulatory considerations.



Capital Resources

Since January 2015, we have been subject to new risk-based capital adequacy guidelines related to the adoption of U.S. Basel III Capital Rules which impose higher risk-based capital and leverage requirements than those previously in place. Specifically, the rules impose, among other requirements, new minimum capital requirements including a Tier 1 leverage capital ratio of 4.0%, a new common equity Tier 1 risk-based capital ratio of 4.5%, a Tier 1 risk-based capital ratio of 6% and a total risk-based capital ratio of 8%. Since we only have common equity, our common equity Tier 1 risk-based capital ratio and our Tier 1 risk-based capital ratio are the same. Therefore, we only disclose our Tier 1 risk-based capital ratio since it has a higher required ratio for minimum and well-capitalized banks.

The following table sets forth our capital ratios.

 

 

Basel III

 

PUB

 

 

Regulatory

 

Actual as of

 

Actual as of

 

 

Well Capitalized

 

December 31,

 

December 31,

 

 

Requirement

 

2016

 

2015

Tier 1 leverage capital ratio

 

NA

 

 

 

 

13.71

%

 

 

 

13.42

%

 

Tier 1 risk-based capital

 

 

8.00

%

 

 

 

18.93

%

 

 

 

17.76

%

 

Total risk-based capital

 

 

10.00

%

 

 

 

20.19

%

 

 

 

19.02

%

 

PUB and the Bank were well-capitalized as of December 31, 2016 and 2015 for federal regulatory purposes.

Off-Balance Sheet Arrangements

The following table sets forth our off-balance sheet lending commitments as of December 31, 2016:

 

 

 

 

 

 

Amount of Commitment Expiration Per Period

 

 

 

Total

 

 

 

 

 

 

One to

 

 

Three to

 

 

After

 

 

 

Amounts

 

 

Less than

 

 

Three

 

 

Five

 

 

Five

 

Other Commitments (in thousands)

 

Committed

 

 

One Year

 

 

Years

 

 

Years

 

 

Years

 

Commitments to extend credit

 

$

445,645

 

 

$

305,787

 

 

$

79,485

 

 

$

8,418

 

 

$

51,955

 

Standby letters of credit

 

 

29,332

 

 

 

29,332

 

 

 

-

 

 

 

-

 

 

 

-

 

Credit cards

 

 

25,803

 

 

 

25,803

 

 

 

-

 

 

 

-

 

 

 

-

 

Total

 

$

500,780

 

 

$

360,922

 

 

$

79,485

 

 

$

8,418

 

 

$

51,955

 

Contractual Obligations

The following table sets forth our significant contractual obligations as of December 31, 2016:

 

 

 

 

 

 

Payments Due by Period

 

 

 

 

 

 

 

 

 

 

 

One to

 

 

Three to

 

 

After

 

 

 

 

 

 

 

Less than

 

 

Three

 

 

Five

 

 

Five

 

Contractual Obligations (in thousands)

 

Total

 

 

One Year

 

 

Years

 

 

Years

 

 

Years

 

Time certificates of deposit

 

$

158,064

 

 

$

90,838

 

 

$

41,524

 

 

$

21,262

 

 

$

4,440

 

Deposits without stated maturity

 

 

1,267,010

 

 

 

1,267,010

 

 

 

-

 

 

 

-

 

 

 

-

 

Short-term borrowings

 

 

3,199

 

 

 

3,199

 

 

 

-

 

 

 

-

 

 

 

-

 

Total

 

$

1,428,273

 

 

$

1,361,047

 

 

$

41,524

 

 

$

21,262

 

 

$

4,440

 

The Company has entered into agreements to construct two branch facilities scheduled to open in 2017.  Estimated construction costs for the two branches are expected to be approximately $1.8 million.


Liquidity

The ability to have readily available funds sufficient to repay fully maturing liabilities is of primary importance to depositors, creditors and regulators. Our liquidity, represented by cash borrowing lines, federal funds and available-for-sale securities, is a result of our operating, investing and financing activities and related cash flows. In order to ensure funds are available at all times, we devote resources to projecting on a monthly basis the amount of funds that will be required and we maintain relationships with a diversified customer base so funds are accessible. Liquidity requirements can also be met through short-term borrowings or the disposition of short-term assets. We monitor liquidity measured by a liquidity ratio defined as cash and cash equivalents plus unpledged investment securities divided by total liabilities. Our liquidity ratio was 30.58% as of December 31, 2016 compared to 29.91% as of December 31, 2015.

We have the following borrowing lines available at December 31, 2016:

 

 

Total

 

 

Current

 

 

 

 

 

 

Remaining

 

 

Value of

 

 

 

Credit Line

 

 

Credit Line

 

 

Amount

 

 

Credit Line

 

 

Collateral

 

(in thousands)

 

Limit

 

 

Available

 

 

Outstanding

 

 

Available

 

 

Pledged

 

Federal Funds

 

$

25,000

 

 

$

25,000

 

 

$

-

 

 

$

25,000

 

 

$

-

 

Federal Home Loan Bank

 

 

311,156

 

 

 

311,156

 

 

 

-

 

 

$

311,156

 

 

 

467,629

 

Federal Reserve

 

 

22,586

 

 

 

22,586

 

 

 

-

 

 

$

22,586

 

 

 

32,000

 

 

 

$

358,742

 

 

$

358,742

 

 

$

-

 

 

$

358,742

 

 

$

499,629

 

As of December 31, 2016, our net liquid assets were comprised of the following:

(in thousands)

 

Amount

 

Cash and due from banks

 

$

26,524

 

Interest bearing deposits

 

 

37,958

 

Federal funds sold

 

 

3,456

 

Total cash and cash equivalents

 

 

67,938

 

Available for sale investment securities

 

 

335,609

 

Loans held for sale

 

 

20,826

 

Less: securities pledged as collateral

 

 

(37,492

)

Total net liquid assets

 

$

386,881

 

We believe our liquid assets and short-term borrowing credit lines are adequate to meet our cash flow needs for loan funding and deposit cash withdrawal for the next 60 to 90 days.

We have no outstanding short-term borrowings under the credit lines described in the above table as of December 31, 2016.  In the fourth quarter of 2015, we had a $62.5 million increase in net total loans, but experienced a decrease in deposits in December of 2015 of $23.7 million. Based on favorable interest rates on our credit lines and our anticipation that the decrease in deposits was short-term, we utilized our credit lines with the Federal Home Loan Bank (“FHLB”) to meet our short-term loan funding requirements in the fourth quarter of 2015.  The outstanding short-term borrowings from the FHLB were paid off during 2016.  On a long-term basis, our liquidity will be met by changing the relative distribution of our asset portfolios by reducing our investment or loan volumes, or selling or encumbering assets. Further, we will increase liquidity by soliciting higher levels of deposit accounts through promotional activities and/or borrowing from our correspondent banks as well as the FHLB. At the current time, our long-term liquidity needs primarily relate to funds required to support loan originations and commitments and deposit withdrawals. We believe we can meet all of these needs by cash flows from investment payments and maturities, and investment sales, if the need arises.

Our liquidity is comprised of three primary classifications: cash flows from or used in operating activities; cash flows from or used in investing activities; and cash flows from or used in financing activities.

Net cash provided by or used in operating activities has consisted primarily of net income adjusted for certain non-cash income and expense items such as the loan loss provision, investment and other amortization and depreciation.


Our primary investing activities are the origination of real estate, commercial & industrial, consumer loans and purchases and sales of investment securities. As of December 31, 2016 we had outstanding loan commitments of $471.4 million and outstanding letters of credit of $29.3 million. We anticipate that we will have sufficient funds available to meet current loan commitments.

Net cash provided by financing activities has been impacted significantly by higher deposit levels. During the years ended December 31, 2016, 2015 and 2014, deposits increased $115.9 million, $110.0 million and $54.9 million respectively.

Critical Accounting Policies

Our financial statements are prepared in accordance with GAAP.accounting principles generally accepted in the United States of America (“GAAP”). Our most complex accounting policies require management’s judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. We have established detailed policies and control procedures intended to ensure that valuation methods are well-controlledwell controlled and applied consistently from period to period. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The application of these policies has a significant impact on the Company’s consolidated financial statements and financial results could differ significantlymaterially if different judgments or estimates were to be applied.

  In the opinion of management, the accompanying Consolidated Balance Sheets and related Consolidated Statements of Income, Comprehensive Income, Changes in Shareholders’ Equity and Changes in Cash Flows reflect all adjustments (which include reclassification and normal recurring adjustments) that are necessary for a fair presentation in conformity with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements.  Our significant accounting policies are described in detail in Note 1, Summary of Significant Accounting Policies in “Item 8. Financial Statements and Supplemental Data.” Not all of our significant accounting policies require management to make difficult, subjective or complex judgments or estimates. Accounting policies involving significant management valuation judgments are outlined below.

Use of Estimates — The preparation of these financial statements requires management to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses. On an ongoing basis, management evaluates the estimates used. Estimates are based upon historical experience, current economic conditions and other factors that management considers reasonable under the circumstances and the actual results may differ from these estimates under different assumptions. The allowance for loan losses, the valuation of real estate acquired through foreclosure, deferred income taxes, share-based compensation, and fair values of financial instruments are estimates, which are particularly subject to change.


Allowance for Loan and Lease Losses — The allowance for loan losses (“ALLL”) represents our estimate of theprobable losses inherent in the existing loan portfolio. The allowance for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged off, net of recoveries.

We evaluate our allowance for loan losses quarterly based on a number of quantitative and qualitative factors, including levels and trends of past due and non-accrual loans, asset classifications, loan grades, change in volume and mix of loans, collateral value, historical loss experience, size and complexity of individual credits, loan concentrations and economic conditions. ProvisionsAllowance for loan losses areis provided on both a specific and general basis. Specific allowances are provided for impaired credits for which the expected/anticipated loss is measurable. General valuation allowances are based on a portfolio segmentation based on risk grading, with a further evaluation of various quantitative and qualitative factors noted above.

We periodically review the assumptions and formulas by which additions are made to the specific and general valuation allowances for losses in an effort to refine such allowances in light of the current status of the factors described above. Although we believe that the levels of our ALLL as of December 31, 20162019 and 20152018 were adequate to absorb losses inherent in the loan portfolio, a decline in local economic, or other factors, could result in increasing losses that cannot be reasonably predicted at this time.portfolio.

Investment Securities — GAAP requires that available-for-sale investment securities available for sale be carried at fair value which is based on quoted market prices or if quoted market prices are not available, fair values are extrapolated from the quoted prices of similar instruments. Management utilizes the services of a reputable third party vendor to assist with the determination of estimated fair values. Adjustments to the available-for-saleUnrealized holding gains and losses on securities fair value impact the consolidated financial statements by increasing or decreasing assetsclassified as available for sale are excluded from earnings and are reported net of tax as accumulated other comprehensive income (“AOCI”), a component of shareholders’ equity.equity, until realized.


Investment securities are impaired when the amortized cost exceeds fair value. Investment securities are evaluated for impairment on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation to determine whether a decline in their value is other than temporary. Management utilizes criteria such as the magnitude and duration of the decline and our intent and ability to retain our investment in the securities for a period of time sufficient to allow for an anticipated recovery in fair value, in addition to the reasons underlying the decline, to determine whether the loss in value is other than temporary. The term “other than temporary” is not intended to indicate that the decline is permanent, but indicates that the prospect for a near-term recovery of value is not favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other-than-temporary and we do not intend to sell the security or it is more likely than not that we will not be required to sell the security before recovery, only the portion of the impairment loss representing credit exposure is recognized as a charge to earnings, with the balance recognized as a charge to other comprehensive income. If management intends to sell the security or it is more likely than not that we will be required to sell the security before recovering its forecasted cost, the entire impairment loss is recognized as a charge to earnings.

Business Combinations — Business combinations are accounted for using the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed, both tangible and intangible, and consideration exchanged are recorded at fair value on the acquisition date.  The excess purchase consideration over fair value of net assets acquired is recorded as goodwill.  Expenses resulting from a business combination are expensed as incurred. Changes in deferred tax asset valuation allowances related to acquired tax uncertainties are recognized in net income after the measurement period.

Acquired Loans — Purchased loans, including loans acquired in business combinations, are recorded at fair value on the acquisition date. Credit discounts are included in the determination of fair value; therefore, an allowance for loan losses is not recorded on the acquisition date. Acquired loans are evaluated upon acquisition and classified as either purchased credit-impaired (“PCI”) or purchased non-credit impaired.  PCI loans reflect credit deterioration since origination such that it is probable at acquisition that the Company will be unable to collect all contractually required payments. The non-accretable difference on PCI loans is not accreted to interest income. The accounting for PCI loans is periodically updated for changes in cash flow expectations, and reflected in interest income over the life of the loans as accretable yield. Any subsequent decreases in expected cash flows attributable to credit deterioration are recognized by recording a provision for loan losses.


For purchased non-credit-impaired loans, the difference between the fair value and unpaid principal balance of the loan at the acquisition date is amortized or accreted to interest income over the life of the loan. Any subsequent deterioration in credit quality is recognized by recording a provision for loan losses.

Goodwill — Goodwill represents the excess of the purchase considerations paid over the fair value of the assets acquired, net of the fair values of liabilities assumed in a business combination it is not amortized but is reviewed annually, or more frequently as current circumstances and conditions warrant, for impairment. An assessment of qualitative factors is completed to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative analysis concludes that further analysis is required, then a quantitative impairment test would be completed. The quantitative goodwill impairment compares the reporting unit's estimated fair values, including goodwill, to its carrying amount. If the carrying amount exceeds its reporting unit’s fair value, then an impairment loss would be recognized as a charge to earnings, but is limited by the amount of goodwill allocated to that reporting unit.

Other Intangible Assets — Other intangible assets consists primarily of core deposit intangibles (“CDI”), which are amounts recorded in business combinations or deposit purchase transactions related to the value of transaction-related deposits and the value of the client relationships associated with the deposits. Core deposit intangibles are amortized over the estimated useful lives of such deposits. These assets are reviewed at least annually for events or circumstances that could affect their recoverability. These events could include loss of the underlying core deposits, increased competition or adverse changes in the economy. To the extent other identifiable intangible assets are deemed unrecoverable; impairment losses are recorded in other non-interest expense to reduce the carrying amount of the assets.

Mortgage and Other Servicing Rights — Mortgage and other servicing rights are recognized as separate assets when rights are acquired through purchase of such rights or through the sale of loans. Generally, purchased servicing rights are capitalized at the cost to acquire the rights. For loans sold, the value of the servicing rights are estimated and capitalized. Fair value is based on market prices for comparable servicing rights contracts. Capitalized servicing rights are reported in other assets and are amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets.

Income TaxesWe file our incomeIncome taxes are filed on a consolidated basis with our subsidiaries and allocate income tax expense (benefit) based on each entity’s proportionate share of the consolidated provision for income taxes. Deferred income tax assets and liabilities are recognized for the tax consequences of temporary differences between the reported amounts of assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The determination of the amount of deferred income tax assets, whichthat are more likely than not to be realized is primarily dependent on projections of future earnings, which are subject to uncertainty and estimates that may change given economic conditions and other factors. The realization of deferred income tax assets is assessed and a valuation allowance is recorded if it is “more likely than not” that all or a portion of the deferred income tax asset will not be realized. “More likely than not” is defined as greater than a 50% probability. All available evidence, both positive and negative, is considered to determine whether, based on the weight of that evidence, a valuation allowance is needed.

Only tax positions that meet the more-likely-than-not recognition threshold are recognized. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest expense and penalties associated with unrecognized tax benefits are classified as income tax expense in the consolidated statements of income.


Share-Based Compensation — We recognize compensation expense in an amount equal to the fair value of all share-based payments, which consist of stock options and RSUsrestricted stock units (“RSU”) granted to directors and associates. The fair value of each stock option is estimated on the date of grant and amortized over the service period using a Black-Scholes based option valuation model that requires the use of assumptions to estimate the grant date fair value. The estimates are based on assumptions of the expected option life, the level of estimated forfeitures, expected stock volatility and the risk-free interest rate. The calculation of the fair value of share-based payments is by nature inexact, and represents management’s best estimate of the grant date’s fair value of the share-based payments. RSUs are valued at the fair value of the common shares at the date of grant and amortized over the vesting period.



Impact of Recently Issued Accounting Standards

New authoritative accounting guidance from the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) that has either been issued or is effective during 20162019 or 20152018 and may possibly have a material impact on the Company includes amendments to:

• Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)FASB ASC Topic 825, 220, Financial Instruments;Balance Sheet;

FASB ASC Topic 326, Financial Instruments - Credit Losses

• FASB ASC Topic 805, Business Combinations;

• FASB ASC Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors;Statements-Credit Losses;

• FASB ASC Topic 860, Transfers and Servicing;

FASB ASC Topic 606, Revenue from Contracts with Customers;and

FASB ASC Subtopic 740, Income Taxes;

FASB ASC Topic 323, 820, Investments - Equity Method and Joint Ventures.Fair Value Measurement;

FASB ASC Subtopic 825, Financial Instruments;

FASB ASC Subtopic 825-10, Overall Financial Instruments; and

FASB ASC Topic 842, Leases.

For additional information on the topics and the impact on the Company, see Note 1 to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data.”

Results of Operations

Factors that determine the level of net income include the volume of earning assets and interest bearing liabilities, yields earned and rates paid, fee income, non-interest expense, the level of non-performing loans and other non-earning assets, and the amount of non-interest bearing liabilities supporting earning assets. Non-interest income includes service charges and other fees on deposits, and mortgage banking income. Non-interest expense consists primarily of employee compensation and benefits, occupancy, equipment and depreciation expense, and other operating expenses.


Average Balance and Yields. The following tables set forth a summary of average balances with corresponding interest income and interest expense as well as average yield, cost and net interest margin information for the periods presented. Average balances are derived from daily balances. Average non-accrual loans are derived from quarterly balances and are included as non-interest earning assets for purposes of these tables.

 

 

Years Ended December 31,

 

 

 

2019

 

 

2018

 

 

2017

 

 

 

 

 

 

 

Interest

 

 

Average

 

 

 

 

 

 

Interest

 

 

Average

 

 

 

 

 

 

Interest

 

 

Average

 

 

 

Average

 

 

Income/

 

 

Yield/

 

 

Average

 

 

Income/

 

 

Yield/

 

 

Average

 

 

Income/

 

 

Yield/

 

(Dollars in thousands, except footnotes)

 

Balance

 

 

Expense

 

 

Rate

 

 

Balance

 

 

Expense

 

 

Rate

 

 

Balance

 

 

Expense

 

 

Rate

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest earning deposits in other banks

   and federal funds sold

 

$

151,918

 

 

$

2,950

 

 

 

1.94

%

 

$

14,252

 

 

$

246

 

 

 

1.73

%

 

$

51,649

 

 

$

589

 

 

 

1.14

%

Securities: (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable securities

 

 

275,482

 

 

 

6,274

 

 

 

2.28

%

 

 

249,032

 

 

 

4,958

 

 

 

1.99

%

 

 

281,938

 

 

 

4,738

 

 

 

1.68

%

Non-taxable securities (2)

 

 

63,074

 

 

 

1,198

 

 

 

1.90

%

 

 

77,455

 

 

 

1,433

 

 

 

1.85

%

 

 

90,060

 

 

 

1,663

 

 

 

1.85

%

Total securities

 

 

338,556

 

 

 

7,472

 

 

 

2.21

%

 

 

326,487

 

 

 

6,391

 

 

 

1.96

%

 

 

371,998

 

 

 

6,401

 

 

 

1.72

%

Loans (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

 

910,396

 

 

 

54,302

 

 

 

5.96

%

 

 

882,742

 

 

 

51,149

 

 

 

5.79

%

 

 

661,588

 

 

 

36,197

 

 

 

5.47

%

Construction and land development

 

 

302,735

 

 

 

23,889

 

 

 

7.89

%

 

 

366,205

 

 

 

28,708

 

 

 

7.84

%

 

 

268,255

 

 

 

20,889

 

 

 

7.79

%

Commercial and industrial

 

 

287,330

 

 

 

19,570

 

 

 

6.81

%

 

 

312,728

 

 

 

20,869

 

 

 

6.67

%

 

 

238,418

 

 

 

14,393

 

 

 

6.04

%

Residential and home equity

 

 

165,903

 

 

 

9,580

 

 

 

5.77

%

 

 

120,396

 

 

 

6,620

 

 

 

5.50

%

 

 

89,027

 

 

 

4,370

 

 

 

4.91

%

Consumer and other

 

 

16,935

 

 

 

1,189

 

 

 

7.02

%

 

 

18,734

 

 

 

1,152

 

 

 

6.15

%

 

 

17,719

 

 

 

1,116

 

 

 

6.30

%

Total loans

 

 

1,683,299

 

 

 

108,530

 

 

 

6.45

%

 

 

1,700,805

 

 

 

108,498

 

 

 

6.38

%

 

 

1,275,007

 

 

 

76,965

 

 

 

6.04

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-marketable equity securities

 

 

2,703

 

 

 

97

 

 

 

3.60

%

 

 

5,307

 

 

 

217

 

 

 

4.09

%

 

 

2,136

 

 

 

25

 

 

 

1.18

%

Total interest earning assets

 

 

2,176,476

 

 

 

119,049

 

 

 

5.47

%

 

 

2,046,851

 

 

 

115,352

 

 

 

5.64

%

 

 

1,700,790

 

 

 

83,980

 

 

 

4.94

%

Allowance for loan losses

 

 

(27,675

)

 

 

 

 

 

 

 

 

 

 

(21,429

)

 

 

 

 

 

 

 

 

 

 

(17,220

)

 

 

 

 

 

 

 

 

Non-interest earning assets

 

 

149,936

 

 

 

 

 

 

 

 

 

 

 

146,731

 

 

 

 

 

 

 

 

 

 

 

104,240

 

 

 

 

 

 

 

 

 

Total average assets

 

$

2,298,737

 

 

 

 

 

 

 

 

 

 

$

2,172,153

 

 

 

 

 

 

 

 

 

 

$

1,787,810

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand and savings accounts

 

$

814,638

 

 

 

3,790

 

 

 

0.47

%

 

$

740,569

 

 

 

2,406

 

 

 

0.32

%

 

$

680,216

 

 

 

1,806

 

 

 

0.27

%

Money market accounts

 

 

291,044

 

 

 

2,822

 

 

 

0.97

%

 

 

233,830

 

 

 

1,382

 

 

 

0.60

%

 

 

183,142

 

 

 

410

 

 

 

0.22

%

Certificates of deposit less than or equal to $250,000

 

 

139,572

 

 

 

1,735

 

 

 

1.24

%

 

 

151,272

 

 

 

1,416

 

 

 

0.94

%

 

 

135,232

 

 

 

768

 

 

 

0.57

%

Certificates of deposit greater than $250,000

 

 

38,057

 

 

 

721

 

 

 

1.89

%

 

 

36,006

 

 

 

546

 

 

 

1.52

%

 

 

26,620

 

 

 

291

 

 

 

1.09

%

Total interest bearing deposits

 

 

1,283,311

 

 

 

9,068

 

 

 

0.71

%

 

 

1,161,677

 

 

 

5,750

 

 

 

0.49

%

 

 

1,025,210

 

 

 

3,275

 

 

 

0.32

%

Short-term borrowings

 

 

2,420

 

 

 

63

 

 

 

2.63

%

 

 

71,880

 

 

 

1,424

 

 

 

1.98

%

 

 

7,462

 

 

 

67

 

 

 

0.89

%

Total interest bearing liabilities

 

 

1,285,731

 

 

 

9,131

 

 

 

0.71

%

 

 

1,233,557

 

 

 

7,174

 

 

 

0.58

%

 

 

1,032,672

 

 

 

3,342

 

 

 

0.32

%

Non-interest bearing deposits

 

 

682,282

 

 

 

 

 

 

 

 

 

 

 

651,101

 

 

 

 

 

 

 

 

 

 

 

501,719

 

 

 

 

 

 

 

 

 

Total funding

 

 

1,968,013

 

 

 

9,131

 

 

 

0.46

%

 

 

1,884,658

 

 

 

7,174

 

 

 

0.38

%

 

 

1,534,391

 

 

 

3,342

 

 

 

0.22

%

Other non-interest bearing liabilities

 

 

17,299

 

 

 

 

 

 

 

 

 

 

 

13,894

 

 

 

 

 

 

 

 

 

 

 

10,660

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

313,425

 

 

 

 

 

 

 

 

 

 

 

273,601

 

 

 

 

 

 

 

 

 

 

 

242,759

 

 

 

 

 

 

 

 

 

Total average liabilities and shareholders’ equity

 

$

2,298,737

 

 

 

 

 

 

 

 

 

 

$

2,172,153

 

 

 

 

 

 

 

 

 

 

$

1,787,810

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

$

109,918

 

 

 

 

 

 

 

 

 

 

$

108,178

 

 

 

 

 

 

 

 

 

 

$

80,638

 

 

 

 

 

Interest rate spread

 

 

 

 

 

 

 

 

 

 

4.76

%

 

 

 

 

 

 

 

 

 

 

5.05

%

 

 

 

 

 

 

 

 

 

 

4.61

%

Net interest margin (4)

 

 

 

 

 

 

 

 

 

 

5.05

%

 

 

 

 

 

 

 

 

 

 

5.29

%

 

 

 

 

 

 

 

 

 

 

4.74

%

(1)

Excludes average unrealized losses of $1.2 million, $6.3 million, and $1.1 million for the years ended December 31, 2019, 2018, and 2017, respectively, which are included in non-interest earning assets.

(2)

The average yield does not include the federal tax benefits at an assumed rate of 21% for years ended December 31, 2019, and 2018, and 35% for year ended December 31, 2017, related to income earned on tax-exempt municipal securities totaling $399,000, $478,000, and $896,000 for the years ended December 31, 2019, 2018, and 2017, respectively.

(3)

Loan interest income includes loan fees of $6.6 million, $6.7 million, and $6.4 million for the years ended December 31, 2019, 2018, and 2017, respectively.

(4)

Net interest margin is computed by dividing net interest income by average interest earning assets.


Rate/Volume Analysis. The following table shows the change in interest income and interest expense and the amount of change attributable to variances in volume, rates and the combination of volume and rates based on the relative changes of volume and rates. For purposes of this table, the change in interest due to both volume and rate has been allocated to change due to volume and rate in proportion to the relationship of absolute dollar amounts of change in each.

 

 

Year Ended December 31,

 

 

Year Ended December 31,

 

 

 

2019 vs. 2018

 

 

2018 vs. 2017

 

 

 

Increase (Decrease) Due to:

 

 

Increase (Decrease) Due to:

 

(Dollars in thousands)

 

Volume

 

 

Rate

 

 

Net

 

 

Volume

 

 

Rate

 

 

Net

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest earning deposits in other banks

   and federal funds sold

 

$

2,670

 

 

$

34

 

 

$

2,704

 

 

$

(555

)

 

$

212

 

 

$

(343

)

Taxable securities

 

 

559

 

 

 

757

 

 

 

1,316

 

 

 

(592

)

 

 

812

 

 

 

220

 

Non-taxable securities

 

 

(272

)

 

 

37

 

 

 

(235

)

 

 

(233

)

 

 

3

 

 

 

(230

)

Total securities

 

 

287

 

 

 

794

 

 

 

1,081

 

 

 

(825

)

 

 

815

 

 

 

(10

)

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

 

1,627

 

 

 

1,526

 

 

 

3,153

 

 

 

12,707

 

 

 

2,245

 

 

 

14,952

 

Construction and land development

 

 

(5,007

)

 

 

188

 

 

 

(4,819

)

 

 

7,678

 

 

 

141

 

 

 

7,819

 

Commercial and industrial

 

 

(1,723

)

 

 

424

 

 

 

(1,299

)

 

 

4,839

 

 

 

1,637

 

 

 

6,476

 

Residential and home equity

 

 

2,613

 

 

 

347

 

 

 

2,960

 

 

 

1,677

 

 

 

573

 

 

 

2,250

 

Consumer and other

 

 

(117

)

 

 

154

 

 

 

37

 

 

 

63

 

 

 

(27

)

 

 

36

 

Total Loans

 

 

(2,607

)

 

 

2,639

 

 

 

32

 

 

 

26,964

 

 

 

4,569

 

 

 

31,533

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-marketable equity securities

 

 

(96

)

 

 

(24

)

 

 

(120

)

 

 

72

 

 

 

120

 

 

 

192

 

Total interest income

 

 

254

 

 

 

3,443

 

 

 

3,697

 

 

 

25,656

 

 

 

5,716

 

 

 

31,372

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand and savings accounts

 

 

260

 

 

 

1,124

 

 

 

1,384

 

 

 

171

 

 

 

429

 

 

 

600

 

Money market accounts

 

 

398

 

 

 

1,042

 

 

 

1,440

 

 

 

141

 

 

 

831

 

 

 

972

 

Certificates of deposit less than or equal to $250,000

 

 

(116

)

 

 

435

 

 

 

319

 

 

 

100

 

 

 

548

 

 

 

648

 

Certificates of deposit greater than $250,000

 

 

33

 

 

 

142

 

 

 

175

 

 

 

122

 

 

 

133

 

 

 

255

 

Short-term borrowings

 

 

(1,712

)

 

 

351

 

 

 

(1,361

)

 

 

1,189

 

 

 

168

 

 

 

1,357

 

Total interest expense

 

 

(1,137

)

 

 

3,094

 

 

 

1,957

 

 

 

1,723

 

 

 

2,109

 

 

 

3,832

 

Net interest income

 

$

1,391

 

 

$

349

 

 

$

1,740

 

 

$

23,933

 

 

$

3,607

 

 

$

27,540

 

Net interest income increased $1.7 million for the year ended December 31, 2019 compared with the same period in 2018. The increase in net interest income was driven by an increase in interest earning deposits, and improved loan and investment securities yields, which were partially offset by higher cost of funds from interest-bearing deposits and lower short-term borrowings.

Net interest income increased $27.5 million for the year ended December 31, 2018 compared with the same period in 2017. The increase in net interest income was driven by organic loan growth, the full year impact of $362 million of loans purchased from the acquisition of the seven Utah branches of Banner Bank and the merger with Town & Country Bank, and improved loan and investment securities yields, which were partially offset by higher cost of funds from interest-bearing deposits and short-term borrowings.


Comparison of Results of Operations for the Years Ended December 31, 2019 and 2018

 

 

Years Ended

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

$ Better /

 

 

% Better /

 

(Dollars in thousands)

 

2019

 

 

2018

 

 

(Worse)

 

 

(Worse)

 

Interest income

 

$

119,049

 

 

$

115,352

 

 

$

3,697

 

 

 

3.2

%

Interest expense

 

 

9,131

 

 

 

7,174

 

 

 

(1,957

)

 

 

(27.3

%)

Net interest income

 

 

109,918

 

 

 

108,178

 

 

 

1,740

 

 

 

1.6

%

Provision for loan losses

 

 

7,000

 

 

 

8,625

 

 

 

1,625

 

 

 

18.8

%

Net interest income after provision for loan losses

 

 

102,918

 

 

 

99,553

 

 

 

3,365

 

 

 

3.4

%

Non-interest income

 

 

15,181

 

 

 

15,129

 

 

 

52

 

 

 

0.3

%

Non-interest expense

 

 

60,272

 

 

 

61,996

 

 

 

1,724

 

 

 

2.8

%

Income before income tax expense

 

 

57,827

 

 

 

52,686

 

 

 

5,141

 

 

 

9.8

%

Income tax expense

 

 

13,503

 

 

 

12,054

 

 

 

(1,449

)

 

 

(12.0

%)

Net income

 

$

44,324

 

 

$

40,632

 

 

$

3,692

 

 

 

9.1

%

Net Income. For the year ended December 31, 2019, net income was $44.3 million, or $2.33 per diluted common share, compared with $40.6 million, or $2.14 per diluted common share, for the same period a year earlier. This was attributable principally to increases in net interest income of $1.7 million, a decline of $1.6 million in provision for loan loss, and a decline in non-interest expense. These increases to net income were partially offset by a $1.4 million increase in income tax expense.

Net Interest Income and Net Interest Margin. For the year ended December 31, 2019, net interest income grew 1.6%, or $1.7 million, to $109.9 million compared with $108.2 million for the same period a year earlier, offset by net interest margins narrowing 24 basis points to 5.05% compared with 5.29% for the same comparable periods. The narrowing of net interest margins is primarily the result of three consecutive 25 basis point benchmark rate reductions by the Federal Reserve and an increase in the average amount of lower yielding cash and investment securities held by the Company stemming from average core deposits increasing $153 million, or 8.43%, for the same respective periods.  The percentage of average loans to total average interest earning assets decreased to 77.34% for 2019 compared with 83.09% for 2018.

Provision for Loan Losses. The provision for loan losses in each period is a charge against earnings in that period. The provision is the amount required to maintain the allowance for loan losses at a level that, in management’s judgment, is adequate to absorb probable loan losses inherent in the loan portfolio.

The provision for loan losses for the year ended December 31, 2019, was $7.0 million compared with $8.6 million for the same period a year earlier. The decrease in provision for loan losses for all of 2019 is due primarily to a $0.9 million decrease in charge-offs and no loan growth year-over-year.  For the year ended December 31, 2019, the Company incurred net charge-offs of $0.8 million compared with net charge-offs of $1.7 million for the same period a year ago.

Non-interest Income. The following table presents, for the periods indicated, the major categories of non-interest income:

 

 

Years Ended

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

$ Better /

 

 

% Better /

 

(Dollars in thousands)

 

2019

 

 

2018

 

 

(Worse)

 

 

(Worse)

 

Mortgage banking

 

$

6,785

 

 

$

6,209

 

 

$

576

 

 

 

9.3

%

Card processing

 

 

3,242

 

 

 

3,097

 

 

 

145

 

 

 

4.7

%

Service charges on deposit accounts

 

 

2,807

 

 

 

2,840

 

 

 

(33

)

 

 

(1.2

%)

(Loss)/gain on sale of investment securities

 

 

(4

)

 

 

336

 

 

 

(340

)

 

 

101.2

%

Other operating

 

 

2,351

 

 

 

2,647

 

 

 

(296

)

 

 

(11.2

%)

Total non-interest income

 

$

15,181

 

 

$

15,129

 

 

$

52

 

 

 

0.3

%


For the year ended December 31, 2019, non-interest income was $15.2 million compared with $15.1 million the same period a year ago.  The increase was primarily due to a $0.6 million increase in mortgage banking income resulting from higher loan originations, which is primarily from a lower interest rate environment for the same comparable periods.  The increase was partially offset by $0.3 million loss on sale of investment securities and a decline in other operating income of $0.3 million.

Non-interest Expense. The following table presents, for the periods indicated, the major categories of non-interest expense:

 

 

Years Ended

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

$ Better /

 

 

% Better /

 

(Dollars in thousands)

 

2019

 

 

2018

 

 

(Worse)

 

 

(Worse)

 

Salaries and employee benefits

 

$

38,502

 

 

$

39,902

 

 

$

1,400

 

 

 

3.5

%

Occupancy, equipment and depreciation

 

 

6,034

 

 

 

6,010

 

 

 

(24

)

 

 

(0.4

%)

Data processing

 

 

3,902

 

 

 

3,515

 

 

 

(387

)

 

 

(11.0

%)

Marketing and advertising

 

 

1,828

 

 

 

1,288

 

 

 

(540

)

 

 

(41.9

%)

FDIC premiums

 

 

249

 

 

 

1,019

 

 

 

770

 

 

 

75.6

%

Acquisition-related costs

 

 

-

 

 

 

232

 

 

 

232

 

 

 

100.0

%

Other

 

 

9,757

 

 

 

10,030

 

 

 

273

 

 

 

2.7

%

Total non-interest expense

 

$

60,272

 

 

$

61,996

 

 

$

1,724

 

 

 

2.8

%

For the year ended 2019, noninterest expense was $60.3 million compared with $62.0 million for the same period a year earlier. The decrease in noninterest expense was primarily the result of lower salaries and employee benefits resulting from lower incentive payments, and lower FDIC premiums due to the application of small bank assessment credits.  These lower amounts were partially offset by higher data processing costs resulting primarily from the implementation of a new commercial loan origination system, and higher marketing and advertising costs associated with the rollout of the Company’s new brand.

Income Tax Expense. For the year ended December 31, 2019, income tax expense was $13.5 million compared with $12.1 million for the same period a year ago.  The effective tax rate for the year ended 2019 was 23.4% compared with 22.9% for the same period a year ago.  Any difference from the federal statutory rate in either period was primarily due to the non-taxable nature of income from municipal securities and bank-owned life insurance, tax credits, tax benefits related to tax-deductible stock compensation expense and state income taxes.

Comparison of Results of Operations for the Years Ended December 31, 2018 and 2017

 

 

Years Ended

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

$ Better /

 

 

% Better /

 

(Dollars in thousands)

 

2018

 

 

2017

 

 

(Worse)

 

 

(Worse)

 

Interest income

 

$

115,352

 

 

$

83,980

 

 

$

31,372

 

 

 

37.4

%

Interest expense

 

 

7,174

 

 

 

3,342

 

 

 

(3,832

)

 

 

(114.7

%)

Net interest income

 

 

108,178

 

 

 

80,638

 

 

 

27,540

 

 

 

34.2

%

Provision for loan losses

 

 

8,625

 

 

 

2,750

 

 

 

(5,875

)

 

 

(213.6

%)

Net interest income after provision for loan losses

 

 

99,553

 

 

 

77,888

 

 

 

21,665

 

 

 

27.8

%

Non-interest income

 

 

15,129

 

 

 

14,394

 

 

 

735

 

 

 

5.1

%

Non-interest expense

 

 

61,996

 

 

 

55,959

 

 

 

(6,037

)

 

 

(10.8

%)

Income before income tax expense

 

 

52,686

 

 

 

36,323

 

 

 

16,363

 

 

 

45.0

%

Income tax expense

 

 

12,054

 

 

 

16,477

 

 

 

4,423

 

 

 

26.8

%

Net income

 

$

40,632

 

 

$

19,846

 

 

$

20,786

 

 

 

104.7

%


Net Income. For the year ended December 31, 2018, net income was $40.6 million, or $2.14 per diluted common share, compared with $19.8 million, or $1.08 per diluted common share, for the same period a year earlier. In 2017, the Company recorded $4.8 million in non-recurring acquisition-related costs for the acquisition of the seven Utah branches of Banner Bank and the merger with Town & Country Bank.  In addition, the Company recorded additional income tax expense of $4.7 million related to the write-down of deferred income tax assets due to the reduction in the Federal corporate income tax rate. During 2017, the Federal government signed into law the Tax Cuts and Jobs Act (the “Tax Act”), which amended the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses.  For businesses, the Tax Act reduces the federal corporate tax rate from a maximum of 35% to a flat rate of 21%.  The rate reduction was effective January 1, 2018.  Consequently, the lower corporate income tax rate reduced net tax benefits of timing differences between book and taxable income recorded by the Company as net deferred income tax assets.  As a result, the Company re-measured its net deferred income tax assets at the end of 2017.

Net Interest Income and Net Interest Margin. For the year ended December 31, 2018, net interest income grew 34.2%, or $27.5 million, to $108.2 million compared with $80.6 million for the same period a year earlier.  The increase is primarily the result of average interest earning assets growing 20.3%, or $346 million, and yields on interest earning assets increasing 70 basis points to 5.64% for the same comparable periods. Higher yields on interest earning assets were primarily the result of yields on loans increasing 34 basis points to 6.38% for the same comparable periods, and the percentage of average loans to total average interest earning assets increasing to 83.1% for 2018 compared with 75.0% for 2017.

Provision for Loan Losses. The provision for loan losses in each period is a charge against earnings in that period. The provision is the amount required to maintain the allowance for loan losses at a level that, in management’s judgment, is adequate to absorb probable loan losses inherent in the loan portfolio.

The provision for loan losses for the year ended December 31, 2018, was $8.6 million compared with $2.8 million for the same period a year earlier. The increase in provision for loan losses for all of 2018 is due primarily to a $0.5 million increase in charge-offs, the migration of $90.8 million of purchased loans into the general loan pool, and the increase in allowance for loan losses to loans held for investment.  For the year ended December 31, 2018, the Company incurred net charge-offs of $1.7 million compared with net charge-offs of $1.2 million for the same period a year ago.

Non-interest Income. The following table presents, for the periods indicated, the major categories of non-interest income:

 

 

Years Ended

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

$ Better /

 

 

% Better /

 

(Dollars in thousands)

 

2018

 

 

2017

 

 

(Worse)

 

 

(Worse)

 

Mortgage banking

 

$

6,209

 

 

$

7,536

 

 

$

(1,327

)

 

 

(17.6

%)

Card processing

 

 

3,097

 

 

 

2,790

 

 

 

307

 

 

 

11.0

%

Service charges on deposit accounts

 

 

2,840

 

 

 

2,445

 

 

 

395

 

 

 

16.2

%

Gain (loss) on sale of investment securities

 

 

336

 

 

 

(499

)

 

 

835

 

 

 

167.3

%

Other operating

 

 

2,647

 

 

 

2,122

 

 

 

525

 

 

 

24.7

%

Total non-interest income

 

$

15,129

 

 

$

14,394

 

 

$

735

 

 

 

5.1

%

For the year ended December 31, 2018, non-interest income was $15.1 million compared with $14.4 million the same period a year ago.  The increase was primarily due to a loss on sale of securities in 2017 compared with a gain in 2018, an increase in service charges on deposit accounts and card processing fees, partially offset by $1.3 million lower mortgage banking income resulting from lower loan originations, which is primarily the result of a higher interest rate environment for the same comparable periods.


Non-interest Expense. The following table presents, for the periods indicated, the major categories of non-interest expense:

 

 

Years Ended

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

$ Better /

 

 

% Better /

 

(Dollars in thousands)

 

2018

 

 

2017

 

 

(Worse)

 

 

(Worse)

 

Salaries and employee benefits

 

$

39,902

 

 

$

34,392

 

 

$

(5,510

)

 

 

(16.0

%)

Occupancy, equipment and depreciation

 

 

6,010

 

 

 

4,827

 

 

 

(1,183

)

 

 

(24.5

%)

Data processing

 

 

3,515

 

 

 

2,798

 

 

 

(717

)

 

 

(25.6

%)

Marketing and advertising

 

 

1,288

 

 

 

1,381

 

 

 

93

 

 

 

6.7

%

FDIC premiums

 

 

1,019

 

 

 

572

 

 

 

(447

)

 

 

(78.1

%)

Acquisition-related costs

 

 

232

 

 

 

4,784

 

 

 

4,552

 

 

 

95.2

%

Other

 

 

10,030

 

 

 

7,205

 

 

 

(2,825

)

 

 

(39.2

%)

Total non-interest expense

 

$

61,996

 

 

$

55,959

 

 

$

(6,037

)

 

 

(10.8

%)

For the year ended 2018, noninterest expense was $62.0 million compared with $56.0 million for the same period a year earlier.  Noninterest expense increased as a result of $5.5 million of higher salaries and employee benefits, primarily from the addition of employees retained from the acquisition of the Utah branches of Banner Bank and the merger with Town & Country Bank, $1.2 million of higher occupancy, equipment and depreciation costs associated with the net increase of five branches from these transactions, and $0.7 million in higher data processing costs associated with an increase in total accounts from both organic growth and acquisition transactions for the same comparable periods.  Higher noninterest expense in 2018 compared with 2017 was offset by recording $4.8 million in non-recurring costs associated with the acquisition of both the Utah Banner Bank branches and the merger wih Town & Country Bank in 2017.

Income Tax Expense. For the year ended December 31, 2018, income tax expense was $12.1 million compared with $16.5 million for the same period a year ago.  In the fourth quarter of 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law, which amended the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses.  For businesses, the Tax Act reduced the federal corporate tax rate from a maximum of 35% to a flat rate of 21%. The rate reduction was effective January 1, 2018.  Consequently, the lower corporate income tax rate reduces the future net tax benefits of timing differences between book and taxable income recorded by the Company as net deferred income tax assets.  As a result, the Company re-measured its net deferred income tax assets at the end of December 31, 2017, and recorded a one-time additional income tax expense of $4.7 million related to the write-down of deferred income tax assets for tax benefits that the Company did not expect to realize.  The Company recorded an additional ($0.3 million) benefit in 2018 to reflect the final Tax Act impact during the one-year SAB 118 measurement period.  Excluding the one-time adjustment to the Company’s deferred income tax assets related to the write-down of our deferred income tax assets for tax benefits that we were not expected to realize, the effective tax rate for the year ended 2017 was 45.4% compared with 22.9% for the year ended 2018.  The lower effective tax rate in 2018 compared with 2017 is primarily the result of the reduction in the federal corporate tax rate to a flat rate of 21%, the reduction of the Utah state corporate tax rate to 4.95%, as well as tax benefits related to tax-deductible stock compensation expense.

Financial Condition

Total assets grew $222 million, or 10.2%, to $2.4 billion at December 31, 2019 compared with $2.2 billion at December 31, 2018.  Loans held for investment remained flat at $1.7 billion at December 31, 2019, compared with December 31, 2018.  Total deposits increased $179 million, or 9.6%, to $2.1 billion at December 31, 2019 compared with $1.9 billion at December 31, 2018. The increase in total assets and deposits was a result of organic growth.


Loans

The following table sets forth information regarding the composition of the loan portfolio at the end of each of the periods presented.

 

 

December 31,

 

(Dollars in thousands)

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

2015

 

Loans held for sale

 

$

18,669

 

 

$

10,267

 

 

$

10,871

 

 

$

20,826

 

 

$

17,947

 

Loans held for investment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

 

948,073

 

 

 

891,131

 

 

 

784,148

 

 

 

582,029

 

 

 

577,804

 

Construction and land development

 

 

273,963

 

 

 

324,506

 

 

 

369,590

 

 

 

240,120

 

 

 

179,664

 

Total commercial real estate loans

 

 

1,222,036

 

 

 

1,215,637

 

 

 

1,153,738

 

 

 

822,149

 

 

 

757,468

 

Commercial and industrial

 

 

284,738

 

 

 

295,569

 

 

 

294,085

 

 

 

213,260

 

 

 

208,277

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

162,559

 

 

 

155,601

 

 

 

158,591

 

 

 

72,959

 

 

 

71,169

 

Consumer and other

 

 

16,036

 

 

 

16,621

 

 

 

25,591

 

 

 

15,678

 

 

 

14,945

 

Total consumer loans

 

 

178,595

 

 

 

172,222

 

 

 

184,182

 

 

 

88,637

 

 

 

86,114

 

Gross loans held for investment

 

 

1,685,369

 

 

 

1,683,428

 

 

 

1,632,005

 

 

 

1,124,046

 

 

 

1,051,859

 

Net deferred loan fees

 

 

(4,451

)

 

 

(4,526

)

 

 

(4,561

)

 

 

(4,169

)

 

 

(3,884

)

Loans held for investment

 

 

1,680,918

 

 

 

1,678,902

 

 

 

1,627,444

 

 

 

1,119,877

 

 

 

1,047,975

 

Allowance for loan losses

 

 

(31,426

)

 

 

(25,245

)

 

 

(18,303

)

 

 

(16,715

)

 

 

(15,557

)

Loans held for investment, net

 

$

1,649,492

 

 

$

1,653,657

 

 

$

1,609,141

 

 

$

1,103,162

 

 

$

1,032,418

 

 

 

December 31,

 

(Percentage of gross loans held for investment)

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

2015

 

Loans held for investment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

 

56.2

%

 

 

52.9

%

 

 

48.1

%

 

 

51.7

%

 

 

54.9

%

Construction and land development

 

 

16.3

%

 

 

19.3

%

 

 

22.6

%

 

 

21.4

%

 

 

17.1

%

Total commercial real estate loans

 

 

72.5

%

 

 

72.2

%

 

 

70.7

%

 

 

73.1

%

 

 

72.0

%

Commercial and industrial

 

 

16.9

%

 

 

17.6

%

 

 

18.0

%

 

 

19.0

%

 

 

19.8

%

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

9.6

%

 

 

9.2

%

 

 

9.7

%

 

 

6.5

%

 

 

6.8

%

Consumer and other

 

 

1.0

%

 

 

1.0

%

 

 

1.6

%

 

 

1.4

%

 

 

1.4

%

Total consumer loans

 

 

10.6

%

 

 

10.2

%

 

 

11.3

%

 

 

7.9

%

 

 

8.2

%

Gross loans held for investment

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

We originate certain residential mortgage loans for sale to investors that are carried at the lower of cost or fair value. Due to the short period held, generally less than 90 days, we consider these loans held for sale to be carried at fair value.


The following table shows the amounts of outstanding loans, which, based on remaining scheduled repayments of principal, are due in one year or less, more than one year through five years, and more than five years. Lines of credit or other loans having no stated maturity and no stated schedule of repayments are reported as due in one year or less. In the table below, loans are classified as real estate related if they are collateralized by real estate. The tables also present, for loans with maturities over one year, an analysis with respect to fixed interest rate loans and adjustable interest rate loans.

Contractual maturities as of December 31, 2019, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rate Structure for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans Maturing Over

 

 

 

 

Maturity

 

 

One Year

 

 

 

 

 

 

 

 

After One

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One

 

 

But Within

 

 

After

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year

 

 

Five

 

 

Five

 

 

 

 

 

 

 

 

 

 

Adjustable

 

 

(Dollars in thousands)

 

or Less

 

 

Years

 

 

Years

 

 

Total

 

 

Fixed Rate

 

 

Rate

 

 

Loans held for investment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

56,565

 

 

$

214,762

 

 

$

676,746

 

 

$

948,073

 

 

$

120,460

 

 

$

771,048

 

 

Construction and land

   development

 

 

223,537

 

 

 

30,433

 

 

 

19,993

 

 

 

273,963

 

 

 

14,712

 

 

 

35,714

 

 

Total commercial real estate

   loans

 

 

280,102

 

 

 

245,195

 

 

 

696,739

 

 

 

1,222,036

 

 

 

135,172

 

 

 

806,762

 

 

Commercial and industrial

 

 

121,226

 

 

 

129,074

 

 

 

34,438

 

 

 

284,738

 

 

 

83,225

 

 

 

80,287

 

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

20,419

 

 

 

31,724

 

 

 

110,416

 

 

 

162,559

 

 

 

11,789

 

 

 

130,351

 

 

Consumer and other

 

 

7,838

 

 

 

5,866

 

 

 

2,332

 

 

 

16,036

 

 

 

7,851

 

 

 

347

 

 

Total consumer loans

 

 

28,257

 

 

 

37,590

 

 

 

112,748

 

 

 

178,595

 

 

 

19,640

 

 

 

130,698

 

 

Gross loans held for investment

 

$

429,585

 

(1)

$

411,859

 

 

$

843,925

 

 

$

1,685,369

 

 

$

238,037

 

 

$

1,017,747

 

(1)

(1)

The sum of adjustable rate loans maturing after one year and total loans maturing within one year is $1.45 billion or 85.9% of total loans at December 31, 2019.

Concentrations. As of December 31, 2019, our loan portfolio has a higher percentage of real estate loans than other loan products. As of that date, real estate related loans comprised 82.1% of gross loans held for investment, of which 56.2% are commercial real estate loans, 16.3% are construction and land development loans, and 9.6% are residential and home equity loans. Compared to the concentrations as of December 31, 2018, we experienced an increase in commercial real estate loans of 3.3%, a decrease in construction and land development loans of 3.0% and an increase in residential and home equity loans of 0.4%.  We require collateral on real estate lending arrangements and typically maintain loan-to-value ratios of no greater than 80%.  Within our real estate term portfolio, our largest concentration is in the category of office space representing $433.8 million or 26.3% of total gross loans held for investment.  

Non-Performing Assets. Loans are placed on non-accrual status when they become 90 days or more past due or at such earlier time as management determines timely recognition of interest to be in doubt. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, collection efforts, and the borrower’s financial condition, that the borrower will be unable to make payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received, or payment is considered certain. Loans may be returned to accrual status when all delinquent interest and principal amounts contractually due are brought current and future payments are reasonably assured.


The following table summarizes the loans for which the accrual of interest has been discontinued and loans more than 90 days past due and still accruing interest, including those non-accrual loans that are troubled-debt restructured loans, and OREO (as hereinafter defined):

 

 

December 31,

 

(Dollars in thousands, except footnotes)

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

2015

 

Non-accrual loans, not troubled-debt

   restructured

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

2,416

 

 

$

309

 

 

$

-

 

 

$

2,386

 

 

$

2,961

 

Construction and land development

 

 

60

 

 

 

-

 

 

 

-

 

 

 

378

 

 

 

56

 

Commercial and industrial

 

 

1,550

 

 

 

347

 

 

 

223

 

 

 

1,211

 

 

 

1,176

 

Residential and home equity

 

 

45

 

 

 

-

 

 

 

-

 

 

 

142

 

 

 

631

 

Consumer and other

 

 

8

 

 

 

-

 

 

 

-

 

 

 

14

 

 

 

88

 

Total non-accrual, not troubled-debt

   restructured loans

 

 

4,079

 

 

 

656

 

 

 

223

 

 

 

4,131

 

 

 

4,912

 

Troubled-debt restructured loans non-accrual

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

 

2,393

 

 

 

1,449

 

 

 

-

 

 

 

808

 

 

 

1,153

 

Construction and land development

 

 

-

 

 

 

-

 

 

 

-

 

 

 

396

 

 

 

1,329

 

Commercial and industrial

 

 

658

 

 

 

150

 

 

 

-

 

 

 

-

 

 

 

21

 

Residential and home equity

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Consumer and other

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total troubled-debt restructured,

   non-accrual loans

 

 

3,051

 

 

 

1,599

 

 

 

-

 

 

 

1,204

 

 

 

2,503

 

Total non-accrual loans (1)

 

 

7,130

 

 

 

2,255

 

 

 

223

 

 

 

5,335

 

 

 

7,415

 

Accruing loans past due 90 days or more

 

 

3

 

 

 

17

 

 

 

1

 

 

 

22

 

 

 

3

 

Total non-performing loans (NPL)

 

 

7,133

 

 

 

2,272

 

 

 

224

 

 

 

5,357

 

 

 

7,418

 

OREO

 

 

-

 

 

 

-

 

 

 

994

 

 

 

245

 

 

 

568

 

Total non-performing assets (NPA)(2)

 

$

7,133

 

 

$

2,272

 

 

$

1,218

 

 

$

5,602

 

 

$

7,986

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accruing troubled debt restructured loans

 

$

25,346

 

 

$

5,912

 

 

$

3,307

 

 

$

5,572

 

 

$

7,049

 

Non-accrual troubled debt restructured loans

 

 

3,051

 

 

 

1,599

 

 

 

-

 

 

 

1,204

 

 

 

2,503

 

Total troubled debt restructured loans

 

$

28,397

 

 

$

7,511

 

 

$

3,307

 

 

$

6,776

 

 

$

9,552

 

Selected ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NPL to total loans held for investment, net(3)

 

 

0.43

%

 

 

0.14

%

 

 

0.01

%

 

 

0.49

%

 

 

0.72

%

NPA to total assets (4)

 

 

0.30

%

 

 

0.10

%

 

 

0.06

%

 

 

0.34

%

 

 

0.51

%

(1)

We estimate that approximately $208,000 of interest income would have been recognized on loans accounted for on a non-accrual basis for the year ended December 31, 2019 had such loans performed pursuant to contractual terms.

(2)

As of December 31, 2019, non-performing assets had not been reduced by U.S. government guarantees of $859,000.

(3)

As of December 31, 2019 and 2018, there are $1.66 million and $2.24 million in purchased credit impaired loans that are not performing to the original contractual terms.  Including these PCI loans, total NPL to total net loans were 0.53% and 0.27% at December 31, 2019 and 2018, respectively.

(4)

As of December 31, 2019 and 2018, there are $1.66 million and $2.24 million in purchased credit impaired loans (“PCI”) that are not performing to the original contractual terms.  Including these PCI loans, total NPA to total assets would be 0.37% and 0.21% at December 31, 2019 and 2018, respectively.

Impaired Loans. Impaired loans are loans for which it is probable that we will be unable to collect all principal and interest payments due according to the contractual terms of the loan agreement. We measure impairment based on either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral, if the loan is collateral-dependent.


In determining whether or not a loan is impaired, we consider payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. We determine the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all the circumstances surrounding the loan and borrower, including the length of delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Loans for which an insignificant shortfall in amount of payments is anticipated, but where we expect to collect all amounts due, are not considered impaired.

Troubled-debt Restructured Loans. A restructured loan is considered a troubled debt restructured loan, or TDR, if we, for economic or legal reasons related to the debtor’s financial difficulties, grant a concession in either loan terms or below-market interest rate to the debtor that we would not otherwise consider. Total outstanding TDR loans were $28.4 million and $7.5 million as of December 31, 2019 and 2018, respectively. TDR loans that are designated as non-accrual were $3.1 million and $1.6 million as of December 31, 2019 and 2018, respectively.  Each restructured debt is separately negotiated with the borrower and includes terms and conditions that reflect the borrower’s prospective ability to service the debt as modified.

OREO Properties. OREO represents real property taken either through foreclosure or through a deed in lieu thereof from the borrower. We record all OREO properties at amounts equal to or less than the fair market value of the properties based on current independent appraisals reduced by estimated selling costs. The following table provides a summary of the changes in the OREO balance:

 

 

December 31,

 

(Dollars in thousands)

 

2019

 

 

2018

 

Balance, beginning of period

 

$

-

 

 

$

994

 

Additions

 

 

-

 

 

 

3,320

 

Write-downs

 

 

-

 

 

 

-

 

Sales

 

 

-

 

 

 

(4,314

)

Balance, end of period

 

$

-

 

 

$

-

 

Allowance for Loan Losses

We maintain an adequate allowance for loan losses, or ALLL, based on a comprehensive methodology that assesses the probable losses inherent in the loan portfolio. Our ALLL is based on a continuing review of loans, which includes consideration of actual loss experience, changes in the size and character of the portfolio, identification of individual problem situations, which may affect the borrower’s ability to repay, evaluations of the prevailing and anticipated economic conditions, and other qualitative factors. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision, as more information becomes available.

Our ALLL is increased by charges to income and decreased by charge-offs (net of recoveries). While we use available information to recognize losses on loans, changes in economic conditions may necessitate revision of the estimate in future years.

The ALLL consists of general and specific components. The specific component relates to loans determined to be impaired that are individually evaluated for impairment. For loans individually evaluated for impairment, an allowance is established when the carrying value of the loan is higher than discounted cash flows, or the fair value of the collateral if the loan is collateral-dependent. The general component covers all loans not individually evaluated for impairment and is based on historical loss experience adjusted for qualitative factors. Various qualitative factors are considered including changes to underwriting policies, loan concentrations, volume and mix of loans, size and complexity of individual credits, locations of credits and new market areas, changes in local and national economic conditions, and trends in past due, non-accrual and classified loan balances.


The following table sets forth the activity in our ALLL for the periods indicated:

 

 

December 31,

 

(Dollars in thousands)

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

2015

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

25,245

 

 

$

18,303

 

 

$

16,715

 

 

$

15,557

 

 

$

15,151

 

Loans charged off:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

 

(118

)

 

 

(294

)

 

 

(350

)

 

 

(17

)

 

 

(32

)

Construction and land development

 

 

(5

)

 

 

(1

)

 

 

-

 

 

 

-

 

 

 

(396

)

Commercial and industrial

 

 

(2,644

)

 

 

(2,801

)

 

 

(1,098

)

 

 

(1,511

)

 

 

(350

)

Residential and home equity

 

 

(19

)

 

 

-

 

 

 

(359

)

 

 

(6

)

 

 

-

 

Consumer and other

 

 

(360

)

 

 

(369

)

 

 

(231

)

 

 

(240

)

 

 

(281

)

Total

 

 

(3,146

)

 

 

(3,465

)

 

 

(2,038

)

 

 

(1,774

)

 

 

(1,059

)

Recoveries:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

 

24

 

 

 

142

 

 

 

219

 

 

 

621

 

 

 

80

 

Construction and land development

 

 

890

 

 

 

127

 

 

 

129

 

 

 

652

 

 

 

46

 

Commercial and industrial

 

 

1,152

 

 

 

1,250

 

 

 

271

 

 

 

441

 

 

 

191

 

Residential and home equity

 

 

38

 

 

 

84

 

 

 

151

 

 

 

92

 

 

 

67

 

Consumer and other

 

 

223

 

 

 

179

 

 

 

106

 

 

 

226

 

 

 

81

 

Total

 

 

2,327

 

 

 

1,782

 

 

 

876

 

 

 

2,032

 

 

 

465

 

Net loan (charge-offs) / recoveries

 

 

(819

)

 

 

(1,683

)

 

 

(1,162

)

 

 

258

 

 

 

(594

)

Provision for loan losses

 

 

7,000

 

 

 

8,625

 

 

 

2,750

 

 

 

900

 

 

 

1,000

 

Ending balance

 

$

31,426

 

 

$

25,245

 

 

$

18,303

 

 

$

16,715

 

 

$

15,557

 

Gross loans held for investment

 

$

1,685,369

 

 

$

1,683,428

 

 

$

1,632,005

 

 

$

1,124,046

 

 

$

1,051,859

 

Average loans

 

 

1,683,299

 

 

 

1,700,805

 

 

 

1,275,007

 

 

 

1,101,074

 

 

 

983,294

 

Non-performing loans (1)

 

 

8,814

 

 

 

4,499

 

 

 

2,874

 

 

 

5,357

 

 

 

7,418

 

Selected ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net charge-offs (recoveries) to average loans

 

 

0.05

%

 

 

0.10

%

 

 

0.09

%

 

 

-0.02

%

 

 

0.06

%

Provision for loan losses to average loans

 

 

0.42

%

 

 

0.51

%

 

 

0.22

%

 

 

0.08

%

 

 

0.10

%

Allowance for loan losses to gross loans held

   for investment

 

 

1.87

%

 

 

1.50

%

 

 

1.12

%

 

 

1.49

%

 

 

1.48

%

(1)

Includes PCI loans of $1.66 million and $2.24 million as of December 31, 2019 and 2018, respectively.

The decrease in ALLL as a percentage of total loans in 2017 is attributable to the accounting related to loans purchased in the Utah branches of Banner Bank and the merger with Town & Country Bank acquisitions. In accordance with GAAP for business combinations, the ALLL originally associated with acquired loans are eliminated and the loans are recorded in loans held for investment at fair value, including an estimation of life of loan credit losses or credit mark.  The increase in ALLL as a percentage of total loans in 2018 compared to 2017 is principally related to $0.5 million increase in charge-offs, the migration of $90.8 million of purchased loans into the general loan pool, and the increase in allowance for loan losses to loans held for investment.  The increase in ALLL as a percentage of total loans in 2019 compared to 2018 is principally related to the migration of $78.8 million of purchased loans into the general loan pool, and a $5.3 million increase in specific reserves relating to loans individually evaluated for impairment.


Our construction and land development portfolio reflects some borrower concentration risk, and carries enhanced risks encountered with construction loans generally. We also finance contractors on a speculative basis. Construction and land development loans are generally more risky than permanent mortgage loans because they are dependent upon the borrower’s ability to generate cash to service the loan, and the value of the collateral depends on project completion when market conditions may have changed.

Our commercial real estate loans are a mixture of new and seasoned properties, retail, office, warehouse, and some industrial properties. Loans on properties are generally underwritten at a loan to value ratio of less than 75% with a minimum debt coverage ratio of 1.25 times.

We allocate our allowance for loan losses by assigning general percentages to our major loan categories (construction and land development, commercial real estate term, residential real estate, C&I and consumer), assigning specific percentages to each category of loans graded in accordance with the guidelines established by our regulatory agencies, and making specific allocations to impaired loans when factors are present requiring a greater reserve than would be required using the assigned risk rating allocation, which is typically based on a review of appraisals or other collateral analysis.

The following table indicates management’s allocation of the ALLL by loan type as of each of the following dates:

 

 

December 31,

 

(Dollars in thousands)

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

2015

 

Commercial real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

12,275

 

 

$

9,968

 

 

$

6,706

 

 

$

6,770

 

 

$

6,783

 

Construction and land development

 

 

6,990

 

 

 

7,022

 

 

 

6,309

 

 

 

5,449

 

 

 

3,984

 

Total commercial real estate loans

 

 

19,265

 

 

 

16,990

 

 

 

13,015

 

 

 

12,219

 

 

 

10,767

 

Commercial and industrial

 

 

10,892

 

 

 

7,227

 

 

 

4,314

 

 

 

3,718

 

 

 

3,941

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

1,118

 

 

 

729

 

 

 

815

 

 

 

617

 

 

 

603

 

Consumer and other

 

 

151

 

 

 

299

 

 

 

159

 

 

 

161

 

 

 

246

 

Total consumer loans

 

 

1,269

 

 

 

1,028

 

 

 

974

 

 

 

778

 

 

 

849

 

Total

 

$

31,426

 

 

$

25,245

 

 

$

18,303

 

 

$

16,715

 

 

$

15,557

 

Investments

The carrying value of our investment securities totaled $406.0 million, $346.4 million, and $337.7 million as of December 31, 2019, 2018, and 2017, respectively. Our portfolio of investment securities is comprised of both available for sale securities and securities that we intend to hold to maturity. As of December 31, 2019, we held no investment securities from any issuer that totaled over 10% of our shareholders’ equity.

The carrying value of our portfolio of investment securities was as follows:

 

 

December 31,

 

 

December 31,

 

 

December 31,

 

(Dollars in thousands)

 

2019

 

 

2018

 

 

2017

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agencies

 

$

21,190

 

 

$

48,366

 

 

$

48,504

 

Municipal securities

 

 

56,912

 

 

 

10,268

 

 

 

13,454

 

Mortgage-backed securities

 

 

323,108

 

 

 

217,757

 

 

 

195,262

 

Corporate securities

 

 

4,785

 

 

 

4,573

 

 

 

5,836

 

Total

 

 

405,995

 

 

 

280,964

 

 

 

263,056

 

Held to maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

 

 

-

 

 

 

65,462

 

 

 

74,654

 

Total investment securities

 

$

405,995

 

 

$

346,426

 

 

$

337,710

 


The following table shows the amortized cost for maturities of investment securities and the weighted average yields of such securities, including the benefit of tax-exempt securities:

Investment securities maturities at amortized cost as of December 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Within One Year

 

 

After One but within Five Years

 

 

After Five but within Ten Years

 

 

After Ten Years

 

 

Total

 

(Dollars in thousands)

 

Amount

 

 

Yield

 

 

Amount

 

 

Yield

 

 

Amount

 

 

Yield

 

 

Amount

 

 

Yield

 

 

Amount

 

 

Yield

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agencies

 

$

6,000

 

 

 

1.30

%

 

$

14,957

 

 

 

2.29

%

 

$

-

 

 

 

0.00

%

 

$

-

 

 

 

0.00

%

 

$

20,957

 

 

 

2.01

%

Municipal securities

 

 

18,499

 

 

 

2.12

%

 

 

19,230

 

 

 

1.88

%

 

 

18,523

 

 

 

2.18

%

 

 

-

 

 

 

0.00

%

 

 

56,252

 

 

 

2.06

%

Mortgage-backed securities

 

 

-

 

 

 

0.00

%

 

 

16,376

 

 

 

1.54

%

 

 

35,171

 

 

 

1.91

%

 

 

270,397

 

 

 

2.60

%

 

 

321,944

 

 

 

2.47

%

Other securities

 

 

-

 

 

 

0.00

%

 

 

2,000

 

 

 

2.94

%

 

 

3,000

 

 

 

1.49

%

 

 

-

 

 

 

0.00

%

 

 

5,000

 

 

 

2.07

%

Total investment

   securities

 

$

24,499

 

 

 

1.92

%

 

$

52,563

 

 

 

1.93

%

 

$

56,694

 

 

 

1.97

%

 

$

270,397

 

 

 

2.60

%

 

$

404,153

 

 

 

2.38

%

Expected maturities may differ from contractual maturities because issuers may have the right to call obligations with or without penalties.

We evaluate securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) our intent and ability to retain our investment in the issuer for a period sufficient to allow for any anticipated recovery in fair value.

Deposits

Total deposits were $2.06 billion, $1.88 billion, and $1.81 billion as of December 31, 2019, 2018, and 2017, respectively. The increase in total deposits was the result of organic growth. Non-interest bearing demand deposits increased to $719.4 million, or 35.0% of total deposits as of December 31, 2019, from $642.6 million or 34.2% as of December 31, 2018 and $641.1 million or 35.3% as of December 31, 2017. Interest bearing deposits are comprised of money market accounts, regular savings accounts, and certificates of deposit.

The following table shows the average amount and average rate paid on the categories of deposits for each of the periods presented:

 

 

Year Ended

 

 

Year Ended

 

 

Year Ended

 

 

 

December 31, 2019

 

 

December 31, 2018

 

 

December 31, 2017

 

 

 

Average

 

 

Average

 

 

Average

 

 

Average

 

 

Average

 

 

Average

 

(Dollars in thousands)

 

Balance

 

 

Rate

 

 

Balance

 

 

Rate

 

 

Balance

 

 

Rate

 

Non-interest bearing deposits

 

$

682,282

 

 

 

0.00

%

 

$

651,101

 

 

 

0.00

%

 

$

501,719

 

 

 

0.00

%

Interest bearing deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing demand and

   savings

 

 

814,638

 

 

 

0.47

%

 

 

740,569

 

 

 

0.32

%

 

 

680,216

 

 

 

0.27

%

Money market

 

 

291,044

 

 

 

0.97

%

 

 

233,830

 

 

 

0.60

%

 

 

183,142

 

 

 

0.22

%

Certificates of deposit less than or equal to $250,000

 

 

139,572

 

 

 

1.24

%

 

 

151,272

 

 

 

0.94

%

 

 

135,232

 

 

 

0.57

%

Certificates of deposit greater than $250,000

 

 

38,057

 

 

 

1.89

%

 

 

36,006

 

 

 

1.52

%

 

 

26,620

 

 

 

1.09

%

Total interest bearing deposits

 

 

1,283,311

 

 

 

0.71

%

 

 

1,161,677

 

 

 

0.49

%

 

 

1,025,210

 

 

 

0.32

%

Total average deposits

 

$

1,965,593

 

 

 

0.46

%

 

$

1,812,778

 

 

 

0.32

%

 

$

1,526,929

 

 

 

0.21

%


Deposits are gathered from individuals and businesses in our market areas. The interest rates paid are competitively priced for each particular deposit product and structured to meet our funding requirements. We will continue to manage interest expense through deposit pricing.  The average rate for interest bearing deposits has increased from 0.49% in 2018 to 0.71% in 2019.

Shareholders’ Equity

As of December 31, 2019, our shareholders’ equity totaled $332.4 million, an increase of $42.2 million, or 14.5%, since December 31, 2018. The increase in shareholders’ equity for the year ended December 31, 2019 resulted primarily from net income of $44.3 million for the year ended December 31, 2019, stock options exercised of $0.6 million, partially offset by dividends paid of $9.2 million.

We began paying quarterly dividends in 2015 with the dividends declared after the end of each quarter. Dividends declared during 2019 represented a dividend payout ratio of 20.8% of net income for the year ended December 31, 2019.  Future cash dividends will depend on a variety of factors, including net income, capital, asset quality, general economic conditions and regulatory considerations.

Capital Resources

We are subject to risk-based capital adequacy guidelines related to the adoption of U.S. Basel III Capital Rules, which impose higher risk-based capital and leverage requirements than those previously in place. Specifically, the rules impose, among other requirements, new minimum capital requirements including a Tier 1 leverage capital ratio of 4.0%, common equity Tier 1 risk-based capital ratio of 4.5%, a Tier 1 risk-based capital ratio of 6.0% and a total risk-based capital ratio of 8.0%.

The following table sets forth our capital ratios.

 

 

Basel III

 

PUB

 

 

Regulatory

 

Actual as of

 

Actual as of

 

 

Well Capitalized

 

December 31,

 

December 31,

 

 

Requirement

 

2019

 

2018

CET1 risk-based capital ratio

 

 

6.50

%

 

 

 

17.18

%

 

 

 

15.11

%

 

Tier 1 risk-based capital

 

 

8.00

%

 

 

 

17.18

%

 

 

 

15.11

%

 

Total risk-based capital

 

 

10.00

%

 

 

 

18.43

%

 

 

 

16.36

%

 

Tier 1 leverage capital ratio

 

 

5.00

%

 

 

 

12.67

%

 

 

 

12.27

%

 

PUB and AltabankTM met the definition of a “well-capitalized” institution as of December 31, 2019 and 2018 for federal regulatory purposes.

Off-Balance Sheet Arrangements

The following table sets forth our off-balance sheet lending commitments as of December 31, 2019:

 

 

 

 

 

 

Amount of Commitment Expiration Per Period

 

 

 

Total

 

 

 

 

 

 

One to

 

 

Three to

 

 

After

 

 

 

Amounts

 

 

Less than

 

 

Three

 

 

Five

 

 

Five

 

Other Commitments (Dollars in thousands)

 

Committed

 

 

One Year

 

 

Years

 

 

Years

 

 

Years

 

Commitments to extend credit

 

$

632,577

 

 

$

446,659

 

 

$

74,406

 

 

$

20,716

 

 

$

90,796

 

Standby letters of credit

 

 

23,860

 

 

 

23,860

 

 

 

-

 

 

 

-

 

 

 

-

 

Credit cards

 

 

26,121

 

 

 

26,121

 

 

 

-

 

 

 

-

 

 

 

-

 

Total

 

$

682,558

 

 

$

496,640

 

 

$

74,406

 

 

$

20,716

 

 

$

90,796

 


Contractual Obligations

The following table sets forth our significant contractual obligations as of December 31, 2019:

 

 

 

 

 

 

Payments Due by Period

 

 

 

 

 

 

 

 

 

 

 

One to

 

 

Three to

 

 

After

 

 

 

 

 

 

 

Less than

 

 

Three

 

 

Five

 

 

Five

 

Contractual Obligations (Dollars in thousands)

 

Total

 

 

One Year

 

 

Years

 

 

Years

 

 

Years

 

Time certificates of deposit

 

$

166,193

 

 

$

93,543

 

 

$

40,698

 

 

$

30,808

 

 

$

1,144

 

Deposits without stated maturity

 

 

1,890,174

 

 

 

1,890,174

 

 

 

-

 

 

 

-

 

 

 

-

 

Operating leases

 

 

2,341

 

 

 

800

 

 

 

1,285

 

 

 

256

 

 

 

-

 

Total

 

$

2,058,708

 

 

$

1,984,517

 

 

$

41,983

 

 

$

31,064

 

 

$

1,144

 

Liquidity

The ability to have readily available funds sufficient to repay fully maturing liabilities is of primary importance to depositors, creditors and regulators. Our liquidity, represented by cash borrowing lines, federal funds and available for sale securities, is a result of our operating, investing and financing activities and related cash flows. In order to ensure funds are available at all times, we devote resources to projecting on a monthly basis the amount of funds that will be required and we maintain relationships with a diversified client base so funds are accessible. Liquidity requirements can also be met through short-term borrowings or the disposition of short-term assets. We have the following borrowing lines available at December 31, 2019:

 

 

Total

 

 

Current

 

 

 

 

 

 

Remaining

 

 

Value of

 

 

 

Credit Line

 

 

Credit Line

 

 

Amount

 

 

Credit Line

 

 

Collateral

 

(Dollars in thousands)

 

Limit

 

 

Available

 

 

Outstanding

 

 

Available

 

 

Pledged

 

Federal Reserve

 

$

26,507

 

 

$

26,507

 

 

$

-

 

 

$

26,507

 

 

$

26,766

 

Federal Funds

 

 

25,000

 

 

 

25,000

 

 

 

-

 

 

 

25,000

 

 

 

-

 

Federal Home Loan Bank

 

 

676,844

 

 

 

676,844

 

 

 

-

 

 

 

676,844

 

 

 

929,295

 

 

 

$

728,351

 

 

$

728,351

 

 

$

-

 

 

$

728,351

 

 

$

956,061

 

We believe our liquid assets and short-term borrowing credit lines are adequate to meet our cash flow needs for loan funding and deposit cash withdrawal for the next 60 to 90 days.  We have $388.7 million in cash and unencumbered investment securities; and $205.8 million in investment securities and $750.2 million in loans pledged as collateral on short-term borrowing credit lines. We have the option of either borrowing on our credit lines or selling these investment securities for cash flow needs.

We have no outstanding short-term borrowings under the credit lines described in the above table as of December 31, 2019.  On a long-term basis, our liquidity will be met by changing the relative distribution of our asset portfolios by reducing our investment or loan volumes, or selling or encumbering assets. Further, we will increase liquidity by soliciting higher levels of deposit accounts through promotional activities and/or borrowing from our correspondent banks as well as the FHLB. At the current time, our long-term liquidity needs primarily relate to funds required to support loan originations and commitments and deposit withdrawals. We believe we can meet all of these needs by cash flows from investment payments and maturities, and investment sales, if the need arises.

Our liquidity is comprised of three primary classifications: cash flows from or used in operating activities; cash flows from or used in investing activities; and cash flows from or used in financing activities.  Net cash provided by or used in operating activities has consisted primarily of net income adjusted for certain non-cash income and expense items such as the loan loss provision, investment and other amortization and depreciation.

Our primary investing activities are the origination of real estate, commercial & industrial, consumer loans, and purchases and sales of investment securities. As of December 31, 2019, we had outstanding loan and credit card commitments of $658.7 million and outstanding letters of credit of $23.9 million. We anticipate that we will have sufficient funds available to meet current loan commitments.


Net cash provided by financing activities has been impacted significantly by higher deposit levels. During the years ended December 31, 2019, 2018, and 2017, deposits increased $179.3 million, $62.4 million, and $389.6 million, respectively.  For the year ended December 31, 2017, $284.1 million of the $389.6 million increase in deposits was related to the acquisition of the Utah branches of Banner Bank and the merger with Town & Country Bank.

 

 

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the risk of loss in a financial instrument arising from adverse changes in market prices and rates, foreign currency exchange rates, commodity prices and equity prices. Our market risk arises primarily from interest rate risk inherent in our lending and deposit taking activities. Management actively monitors and manages our interest rate risk exposure. We do not have any market-risk sensitive instruments entered into for trading purposes. We manage our interest-rate sensitivity by matching the re-pricing opportunities on our earning assets to those on our funding liabilities.

Management uses various asset/liability strategies to manage the re-pricing characteristics of our assets and liabilities designed to ensure that exposure to interest rate fluctuations is limited within our guidelines of acceptable levels of risk-taking. Hedging strategies, including the terms and pricing of loans and deposits, and managing the deployment of our securities, are used to reduce mismatches in interest rate re-pricing opportunities of portfolio assets and their funding sources.

Interest rate risk is addressed by ourOur Asset Liability Management Committee or ALCO,(“ALCO”), which is comprised of certain of our executive officers, and directors. Themanages market risk. ALCO monitors interest rate risk by analyzing the potential impact on net interest income from potential changes in interest rates, and considers the impact of alternative strategies or changes in balance sheet structure. The ALCO manages our balance sheet in part to maintain the potential impact of changes in interest rates on net interest income within acceptable ranges despite changes in interest rates.

Our exposure to interest rate risk is reviewed on at least a quarterly basis by the ALCO and our Board of Directors.ALCO. Interest rate risk exposure is measured using interest rate sensitivity analysis to determine our change in net interest income in the event of hypothetical changes in interest rates. If potential changes to net interest income resulting from hypothetical interest rate changes are not within the limits establishedrisk tolerances determined by ourALCO, and approved by the Board of Directors, our Board of Directorsmanagement may direct managementmake adjustments to adjust the Company’s asset and liability mix to bring interest rate risk levels within board-approvedthe board approved limits.

Net Interest Income Simulation. In order to measure interest rate risk, we used a simulation model to project changes in net interest income that result from forecasted changes in interest rates. This analysis calculates the difference between net interest income forecasted using a rising and a falling interest rate scenario and a net interest income forecast using a base market interest rate derived from the current treasury yield curve. The income simulation model includes various assumptions regarding the re-pricing relationships for each of our products. Many of our assets are floating rate loans, which are assumed to re-price immediately, and to the same extent as the change in market rates according to their contracted index. Some loans and investment vehicles include the opportunity of prepayment (embedded options), and accordingly the simulation model uses national indexes to estimate these prepayments and assumes the reinvestment of the proceeds at current yields. Our non-term deposit products re-price more slowly, usually changing less than the change in market rates and at our discretion.


This analysis indicates the impact of changes in net interest income for the given set of rate changes and assumptions. It assumes the balance sheet grows modestly, but that its structure will remain similar to the structure as of the period presented. It does not account for all factors that impact this analysis, including changes by management to mitigate the impacteffect of interest rate changes or secondary impacts such as changes to our credit risk profile as interest rates change.

Furthermore, loan prepayment-rate estimates and spread relationships change regularly. Interest rate changes create changes in actual loan prepayment rates that will differ from the market estimates incorporated in this analysis. Changes that vary significantly from the assumptions may have significant effects on our net interest income.


For the rising and falling interest rate scenarios, the base market interest rate forecast was increased or decreased, on an instantaneous and sustained basis, by 100 and 300 basis points. As of the periods presented, our net interest margin exposure related to these hypothetical changes in market interest rates was within the current guidelines established by us.

Our sensitivity of net interest income as of December 31, 2016 is2019, was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Margin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Margin

 

 

Adjusted Net

 

 

Percentage

 

 

Net Interest

 

 

Change from

 

 

Adjusted Net

 

 

Percentage

 

 

Net Interest

 

 

Change from

 

(Dollars in thousands)

 

Interest

 

 

Change

 

 

Margin

 

 

Base (in

 

 

Interest

 

 

Change

 

 

Margin

 

 

Base (in

 

Interest Rate Scenario

 

Income (1)

 

 

from Base

 

 

Percent (1)

 

 

basis points)

 

 

Income (1)

 

 

from Base

 

 

Percent (1)

 

 

basis points)

 

Up 300 basis points

 

$

78,478

 

 

 

5.62

%

 

 

5.05

%

 

 

0.58

%

 

$

122,436

 

 

 

6.59

%

 

 

5.90

%

 

 

0.70

%

Up 200 basis points

 

 

77,063

 

 

 

3.72

%

 

 

4.85

%

 

 

0.39

%

 

 

119,901

 

 

 

4.38

%

 

 

5.67

%

 

 

0.47

%

Up 100 basis points

 

 

75,654

 

 

 

1.82

%

 

 

4.65

%

 

 

0.19

%

 

 

117,377

 

 

 

2.19

%

 

 

5.44

%

 

 

0.24

%

BASE

 

 

74,301

 

 

 

0.00

%

 

 

4.46

%

 

 

0.00

%

 

 

114,866

 

 

 

0.00

%

 

 

5.20

%

 

 

0.00

%

Down 100 basis points

 

 

72,304

 

 

 

(2.69

)%

 

 

4.17

%

 

 

(0.29

)%

 

 

112,367

 

 

 

(2.18

)%

 

 

4.87

%

 

 

(0.33

)%

(1)

These percentages are not comparable to other information discussing the percent of net interest margin since the income simulation does not take into account loan fees.

The ratio of variable to fixed-rate loans in our loan portfolio, the ratio of short-term (maturing at a given time within 12 months) to long-term loans, and the ratio of our demand, money market and savings deposits to CDs (and their time periods), are the primary factors affecting the sensitivity of our net interest income to changes in market interest rates. Our short-term loans are typically priced at prime plus a margin, and our long-term loans are typically priced based on a Federal Home Loan Bank or FHLB,(“FHLB”), index for comparable maturities, plus a margin. The composition of our rate-sensitive assets or liabilities is subject to change and could result in a more unbalanced position that would cause market rate changes to have a greater impact on our net interest margin.

Gap Analysis. Another way to measure the impact that future changes in interest rates will have on net interest income is through a cumulative gap measure. The gap represents the net position of assets and liabilities subject to re-pricing in specified time periods.

The following table sets forth the distribution of re-pricing opportunities of our interest earning assets and interest bearing liabilities, the interest rate sensitivity gap (that is, interest rate sensitive assets less interest rate sensitive liabilities), cumulative interest earning assets and interest bearing liabilities, the cumulative interest rate sensitivity gap, the ratio of cumulative interest earning assets to cumulative interest bearing liabilities and the cumulative gap as a percentage of total assets and total interest earning assets as of the periods presented. The table also sets forth the time periods during which interest earning assets and interest bearing liabilities will mature or may re-price in accordance with their contractual terms. The interest rate relationships between the re-priceable assets and re-priceable liabilities are not necessarily constant and may be affected by many factors, including the behavior of customersclients in response to changes in interest rates. This table should, therefore, be used only as a guide as to the possible effect changes in interest rates might have on our net interest margins.



Our gap analysis as of December 31, 2016 is2019 was as follows:

 

Amounts Maturing or Re-pricing in

 

 

Amounts Maturing or Re-pricing in

 

 

 

 

 

 

Over Three

 

 

Over One

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Over Three

 

 

Over One

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three

 

 

Months to

 

 

Year to

 

 

Over

 

 

 

 

 

 

 

 

 

 

Three

 

 

Months to

 

 

Year to

 

 

Over

 

 

 

 

 

 

 

 

 

 

Months or

 

 

Twelve

 

 

Three

 

 

Three

 

 

Non-

 

 

 

 

 

 

Months or

 

 

Twelve

 

 

Three

 

 

Three

 

 

Non-

 

 

 

 

 

(Dollars in thousands)

 

Less

 

 

Months

 

 

Years

 

 

Years

 

 

Sensitive

 

 

Total

 

 

Less

 

 

Months

 

 

Years

 

 

Years

 

 

Sensitive

 

 

Total

 

Interest bearing assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

31,155

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

31,155

 

Interest bearing deposits

 

$

171,955

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

171,955

 

Federal funds sold

 

 

3,456

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,456

 

 

 

1,039

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,039

 

Investment securities

 

 

16,310

 

 

 

24,945

 

 

 

76,538

 

 

 

256,430

 

 

 

392

 

 

 

374,615

 

 

 

15,123

 

 

 

16,684

 

 

 

62,552

 

 

 

311,636

 

 

 

-

 

 

 

405,995

 

Loans

 

 

403,802

 

 

 

139,876

 

 

 

367,684

 

 

 

229,341

 

 

 

-

 

 

 

1,140,703

 

 

 

550,428

 

 

 

139,932

 

 

 

410,381

 

 

 

590,035

 

 

 

8,811

 

 

 

1,699,587

 

Total interest bearing assets

 

 

454,723

 

 

 

164,821

 

 

 

444,222

 

 

 

485,771

 

 

 

392

 

 

 

1,549,929

 

Total interest earning assets

 

 

738,545

 

 

 

156,616

 

 

 

472,933

 

 

 

901,671

 

 

 

8,811

 

 

 

2,278,576

 

Interest bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing demand and savings

 

 

654,540

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

654,540

 

 

 

846,199

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

846,199

 

Money market

 

 

169,370

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

169,370

 

 

 

324,565

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

324,565

 

Certificates of deposit under $100,000

 

 

23,170

 

 

 

29,592

 

 

 

19,520

 

 

 

10,976

 

 

 

-

 

 

 

83,258

 

Certificates of deposit $100,000 and over

 

 

13,896

 

 

 

26,874

 

 

 

19,335

 

 

 

14,701

 

 

 

-

 

 

 

74,806

 

Certificates of deposit less than or equal to $250,000

 

 

32,963

 

 

 

43,855

 

 

 

30,171

 

 

 

24,893

 

 

 

-

 

 

 

131,882

 

Certificates of deposit greater than $250,000

 

 

4,620

 

 

 

14,293

 

 

 

8,417

 

 

 

6,981

 

 

 

-

 

 

 

34,311

 

Short-term borrowings

 

 

3,199

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,199

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total interest bearing liabilities

 

 

864,175

 

 

 

56,466

 

 

 

38,855

 

 

 

25,677

 

 

 

-

 

 

 

985,173

 

 

 

1,208,347

 

 

 

58,148

 

 

 

38,588

 

 

 

31,874

 

 

 

-

 

 

 

1,336,957

 

Period gap

 

 

(409,452

)

 

 

108,355

 

 

 

405,367

 

 

 

460,094

 

 

 

392

 

 

 

564,756

 

 

$

(469,802

)

 

$

98,468

 

 

$

434,345

 

 

$

869,797

 

 

$

8,811

 

 

$

941,619

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative interest earning assets

 

$

454,723

 

 

$

619,544

 

 

$

1,063,766

 

 

$

1,549,537

 

 

$

1,549,929

 

 

 

 

 

 

$

738,545

 

 

$

895,161

 

 

$

1,368,094

 

 

$

2,269,765

 

 

$

2,278,576

 

 

 

 

 

Cumulative interest bearing liabilities

 

 

864,175

 

 

 

920,641

 

 

 

959,496

 

 

 

985,173

 

 

 

985,173

 

 

 

 

 

 

 

1,208,347

 

 

 

1,266,495

 

 

 

1,305,083

 

 

 

1,336,957

 

 

 

1,336,957

 

 

 

 

 

Cumulative gap

 

 

(409,452

)

 

 

(301,097

)

 

 

104,270

 

 

 

564,364

 

 

 

564,756

 

 

 

 

 

 

 

(469,802

)

 

 

(371,334

)

 

 

63,011

 

 

 

932,808

 

 

 

941,619

 

 

 

 

 

Cumulative interest earning assets to cumulative interest bearing liabilities

 

 

52.62

%

 

 

67.29

%

 

 

110.87

%

 

 

157.29

%

 

 

157.33

%

 

 

 

 

 

 

61.12

%

 

 

70.68

%

 

 

104.83

%

 

 

169.77

%

 

 

170.43

%

 

 

 

 

Cumulative gap as a percent of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

 

(25.12

)%

 

 

(18.47

)%

 

 

6.40

%

 

 

34.63

%

 

 

34.65

%

 

 

 

 

 

 

(19.52

)%

 

 

(15.43

)%

 

 

2.62

%

 

 

38.76

%

 

 

39.13

%

 

 

 

 

Interest earning assets

 

 

(90.04

)%

 

 

(48.60

)%

 

 

9.80

%

 

 

36.42

%

 

 

36.44

%

 

 

 

 

 

 

(63.61

)%

 

 

(41.48

)%

 

 

4.61

%

 

 

41.10

%

 

 

41.32

%

 

 

 

 

As of December 31, 2016,2019, we had $619.5$895.2 million in assets, and $920.6 million$1.3 billion in liabilities, re-pricing within one year. This means that more of our interest rate sensitive liabilities will change to the then-current rate than our interest rate sensitive assets (changes occur due to the instruments being at a variable rate or because the maturity of the instrument requires its replacement at the then current rate). The ratio of interest earning assets to interest bearing liabilities maturing or re-pricing within one year as of December 31, 20162019 is 67.29%70.7%. This analysis indicates that if interest rates were to increase, the gap would result in a lower net interest margin. However, changes in the mix of earning assets or supporting liabilities can either increase or decrease the net interest margin without affecting interest rate sensitivity. In addition, the interest rate spread between an asset and its supporting liability can vary significantly while the timing of re-pricing of both the asset and its supporting liability can remain the same, thus impacting net interest income. This characteristic is referred to as basis risk, and generally relates to the re-pricing characteristics of short-term funding sources such as certificates of deposit.

 

Gap analysis has certain limitations. Measuring the volume of re-pricing or maturing assets and liabilities does not always measure the full impact on the portfolio value of equity or net interest income. Gap analysis does not account for rate caps on products, dynamic changes such as increasing prepayment speeds as interest rates decrease, basis risk, embedded options or the benefit of no-rate funding sources. The relation between product rate re-pricing and market rate changes (basis risk) is not the same for all products. The majority of interest earning assets generally re-price along with a movement in market rates, while non-term deposit rates in general move more slowly and usually incorporate only a fraction of the change in market rates. Products categorized as non-rate sensitive, such as


our non-interest bearing demand deposits, in the gap analysis behave like long-term fixed rate funding sources. Management uses income simulation, net interest income rate shocks and market value of portfolio equity as its primary interest rate risk management tools.


Item 8. Financial StatementsStatements and Supplemental Data

 

Audited consolidated financial statements and related documents required by this item are included in the Annual Report on Form 10-K on the pages indicated:

Management’s Report on Internal Control Over Financial Reporting

68

Report of Independent Registered Public Accounting Firm

69

Consolidated Balance Sheets as of December 31, 2019 and 2018

72

Consolidated Statements of Income for the three years ended December 31, 2019, 2018, and 2017

73

Consolidated Statements of Comprehensive Income for the three years ended December 31, 2019, 2018, and 2017

74

Consolidated Statements of Changes in Shareholders’ Equity for the three years ended December 31, 2019, 2018, and 2017

75

Consolidated Statements of Changes in Cash Flows for the three years ended December 31, 2019, 2018, and 2017

76

Notes to Consolidated Financial Statements

77

 


MANAGEMENT’S REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMON INTERNAL CONTROL OVER FINANCIAL REPORTING

To the Board of Directors and Shareholders

People’s Utah Bancorp

 

People’s Utah Bancorp management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange act of 1934, as amended.  The Company’s internal control over financial reporting is designed by, or under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer and effected by Management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  The Company’s internal control over financial reporting includes those policies and procedures that:

(1)

Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

(2)

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

(3)

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

There are inherent limitations in any internal control, no matter how well designed and misstatements due to error or fraud may occur and not be detected, including the possibility of circumvention or overriding of controls. Accordingly, even an effective internal control system can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of an internal control system may vary over time.

Management assessed the effectiveness of the internal control structure over financial reporting as of December 31, 2019. This assessment was based on criteria for effective internal control over financial reporting set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management believes that the Company’s internal control over financial reporting is effective as of December 31, 2019.

Moss Adams LLP, the independent registered public accounting firm that audited the consolidated financial statements for the year ended December 31, 2019, has issued an attestation report on the Company’s internal control over financial reporting. Such attestation report expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board as of December 31, 2019 that appears on page 69.


Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

People’s Utah Bancorp

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheetssheet of People’s Utah Bancorp and subsidiaries(Company) as of December 31, 20162019 and 2015, and2018, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years inthen ended, and the three-year period ended December 31, 2016.related notes (collectively, the consolidated financial statements). We also have audited People’s Utah Bancorp and subsidiaries’the Company’s internal control over financial reporting as of December 31, 2016,2019, based on criteria established in Internal Control—Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). People’s Utah Bancorp

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2019 and subsidiaries’2018, and the consolidated results of its operations and its cash flows for the year then ended, in accordance with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’sManagement Report on Internal Control Overover Financial Reporting. Our responsibility is to express an opinion on thesethe Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.


Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidated financial statement presentation.statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Spokane, Washington

March 13, 2020

We have served as the Company’s auditor since 2018.


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of People’s Utah Bancorp:

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows of People’s Utah Bancorp and subsidiaries (collectively, the “Company”) for the year ended December 31, 2017, and the related notes and supplementary data listed in the index (collectively referred to as the “ consolidated financial statements”).  

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of People’s Utah Bancorp and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the years inCompany for the three-year periodyear ended December 31, 2016,2017, in conformity with accounting principles generally accepted in the United States of America.  Also, in our

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion People’s Utah Bancorp and subsidiaries maintained, in all material respects, effective internal control overon the Company’s financial reporting as of December 31, 2016,statements based on criteria establishedour audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in Internal Control—Integrated Framework issued byaccordance with the Committee of Sponsoring OrganizationsU.S. federal securities laws and the applicable rules and regulations of the TreadwaySecurities and Exchange Commission (COSO).and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provide a reasonable basis for our opinion.

/s/ TANNERTanner LLC

Salt Lake City, Utah

March 10, 201713, 2020

We began serving as the Company's auditor in 2006. In 2018 we became the predecessor auditor.

 

 


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

December 31,

 

 

December 31,

 

(Dollars in thousands, except share data)

 

2016

 

 

2015

 

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

26,524

 

 

$

19,745

 

 

$

38,987

 

 

$

39,471

 

Interest bearing deposits

 

 

37,958

 

 

 

20,428

 

 

 

171,955

 

 

 

7,456

 

Federal funds sold

 

 

3,456

 

 

 

2,176

 

 

 

1,039

 

 

 

1,620

 

Total cash and cash equivalents

 

 

67,938

 

 

 

42,349

 

 

 

211,981

 

 

 

48,547

 

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale, at fair value

 

 

335,609

 

 

 

332,736

 

 

 

405,995

 

 

 

280,964

 

Held to maturity, at historical cost

 

 

73,512

 

 

 

65,882

 

Held to maturity, at amortized cost

 

 

-

 

 

 

65,462

 

Total investment securities

 

 

409,121

 

 

 

398,618

 

 

 

405,995

 

 

 

346,426

 

Non-marketable equity securities

 

 

1,827

 

 

 

2,244

 

 

 

2,623

 

 

 

2,551

 

Loans held for sale

 

 

20,826

 

 

 

17,947

 

 

 

18,669

 

 

 

10,267

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans held for investment

 

 

1,119,877

 

 

 

1,047,975

 

 

 

1,680,918

 

 

 

1,678,902

 

Less allowance for loan losses

 

 

(16,715

)

 

 

(15,557

)

Allowance for loan losses

 

 

(31,426

)

 

 

(25,245

)

Total loans held for investment, net

 

 

1,103,162

 

 

 

1,032,418

 

 

 

1,649,492

 

 

 

1,653,657

 

Premises and equipment, net

 

 

21,926

 

 

 

22,104

 

 

 

39,474

 

 

 

36,532

 

Goodwill

 

 

25,673

 

 

 

25,673

 

Bank-owned life insurance (BOLI)

 

 

27,037

 

 

 

26,433

 

Deferred income tax assets net

 

 

9,716

 

 

 

11,514

 

Accrued interest receivable

 

 

5,557

 

 

 

5,767

 

 

 

7,904

 

 

 

8,282

 

Deferred income tax assets

 

 

9,799

 

 

 

8,606

 

Other intangibles

 

 

2,970

 

 

 

3,412

 

Other real estate owned

 

 

245

 

 

 

568

 

 

 

-

 

 

 

-

 

Bank-owned life insurance

 

 

19,714

 

 

 

19,170

 

Other assets

 

 

5,866

 

 

 

6,191

 

 

 

4,800

 

 

 

11,000

 

Total assets

 

$

1,665,981

 

 

$

1,555,982

 

 

$

2,406,334

 

 

$

2,184,294

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest bearing deposits

 

$

443,100

 

 

$

408,508

 

 

$

719,410

 

 

$

642,594

 

Interest bearing deposits

 

 

981,974

 

 

 

900,677

 

 

 

1,336,957

 

 

 

1,234,461

 

Total deposits

 

 

1,425,074

 

 

 

1,309,185

 

 

 

2,056,367

 

 

 

1,877,055

 

Short-term borrowings

 

 

3,199

 

 

 

27,204

 

 

 

-

 

 

 

-

 

Accrued interest payable

 

 

305

 

 

 

314

 

 

 

546

 

 

 

483

 

Other liabilities

 

 

8,886

 

 

 

9,871

 

 

 

17,059

 

 

 

16,594

 

Total liabilities

 

 

1,437,464

 

 

 

1,346,574

 

 

 

2,073,972

 

 

 

1,894,132

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred shares, $0.01 par value: 3,000,000 shares authorized, no shares issued

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Common shares, $0.01 par value: 30,000,000 shares authorized; 17,819,538

and 17,567,154 shares issued and outstanding as of December 31, 2016

and December 31, 2015, respectively

 

 

178

 

 

 

176

 

Common shares, $0.01 par value: 30,000,000 shares authorized; 18,870,498

and 18,728,823 shares issued and outstanding as of December 31, 2019

and December 31, 2018, respectively

 

 

189

 

 

 

187

 

Additional paid-in capital

 

 

68,657

 

 

 

67,338

 

 

 

87,913

 

 

 

86,308

 

Retained earnings

 

 

160,692

 

 

 

142,223

 

 

 

242,878

 

 

 

207,779

 

Accumulated other comprehensive income (loss)

 

 

(1,010

)

 

 

(329

)

Accumulated other comprehensive income / (loss)

 

 

1,382

 

 

 

(4,112

)

Total shareholders’ equity

 

 

228,517

 

 

 

209,408

 

 

 

332,362

 

 

 

290,162

 

Total liabilities and shareholders’ equity

 

$

1,665,981

 

 

$

1,555,982

 

 

$

2,406,334

 

 

$

2,184,294

 

See accompanying notes to the consolidated financial statements.

 


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

 

 

Years Ended December 31,

 

 

Years Ended December 31,

 

(Dollars in thousands, except share and per share data)

 

2016

 

 

2015

 

 

2014

 

 

2019

 

 

2018

 

 

2017

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

66,600

 

 

$

58,861

 

 

$

51,842

 

 

$

108,530

 

 

$

108,498

 

 

$

76,965

 

Interest and dividends on investments

 

 

6,155

 

 

 

5,740

 

 

 

6,361

 

 

 

10,519

 

 

 

6,854

 

 

 

7,015

 

Total interest income

 

 

72,755

 

 

 

64,601

 

 

 

58,203

 

 

 

119,049

 

 

 

115,352

 

 

 

83,980

 

Interest expense

 

 

2,874

 

 

 

2,961

 

 

 

3,260

 

 

 

9,131

 

 

 

7,174

 

 

 

3,342

 

Net interest income

 

 

69,881

 

 

 

61,640

 

 

 

54,943

 

 

 

109,918

 

 

 

108,178

 

 

 

80,638

 

Provision for loan losses

 

 

900

 

 

 

1,000

 

 

 

1,700

 

 

 

7,000

 

 

 

8,625

 

 

 

2,750

 

Net interest income after provision for loan losses

 

 

68,981

 

 

 

60,640

 

 

 

53,243

 

 

 

102,918

 

 

 

99,553

 

 

 

77,888

 

Non-interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage banking

 

 

6,785

 

 

 

6,209

 

 

 

7,536

 

Card processing

 

 

3,242

 

 

 

3,097

 

 

 

2,790

 

Service charges on deposit accounts

 

 

2,181

 

 

 

2,449

 

 

 

2,821

 

 

 

2,807

 

 

 

2,840

 

 

 

2,445

 

Card processing

 

 

4,451

 

 

 

4,250

 

 

 

4,185

 

Mortgage banking

 

 

8,478

 

 

 

7,316

 

 

 

6,444

 

Net (loss)/gain on sale of investment securities

 

 

(4

)

 

 

336

 

 

 

(499

)

Other operating

 

 

1,769

 

 

 

1,989

 

 

 

1,791

 

 

 

2,351

 

 

 

2,647

 

 

 

2,122

 

Total non-interest income

 

 

16,879

 

 

 

16,004

 

 

 

15,241

 

 

 

15,181

 

 

 

15,129

 

 

 

14,394

 

Non-interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

31,441

 

 

 

29,892

 

 

 

27,584

 

 

 

38,502

 

 

 

39,902

 

 

 

34,392

 

Occupancy, equipment and depreciation

 

 

4,296

 

 

 

3,953

 

 

 

3,889

 

 

 

6,034

 

 

 

6,010

 

 

 

4,827

 

Data processing

 

 

2,866

 

 

 

2,831

 

 

 

2,792

 

 

 

3,902

 

 

 

3,515

 

 

 

2,798

 

Marketing and advertising

 

 

1,828

 

 

 

1,288

 

 

 

1,381

 

FDIC premiums

 

 

631

 

 

 

754

 

 

 

810

 

 

 

249

 

 

 

1,019

 

 

 

572

 

Card processing

 

 

2,178

 

 

 

2,017

 

 

 

2,136

 

Marketing and advertising

 

 

1,044

 

 

 

853

 

 

 

934

 

Merger-related expenses

 

 

-

 

 

 

-

 

 

 

711

 

Acquisition-related costs

 

 

-

 

 

 

232

 

 

 

4,784

 

Other

 

 

6,521

 

 

 

6,468

 

 

 

6,477

 

 

 

9,757

 

 

 

10,030

 

 

 

7,205

 

Total non-interest expense

 

 

48,977

 

 

 

46,768

 

 

 

45,333

 

 

 

60,272

 

 

 

61,996

 

 

 

55,959

 

Income before income tax expense

 

 

36,883

 

 

 

29,876

 

 

 

23,151

 

 

 

57,827

 

 

 

52,686

 

 

 

36,323

 

Income tax expense

 

 

13,273

 

 

 

10,262

 

 

 

8,246

 

 

 

13,503

 

 

 

12,054

 

 

 

16,477

 

Net income

 

$

23,610

 

 

$

19,614

 

 

$

14,905

 

 

$

44,324

 

 

$

40,632

 

 

$

19,846

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.33

 

 

$

1.21

 

 

$

1.02

 

 

$

2.35

 

 

$

2.18

 

 

$

1.10

 

Diluted

 

$

1.30

 

 

$

1.17

 

 

$

0.98

 

 

$

2.33

 

 

$

2.14

 

 

$

1.08

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

17,732,920

 

 

 

16,258,424

 

 

 

14,677,499

 

 

 

18,822,103

 

 

 

18,679,165

 

 

 

18,019,643

 

Diluted

 

 

18,214,924

 

 

 

16,829,205

 

 

 

15,134,025

 

 

 

19,017,047

 

 

 

18,982,521

 

 

 

18,447,621

 

See accompanying notes to the consolidated financial statements.

 


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

 

Years Ended December 31,

 

(in thousands)

 

2016

 

 

2015

 

 

2014

 

Net income

 

$

23,610

 

 

$

19,614

 

 

$

14,905

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains (losses) on securities available for sale

 

 

(1,104

)

 

 

(1,781

)

 

 

2,165

 

Tax effect

 

 

423

 

 

 

673

 

 

 

(830

)

Unrealized holding gains (losses) on securities available for

   sale, net of tax

 

 

(681

)

 

 

(1,108

)

 

 

1,335

 

Total comprehensive income

 

$

22,929

 

 

$

18,506

 

 

$

16,240

 

 

 

Years Ended December 31,

 

(Dollars in thousands)

 

2019

 

 

2018

 

 

2017

 

Net income

 

$

44,324

 

 

$

40,632

 

 

$

19,846

 

Other comprehensive income/(loss)

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains/(losses) on securities available for sale

 

 

7,324

 

 

 

(2,678

)

 

 

(1,168

)

Tax effect

 

 

(1,830

)

 

 

669

 

 

 

447

 

Unrealized holding gains/(losses) on securities available for sale, net of tax

 

 

5,494

 

 

 

(2,009

)

 

 

(721

)

Comprehensive income

 

$

49,818

 

 

$

38,623

 

 

$

19,125

 

See accompanying notes to the consolidated financial statements.

 


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Three Years Ended December 31, 20162019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Common

 

 

 

 

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

 

 

 

(Dollars in thousands, except share data)

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Income (Loss)

 

 

Total

 

Balance as of January 1, 2014

 

 

14,615,310

 

 

$

146

 

 

$

30,149

 

 

$

113,933

 

 

$

(556

)

 

$

143,672

 

Comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

14,905

 

 

 

1,335

 

 

 

16,240

 

Cash dividends declared ($0.22 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,243

)

 

 

-

 

 

 

(3,243

)

Share-based compensation

 

 

-

 

 

 

-

 

 

 

221

 

 

 

-

 

 

 

-

 

 

 

221

 

Exercise of stock options

 

 

142,811

 

 

 

2

 

 

 

767

 

 

 

-

 

 

 

-

 

 

 

769

 

Balance as of December 31, 2014

 

 

14,758,121

 

 

$

148

 

 

$

31,137

 

 

$

125,595

 

 

$

779

 

 

$

157,659

 

Comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

19,614

 

 

 

(1,108

)

 

 

18,506

 

Cash dividends declared ($0.18 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,986

)

 

 

-

 

 

 

(2,986

)

Issuance of common shares

 

 

2,657,000

 

 

 

27

 

 

 

34,870

 

 

 

-

 

 

 

-

 

 

 

34,897

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

485

 

 

 

-

 

 

 

-

 

 

 

485

 

Exercise of stock options

 

 

152,033

 

 

 

1

 

 

 

846

 

 

 

-

 

 

 

-

 

 

 

847

 

Balance as of December 31, 2015

 

 

17,567,154

 

 

$

176

 

 

$

67,338

 

 

$

142,223

 

 

$

(329

)

 

$

209,408

 

Comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

23,610

 

 

 

(681

)

 

 

22,929

 

Cash dividends declared ($0.29 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(5,141

)

 

 

-

 

 

 

(5,141

)

Share-based compensation

 

 

-

 

 

 

-

 

 

 

544

 

 

 

-

 

 

 

-

 

 

 

544

 

Exercise of stock options and vested restricted stock units

 

 

252,384

 

 

 

2

 

 

 

775

 

 

 

-

 

 

 

-

 

 

 

777

 

Balance as of December 31, 2016

 

 

17,819,538

 

 

$

178

 

 

$

68,657

 

 

$

160,692

 

 

$

(1,010

)

 

$

228,517

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Common

 

 

 

 

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

 

 

 

(Dollars in thousands, except share data)

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Income/(Loss)

 

 

Total

 

Balance as of January 1, 2017

 

 

17,819,538

 

 

$

178

 

 

$

68,657

 

 

$

160,692

 

 

$

(1,010

)

 

$

228,517

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

19,846

 

 

 

-

 

 

 

19,846

 

Other comprehensive loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(721

)

 

 

(721

)

Cash dividends declared ($0.34 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,106

)

 

 

-

 

 

 

(6,106

)

Share-based compensation

 

 

-

 

 

 

-

 

 

 

510

 

 

 

-

 

 

 

-

 

 

 

510

 

Reclassification of deferred tax rate

   change related to AOCI

 

 

-

 

 

 

-

 

 

 

-

 

 

 

372

 

 

 

(372

)

 

 

-

 

Issuance of common shares

 

 

466,546

 

 

 

5

 

 

 

13,972

 

 

 

-

 

 

 

-

 

 

 

13,977

 

Exercise of stock options and vested

   restricted stock units

 

 

225,713

 

 

 

2

 

 

 

1,393

 

 

 

-

 

 

 

-

 

 

 

1,395

 

Balance as of December 31, 2017

 

 

18,511,797

 

 

$

185

 

 

$

84,532

 

 

$

174,804

 

 

$

(2,103

)

 

$

257,418

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

40,632

 

 

 

-

 

 

 

40,632

 

Other comprehensive loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,009

)

 

 

(2,009

)

Cash dividends declared ($0.41 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7,657

)

 

 

-

 

 

 

(7,657

)

Share-based compensation

 

 

-

 

 

 

-

 

 

 

891

 

 

 

-

 

 

 

-

 

 

 

891

 

Exercise of stock options and vested

   restricted stock units

 

 

217,026

 

 

 

2

 

 

 

885

 

 

 

-

 

 

 

-

 

 

 

887

 

Balance as of December 31, 2018

 

 

18,728,823

 

 

$

187

 

 

$

86,308

 

 

$

207,779

 

 

$

(4,112

)

 

$

290,162

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

44,324

 

 

 

-

 

 

 

44,324

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,494

 

 

 

5,494

 

Cash dividends declared ($0.49 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(9,225

)

 

 

-

 

 

 

(9,225

)

Share-based compensation

 

 

-

 

 

 

-

 

 

 

1,011

 

 

 

-

 

 

 

-

 

 

 

1,011

 

Exercise of stock options and vested

   restricted stock units

 

 

141,675

 

 

 

2

 

 

 

594

 

 

 

-

 

 

 

-

 

 

 

596

 

Balance as of December 31, 2019

 

 

18,870,498

 

 

$

189

 

 

$

87,913

 

 

$

242,878

 

 

$

1,382

 

 

$

332,362

 

See accompanying notes to the consolidated financial statements.

 


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

Years Ended December 31,

 

 

Years Ended December 31,

 

(in thousands)

 

2016

 

 

2015

 

 

2014

 

(Dollars in thousands)

 

2019

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

23,610

 

 

$

19,614

 

 

$

14,905

 

 

$

44,324

 

 

$

40,632

 

 

$

19,846

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for loan losses

 

 

900

 

 

 

1,000

 

 

 

1,700

 

 

 

7,000

 

 

 

8,625

 

 

 

2,750

 

Depreciation and amortization

 

 

2,527

 

 

 

2,552

 

 

 

2,257

 

 

 

3,396

 

 

 

3,281

 

 

 

2,612

 

Deferred income taxes

 

 

(771

)

 

 

(250

)

 

 

91

 

(Increase) decrease in deferred income taxes

 

 

(34

)

 

 

(2,017

)

 

 

3,990

 

Net amortization of securities discounts and premiums

 

 

3,080

 

 

 

3,174

 

 

 

2,980

 

 

 

2,363

 

 

 

2,628

 

 

 

2,822

 

Other

 

 

423

 

 

 

364

 

 

 

13

 

Gain on sale of loans held for sale

 

 

(6,341

)

 

 

(5,247

)

 

 

(4,356

)

Share-based compensation

 

 

1,011

 

 

 

891

 

 

 

510

 

Increase in cash surrender value of BOLI

 

 

(604

)

 

 

(617

)

 

 

(520

)

Gain on sale of loans held for sale, net of capitalized servicing rights

 

 

(4,529

)

 

 

(3,925

)

 

 

(5,459

)

Originations of loans held for sale

 

 

(278,083

)

 

 

(229,708

)

 

 

(189,539

)

 

 

(229,987

)

 

 

(211,577

)

 

 

(233,055

)

Proceeds from sale of loans held for sale

 

 

281,545

 

 

 

229,280

 

 

 

195,178

 

 

 

226,114

 

 

 

216,106

 

 

 

248,469

 

Net changes in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued interest receivable

 

 

210

 

 

 

(514

)

 

 

108

 

 

 

378

 

 

 

(688

)

 

 

(2,037

)

Other assets

 

 

(219

)

 

 

(1,042

)

 

 

(238

)

 

 

6,735

 

 

 

(607

)

 

 

1,500

 

Accrued interest payable

 

 

(9

)

 

 

(29

)

 

 

(43

)

 

 

63

 

 

 

130

 

 

 

48

 

Other liabilities

 

 

(985

)

 

 

3,543

 

 

 

(3,396

)

 

 

(1,470

)

 

 

5,468

 

 

 

(4,062

)

Net cash provided by operating activities

 

 

25,887

 

 

 

22,737

 

 

 

19,660

 

 

 

54,760

 

 

 

58,330

 

 

 

37,414

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in acquisition-related activities

 

 

-

 

 

 

-

 

 

 

(112,247

)

Net change in loans held for investment

 

 

(72,126

)

 

 

(108,112

)

 

 

(111,868

)

 

 

(2,835

)

 

 

(55,716

)

 

 

(148,032

)

Purchase of available-for-sale securities

 

 

(153,853

)

 

 

(167,397

)

 

 

(123,504

)

Purchase of held-to-maturity securities

 

 

(17,170

)

 

 

(40,535

)

 

 

(16,834

)

Proceeds from maturities/sales of available-for-sale securities

 

 

147,413

 

 

 

125,736

 

 

 

120,772

 

Proceeds from maturities of held-to-maturity securities

 

 

8,923

 

 

 

9,461

 

 

 

8,414

 

Purchase of available for sale securities

 

 

(152,054

)

 

 

(66,262

)

 

 

(68,425

)

Purchase of held to maturity securities

 

 

-

 

 

 

-

 

 

 

(12,198

)

Maturities/sales of available for sale securities

 

 

96,076

 

 

 

43,810

 

 

 

147,351

 

Maturities of held to maturity securities

 

 

1,370

 

 

 

8,430

 

 

 

10,278

 

Purchase of bank-owned life insurance

 

 

-

 

 

 

(12,157

)

 

 

-

 

 

 

-

 

 

 

(2,250

)

 

 

-

 

Purchase of premises and equipment

 

 

(2,345

)

 

 

(3,028

)

 

 

(2,062

)

 

 

(6,791

)

 

 

(10,171

)

 

 

(7,506

)

Proceeds from sale of assets

 

 

2,297

 

 

 

783

 

 

 

167

 

Proceeds from sale of other real estate owned, net of improvements

 

 

923

 

 

 

1,206

 

 

 

3,700

 

 

 

-

 

 

 

3,758

 

 

 

587

 

Purchase of non-marketable equity securities

 

 

(4,032

)

 

 

(25,955

)

 

 

(4,835

)

Proceeds from sale of non-marketable equity securities

 

 

417

 

 

 

384

 

 

 

106

 

 

 

3,960

 

 

 

27,110

 

 

 

2,956

 

Net cash used in investing activities

 

 

(87,818

)

 

 

(194,442

)

 

 

(121,276

)

 

 

(62,009

)

 

 

(76,463

)

 

 

(191,904

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase in deposits

 

 

115,889

 

 

 

109,952

 

 

 

54,919

 

 

 

179,312

 

 

 

62,423

 

 

 

105,489

 

Issuance of common shares

 

 

-

 

 

 

34,897

 

 

 

-

 

Proceeds related to exercise of stock options

 

 

777

 

 

 

847

 

 

 

769

 

Exercise of stock options

 

 

596

 

 

 

887

 

 

 

1,395

 

Net change in short-term borrowings

 

 

(24,005

)

 

 

25,708

 

 

 

401

 

 

 

-

 

 

 

(40,000

)

 

 

36,801

 

Cash dividends paid

 

 

(5,141

)

 

 

(5,052

)

 

 

(1,177

)

 

 

(9,225

)

 

 

(7,657

)

 

 

(6,106

)

Net cash provided by financing activities

 

 

87,520

 

 

 

166,352

 

 

 

54,912

 

 

 

170,683

 

 

 

15,653

 

 

 

137,579

 

Net change in cash and cash equivalents

 

 

25,589

 

 

 

(5,353

)

 

 

(46,704

)

 

 

163,434

 

 

 

(2,480

)

 

 

(16,911

)

Cash and cash equivalents, beginning of year

 

 

42,349

 

 

 

47,702

 

 

 

94,406

 

 

 

48,547

 

 

 

51,027

 

 

 

67,938

 

Cash and cash equivalents, end of year

 

$

67,938

 

 

$

42,349

 

 

$

47,702

 

 

$

211,981

 

 

$

48,547

 

 

$

51,027

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

2,552

 

 

$

2,670

 

 

$

2,515

 

 

$

9,068

 

 

$

7,043

 

 

$

3,294

 

Income taxes paid

 

$

13,963

 

 

$

10,192

 

 

$

7,740

 

 

$

12,560

 

 

$

13,830

 

 

$

13,429

 

Supplemental disclosures of non-cash transactions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassifications from loans to other real estate owned

 

$

482

 

 

 

-

 

 

$

1,189

 

 

$

-

 

 

$

3,320

 

 

$

1,419

 

Dividends declared but not paid

 

 

-

 

 

 

-

 

 

$

2,066

 

 

$

-

 

 

$

-

 

 

$

-

 

Unrealized gains on securities available for sale

 

$

(1,104

)

 

$

(1,781

)

 

$

2,165

 

Unrealized gains/(losses) on securities available for sale

 

$

7,324

 

 

$

(2,678

)

 

$

(1,168

)

Measurement period adjustment to goodwill

 

$

-

 

 

$

(335

)

 

$

-

 

Acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

Assets acquired

 

$

-

 

 

$

-

 

 

$

416,595

 

Liabilities assumed

 

$

-

 

 

$

-

 

 

$

290,371

 

See accompanying notes to the consolidated financial statements

 


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1 —Summary of Significant Accounting Policies

Nature of Operations and basis of consolidation — People’s Utah Bancorp, Inc. (“PUB” or the “Company”) is a Utah corporation headquartered in American Fork, Utah. The Company’s subsidiaries historically included Bank of American Fork (“BAF”Company operates all business activities through its wholly-owned banking subsidiary, AltabankTM (the “Bank”) and Lewiston State Bank (“LSB”). BAF, which was incorporated as People’s State Bank of American Fork asorganized in 1913.  AltabankTM is a Utah state-chartered bank in 1913. LSB was incorporated as a Utah state-chartered bank in 1905 and became a subsidiary of PUB in October 2013. On September 29, 2015, the Company completed the merger of the charters of BAF and LSB and renamed the combined bank People’s Intermountain Bank (“PIB” or the “Bank”). BAF and LSB will continue to do business as registered names of PIB.bank.  Altabank

The BankTM operates under the jurisdiction of the Utah Department of Financial Institutions (“UDFI”), and its deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”). The BankAltabankTM is not a member of the Federal Reserve System; however, PUB is operated as a bank holding company under the Federal Bank Holding Company Act of 1956 and is the sole shareholder of the Bank.AltabankTM. Both PUB and the BankAltabankTM are subject to periodic examination by all of the applicable federal and state regulatory agencies and file periodic reports and other information with the agencies.  The Company considers AltabankTM to be its sole operating segment.

The Bank engages in generalAltabankTM is a community bank that provides highly personalized retail and commercial banking business with branch officesproducts and services to small-to-medium sized businesses and individuals.  Products and services are offered primarily through 26 retail branches located in their principal market area; Utah, Salt Lake, Davis, Washington and Cache counties inthroughout Utah and Preston, Idaho; and in lending activities in other counties within the state of Utah. The Banksouthern Idaho.  AltabankTM offers a full range of short-term to long-term commercial, personal and mortgage loans. Commercial loans include both secured and unsecured loans for working capital (including inventory and accounts receivable), business expansion (including acquisition of real estate and improvements), and purchase of equipment and machinery. Consumer loans include secured and unsecured loans to finance automobiles, home improvements, education, and personal investments. The BankAltabankTM also offers mortgage loans secured by personal residences. The BankAltabankTM offers a full range of deposit services typically available in most financial institutions, including checking accounts, savings accounts, and time deposits. All deposit accounts are tailored to the Bank’s principal market area at competitive rates. The BankAltabankTM solicits these accounts from individuals, businesses, associations and organizations, and governmental entities.

The consolidated financial statements include the accounts of the Company together with its subsidiary. All intercompany transactions and balances have been eliminated.

Use of Estimates — The preparation of consolidated financial statements in conformity with U.S.accounting principles generally accepted accounting principlesin the United States of America (“GAAP”) requires management to make estimates and assumptions.  These estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses (“ALLL”), the determination of the fair value of certain financial instruments, the valuation of real estate acquired through foreclosure, deferred income tax assets, and share-based compensation.

Reclassifications — Certain amounts in the prior years’ financial statements have been reclassified to conform to the current year’s presentation.

Business Combinations — Business combinations are accounted for using the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed, both tangible and intangible, and consideration exchanged are recorded at fair value on the acquisition date.  The excess purchase consideration over fair value of net assets acquired is recorded as goodwill.  Expenses incurred in connection with a business combination are expensed as incurred. Changes in deferred tax asset valuation allowances related to acquired tax uncertainties are recognized in net income after the measurement period.

77


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1 —Summary of Significant Accounting Policies – Continued

Cash and cash equivalents — Cash and cash equivalents consist of cash on hand, amounts due from banks, interest bearing deposits, and federal funds sold, all of which have original maturities of three months or less. The Company places its cash with high credit quality institutions. The amounts on deposit fluctuate and, at times, exceed the insured limit by the FDIC, which potentially subjects the Company to credit risk. Generally, federal funds purchased and interest bearing deposits are held for not longer than one day before being sold or reinvested.

Investment securities — Investment securities are classified into one of three categories: (1) held-to-maturity, (2) available-for-sale, or (3) trading. Investment securities are categorized as held-to-maturityheld to maturity (“HTM”) when the Company has the positive intent and ability to hold thosethe securities to maturity.  Securities which are held-to-maturity are stated at cost and adjusted for amortization of premiums and accretion of discounts, which are recognized as adjustments to interest income. The Company had no trading securities as of December 31, 2016 and 2015.

75


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1 —Summary of Significant Accounting Policies – Continued

Investment securities categorizedare classified as available-for-sale are generally heldavailable for investment purposessale (“AFS”) when the Company has the intent of holding the security for an indefinite period of time, but not necessarily to maturity.  Decisions to sellThe Company determines the appropriate classification at the time of purchase, and periodically thereafter.  Investment securities classified as available-for-saleat HTM are based on various factors, including significant movements in interest rates, changes incarried at amortized cost.  Investment securities classified at AFS are reported at fair value.  As the maturity mix of the Company’s assets and liabilities, liquidity needs, regulatory capital considerations, and other factors. Available-for-sale securities are recorded at estimated fair value withof AFS securities changes, the netchanges are reported (net of tax, if applicable) in comprehensive income and as an element of accumulated other comprehensive income/loss (“AOCI”) in shareholder’s equity. When AFS securities, specifically identified, are sold, the unrealized gain or loss included in comprehensive income, net ofis reclassified from AOCI to non-interest income.

When the related income tax effect. Realized gains or losses on dispositions are based on the net proceeds and the adjusted carrying amount of securities sold, using the specific identification method.

Declines in theestimated fair value of individual held-to-maturity and available-for-salea security is lower than the book value, a security is considered temporarily impaired.  On a quarterly basis, Management evaluates any securities below theirin a loss position to determine whether the impairment is other-than-temporary.  If there is intent to sell the security, or if the Company will be required to sell the security, or if the Company believes it will not recover the entire cost that are other than temporary are recognized by write-downsbasis of the individual securities to their fair value. Such write downs would be includedsecurity, the security is other-than-temporarily impaired (“OTTI”) and impairment is recognized.  The amount of impairment resulting from credit loss is recognized in earnings and impairment related to all other factors, such as realized losses. In estimating other-than-temporary impairment losses, managementgeneral market conditions, is recognized in AOCI.

Management considers (1)a number of factors in its analysis of whether a decline in a security’s estimated fair value is OTTI.  Certain factors considered include, but are not limited to: (a) the length of time and the extent to which the fair valuesecurity has been less than cost, (2)in an unrealized loss position, (b) changes in the financial condition and near-term prospects of the issuer, (c) the payment structure of debt securities, (d) adverse changes in ratings issued by rating agencies, (e) and (3) the intent and ability of the Company to retain its investment inhold the issuersecurity for a period of time sufficient to allow for any anticipated recovery in fair value.  Gains and losses

Interest income is recognized based on the salecoupon rate, and is increased by the accretion of securities are recorded ondiscounts earned or decreased by the trade date and are determined usingamortization of premiums paid.  The amortization of premiums or the specific identification method.

Premiums andaccretion of discounts are recognized in interest income using the effective interest method over the period to maturity or, for certain mortgage-backed securities, to the expected interest rate reset date.of maturity.  

Non-marketable equity securities — Non-marketable equity securities primarily consist of Federal Home Loan Bank (“FHLB”) stock. FHLB stock is restricted because such stock may only be sold to FHLB at its par value. Due to the restrictive terms, and the lack of a readily determinable market value, FHLB stock is carried at cost. The investments in FHLB stock are required investments related to the Company’sBank’s borrowings from FHLB. FHLB obtains its funding primarily through issuance of consolidated obligations of the FHLB system. The U.S. government does not guarantee these obligations, and each of the regional FHLBs are jointly and severally liable for repayment of each other’s debt.

78


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1 —Summary of Significant Accounting Policies – Continued

Loans held for sale — Loans—Single-family residential mortgage loans originated and intended for salewith the intent to be sold in the secondary market are considered held for sale. Loans with best effort delivery commitments are carried at the lower of aggregate cost or estimated fair value.  Loans under mandatory delivery commitments are carried at fair value asin order to match changes in the value of the loans with the value of the economic hedges on the loans.  Fair values for loans held for sale are determined by aggregate outstanding commitments from investorscomparing actual loan rates to current secondary market prices for similar loans.  Net unrealized losses on loans held for sale that are carried at lower of cost or current investor yield requirements. Net estimated losses before sale, if any,market are recognized through athe valuation allowance by charges to income.  Mortgage loans held for sale are generally sold with the mortgage servicing rights. Gains or losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold. Substantially all of the residential mortgage loans originated are sold to larger financial institutions; however, the Company provides loan servicing for FNMA and Freddie Mac mortgage loans. Servicing income from servicing sold residential mortgages is not significant.institutions.

Loans held for investment — Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal balance adjusted for any charge-offs, the allowance for loan losses, any deferred fees or costs on originated loans and unamortized premiums or discounts on purchasedacquired loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the effective interest method.

Non-accrual loans — The accrual of interestLoans are placed on loans is generally discontinued at the time the principal and interest arenon-accrual status when they become 90 days or more past due or at such earlier time as management determines timely recognition of interest to be in doubt. Accrual of interest is discontinued on a loan when in management’s opinion,management believes, after considering economic and business conditions, collection efforts, and the borrower’s financial condition, that the borrower will be unable to make payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received, or payment is considered certain. Loans may be returned to accrual status when all delinquent interest and principal amounts contractually due are brought current and future payments are reasonably assured.

 

76


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1 —Summary of Significant Accounting Policies – Continued

Impaired loans — The Company considers loans impaired when, based on current information and events, it is probable the Company will be unable to collect all principal and interest payments due according to the contractual terms of the loan agreement. Such loans are generally classified as Substandard or Doubtful loans (see Note 3). Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral, if the loan is collateral dependent. Changes in these values are reflected in incomerecorded to provision for loan losses and as adjustments to the ALLL.

Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.

79


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1 —Summary of Significant Accounting Policies – Continued

Acquired loans - Loans acquired through purchase or through a business combination are recorded at their fair value at the acquisition date.  Credit discounts are included in the determination of fair value; therefore, an allowance for loan losses is not recorded at the acquisition date.  Should the Company’s allowance for credit losses methodology indicate that the credit discount associated with acquired, non-purchased credit impaired loans is no longer sufficient to cover probable losses inherent in those loans; the Company will establish an allowance for those loans through a charge to provision for loan losses.  At the time of an acquisition, the Company evaluates loans to determine if they are purchase credit impaired (“PCI”) loans. PCI loans are those acquired loans with evidence of credit deterioration for which it was probable at acquisition that the Company would be unable to collect all contractual payments. The Company makes this determination by considering past due and/or nonaccrual status, prior designation of a troubled debt restructuring, or other factors that may suggest we will not be able to collect all contractual payments. The non-accretable difference on PCI loans is not accreted to interest income. The accounting for PCI loans is periodically updated for changes in cash flow expectations, and reflected in interest income over the life of the loans as accretable yield. Any subsequent decreases in expected cash flows attributable to credit deterioration are recognized by recording a provision for loan losses. An acquired loan previously classified by the seller as a troubled debt restructuring is no longer classified as such at the date of acquisition. Past due status is reported based on contractual payment status.

Allowance for loan lossesCredit risk is inherent in the business of extending loans and leases to borrowers.  Normally, this credit risk is addressed through a valuation allowance termed ALLL.  The ALLL represents a creditor’s estimate of loan losses inherent within the loan portfolio at each balance sheet date.  Netted against the outstanding loan balance, this allowance reduces the balance to the creditor’s estimate of what will be collected from borrowers.  The ALLL is established through charges to current period earnings by recording a provision for loan losses.  When losses become specifically identifiable and quantifiable, the loan balance is reduced through recording a charge-off against the ALLL.  Should payments be received on charged-off loans, the payment is credited to the allowance as a recovery.

Charge-offs of loans are generally processed by policy as well as by regulatory guidance.  Secured consumer loans, including residential real estate loans, that are 120 days past due, are written down to the fair value of the collateral.  Unsecured loans are charged-off once the loan is 120 days past due.  Decisions on when to charge-off commercial loans and loans secured by commercial real estate are made on an individual basis rather than length of delinquency, though it is a factor in the decision.  The financial resources of the borrower and/or guarantor and the nature and value of any collateral are other factors considered.

The ALLL is based on a continuing review of loans, which includes consideration of actual loss experience, changes in the size and character of the portfolio, identification of individual problem situations whichthat may affect the borrower’s ability to repay, evaluations of the prevailing and anticipated economic conditions, and other qualitative factors. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision, as more information becomes available.

The ALLL is increased by charges to income and decreased by charge-offs (net of recoveries). While management uses available information to recognize losses on loans, changes in economic conditions may necessitate revision of the estimate in future years. In addition, various regulatory agencies, as an integral part of their examination processes, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additional losses based on their judgment using information available to them at the time of their examination.

The ALLL consists of specific and general components. The specific component relates to loans determined to be impaired which are individually evaluated for impairment. For impaired loans individually evaluated, an allowance is established when the discounted cash flows, or the fair value of the collateral, if the loan is collateral dependent, of the impaired loan is lower than the carrying value of the loan. The general component covers all loans not individually evaluated for impairment and is based on historical loss experience adjusted for qualitative factors. Various qualitative factors are considered including changes to underwriting policies, loan concentrations, volume and mix of loans, size and complexity of individual credits, locations of credits and new market areas, changes in local and national economic conditions, real estate foreclosure rates, and trends in past due and classified credits.

80


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1 —Summary of Significant Accounting Policies – Continued

Premises and equipment — Land is carried at cost. Premises and equipment are carried at cost, net of accumulated depreciation and amortization. Depreciation and amortization expense is computed using the straight-line method based on the estimated useful lives of the related assets below:

Building and building improvements

15 to 40 years

Leasehold improvements

  3 to 15 years

Furniture and equipment

  3 to 15 years

Computers, software and equipment

  3 to 5 years

Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized.

Bank-Owned Life Insurance (“BOLI”) — The Bank has purchased life insurance policies. These policies provide protection against the adverse financial effects that could result from the death of a key employee and provide tax-exempt income to offset expenses associated with the plans. It is the Bank’s intent to hold these policies as a long-term investment; however, there may be an income tax impact if the Bank chooses to surrender certain policies. Although the lives of individual current or former management-level employees are insured, the Bank is the owner and sole or partial beneficiary. BOLI is carried at the cash surrender value (“CSV”) of the underlying insurance contract. Changes in the CSV and any death benefits received in excess of the CSV are recognized as non-interest income.

Goodwill — Goodwill represents the excess of the purchase considerations paid over the fair value of the assets acquired, net of the fair values of liabilities assumed in a business combination and is not amortized but is reviewed annually, or more frequently as current circumstances and conditions warrant, for impairment. An assessment of qualitative factors is completed to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative analysis concludes that further analysis is required, then a quantitative impairment test would be completed. The quantitative goodwill impairment compares the reporting unit's estimated fair values, including goodwill, to its carrying amount. If the carrying amount exceeds its reporting unit’s fair value, then an impairment loss would be recognized as a charge to earnings but is limited by the amount of goodwill allocated to that reporting unit.

Other Intangible Assets — Other intangible assets consist primarily of core deposit intangibles (“CDI”), which are amounts recorded in business combinations or deposit purchase transactions related to the value of transaction-related deposits and the value of the client relationships associated with the deposits. Core deposit intangibles are amortized over the estimated useful life of such deposits. These assets are reviewed at least annually for events or circumstances that could affect their recoverability. These events could include loss of the underlying core deposits, increased competition or adverse changes in the economy. To the extent other identifiable intangible assets are deemed unrecoverable; impairment losses are recorded in other non-interest expense to reduce the carrying amount of the assets.

Mortgage and Other Servicing Rights — Mortgage and other servicing rights are recognized as separate assets when rights are acquired through purchase of such rights or through the sale of loans. Generally, purchased servicing rights are capitalized at the cost to acquire the rights. For loans sold, the fair value of the servicing rights are estimated and capitalized. Fair value is based on market prices for comparable servicing rights contracts. Capitalized servicing rights are reported in other assets and are amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets.

81


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1 —Summary of Significant Accounting Policies – Continued

Other real estate owned — Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the lower of the carrying amount of the foreclosed loan or the fair value of the foreclosed asset, less costs to sell, at the date of foreclosure. Subsequent to foreclosure, valuations aremanagement periodically performed by managementperforms valuations and the assets are carried at the lower of carrying amount or fair value, less selling costs. Revenues and expenses from operations and changes in the valuation allowance are included in other real estate owned expense.

Transfers of financial assets — Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.


77


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1 —Summary of Significant Accounting Policies – Continued

Premises and equipment — Land is carried at cost. Premises and equipment are carried at cost, net of accumulated depreciation and amortization. Depreciation and amortization expense is computed using the straight-line method based on the estimated useful lives of the related assets, generally 10 to 30 years for buildings and 3 to 5 years for equipment, furniture, and software. Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized.

Income taxes —Deferred— Deferred income tax assets and deferred income tax liabilities represent the tax effect of temporary differences between financial reporting and tax reporting measured at enacted tax rates in effect for the year in which the differences are expected to reverse.  The Company recognizes only the impact of tax positions that, based on their technical merits, are more likely than not to be sustained upon an audit by the taxing authority.

Developing the provision for income taxes, including the effective tax rate and analysis of potential tax exposure items, if any, requires significant judgment and expertise in federal and state income tax laws, regulations and strategies, including the determination of deferred income tax assets and liabilities and any estimated valuation allowances deemed necessary to value deferred income tax assets.  Judgments and tax strategies are subject to audit by various taxing authorities.  While the Company believes it has no significant uncertain income tax positions in the consolidated financial statements, adverse determinations by these taxing authorities could have a material adverse effect on the consolidated financial position, resultspositions, result of operations, or cash flows.

Off-balance sheet credit related financial instruments — In the ordinary course of business, the Company has entered into commitments to extend credit, including commitments under credit card arrangements, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded when they are funded.

Incentive share-basedShare-based compensation plans — The fair value of incentive share-based awards is recorded as compensation expense over the vesting period of the award. Compensation expense for stock options is estimated at the date of grant using the Black-Scholes option-pricing model. Compensation expense for restricted stock units (“RSU”)RSU’s is based on the fair value of the Company’s common shares at the date of grant. RSU awards generally vest in thirds over three years from date of grant.

Earnings per share — Basic earnings per common share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares include shares that may be issued by the Company for outstanding stock options determined using the treasury stock method and for all outstanding RSU’s.RSUs.

Earnings per common share have been computed based on the following:

 

 

Year ended December 31,

 

(in thousands, except share and per share data)

 

2016

 

 

2015

 

 

2014

 

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

23,610

 

 

$

19,614

 

 

$

14,905

 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average number of common shares outstanding

 

 

17,732,920

 

 

 

16,258,424

 

 

 

14,677,499

 

Incremental shares assumed for stock options and RSUs

 

 

482,004

 

 

 

570,781

 

 

 

456,526

 

Weighted-average number of dilutive shares outstanding

 

 

18,214,924

 

 

 

16,829,205

 

 

 

15,134,025

 

Basic earnings per common share

 

$

1.33

 

 

$

1.21

 

 

$

1.02

 

Diluted earnings per common share

 

$

1.30

 

 

$

1.17

 

 

$

0.98

 


 

7882


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Note 1 —Summary of Significant Accounting Policies – Continued

Earnings per common share have been computed based on the following:

 

 

Year ended December 31,

 

(Dollars in thousands, except share and share data)

 

2019

 

 

2018

 

 

2017

 

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

44,324

 

 

$

40,632

 

 

$

19,846

 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average number of common shares outstanding

 

 

18,822,103

 

 

 

18,679,165

 

 

 

18,019,643

 

Incremental shares assumed for stock options and RSUs

 

 

194,944

 

 

 

303,356

 

 

 

427,978

 

Weighted-average number of dilutive shares outstanding

 

 

19,017,047

 

 

 

18,982,521

 

 

 

18,447,621

 

Basic earnings per common share

 

$

2.35

 

 

$

2.18

 

 

$

1.10

 

Diluted earnings per common share

 

$

2.33

 

 

$

2.14

 

 

$

1.08

 

Comprehensive income — U.S. GAAP generally requires that recognized revenues, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-saleavailable for sale securities, net of the related income tax effect, are reported as a separate component of the equity section of the consolidated balance sheets, such items, along with net income, are components of comprehensive income.

Advertising costs — Advertising costs are expensed when incurred and totaled $1,044,000$1.8 million in 2016, $853,0002019, $1.3 million in 2015,2018, and $934,000$1.4 million in 2014.

Reclassifications — Certain amounts in the prior years’ financial statements have been reclassified to conform to the current year’s presentation.2017.

Impact of Recent Authoritative Accounting Guidance — The Accounting Standards Codification™ (“ASC”) is the Financial Accounting Standards Board’s (“FASB”) officially recognized source of authoritative GAAP applicable to all public and non-public non-governmental entities.  Periodically, the FASB will issue Accounting Standard updates (“ASU”) to its ASC.  Rules and interpretive releases of the SEC under the authority of the federal securities laws are also sources of authoritative GAAP for us as an SEC registrant. All other accounting literature is non-authoritative.

In June 2016,December 2019, FASB amended FASB ASC Topic 326, Financial Instruments - Credit Losses. issued ASU 2019-12, Income Taxes.  The amendments in this Update replaceASU simplify the current incurred loss model with a methodology that reflects expected credit losses overaccounting for income taxes by removing certain exceptions to the lifegeneral principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.  For public business entities, the loanamendments in this ASU are effective for fiscal years, and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates. Theinterim periods within those fiscal years, beginning after December 15, 2020. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption of the amendments is permitted, including adoption in any interim period for (1) public business entities for the first interimperiods for which financial statements have not yet been issued and annual reporting(2) all other entities for periods beginning after December 15, 2019. The Company is currently evaluating the impact of these amendmentsfor which financial statements have not yet been made available for issuance. An entity that elects to the Company’s financial position and results of operations and currently does not know or cannot reasonably quantify the impact of the adoption ofearly adopt the amendments as a result of the complexity and extensive changes from the amendments. The ALLL is a material estimate of the Company and given the change fromin an incurred loss model to a methodology that considers the credit loss over the life of the loan, there is the potential for an increase in the ALLL at adoption date. The Company is anticipating a significant change in the processes and procedures to calculate the ALLL, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. The Company will also develop new procedures for determining an allowance for credit losses relating to held-to-maturity investment securities. In addition, the current accounting policy and procedures for other-than-temporary impairment on available-for-sale investment securities will be replaced with an allowance approach. The Company is expecting to begin developing and implementing processes and procedures during the next two years to ensure it is fully compliant with the amendments at adoption date. For additional information on the ALLL see Note 3

In January 2016, FASB amended FASB ASC Topic 825, Financial Instruments. The amendments in this Update address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments are effective for public business entities for the first interim and annual reporting periods beginning after December 15, 2017. Early adoption is only permitted under certain circumstances outlined in the amendments. A reporting entityperiod should apply the amendments by means of a cumulative-effect adjustment to the Company’s statement of financial conditionreflect any adjustments as of the beginning of the reporting yearannual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period. Adoption of adoption. The amendments related to equity securities without readily determinable fair values should be applied prospectively. The CompanyASU 2019-12 is currently evaluating the impact of these amendments, but does not expect themexpected to have a material effectimpact on the Company’s financial position or results of operations.Consolidated Financial Statements.

In September 2015, FASB amended FASB ASC Topic 805, Business Combinations. The amendments in this Update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustments are necessary. The amendments in this Update require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts,

7983


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Note 1 —Summary of Significant Accounting Policies – Continued

calculated as if the accounting had been completed at the acquisition date.In August 2018, FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this Update requireASU broaden the scope of ASC Subtopic 350-40 to include costs incurred to implement a hosting arrangement that is a service contract. The amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an entity to present separatelyinternal-use software license). The costs are capitalized or expensed depending on the facenature of the income statement or disclose incosts and the notesproject stage during which they are incurred, consistent with the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date.accounting for costs for internal-use software. The amendments should be applied prospectivelyin this ASU result in consistent capitalization of implementation costs of a hosting arrangement that is a service contract and implementation costs incurred to all periods presented and aredevelop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this ASU. This ASU is effective for public business entities for annual periodsfiscal years beginning after December 15, 2019 and interim periods within those annualfiscal years. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Adoption of ASU 2018-15 is not expected to have a material impact on the Company’s Consolidated Financial Statements.

In August 2018, FASB issued ASU 2018-13, Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this ASU modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The ASU removes, modifies and adds disclosure requirements in Topic 820. The following disclosure requirements were removed: 1) the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, 2) the policy for timing of transfers between levels, and 3) the valuation processes for Level 3 fair value measurements. This ASU modified disclosure requirements by requiring that the measurement uncertainty disclosure communicates information about the uncertainty in measurement as of the reporting date. The following disclosure requirements were added: 1) changes in unrealized gains and losses for the period included in other comprehensive income for the recurring Level 3 fair value measurements held at the end of the reporting period, and 2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company has evaluated2019. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this ASU and delay adoption of the impactadditional disclosures until their effective date. Adoption of these amendments and determined there was noASU 2018-13 is not expected to have a material effectimpact on the Company’s financial position or results of operations.

Consolidated Financial Statements.

In August 2014,July 2018, FASB amended FASB ASC Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors. The amendment requires that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: 1) The loan has a government guarantee that is not separable from the loan before foreclosure; 2) At the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim; and 3) At the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the

amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The amendment is effective for public business entities for interim and annual periods beginning after December 15, 2014. An entity can elect to adopt the amendments using either a prospective transition method or a modified retrospective method as defined in the amendment. The Company has evaluated the impact of the adoption of this amendment and determined there was not a material effect on the Company’s financial position or results of operations.

In June 2014, FASB amended FASB ASC Topic 860, Transfers and Servicing. issued ASU No. 2018-11, Targeted Improvements. The amendments in this Update requireASU provide entities with an additional (and optional) transition method to adopt the following accounting changes: 1) changenew leases standard. Under this new transition method, an entity initially applies the accountingnew leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity’s reporting for repurchase-to-maturity transactionsthe comparative periods presented in the financial statements in which it adopts the new leases standard will continue to secured borrowing accounting; and 2) for repurchase finance arrangements, require separate accounting for a transfer of a financial asset executed contemporaneouslybe in accordance with current GAAP (Topic 840, Leases).  In addition, the amendments in this ASU provide lessors with a repurchase agreement withpractical expedient, by class of underlying asset, to not separate non-lease components from the same counterparty, which will result inassociated lease component and, instead, to account for those components as a secured borrowing accounting forsingle component if the repurchase agreement.  The amendments also require certain disclosures for securities sold under agreements to repurchase (“repurchase agreements”), securities lending transactions, and repurchase-to-maturity transactions that arenon-lease components otherwise would be accounted for as secured borrowings. The accounting changes are effective for public business entities forunder the first interim or annual reporting periods beginning after December 15, 2014. The disclosure changes for repurchase agreements are effective for public business entities for annual reporting periods beginning after December 15, 2014. The Company has evaluated the impact of the adoption of this amendment and determined there was not a material effect on the Company’s financial position or results of operations.

In May 2014, FASB amended FASB ASC Topic 606, Revenue from Contracts with Customersnew revenue guidance (Topic 606). The amendments clarify the principles for recognizing revenue and develop a common revenue standard among industries. The new guidance establishes the following core principal: recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for goods or services. Five steps are provided for a company or organization to follow to achieve such core principle. The new guidance also includes a cohesive set of disclosure requirements that will provide users of financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. For public entities, the amendments arethis ASU became effective for annual reporting periods beginning after December 15, 2017, including interim periods within the reporting period. Early application is not permitted. The entity should apply the amendments using one of two retrospective methods described in the amendment. The Company is currently evaluating the impact of the adoption of the amendments, but does not expect them to have a material effect on the Company’s financial position or results of operations.January 1, 2019.  

In January 2014, FASB amended FASB ASC Topic 323, Investments - Equity Method and Joint Ventures. The amendments permitted entities to make an accounting policy election for their investments in qualified affordable

8084


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Note 1 —Summary of Significant Accounting Policies – ConcludedContinued

housing projects usingIn August 2017, FASB issued ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities. The amendments in this ASU are intended to provide investors better insight to an entity's risk management hedging strategies by permitting a company to recognize the proportional amortization method ifeconomic results of its hedging strategies in its financial statements. The amendments in this ASU permit hedge accounting for hedging relationships involving nonfinancial risk and interest rate risk by removing certain conditions are met. Underlimitations in cash flow and fair value hedging relationships. In addition, the proportional amortization method,ASU requires an entity amortizesto present the initial costearnings effect of the investmenthedging instrument in proportionthe same income statement line item in which the earnings effect of the hedged item is reported. The Company adopted this ASU effective January 1, 2019. The adoption of this ASU did not have an impact on the Company's Consolidated Financial Statements.

In March 2017, FASB issued ASU 2017-08, "Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities." The ASU requires entities to amortize the premium on certain purchased callable debt securities to the tax creditsearliest call date, which more closely aligns the amortization period of premiums and other tax benefits received and recognizes the net investment performancediscounts to expectations incorporated in the income statementmarket prices. Entities will no longer recognize a loss in earnings upon the debtor's exercise of a call on a purchased debt security held at a premium. The ASU does not require any accounting change for debt securities held at a discount; therefore, the discount will continue to be amortized as a componentan adjustment of income tax expense. The amendments should be applied retrospectively to all periods presented and areyield over the contractual life of the investment. This ASU is effective for public business entities forinterim and annual periods and interim periods within those annualreporting periods beginning after December 15, 2014.2018. The adoption of these amendmentsCompany adopted ASU 2017-08 on January 1, 2019 and it did not have a material effectimpact on the Company's Consolidated Financial Statements.

In June 2016, the Financial Accounting Standard Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The ASU significantly changes the accounting for credit loss measurement on loans and debt securities. For loans and held-to-maturity debt securities, the ASU requires a current expected credit loss (“CECL”) measurement to estimate the allowance for credit losses ( “ACL”) for the remaining estimated life of the financial asset (including off-balance sheet credit exposures) using historical experience, current conditions, and reasonable and supportable forecasts. The ASU eliminates the existing guidance for Purchased Credit Impaired (“PCI”) loans but requires an allowance for purchased financial assets with more than an insignificant deterioration since origination, otherwise known as purchase credit deteriorated (“PCD”) assets. In addition, the ASU modifies the other-than-temporary impairment model for available-for-sale debt securities to require an allowance for credit impairment instead of a direct write-down, which allows for reversal of credit impairments in future periods based on an improvement in credit. This ASU is effective for interim and annual reporting periods beginning after December 15, 2019.

On October 16, 2019, the FASB voted to delay the adoption by two years to January 2023 for private companies, not-for-profit companies, and certain small public companies that meet the definition of a smaller reporting company (“SRC”), as defined by the Securities and Exchange Commission. To meet the requirements of an SRC, an entity must be an issuer as defined by the SEC and have public float of less than $250 million, or public float of less than $700 million and annual revenues of less than $100 million. As of June 30, 2019, our public float was $466 million and annual revenues for 2018 were $130 million. As a result, we are not an SRC and, therefore, were required to adopt the ASU effective January 1, 2020.

In implementing the ASU, the Company intends to recognize an ACL for held-to-maturity and available-for-sale debt securities. The ACL on available-for-sale debt securities will be subject to a limitation based on the fair value of the debt securities. Based on the credit quality of existing debt securities, the Company does not expect the ACL for debt securities to be material.

85


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1 —Summary of Significant Accounting Policies – Continued

The Company expects to use the weighted average remaining maturity (or “WARM”) approach, adjusted for prepayments, to calculate CECL. As described in the FASB Staff Question and Answers, the Company intends to use a qualitative approach to adjust historical loss information for current conditions and for reasonable and supportable forecasts. As noted in section ASU 326-20-30-9, “An entity shall not rely solely on past events to estimate expected credit losses. When an entity uses historical loss information, it shall consider the need to adjust historical information to reflect the extent to which management expects current conditions and reasonable and supportable forecasts to differ from the conditions that existed for the period over which historical information was evaluated. The adjustments to historical loss information may be qualitative in nature and should reflect changes related to relevant data (such as changes in unemployment rates, property values, commodity values, delinquency, or other factors that are associated with credit losses on the financial asset or in the group of financial assets).”

The Company expects the ACL to increase upon adoption, because the ACL is required to cover the full remaining expected life of the portfolio that is greater than one year, rather than the incurred loss model that assumes annual credit losses under current U.S. GAAP. In addition, a portion of the increase will be due to PCI loans that will be reclassified as PCD loans with the credit related non-accretable discount increasing both ACL and loan balances, but not retained earnings. However, accretable discounts held on non-PCD loans are not allowed to be moved to ACL as part of the adoption of this ASU.

The Company will set aside additional ACL for non-PCD loans through retained earnings upon adoption of this ASU. As a result, the Company will continue to hold accretable discounts that will be recorded to interest income over the remaining life of non-PCD loans as well as a similar amount in ACL.

The Company expects greater volatility in its earnings and those of other banks after adoption due to the nature and time horizon used to calculate CECL. In addition, the Company expects a potential negative impact to credit availability and reduced loan terms to borrowers as this ASU is adopted by financial institutions. Lastly, the Company expects a lack of comparability with financial performance to many of its peers as it adopts this ASU, due to delayed adoption for public companies with total assets similar in size to us.

The ultimate effect of CECL on our ACL will depend on the size and composition of the loan portfolio; the loan portfolio’s credit quality and economic conditions at the time of adoption; as well as any refinements to models, methodologies, and other key assumptions used.

The Company expects an increase in ACL of between approximately $10.0 million to $14.0 million, or approximately 30% to 45%.  This increase will include the gross-up for nonaccretable discounts on PCD loans of between approximately $2.5 million to $5.0 million, or approximately 10% to 15%.  The Company expects the cumulative, tax-effected impact to total shareholders’ equity of between approximately $6.0 million to $8.0 million, or approximately 2.0% to 2.5%.  The Company expects its regulatory capital amounts and ratios to be negatively impacted. An increase in our ACL will result in a decrease in regulatory capital amounts and ratios.

86


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1 —Summary of Significant Accounting Policies – Continued

In February 2016, FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments in this ASU require lessees to recognize the following for all leases (with the exception of short-term) at the commencement date; a lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The amendments in this ASU leave lessor accounting largely unchanged, although certain targeted improvements were made to align lessor accounting with the lessee accounting model. This ASU simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities.

Lessees are no longer be provided with a source of off-balance sheet financing. ASU No. 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018. The Company adopted the new guidance effective January 1, 2019. The Company elected the transition option provided in ASU No. 2018-11 and applied the modified retrospective approach. The Company also elected certain relief options for practical expedients: the option to not separate lease and non-lease components and instead to account for them as a single lease component, and the option to not recognize right-of-use assets and lease liabilities that arise from short-term leases (i.e. lease terms of twelve months or less). The Company has six real property leases under non-cancelable operating leases, five of which were subject to this ASU that resulted in the recognition of right-of-use assets and lease liabilities. Most of the Company’s financial positionequipment is owned or resultson short-term leases. The Company compiled a complete inventory of operations.arrangements containing leases and analyzed the lease data necessary to meet the new requirements. In connection with the adoption of this ASU, as of January 1, 2019, the Company recorded a $2.2 million right of use asset and a $2.2 million lease liability on its Consolidated Statements of Financial Condition.

Subsequent events — The Company has evaluated events occurring subsequent to December 31, 2016 through March 10, 2017, which is2019 for disclosure in the date theconsolidated financial statements were available to be issued.statements.

 

Note 2 — Investment Securities

Amortized cost and approximate fair values of investment securities available for sale are summarized as follows:

 

 

 

 

 

 

 

 

 

 

Gross Unrealized Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less

 

 

12

 

 

 

 

 

 

 

 

 

 

 

Gross

 

 

Than

 

 

Months

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

12

 

 

or

 

 

Fair

 

(in thousands)

 

Cost

 

 

Gain

 

 

Months

 

 

Longer

 

 

Value

 

As of December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government-sponsored securities

 

$

119,202

 

 

$

71

 

 

$

(669

)

 

$

(1

)

 

$

118,603

 

Municipal securities

 

 

25,176

 

 

 

401

 

 

 

(58

)

 

 

-

 

 

 

25,519

 

Mortgage-backed securities

 

 

182,867

 

 

 

679

 

 

 

(1,111

)

 

 

(614

)

 

 

181,821

 

Corporate securities

 

 

10,000

 

 

 

28

 

 

 

(32

)

 

 

(330

)

 

 

9,666

 

 

 

$

337,245

 

 

$

1,179

 

 

$

(1,870

)

 

$

(945

)

 

$

335,609

 

As of December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government-sponsored securities

 

$

104,591

 

 

$

11

 

 

$

(612

)

 

 

-

 

 

$

103,990

 

Municipal securities

 

 

36,820

 

 

 

926

 

 

 

(7

)

 

 

(9

)

 

 

37,730

 

Mortgage-backed securities

 

 

181,857

 

 

 

940

 

 

 

(724

)

 

 

(687

)

 

 

181,386

 

Corporate securities

 

 

10,000

 

 

 

-

 

 

 

(253

)

 

 

(117

)

 

 

9,630

 

 

 

$

333,268

 

 

$

1,877

 

 

$

(1,596

)

 

$

(813

)

 

$

332,736

 

Carrying amounts and estimated fair values of securities held-to-maturity are as follows:

 

 

 

 

 

 

 

 

 

 

Gross Unrealized Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less

 

 

12

 

 

 

 

 

 

 

 

 

 

 

Gross

 

 

Than

 

 

Months

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

12

 

 

or

 

 

Fair

 

(in thousands)

 

Cost

 

 

Gain

 

 

Months

 

 

Longer

 

 

Value

 

As of December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

 

$

73,512

 

 

$

105

 

 

$

(579

)

 

$

(38

)

 

$

73,000

 

Certificates of deposit

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

$

73,512

 

 

$

105

 

 

$

(579

)

 

$

(38

)

 

$

73,000

 

As of December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

 

$

63,650

 

 

$

238

 

 

$

(74

)

 

$

(2

)

 

$

63,812

 

Certificates of deposit

 

 

2,232

 

 

 

5

 

 

 

-

 

 

 

-

 

 

 

2,237

 

 

 

$

65,882

 

 

$

243

 

 

$

(74

)

 

$

(2

)

 

$

66,049

 

 

 

 

 

 

 

 

 

 

 

 

Gross Unrealized Losses

 

 

 

 

 

 

 

 

 

 

 

Gross

 

 

Less

 

 

 

 

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Than

 

 

12 Months

 

 

Fair

 

(Dollars in thousands)

 

Cost

 

 

Gain

 

 

12 Months

 

 

or Longer

 

 

Value

 

As of December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government-sponsored

   securities

 

$

20,957

 

 

$

235

 

 

$

-

 

 

$

(2

)

 

$

21,190

 

Municipal securities

 

 

56,252

 

 

 

670

 

 

 

(1

)

 

 

(9

)

 

 

56,912

 

Mortgage-backed securities

 

 

321,944

 

 

 

2,188

 

 

 

(481

)

 

 

(543

)

 

 

323,108

 

Corporate securities

 

 

5,000

 

 

 

-

 

 

 

-

 

 

 

(215

)

 

 

4,785

 

 

 

$

404,153

 

 

$

3,093

 

 

$

(482

)

 

$

(769

)

 

$

405,995

 

As of December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government-sponsored

   securities

 

$

48,954

 

 

$

-

 

 

$

-

 

 

$

(588

)

 

$

48,366

 

Municipal securities

 

 

10,274

 

 

 

59

 

 

 

(12

)

 

 

(53

)

 

 

10,268

 

Mortgage-backed securities

 

 

222,218

 

 

 

218

 

 

 

(156

)

 

 

(4,523

)

 

 

217,757

 

Corporate securities

 

 

5,000

 

 

 

-

 

 

 

(23

)

 

 

(404

)

 

 

4,573

 

 

 

$

286,446

 

 

$

277

 

 

$

(191

)

 

$

(5,568

)

 

$

280,964

 

8187


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 2 — Investment Securities – Continued

Carrying amounts and estimated fair values of securities held to maturity are as follows:

 

 

 

 

 

 

 

 

 

 

Gross Unrealized Losses

 

 

 

 

 

 

 

 

 

 

 

Gross

 

 

Less

 

 

 

 

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Than

 

 

12 Months

 

 

Fair

 

(Dollars in thousands)

 

Cost

 

 

Gain

 

 

12 Months

 

 

or Longer

 

 

Value

 

As of December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

As of December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

 

$

65,462

 

 

$

28

 

 

$

(39

)

 

$

(685

)

 

$

64,766

 

 

 

$

65,462

 

 

$

28

 

 

$

(39

)

 

$

(685

)

 

$

64,766

 

The gross unrealized losses and the fair value for securities available for sale and held to maturity are as follows:

 

 

December 31, 2019

 

 

 

Less Than 12 Months

 

 

12 Months or More

 

 

Total

 

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

(Dollars in thousands)

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government-sponsored securities

 

$

-

 

 

$

-

 

 

$

5,998

 

 

$

(2

)

 

$

5,998

 

 

$

(2

)

Municipal securities

 

 

3,060

 

 

 

(1

)

 

 

1,338

 

 

 

(9

)

 

 

4,398

 

 

 

(10

)

Mortgage-backed securities

 

 

115,243

 

 

 

(481

)

 

 

70,383

 

 

 

(543

)

 

 

185,626

 

 

 

(1,024

)

Corporate securities

 

 

-

 

 

 

-

 

 

 

4,785

 

 

 

(215

)

 

 

4,785

 

 

 

(215

)

 

 

$

118,303

 

 

$

(482

)

 

$

82,504

 

 

$

(769

)

 

$

200,807

 

 

$

(1,251

)

Held to Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

Less Than 12 Months

 

 

12 Months or More

 

 

Total

 

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

(Dollars in thousands)

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government-sponsored securities

 

$

-

 

 

$

-

 

 

$

48,366

 

 

$

(588

)

 

$

48,366

 

 

$

(588

)

Municipal securities

 

 

1,701

 

 

 

(12

)

 

 

4,095

 

 

 

(53

)

 

 

5,796

 

 

 

(65

)

Mortgage-backed securities

 

 

35,155

 

 

 

(156

)

 

 

150,569

 

 

 

(4,523

)

 

 

185,724

 

 

 

(4,679

)

Corporate securities

 

 

1,977

 

 

 

(23

)

 

 

2,596

 

 

 

(404

)

 

 

4,573

 

 

 

(427

)

 

 

$

38,833

 

 

$

(191

)

 

$

205,626

 

 

$

(5,568

)

 

$

244,459

 

 

$

(5,759

)

Held to Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

 

$

9,163

 

 

$

(39

)

 

$

46,996

 

 

$

(685

)

 

$

56,159

 

 

$

(724

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

88


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Note 2 — Investment Securities – Continued

The amortized cost and estimated fair values of investment securities that are available-for-saleavailable for sale and held-to-maturityheld to maturity at December 31, 2016,2019, by contractual maturity, are as follows:

 

Available-for-sale

 

 

Held-to-maturity

 

 

Available for sale

 

 

Held to maturity

 

 

Amortized

 

 

Fair

 

 

Amortized

 

 

Fair

 

 

Amortized

 

 

Fair

 

 

Amortized

 

 

Fair

 

(in thousands)

 

Cost

 

 

Value

 

 

Cost

 

 

Value

 

(Dollars in thousands)

 

Cost

 

 

Value

 

 

Cost

 

 

Value

 

Securities maturing in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One year or less

 

$

22,211

 

 

$

22,288

 

 

$

10,099

 

 

$

10,107

 

 

$

24,499

 

 

$

24,544

 

 

$

-

 

 

$

-

 

After one year through five years

 

 

110,702

 

 

 

110,290

 

 

 

46,310

 

 

 

46,102

 

 

 

52,563

 

 

 

52,893

 

 

 

-

 

 

 

-

 

After five years through ten years

 

 

93,472

 

 

 

92,908

 

 

 

12,403

 

 

 

12,218

 

 

 

56,694

 

 

 

56,973

 

 

 

-

 

 

 

-

 

After ten years

 

 

110,860

 

 

 

110,123

 

 

 

4,700

 

 

 

4,573

 

 

 

270,397

 

 

 

271,585

 

 

 

-

 

 

 

-

 

 

$

337,245

 

 

$

335,609

 

 

$

73,512

 

 

$

73,000

 

 

$

404,153

 

 

$

405,995

 

 

$

-

 

 

$

-

 

 

Expected maturities may differ from contractual maturities because issuers may have the right to call obligations with or without penalties.

As of December 31, 2016,2019 and 2018, the Company held 302146 and 201 available for sale investment securities with fair values less than amortized cost.cost, respectively. In addition, the Company did not hold any held to maturity securities at December 31, 2019.  The Company held 122 held to maturity securities with fair values less than amortized cost at December 31, 2018.  Management evaluated these investment securities and determined that the decline in value is temporary and related to the change in market interest rates since purchase. The decline in value is not related to any company or industry specific event. The Company anticipates full recovery of the amortized cost with respect to these securities at maturity, or sooner in the event of a more favorable market interest rate environment.

The Company had sales of available for sale securities totaling $2.1 million during the year ended December 31, 2019, which resulted in a net loss of $4,000 compared with $500,000 during the year ended December 31, 2018, which resulted in a net loss of $336,000 and $126.2 million during the year ended December 31, 2017 which resulted in a net loss of $486,000. There were no available for sale securities in a nonaccrual status at December 31, 2019, 2018, and 2017.

Note 3 — LoansDuring the year ended December 31, 2019, the Company elected to make a one-time transfer of 140 securities from the held to maturity classification of $64.6 million to the available for sale classification, and Allowance for Loan Losses

Loans are summarized as follows:

(in thousands)

 

2016

 

 

2015

 

Loans held for investment:

 

 

 

 

 

 

 

 

Commercial real estate loans:

 

 

 

 

 

 

 

 

Real estate term

 

$

582,029

 

 

$

577,804

 

Construction and land development

 

 

240,120

 

 

 

179,664

 

Total commercial real estate loans

 

 

822,149

 

 

 

757,468

 

Commercial and industrial loans

 

 

213,260

 

 

 

208,277

 

Consumer loans:

 

 

 

 

 

 

 

 

Residential and home equity

 

 

72,959

 

 

 

71,169

 

Consumer and other

 

 

15,678

 

 

 

14,945

 

Total consumer loans

 

 

88,637

 

 

 

86,114

 

Gross loans held for investment

 

 

1,124,046

 

 

 

1,051,859

 

Less:

 

 

 

 

 

 

 

 

Net deferred loan fees

 

 

(4,169

)

 

 

(3,884

)

Loans held for investment

 

 

1,119,877

 

 

 

1,047,975

 

Less: allowance for loan losses

 

 

(16,715

)

 

 

(15,557

)

Loans held for investment, net

 

$

1,103,162

 

 

$

1,032,418

 


recorded an unrecognized loss of $19,000, net of taxes, to other comprehensive income.  The Company had no sales of held to maturity securities during the years ended December 31, 2019 and 2018 respectively, compared to $204,000 during the year ended December 31, 2017, which resulted in a net loss of $13,000.   The company had no held to maturity securities in a nonaccrual status at December 31, 2019, 2018, and 2017.

 

82

89


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 3 — Loans and Allowance for Loan Losses

Loans are summarized as follows:

(Dollars in thousands)

 

2019

 

 

2018

 

Loans held for investment:

 

 

 

 

 

 

 

 

Commercial real estate loans:

 

 

 

 

 

 

 

 

Real estate term

 

$

948,073

 

 

$

891,131

 

Construction and land development

 

 

273,963

 

 

 

324,506

 

Total commercial real estate loans

 

 

1,222,036

 

 

 

1,215,637

 

Commercial and industrial loans

 

 

284,738

 

 

 

295,569

 

Consumer loans:

 

 

 

 

 

 

 

 

Residential and home equity

 

 

162,559

 

 

 

155,601

 

Consumer and other

 

 

16,036

 

 

 

16,621

 

Total consumer loans

 

 

178,595

 

 

 

172,222

 

Gross loans held for investment

 

 

1,685,369

 

 

 

1,683,428

 

Less:

 

 

 

 

 

 

 

 

Net deferred loan fees

 

 

(4,451

)

 

 

(4,526

)

Loans held for investment

 

 

1,680,918

 

 

 

1,678,902

 

Less: allowance for loan losses

 

 

(31,426

)

 

 

(25,245

)

Loans held for investment, net

 

$

1,649,492

 

 

$

1,653,657

 

Changes in the allowance for loan losses are as follows:

 

 

Year Ended December 31, 2019

 

 

 

Real

 

 

Construction

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

 

 

 

 

 

Estate

 

 

and Land

 

 

and

 

 

and Home

 

 

and

 

 

 

 

 

(Dollars in thousands)

 

Term

 

 

Development

 

 

Industrial

 

 

Equity

 

 

Other

 

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of year

 

$

9,968

 

 

$

7,022

 

 

$

7,227

 

 

$

729

 

 

$

299

 

 

$

25,245

 

Provisions for loan losses

 

 

2,401

 

 

 

(917

)

 

 

5,157

 

 

 

370

 

 

 

(11

)

 

 

7,000

 

Charge-offs

 

 

(118

)

 

 

(5

)

 

 

(2,644

)

 

 

(19

)

 

 

(360

)

 

 

(3,146

)

Recoveries

 

 

24

 

 

 

890

 

 

 

1,152

 

 

 

38

 

 

 

223

 

 

 

2,327

 

Balance at end of year

 

$

12,275

 

 

$

6,990

 

 

$

10,892

 

 

$

1,118

 

 

$

151

 

 

$

31,426

 

 

 

Year Ended December 31, 2018

 

 

 

Real

 

 

Construction

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

 

 

 

 

 

Estate

 

 

and Land

 

 

and

 

 

and Home

 

 

and

 

 

 

 

 

(Dollars in thousands)

 

Term

 

 

Development

 

 

Industrial

 

 

Equity

 

 

Other

 

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of year

 

$

6,706

 

 

$

6,309

 

 

$

4,314

 

 

$

815

 

 

$

159

 

 

$

18,303

 

Provisions for loan losses

 

 

3,414

 

 

 

587

 

 

 

4,464

 

 

 

(170

)

 

 

330

 

 

 

8,625

 

Charge-offs

 

 

(294

)

 

 

(1

)

 

 

(2,801

)

 

 

 

 

 

(369

)

 

 

(3,465

)

Recoveries

 

 

142

 

 

 

127

 

 

 

1,250

 

 

 

84

 

 

 

179

 

 

 

1,782

 

Balance at end of year

 

$

9,968

 

 

$

7,022

 

 

$

7,227

 

 

$

729

 

 

$

299

 

 

$

25,245

 

90


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Note 3 — Loans and Allowance for Loan Losses – Continued

Changes in the allowance for loan losses

 

 

Year Ended December 31, 2017

 

 

 

Real

 

 

Construction

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

 

 

 

 

 

Estate

 

 

and Land

 

 

and

 

 

and Home

 

 

and

 

 

 

 

 

(Dollars in thousands)

 

Term

 

 

Development

 

 

Industrial

 

 

Equity

 

 

Other

 

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of year

 

$

6,770

 

 

$

5,449

 

 

$

3,718

 

 

$

617

 

 

$

161

 

 

$

16,715

 

Provisions for loan losses

 

 

67

 

 

 

731

 

 

 

1,423

 

 

 

406

 

 

 

123

 

 

 

2,750

 

Charge-offs

 

 

(350

)

 

 

-

 

 

 

(1,098

)

 

 

(359

)

 

 

(231

)

 

 

(2,038

)

Recoveries

 

 

219

 

 

 

129

 

 

 

271

 

 

 

151

 

 

 

106

 

 

 

876

 

Balance at end of year

 

$

6,706

 

 

$

6,309

 

 

$

4,314

 

 

$

815

 

 

$

159

 

 

$

18,303

 

Non-accrual loans are summarized as follows:

 

 

Year Ended December 31, 2016

 

 

 

Real

 

 

Construction

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

 

 

 

 

 

Estate

 

 

and Land

 

 

and

 

 

and Home

 

 

and

 

 

 

 

 

(in thousands)

 

Term

 

 

Development

 

 

Industrial

 

 

Equity

 

 

Other

 

 

Total

 

Balance at beginning of year

 

$

6,783

 

 

$

3,984

 

 

$

3,941

 

 

$

603

 

 

$

246

 

 

$

15,557

 

Additions: Provisions for loan losses

 

 

(617

)

 

 

813

 

 

 

847

 

 

 

(72

)

 

 

(71

)

 

 

900

 

Deductions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross loan charge-offs

 

 

(17

)

 

 

-

 

 

 

(1,511

)

 

 

(6

)

 

 

(240

)

 

 

(1,774

)

Recoveries

 

 

621

 

 

 

652

 

 

 

441

 

 

 

92

 

 

 

226

 

 

 

2,032

 

Net loan charge-offs

 

 

604

 

 

 

652

 

 

 

(1,070

)

 

 

86

 

 

 

(14

)

 

 

258

 

Balance at end of year

 

$

6,770

 

 

$

5,449

 

 

$

3,718

 

 

$

617

 

 

$

161

 

 

$

16,715

 

 

 

 

Year Ended December 31, 2015

 

 

 

Real

 

 

Construction

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

 

 

 

 

 

Estate

 

 

and Land

 

 

and

 

 

and Home

 

 

and

 

 

 

 

 

(in thousands)

 

Term

 

 

Development

 

 

Industrial

 

 

Equity

 

 

Other

 

 

Total

 

Balance at beginning of year

 

$

5,181

 

 

$

4,425

 

 

$

4,608

 

 

$

671

 

 

$

266

 

 

$

15,151

 

Additions: Provisions for loan losses

 

 

1,554

 

 

 

(91

)

 

 

(508

)

 

 

(135

)

 

 

180

 

 

 

1,000

 

Deductions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross loan charge-offs

 

 

(32

)

 

 

(396

)

 

 

(350

)

 

 

-

 

 

 

(281

)

 

 

(1,059

)

Recoveries

 

 

80

 

 

 

46

 

 

 

191

 

 

 

67

 

 

 

81

 

 

 

465

 

Net loan charge-offs

 

 

48

 

 

 

(350

)

 

 

(159

)

 

 

67

 

 

 

(200

)

 

 

(594

)

Balance at end of year

 

$

6,783

 

 

$

3,984

 

 

$

3,941

 

 

$

603

 

 

$

246

 

 

$

15,557

 

 

 

Year Ended December 31, 2014

 

 

 

Real

 

 

Construction

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

 

 

 

 

 

Estate

 

 

and Land

 

 

and

 

 

and Home

 

 

and

 

 

 

 

 

(in thousands)

 

Term

 

 

Development

 

 

Industrial

 

 

Equity

 

 

Other

 

 

Total

 

Balance at beginning of year

 

$

7,268

 

 

$

2,915

 

 

$

3,105

 

 

$

838

 

 

$

264

 

 

$

14,390

 

Additions: Provisions for loan losses

 

 

(1,880

)

 

 

1,171

 

 

 

2,361

 

 

 

(188

)

 

 

236

 

 

 

1,700

 

Deductions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross loan charge-offs

 

 

(705

)

 

 

(26

)

 

 

(949

)

 

 

(16

)

 

 

(356

)

 

 

(2,052

)

Recoveries

 

 

498

 

 

 

365

 

 

 

91

 

 

 

37

 

 

 

122

 

 

 

1,113

 

Net loan charge-offs

 

 

(207

)

 

 

339

 

 

 

(858

)

 

 

21

 

 

 

(234

)

 

 

(939

)

Balance at end of year

 

$

5,181

 

 

$

4,425

 

 

$

4,608

 

 

$

671

 

 

$

266

 

 

$

15,151

 

(Dollars in thousands)

 

2019

 

 

2018

 

Non-accrual loans, not troubled debt restructured:

 

 

 

 

 

 

 

 

Real estate term

 

$

2,416

 

 

$

309

 

Construction and land development

 

 

60

 

 

 

-

 

Commercial and industrial

 

 

1,550

 

 

 

347

 

Residential and home equity

 

 

45

 

 

 

-

 

Consumer and other

 

 

8

 

 

 

-

 

Total non-accrual loans, not troubled debt restructured

 

 

4,079

 

 

 

656

 

Troubled debt restructured loans, non-accrual:

 

 

 

 

 

 

 

 

Real estate term

 

 

2,393

 

 

 

1,449

 

Construction and land development

 

 

-

 

 

 

-

 

Commercial and industrial

 

 

658

 

 

 

150

 

Residential and home equity

 

 

-

 

 

 

-

 

Consumer and other

 

 

-

 

 

 

-

 

Total troubled debt restructured loans, non-accrual

 

 

3,051

 

 

 

1,599

 

Total non-accrual loans

 

$

7,130

 

 

$

2,255

 

 

83As of December 31, 2019 and 2018, there were $1.66 million and $2.24 million, respectively, in purchased credit impaired loans (“PCI”) that were not performing to the original contractual terms.  Including these PCI loans, total non-accrual loans were $8.8 million and $4.5 million at December 31, 2019 and 2018, respectively.

Troubled debt restructured (“TDR”) loans are summarized as follows:

(Dollars in thousands)

 

2019

 

 

2018

 

Accruing troubled debt restructured loans

 

$

25,346

 

 

$

5,912

 

Non-accrual troubled debt restructured loans

 

 

3,051

 

 

 

1,599

 

Total troubled debt restructured loans

 

$

28,397

 

 

$

7,511

 

There were no PCI TDR non-performing loans as of December 31, 2019 and 2018, respectively.  

91


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Note 3 — Loans and Allowance for Loan Losses – Continued

Non-accrual loans are summarized as follows:

(in thousands)

 

2016

 

 

2015

 

Non-accrual loans, not troubled debt restructured:

 

 

 

 

 

 

 

 

Real estate term

 

$

2,386

 

 

$

2,961

 

Construction and land development

 

 

378

 

 

 

56

 

Commercial and industrial

 

 

1,211

 

 

 

1,176

 

Residential and home equity

 

 

142

 

 

 

631

 

Consumer and other

 

 

14

 

 

 

88

 

Total non-accrual loans, not troubled debt restructured

 

 

4,131

 

 

 

4,912

 

Troubled debt restructured loans, non-accrual:

 

 

 

 

 

 

 

 

Real estate term

 

 

808

 

 

 

1,153

 

Construction and land development

 

 

396

 

 

 

1,329

 

Commercial and industrial

 

 

-

 

 

 

21

 

Residential and home equity

 

 

-

 

 

 

-

 

Consumer and other

 

 

-

 

 

 

-

 

Total troubled debt restructured loans, non-accrual

 

 

1,204

 

 

 

2,503

 

Total non-accrual loans

 

$

5,335

 

 

$

7,415

 

Troubled debt restructured loans are summarized as follows:

(in thousands)

 

2016

 

 

2015

 

Accruing troubled debt restructured loans

 

$

5,572

 

 

$

7,049

 

Non-accrual troubled debt restructured loans

 

 

1,204

 

 

 

2,503

 

Total troubled debt restructured loans

 

$

6,776

 

 

$

9,552

 

A restructured loan is considered a troubled debt restructured loan, (“TDR”), if the Company, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession in terms or a below-market interest rate to the debtor that it would not otherwise consider. Each TDR loan is separately negotiated with the borrower and includes terms and conditions that reflect the borrower’s prospective ability to service the debt as modified.

CurrentThe following tables present TDRs that occurred during the periods presented and past due loans heldthe TDRs for investment (accruing and non-accruing) are summarized as follows:which the payment default occurred within twelve months of the restructure date.  A default on a restructured loan results in a transfer to nonaccrual status, a charge-off or a combination of both.

 

 

December 31, 2016

 

 

 

 

 

 

 

30-89 Days

 

 

90+ Days

 

 

Non-

 

 

Total

 

 

Total

 

(in thousands)

 

Current

 

 

Past Due

 

 

Past Due

 

 

accrual

 

 

Past Due

 

 

Loans

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

577,134

 

 

$

1,701

 

 

$

-

 

 

$

3,194

 

 

$

4,895

 

 

$

582,029

 

Construction and land development

 

 

237,433

 

 

 

1,913

 

 

 

-

 

 

 

774

 

 

 

2,687

 

 

 

240,120

 

Total commercial real estate

 

 

814,567

 

 

 

3,614

 

 

 

-

 

 

 

3,968

 

 

 

7,582

 

 

 

822,149

 

Commercial and industrial

 

 

211,143

 

 

 

906

 

 

 

-

 

 

 

1,211

 

 

 

2,117

 

 

 

213,260

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

71,719

 

 

 

1,098

 

 

 

-

 

 

 

142

 

 

��

1,240

 

 

 

72,959

 

Consumer and other

 

 

15,168

 

 

 

474

 

 

 

22

 

 

 

14

 

 

 

510

 

 

 

15,678

 

Total consumer

 

 

86,887

 

 

 

1,572

 

 

 

22

 

 

 

156

 

 

 

1,750

 

 

 

88,637

 

Total gross loans

 

$

1,112,597

 

 

$

6,092

 

 

$

22

 

 

$

5,335

 

 

$

11,449

 

 

$

1,124,046

 

 

 

Year Ended December 31, 2019

 

 

 

Real

 

 

Construction

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

 

 

 

 

 

Estate

 

 

and Land

 

 

and

 

 

and Home

 

 

and

 

 

 

 

 

(Dollars in thousands)

 

Term

 

 

Development

 

 

Industrial

 

 

Equity

 

 

Other

 

 

Total

 

TDRs that occurred during the

   period (1) (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of loans

 

 

9

 

 

 

1

 

 

 

32

 

 

 

5

 

 

 

-

 

 

 

47

 

Pre-modification balance

 

$

6,846

 

 

$

4,075

 

 

$

12,683

 

 

$

1,647

 

 

$

-

 

 

$

25,251

 

Post-modification balance

 

$

6,846

 

 

$

4,075

 

 

$

12,683

 

 

$

1,647

 

 

$

-

 

 

$

25,251

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TDRs that subsequently defaulted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of loans

 

 

1

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

-

 

 

 

2

 

Pre-modification balance

 

$

1,094

 

 

$

-

 

 

$

18

 

 

$

-

 

 

$

-

 

 

$

1,112

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2018

 

 

 

Real

 

 

Construction

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

 

 

 

 

 

Estate

 

 

and Land

 

 

and

 

 

and Home

 

 

and

 

 

 

 

 

(Dollars in thousands)

 

Term

 

 

Development

 

 

Industrial

 

 

Equity

 

 

Other

 

 

Total

 

TDRs that occurred during the

   period (1) (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of loans

 

 

4

 

 

 

-

 

 

 

6

 

 

 

1

 

 

 

-

 

 

 

11

 

Pre-modification balance

 

$

3,434

 

 

$

-

 

 

$

1,460

 

 

$

532

 

 

$

-

 

 

$

5,426

 

Post-modification balance

 

$

3,434

 

 

$

-

 

 

$

1,460

 

 

$

532

 

 

$

-

 

 

$

5,426

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TDRs that subsequently defaulted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of loans

 

 

2

 

 

 

-

 

 

 

3

 

 

 

-

 

 

 

-

 

 

 

5

 

Pre-modification balance

 

$

1,449

 

 

$

-

 

 

$

150

 

 

$

-

 

 

$

-

 

 

$

1,599

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Since most loans were already considered classified and/or on non-accrual status prior to restructuring, the modifications did not have a material effect on the Company’s determination of the allowance for loan losses.

(2)

Generally, these modifications do not fit into one separate type, such as rate, term, amount, interest-only or payment, but instead are a combination of multiple types of modifications; therefore, they are disclosed in aggregate.

8492


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Note 3 — Loans and Allowance for Loan Losses – Continued

Current and past due loans held for investment (accruing and non-accruing) are summarized as follows:

 

December 31, 2015

 

 

December 31, 2019

 

 

 

 

 

 

30-89 Days

 

 

90+ Days

 

 

Non-

 

 

Total

 

 

Total

 

 

 

 

 

 

30-89

 

 

90+

 

 

 

 

 

 

 

 

 

 

Purchased

 

 

 

 

 

(in thousands)

 

Current

 

 

Past Due

 

 

Past Due

 

 

accrual

 

 

Past Due

 

 

Loans

 

 

 

 

 

 

Days

 

 

Days

 

 

Non-

 

 

Total

 

 

Credit

 

 

Total

 

(Dollars in thousands)

 

Current

 

 

Past Due

 

 

Past Due

 

 

accrual

 

 

Past Due

 

 

Impaired

 

 

Loans

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

567,886

 

 

$

5,804

 

 

$

-

 

 

$

4,114

 

 

$

9,918

 

 

$

577,804

 

 

$

942,370

 

 

$

534

 

 

$

-

 

 

$

4,809

 

 

$

5,343

 

 

$

360

 

 

$

948,073

 

Construction and land development

 

 

170,495

 

 

 

7,784

 

 

 

-

 

 

 

1,385

 

 

 

9,169

 

 

 

179,664

 

 

 

273,268

 

 

 

570

 

 

 

-

 

 

 

60

 

 

 

630

 

 

 

65

 

 

 

273,963

 

Total commercial real estate

 

 

738,381

 

 

 

13,588

 

 

 

-

 

 

 

5,499

 

 

 

19,087

 

 

 

757,468

 

 

 

1,215,638

 

 

 

1,104

 

 

 

-

 

 

 

4,869

 

 

 

5,973

 

 

 

425

 

 

 

1,222,036

 

Commercial and industrial

 

 

205,765

 

 

 

1,315

 

 

 

-

 

 

 

1,197

 

 

 

2,512

 

 

 

208,277

 

 

 

279,072

 

 

 

403

 

 

 

-

 

 

 

2,208

 

 

 

2,611

 

 

 

3,055

 

 

 

284,738

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

69,950

 

 

 

588

 

 

 

-

 

 

 

631

 

 

 

1,219

 

 

 

71,169

 

 

 

162,360

 

 

 

154

 

 

 

-

 

 

 

45

 

 

 

199

 

 

 

-

 

 

 

162,559

 

Consumer and other

 

 

14,596

 

 

 

258

 

 

 

3

 

 

 

88

 

 

 

349

 

 

 

14,945

 

 

 

15,727

 

 

 

298

 

 

 

3

 

 

 

8

 

 

 

309

 

 

 

-

 

 

 

16,036

 

Total consumer

 

 

84,546

 

 

 

846

 

 

 

3

 

 

 

719

 

 

 

1,568

 

 

 

86,114

 

 

 

178,087

 

 

 

452

 

 

 

3

 

 

 

53

 

 

 

508

 

 

 

-

 

 

 

178,595

 

Total gross loans

 

$

1,028,692

 

 

$

15,749

 

 

$

3

 

 

$

7,415

 

 

$

23,167

 

 

$

1,051,859

 

 

$

1,672,797

 

 

$

1,959

 

 

$

3

 

 

$

7,130

 

 

$

9,092

 

 

$

3,480

 

 

$

1,685,369

 

 

 

December 31, 2018

 

 

 

 

 

 

 

30-89

 

 

90+

 

 

 

 

 

 

 

 

 

 

Purchased

 

 

 

 

 

 

 

 

 

 

 

Days

 

 

Days

 

 

Non-

 

 

Total

 

 

Credit

 

 

Total

 

(Dollars in thousands)

 

Current

 

 

Past Due

 

 

Past Due

 

 

accrual

 

 

Past Due

 

 

Impaired

 

 

Loans

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

886,974

 

 

$

1,467

 

 

$

-

 

 

$

1,758

 

 

$

3,225

 

 

$

932

 

 

$

891,131

 

Construction and land

   development

 

 

321,389

 

 

 

2,833

 

 

 

-

 

 

 

-

 

 

 

2,833

 

 

 

284

 

 

 

324,506

 

Total commercial real estate

 

 

1,208,363

 

 

 

4,300

 

 

 

-

 

 

 

1,758

 

 

 

6,058

 

 

 

1,216

 

 

 

1,215,637

 

Commercial and industrial

 

 

288,328

 

 

 

3,225

 

 

 

-

 

 

 

497

 

 

 

3,722

 

 

 

3,519

 

 

 

295,569

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

154,368

 

 

 

1,233

 

 

 

-

 

 

 

-

 

 

 

1,233

 

 

 

-

 

 

 

155,601

 

Consumer and other

 

 

16,180

 

 

 

424

 

 

 

17

 

 

 

-

 

 

 

441

 

 

 

-

 

 

 

16,621

 

Total consumer

 

 

170,548

 

 

 

1,657

 

 

 

17

 

 

 

-

 

 

 

1,674

 

 

 

-

 

 

 

172,222

 

Total gross loans

 

$

1,667,239

 

 

$

9,182

 

 

$

17

 

 

$

2,255

 

 

$

11,454

 

 

$

4,735

 

 

$

1,683,428

 

Loans 90+ days past due are still accruing.  Included in purchased credit impaired loans are $1.66 million and $ 2.24 million that are not performing to the original contractual terms as of December 31, 2019 and 2018, respectively.

 

Credit Quality Indicators:

In addition to past due and non-accrual criteria, the Company also analyzes loans using a loan grading system. Performance-based grading follows the Company’s definitions of Pass, Special Mention, Substandard and Doubtful, which are consistent with published definitions of regulatory risk classifications.

Definitions of Pass, Special Mention, Substandardclassifications and Doubtful are summarized as follows:

93


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 3 — Loans and Allowance for Loan Losses – Continued

Pass: A Pass asset is higher quality and does not fit any of the other categories described below. The likelihood of loss is considered remote.

Special Mention: A Special Mention asset has potential weaknesses that may be temporary or, if left uncorrected, may result in a loss. While concerns exist, the Company is currently protected and loss is considered unlikely and not imminent.

Substandard: A Substandard asset is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified have well defined weaknesses and are characterized by the distinct possibility that the Company may sustain some loss if deficiencies are not corrected.

Doubtful: A Doubtful asset has all the weaknesses inherent in a Substandardsubstandard asset with the added characteristics that the weaknesses make collection or liquidation in full highly questionable.

For Consumerconsumer loans, the Company generally assigns internal risk grades similar to those described above based on payment performance.

 

85Outstanding loan balances (accruing and non-accruing) categorized by these credit quality indicators are summarized as follows:

 

 

December 31, 2019

 

 

 

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

 

Total

 

 

Total

 

(Dollars in thousands)

 

Pass

 

 

Mention

 

 

Substandard

 

 

Doubtful

 

 

Loans

 

 

Allowance

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

901,353

 

 

$

23,202

 

 

$

23,518

 

 

$

-

 

 

$

948,073

 

 

$

12,275

 

Construction and land

   development

 

 

259,245

 

 

 

10,182

 

 

 

4,536

 

 

 

-

 

 

 

273,963

 

 

 

6,990

 

Total commercial real estate

 

 

1,160,598

 

 

 

33,384

 

 

 

28,054

 

 

 

-

 

 

 

1,222,036

 

 

 

19,265

 

Commercial and industrial

 

 

259,035

 

 

 

6,629

 

 

 

19,074

 

 

 

-

 

 

 

284,738

 

 

 

10,892

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

158,364

 

 

 

204

 

 

 

3,991

 

 

 

-

 

 

 

162,559

 

 

 

1,118

 

Consumer and other

 

 

16,034

 

 

 

-

 

 

 

2

 

 

 

-

 

 

 

16,036

 

 

 

151

 

Total consumer

 

 

174,398

 

 

 

204

 

 

 

3,993

 

 

 

-

 

 

 

178,595

 

 

 

1,269

 

Total

 

$

1,594,031

 

 

$

40,217

 

 

$

51,121

 

 

$

-

 

 

$

1,685,369

 

 

$

31,426

 

94


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Note 3 — Loans and Allowance for Loan Losses – Continued

Outstanding loan balances (accruing and non-accruing) categorized by these credit quality indicators are summarized as follows:

 

December 31, 2016

 

 

December 31, 2018

 

 

 

 

 

 

Special

 

 

Substandard

 

 

Total

 

 

Total

 

 

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

 

Total

 

 

Total

 

(in thousands)

 

Pass

 

 

Mention

 

 

and Doubtful

 

 

Loans

 

 

Allowance

 

(Dollars in thousands)

 

Pass

 

 

Mention

 

 

Substandard

 

 

Doubtful

 

 

Loans

 

 

Allowance

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

565,550

 

 

$

10,609

 

 

$

5,870

 

 

$

582,029

 

 

$

6,770

 

 

$

865,472

 

 

$

14,339

 

 

$

11,320

 

 

$

-

 

 

$

891,131

 

 

$

9,968

 

Construction and land development

 

 

234,359

 

 

 

2,222

 

 

 

3,539

 

 

 

240,120

 

 

 

5,449

 

 

 

322,625

 

 

 

1,332

 

 

 

549

 

 

 

-

 

 

 

324,506

 

 

 

7,022

 

Total commercial real estate

 

 

799,909

 

 

 

12,831

 

 

 

9,409

 

 

 

822,149

 

 

 

12,219

 

 

 

1,188,097

 

 

 

15,671

 

 

 

11,869

 

 

 

-

 

 

 

1,215,637

 

 

 

16,990

 

Commercial and industrial

 

 

205,933

 

 

 

2,266

 

 

 

5,061

 

 

 

213,260

 

 

 

3,718

 

 

 

271,825

 

 

 

10,138

 

 

 

13,606

 

 

 

-

 

 

 

295,569

 

 

 

7,227

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

69,287

 

 

 

1,869

 

 

 

1,803

 

 

 

72,959

 

 

 

617

 

 

 

150,590

 

 

 

620

 

 

 

4,391

 

 

 

-

 

 

 

155,601

 

 

 

729

 

Consumer and other

 

 

15,542

 

 

 

-

 

 

 

136

 

 

 

15,678

 

 

 

161

 

 

 

16,574

 

 

 

29

 

 

 

18

 

 

 

-

 

 

 

16,621

 

 

 

299

 

Total consumer

 

 

84,829

 

 

 

1,869

 

 

 

1,939

 

 

 

88,637

 

 

 

778

 

 

 

167,164

 

 

 

649

 

 

 

4,409

 

 

 

-

 

 

 

172,222

 

 

 

1,028

 

Total

 

$

1,090,671

 

 

$

16,966

 

 

$

16,409

 

 

$

1,124,046

 

 

$

16,715

 

 

$

1,627,086

 

 

$

26,458

 

 

$

29,884

 

 

$

-

 

 

$

1,683,428

 

 

$

25,245

 

 

 

 

December 31, 2015

 

 

 

 

 

 

 

Special

 

 

Substandard

 

 

Total

 

 

Total

 

(in thousands)

 

Pass

 

 

Mention

 

 

and Doubtful

 

 

Loans

 

 

Allowance

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

551,001

 

 

$

16,326

 

 

$

10,477

 

 

$

577,804

 

 

$

6,783

 

Construction and land development

 

 

172,368

 

 

 

2,934

 

 

 

4,362

 

 

 

179,664

 

 

 

3,984

 

Total commercial real estate

 

 

723,369

 

 

 

19,260

 

 

 

14,839

 

 

 

757,468

 

 

 

10,767

 

Commercial and industrial

 

 

195,611

 

 

 

5,626

 

 

 

7,040

 

 

 

208,277

 

 

 

3,941

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

67,088

 

 

 

1,666

 

 

 

2,415

 

 

 

71,169

 

 

 

603

 

Consumer and other

 

 

14,816

 

 

 

36

 

 

 

93

 

 

 

14,945

 

 

 

246

 

Total consumer

 

 

81,904

 

 

 

1,702

 

 

 

2,508

 

 

 

86,114

 

 

 

849

 

Total

 

$

1,000,884

 

 

$

26,588

 

 

$

24,387

 

 

$

1,051,859

 

 

$

15,557

 


 

86


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 3 — Loans and Allowance for Loan Losses – Continued

The ALLL and outstanding loan balances reviewed according to the Company’s impairment method are summarized as follows:

 

 

December 31, 2016

 

 

 

Real

 

 

Construction

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

 

 

 

 

 

Estate

 

 

and Land

 

 

and

 

 

and Home

 

 

and

 

 

 

 

 

(in thousands)

 

Term

 

 

Development

 

 

Industrial

 

 

Equity

 

 

Other

 

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

189

 

 

$

67

 

 

$

323

 

 

$

75

 

 

$

-

 

 

$

654

 

Collectively evaluated for impairment

 

 

6,581

 

 

 

5,382

 

 

 

3,395

 

 

 

542

 

 

 

161

 

 

 

16,061

 

Total

 

$

6,770

 

 

$

5,449

 

 

$

3,718

 

 

$

617

 

 

$

161

 

 

$

16,715

 

Outstanding loan balances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

5,778

 

 

$

2,995

 

 

$

6,045

 

 

$

1,476

 

 

$

-

 

 

$

16,294

 

Collectively evaluated for impairment

 

 

576,251

 

 

 

237,125

 

 

 

207,215

 

 

 

71,483

 

 

 

15,678

 

 

 

1,107,752

 

Total gross loans

 

$

582,029

 

 

$

240,120

 

 

$

213,260

 

 

$

72,959

 

 

$

15,678

 

 

$

1,124,046

 

 

 

 

December 31, 2015

 

 

 

Real

 

 

Construction

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

 

 

 

 

 

Estate

 

 

and Land

 

 

and

 

 

and Home

 

 

and

 

 

 

 

 

(in thousands)

 

Term

 

 

Development

 

 

Industrial

 

 

Equity

 

 

Other

 

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

283

 

 

$

67

 

 

$

1,078

 

 

$

79

 

 

$

15

 

 

$

1,522

 

Collectively evaluated for impairment

 

 

6,500

 

 

 

3,917

 

 

 

2,863

 

 

 

524

 

 

 

231

 

 

 

14,035

 

Total

 

$

6,783

 

 

$

3,984

 

 

$

3,941

 

 

$

603

 

 

$

246

 

 

$

15,557

 

Outstanding loan balances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

10,225

 

 

$

4,219

 

 

$

7,009

 

 

$

2,451

 

 

$

15

 

 

$

23,919

 

Collectively evaluated for impairment

 

 

567,579

 

 

 

175,445

 

 

 

201,268

 

 

 

68,718

 

 

 

14,930

 

 

 

1,027,940

 

Total gross loans

 

$

577,804

 

 

$

179,664

 

 

$

208,277

 

 

$

71,169

 

 

$

14,945

 

 

$

1,051,859

 

 

 

December 31, 2019

 

 

 

Real

 

 

Construction

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

 

 

 

 

 

Estate

 

 

and Land

 

 

and

 

 

and Home

 

 

and

 

 

 

 

 

(Dollars in thousands)

 

Term

 

 

Development

 

 

Industrial

 

 

Equity

 

 

Other

 

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for

   impairment

 

$

825

 

 

$

1,305

 

 

$

4,901

 

 

$

401

 

 

$

-

 

 

$

7,432

 

Collectively evaluated for

   impairment

 

 

11,255

 

 

 

5,669

 

 

 

5,991

 

 

 

717

 

 

 

151

 

 

 

23,783

 

Purchased credit-impaired loans

 

 

195

 

 

 

16

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

211

 

Total

 

$

12,275

 

 

$

6,990

 

 

$

10,892

 

 

$

1,118

 

 

$

151

 

 

$

31,426

 

Outstanding loan balances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for

   impairment

 

$

18,305

 

 

$

4,474

 

 

$

14,467

 

 

$

3,701

 

 

$

-

 

 

$

40,947

 

Collectively evaluated for

   impairment

 

 

929,408

 

 

 

269,424

 

 

 

267,216

 

 

 

158,858

 

 

 

16,036

 

 

 

1,640,942

 

Purchased credit-impaired loans

 

 

360

 

 

 

65

 

 

 

3,055

 

 

 

-

 

 

 

-

 

 

 

3,480

 

Total gross loans

 

$

948,073

 

 

$

273,963

 

 

$

284,738

 

 

$

162,559

 

 

$

16,036

 

 

$

1,685,369

 

 

8795


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Note 3 — Loans and Allowance for Loan Losses – Continued

 

 

December 31, 2018

 

 

 

Real

 

 

Construction

 

 

Commercial

 

 

Residential

 

 

Consumer

 

 

 

 

 

 

 

Estate

 

 

and Land

 

 

and

 

 

and Home

 

 

and

 

 

 

 

 

(Dollars in thousands)

 

Term

 

 

Development

 

 

Industrial

 

 

Equity

 

 

Other

 

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for

   impairment

 

$

324

 

 

$

-

 

 

$

1,781

 

 

$

55

 

 

$

-

 

 

$

2,160

 

Collectively evaluated for

   impairment

 

 

9,644

 

 

 

7,022

 

 

 

5,446

 

 

 

674

 

 

 

299

 

 

 

23,085

 

Purchased credit-impaired loans

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total

 

$

9,968

 

 

$

7,022

 

 

$

7,227

 

 

$

729

 

 

$

299

 

 

$

25,245

 

Outstanding loan balances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for

   impairment

 

$

9,689

 

 

$

268

 

 

$

9,581

 

 

$

4,095

 

 

$

-

 

 

$

23,633

 

Collectively evaluated for

   impairment

 

 

880,510

 

 

 

323,954

 

 

 

282,469

 

 

 

151,506

 

 

 

16,621

 

 

 

1,655,060

 

Purchased credit-impaired loans

 

 

932

 

 

 

284

 

 

 

3,519

 

 

 

-

 

 

 

-

 

 

 

4,735

 

Total gross loans

 

$

891,131

 

 

$

324,506

 

 

$

295,569

 

 

$

155,601

 

 

$

16,621

 

 

$

1,683,428

 

Information on impaired loans is summarized as follows:

 

December 31, 2016

 

 

December 31, 2019

 

 

 

 

 

 

Recorded Investment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recorded Investment

 

 

 

 

 

 

 

 

 

 

Unpaid

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

Unpaid

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

Principal

 

 

With No

 

 

With

 

 

Recorded

 

 

Related

 

 

Principal

 

 

With No

 

 

With

 

 

Recorded

 

 

Related

 

(in thousands)

 

Balance

 

 

Allowance

 

 

Allowance

 

 

Investment

 

 

Allowance

 

(Dollars in thousands)

 

Balance

 

 

Allowance

 

 

Allowance

 

 

Investment

 

 

Allowance

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

5,864

 

 

$

2,979

 

 

$

2,799

 

 

$

5,778

 

 

$

189

 

 

$

18,305

 

 

$

11,684

 

 

$

6,621

 

 

$

18,305

 

 

$

825

 

Construction and land development

 

 

3,949

 

 

 

2,790

 

 

 

205

 

 

 

2,995

 

 

 

67

 

 

 

4,474

 

 

 

121

 

 

 

4,353

 

 

 

4,474

 

 

 

1,305

 

Total commercial real estate

 

 

9,813

 

 

 

5,769

 

 

 

3,004

 

 

 

8,773

 

 

 

256

 

 

 

22,779

 

 

 

11,805

 

 

 

10,974

 

 

 

22,779

 

 

 

2,130

 

Commercial and industrial

 

 

6,937

 

 

 

4,458

 

 

 

1,587

 

 

 

6,045

 

 

 

323

 

 

 

14,467

 

 

 

2,591

 

 

 

11,876

 

 

 

14,467

 

 

 

4,901

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

1,476

 

 

 

1,071

 

 

 

405

 

 

 

1,476

 

 

 

75

 

 

 

3,701

 

 

 

3,194

 

 

 

507

 

 

 

3,701

 

 

 

401

 

Consumer and other

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total consumer

 

 

1,476

 

 

 

1,071

 

 

 

405

 

 

 

1,476

 

 

 

75

 

 

 

3,701

 

 

 

3,194

 

 

 

507

 

 

 

3,701

 

 

 

401

 

Total

 

$

18,226

 

 

$

11,298

 

 

$

4,996

 

 

$

16,294

 

 

$

654

 

 

$

40,947

 

 

$

17,590

 

 

$

23,357

 

 

$

40,947

 

 

$

7,432

 

 

 

 

December 31, 2015

 

 

 

 

 

 

 

Recorded Investment

 

 

 

 

 

 

 

 

 

 

 

Unpaid

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

Principal

 

 

With No

 

 

With

 

 

Recorded

 

 

Related

 

(in thousands)

 

Balance

 

 

Allowance

 

 

Allowance

 

 

Investment

 

 

Allowance

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

10,430

 

 

$

7,266

 

 

$

2,959

 

 

$

10,225

 

 

$

283

 

Construction and land development

 

 

6,055

 

 

 

4,007

 

 

 

212

 

 

 

4,219

 

 

 

67

 

Total commercial real estate

 

 

16,485

 

 

 

11,273

 

 

 

3,171

 

 

 

14,444

 

 

 

350

 

Commercial and industrial

 

 

7,562

 

 

 

3,510

 

 

 

3,499

 

 

 

7,009

 

 

 

1,078

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

2,514

 

 

 

2,019

 

 

 

432

 

 

 

2,451

 

 

 

79

 

Consumer and other

 

 

58

 

 

 

15

 

 

 

-

 

 

 

15

 

 

 

15

 

Total consumer

 

 

2,572

 

 

 

2,034

 

 

 

432

 

 

 

2,466

 

 

 

94

 

Total

 

$

26,619

 

 

$

16,817

 

 

$

7,102

 

 

$

23,919

 

 

$

1,522

 


8896


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 3 — Loans and Allowance for Loan Losses – Continued

 

 

December 31, 2018

 

 

 

 

 

 

 

Recorded Investment

 

 

 

 

 

 

 

 

 

 

 

Unpaid

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

Principal

 

 

With No

 

 

With

 

 

Recorded

 

 

Related

 

(Dollars in thousands)

 

Balance

 

 

Allowance

 

 

Allowance

 

 

Investment

 

 

Allowance

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

9,689

 

 

$

3,823

 

 

$

5,866

 

 

$

9,689

 

 

$

324

 

Construction and land

   development

 

 

997

 

 

 

268

 

 

 

-

 

 

 

268

 

 

 

-

 

Total commercial real estate

 

 

10,686

 

 

 

4,091

 

 

 

5,866

 

 

 

9,957

 

 

 

324

 

Commercial and industrial

 

 

10,113

 

 

 

5,494

 

 

 

4,087

 

 

 

9,581

 

 

 

1,781

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

4,095

 

 

 

3,046

 

 

 

1,049

 

 

 

4,095

 

 

 

55

 

Consumer and other

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total consumer

 

 

4,095

 

 

 

3,046

 

 

 

1,049

 

 

 

4,095

 

 

 

55

 

Total

 

$

24,894

 

 

$

12,631

 

 

$

11,002

 

 

$

23,633

 

 

$

2,160

 

The interest income recognized on impaired loans was as follows:

 

 

Year Ended December 31,

 

 

 

2019

 

 

2018

 

 

2017

 

 

 

Average

 

 

Interest

 

 

Average

 

 

Interest

 

 

Average

 

 

Interest

 

 

 

Recorded

 

 

Income

 

 

Recorded

 

 

Income

 

 

Recorded

 

 

Income

 

(Dollars in thousands)

 

Investment

 

 

Recognition

 

 

Investment

 

 

Recognition

 

 

Investment

 

 

Recognition

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

14,516

 

 

$

747

 

 

$

8,027

 

 

$

332

 

 

$

6,489

 

 

$

187

 

Construction and land development

 

 

3,668

 

 

 

274

 

 

 

1,499

 

 

 

106

 

 

 

3,107

 

 

 

137

 

Total commercial real estate

 

 

18,184

 

 

 

1,021

 

 

 

9,526

 

 

 

438

 

 

 

9,596

 

 

 

324

 

Commercial and industrial

 

 

12,496

 

 

 

780

 

 

 

8,049

 

 

 

426

 

 

 

7,552

 

 

 

276

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

3,458

 

 

 

197

 

 

 

2,409

 

 

 

118

 

 

 

1,313

 

 

 

46

 

Consumer and other

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total consumer

 

 

3,458

 

 

 

197

 

 

 

2,409

 

 

 

118

 

 

 

1,313

 

 

 

46

 

Total

 

$

34,138

 

 

$

1,998

 

 

$

19,984

 

 

$

982

 

 

$

18,461

 

 

$

646

 

Purchased credit-impaired loans and purchased non-credit-impaired loans -- Purchased loans, including loans acquired in business combinations, are recorded at their fair value at the acquisition date. Credit discounts are included in the determination of fair value; therefore, an allowance for loan and lease losses is not recorded at the acquisition date. Acquired loans are evaluated upon acquisition and classified as either PCI or purchased non-credit-impaired. PCI loans reflect credit deterioration since origination such that it is probable at acquisition that the Company will be unable to collect all contractually required payments. The outstanding contractual unpaid principal balance of PCI loans, excluding acquisition accounting adjustments, was $6.2 million and $7.7 million at December 31, 2019 and 2018, respectively. The carrying balance of PCI loans was $3.5 million and $4.7 million at December 31, 2019 and 2018, respectively.

97


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Note 3 — Loans and Allowance for Loan Losses – Continued

The interest income recognized on impairedfollowing table presents the changes in the accretable yield for purchased loans wasfor December 31, 2019, and 2018:

 

 

December 31,

 

(Dollars in thousands)

 

2019

 

 

2018

 

Balance, beginning of period

 

$

5,884

 

 

$

8,536

 

Accretion to interest income

 

 

(1,818

)

 

 

(2,866

)

Additions from acquisitions

 

 

-

 

 

 

-

 

Reclassification from non-accretable difference

 

 

181

 

 

 

214

 

Balance, end of period

 

$

4,247

 

 

$

5,884

 

The following table presents the changes in the non-accretable yield for purchased loans for December 31, 2019, and 2018:

 

 

December 31,

 

(Dollars in thousands)

 

2019

 

 

2018

 

Balance, beginning of period

 

$

2,942

 

 

$

3,739

 

Additions from acquisitions

 

 

-

 

 

 

-

 

Loans charged off

 

 

-

 

 

 

(583

)

Reclassification to accretable

 

 

(181

)

 

 

(214

)

Balance, end of period

 

$

2,761

 

 

$

2,942

 

98


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 3 — Loans and Allowance for Loan Losses – Concluded

The following table summarizes the balance of purchased loans as follows:of December 31, 2019 and 2018:

 

 

Year Ended December 31,

 

 

 

2016

 

 

2015

 

 

2014

 

 

 

Average

 

 

Interest

 

 

Average

 

 

Interest

 

 

Average

 

 

Interest

 

 

 

Recorded

 

 

Income

 

 

Recorded

 

 

Income

 

 

Recorded

 

 

Income

 

(in thousands)

 

Investment

 

 

Recognition

 

 

Investment

 

 

Recognition

 

 

Investment

 

 

Recognition

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

7,435

 

 

$

240

 

 

$

10,317

 

 

$

380

 

 

$

15,010

 

 

$

501

 

Construction and land development

 

 

2,809

 

 

 

168

 

 

 

5,015

 

 

 

276

 

 

 

8,858

 

 

 

353

 

Total commercial real estate

 

 

10,244

 

 

 

408

 

 

 

15,332

 

 

 

656

 

 

 

23,868

 

 

 

854

 

Commercial and industrial

 

 

6,214

 

 

 

311

 

 

 

6,318

 

 

 

251

 

 

 

7,003

 

 

 

253

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

1,695

 

 

 

67

 

 

 

2,916

 

 

 

105

 

 

 

3,985

 

 

 

131

 

Consumer and other

 

 

60

 

 

 

1

 

 

 

24

 

 

 

1

 

 

 

35

 

 

 

2

 

Total consumer

 

 

1,755

 

 

 

68

 

 

 

2,940

 

 

 

106

 

 

 

4,020

 

 

 

133

 

Total

 

$

18,213

 

 

$

787

 

 

$

24,590

 

 

$

1,013

 

 

$

34,891

 

 

$

1,240

 

 

 

December 31, 2019

 

(Dollars in thousands)

 

Performing Purchased Loans

 

 

PCI Loans

 

 

Total Acquired Loans

 

Commercial real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

155,644

 

 

$

360

 

 

$

156,004

 

Construction and land development

 

 

361

 

 

 

65

 

 

 

426

 

Total commercial real estate loans

 

 

156,005

 

 

 

425

 

 

 

156,430

 

Commercial and industrial loans

 

 

14,287

 

 

 

3,055

 

 

 

17,342

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

21,963

 

 

 

-

 

 

 

21,963

 

Consumer and other

 

 

576

 

 

 

-

 

 

 

576

 

Total consumer loans

 

 

22,539

 

 

 

-

 

 

 

22,539

 

Total loans carrying balance

 

$

192,831

 

 

$

3,480

 

 

$

196,311

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans unpaid principal balance

 

$

197,094

 

 

$

6,241

 

 

$

203,335

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

(Dollars in thousands)

 

Performing Purchased Loans

 

 

PCI Loans

 

 

Total Acquired Loans

 

Commercial real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

Real estate term

 

$

194,904

 

 

$

932

 

 

$

195,836

 

Construction and land development

 

 

7,801

 

 

 

284

 

 

 

8,085

 

Total commercial real estate loans

 

 

202,705

 

 

 

1,216

 

 

 

203,921

 

Commercial and industrial loans

 

 

34,492

 

 

 

3,519

 

 

 

38,011

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

Residential and home equity

 

 

24,194

 

 

 

-

 

 

 

24,194

 

Consumer and other

 

 

940

 

 

 

-

 

 

 

940

 

Total consumer loans

 

 

25,134

 

 

 

-

 

 

 

25,134

 

Total loans carrying balance

 

$

262,331

 

 

$

4,735

 

 

$

267,066

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans unpaid principal balance

 

$

268,215

 

 

$

7,677

 

 

$

275,892

 

Loans to affiliates The Company has entered into loan transactions with certain directors and executive committee members (“affiliates”). Such transactions were made in the ordinary course of business on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other customers,clients, and did not, in the opinion of management, involve more than normal credit risk or present other unfavorable features. Total outstanding loans with affiliates were $330,000$5.4 million and $521,000$5.6 million at December 31, 20162019, and 2015,2018, respectively. Available lines of credit for loans and credit cards to affiliates were $537,000$278,000 at December 31, 2016.2019.

Note 4 — Premises and Equipment

Premises and equipment are summarized as follows as of December 31:

(in thousands)

 

2016

 

 

2015

 

Land and buildings

 

$

28,997

 

 

$

28,791

 

Equipment, furniture, and software

 

 

19,908

 

 

 

17,809

 

 

 

 

48,905

 

 

 

46,600

 

Accumulated depreciation and amortization

 

 

(26,979

)

 

 

(24,496

)

 

 

$

21,926

 

 

$

22,104

 


8999


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

��

Note 4 — Premises and Equipment

Premises and equipment are summarized as follows as of December 31:

(Dollars in thousands)

 

2019

 

 

2018

 

Land and buildings

 

$

45,426

 

 

$

45,060

 

Equipment, furniture, and software

 

 

27,691

 

 

 

24,095

 

 

 

 

73,117

 

 

 

69,155

 

Accumulated depreciation and amortization

 

 

(33,643

)

 

 

(32,623

)

 

 

$

39,474

 

 

$

36,532

 

The Company leases certain properties from third parties under operating leases.  Total rent expense for the years ended December 31, 2019, 2018, and 2017, was $874,000, $909,000, and $539,000, respectively.  

The Company had depreciation and amortization expense for the years ended December 31, 2019, 2018, and 2017, of $3.4 million, $3.3 million, and $2.6 million, respectively.

The total future minimum rental commitments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year at December 31, 2019 are as follows:

(Dollars in thousands)

 

Amount

 

2020

 

$

800

 

2021

 

 

704

 

2022

 

 

581

 

2023

 

 

256

 

2024 and beyond

 

 

-

 

 

 

$

2,341

 

Note 5 — Deposits

Deposit account balances are summarized as follows as of December 31:

(in thousands)

 

2016

 

 

2015

 

(Dollars in thousands)

 

2019

 

 

2018

 

Non-interest bearing

 

$

443,100

 

 

$

408,508

 

 

$

719,410

 

 

$

642,594

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing demand and savings

 

 

654,541

 

 

 

580,233

 

 

 

846,199

 

 

 

795,456

 

Money market accounts

 

 

169,369

 

 

 

144,668

 

 

 

324,565

 

 

 

257,308

 

Certificates of deposit under $100,000

 

 

83,258

 

 

 

98,569

 

Certificates of deposit $100,000 and over

 

 

74,806

 

 

 

77,207

 

Certificates of deposit less than or equal to $250,000

 

 

131,882

 

 

 

143,387

 

Certificates of deposit greater than $250,000

 

 

34,311

 

 

 

38,310

 

Total interest bearing deposits

 

 

981,974

 

 

 

900,677

 

 

 

1,336,957

 

 

 

1,234,461

 

Total deposits

 

$

1,425,074

 

 

$

1,309,185

 

 

$

2,056,367

 

 

$

1,877,055

 

100


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 5 — Deposits – Continued

Scheduled maturities for certificates of deposit are as follows for the years ending December 31:

(in thousands)

 

Amount

 

2017

 

$

90,838

 

2018

 

 

28,940

 

2019

 

 

12,584

 

2020

 

 

14,030

 

2021 and beyond

 

 

11,672

 

 

 

$

158,064

 

(Dollars in thousands)

 

Amount

 

2020

 

$

93,543

 

2021

 

 

26,719

 

2022

 

 

13,979

 

2023

 

 

17,337

 

2024 and beyond

 

 

14,615

 

 

 

$

166,193

 

Deposits held by affiliates were $7.8$4.5 million and $7.9$8.8 million as of December 31, 20162019 and 2015,2018, respectively.

Note 6 — Short-term borrowings

Short-term borrowings consist the following as of December 31:

(in thousands)

 

2016

 

 

2015

 

Security repurchase agreements

 

$

3,199

 

 

$

2,523

 

Other short-term borrowings:

 

 

 

 

 

 

 

 

Federal Funds purchased

 

 

-

 

 

 

9,681

 

Federal Home Loan Bank advances

 

 

-

 

 

 

15,000

 

Total other short-term borrowings

 

 

-

 

 

 

24,681

 

Total short-term borrowings

 

$

3,199

 

 

$

27,204

 

As of December 31, 2016,2019, committed Federal funds lines of credit arrangements totaling $25.0 million were available to the Company from an unaffiliated bank. The average Federal funds interest rate as of December 31, 20162019 was 0.89%1.80%.

The Company is a member of the FHLB of Des Moines and has a committed credit line of $311.2$676.9 million, which is secured by $467.6$929.3 million in various real estate loans and investment securities pledged as collateral. Borrowings generally provide for interest at the then current published ratesrate, which was 0.81%1.73% as of December 31, 2016.2019.

The Company holds $32.0$26.8 million in investment securities in its Federal Reserve Bank (“Fed”) account. As of December 31, 2016,2019, the Company’s overnight borrowing capacity using the primary credit facilities from the Fed is $22.6$26.5 million. The borrowing rate is the current discount rate plus 25 basis points. There were no outstanding Fed advances as of December 31, 20162019 and 2015.2018.  

Securities sold under agreements to repurchase are generally overnight financing arrangements with clients collateralized by the Company’s investment securities that mature within 144 months. As of December 31, 2019 and 2018, the Company had no investment securities pledged for securities sold under agreements to repurchase.

90101


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Note 6 — Short-term borrowings – Continued

Securities sold under agreements to repurchase are generally overnight financing arrangements with customers collateralized by the Company’s investment securities that mature within 166 months. Investment securities valued at $4.0 million and $4.8 million have been pledged as of December 31, 2016 and 2015, respectively, for securities sold under agreements to repurchase. At maturity, the securities underlying the agreements are returned to the Company.

Information concerning short-term borrowings consist of the following as of December 31:

(in thousands)

 

2016

 

 

2015

 

(Dollars in thousands)

 

2019

 

 

2018

 

 

2017

 

Security repurchase agreements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average daily balance

 

$

2,713

 

 

$

2,019

 

 

$

-

 

 

$

-

 

 

$

2,568

 

Weighted average rate

 

 

0.15

%

 

 

0.15

%

 

 

0.00

%

 

 

0.00

%

 

 

0.14

%

Highest month-end balance

 

$

3,315

 

 

$

2,526

 

 

$

-

 

 

$

-

 

 

$

3,789

 

Year-end balance

 

$

3,199

 

 

$

2,523

 

 

$

-

 

 

$

-

 

 

$

-

 

Weighted average rate on outstandings at year-end

 

 

0.15

%

 

 

0.15

%

Weighted average rate on outstanding at year-end

 

 

0.00

%

 

 

0.00

%

 

 

0.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other short-term borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average daily balance

 

$

9,359

 

 

$

588

 

 

$

2,419

 

 

$

71,880

 

 

$

4,894

 

Weighted average rate

 

 

0.39

%

 

 

0.52

%

 

 

2.63

%

 

 

1.98

%

 

 

1.28

%

Highest month-end balance

 

$

45,000

 

 

$

24,681

 

 

$

-

 

 

$

145,000

 

 

$

40,000

 

Year-end balance

 

 

-

 

 

 

24,681

 

 

$

-

 

 

$

-

 

 

$

40,000

 

Weighted average rate on outstandings at year-end

 

 

-

 

 

 

0.46

%

Weighted average rate on outstanding at year-end

 

 

0.00

%

 

 

0.00

%

 

 

1.63

%

Note 7 — Income Taxes

The components of the income tax expense (benefit) are as follows for the years ended December 31:

(in thousands)

 

2016

 

 

2015

 

 

2014

 

(Dollars in thousands)

 

2019

 

 

2018

 

 

2017

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

12,194

 

 

$

9,060

 

 

$

7,068

 

 

$

10,685

 

 

$

11,167

 

 

$

10,778

 

State

 

 

1,850

 

 

 

1,452

 

 

 

1,087

 

 

 

2,852

 

 

 

2,904

 

 

 

1,709

 

 

 

14,044

 

 

 

10,512

 

 

 

8,155

 

 

 

13,537

 

 

 

14,071

 

 

 

12,487

 

Deferred:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

 

(670

)

 

 

(217

)

 

 

78

 

 

 

(26

)

 

 

(1,662

)

 

 

3,468

 

State

 

 

(101

)

 

 

(33

)

 

 

13

 

 

 

(8

)

 

 

(355

)

 

 

522

 

Deferred

 

 

(771

)

 

 

(250

)

 

 

91

 

 

 

(34

)

 

 

(2,017

)

 

 

3,990

 

Income tax expense

 

$

13,273

 

 

$

10,262

 

 

$

8,246

 

 

$

13,503

 

 

$

12,054

 

 

$

16,477

 

The combined federal and state income tax expense differs from that computed at the federal statutory corporate tax rate as follows:

 

2016

 

 

2015

 

 

2014

 

 

2019

 

 

2018

 

 

2017

 

Federal statutory rate

 

 

35.0

%

 

 

35.0

%

 

 

35.0

%

 

 

21.0

%

 

 

21.0

%

 

 

35.0

%

Tax rate change

 

 

0.0

%

 

 

(0.5

)%

 

 

13.0

%

State taxes, net of federal income tax benefit

 

 

3.1

%

 

 

3.1

%

 

 

3.1

%

 

 

3.8

%

 

 

3.7

%

 

 

2.9

%

Tax-exempt interest and income

 

 

(2.1

)%

 

 

(2.4

)%

 

 

(2.9

)%

 

 

(0.8

)%

 

 

(0.8

)%

 

 

(2.1

)%

Equity awards expense

 

 

(0.3

)%

 

 

-

 

 

 

-

 

 

 

(0.3

)%

 

 

(0.4

)%

 

 

(2.8

)%

Other, net

 

 

0.3

%

 

 

(1.4

)%

 

 

0.4

%

 

 

(0.4

)%

 

 

(0.1

)%

 

 

(0.6

)%

Effective tax rate

 

 

36.0

%

 

 

34.3

%

 

 

35.6

%

 

 

23.3

%

 

 

22.9

%

 

 

45.4

%

 

91102


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Note 7 — Income Taxes – Continued

The nature and components of the Company’s net deferred income tax assets are as follows as of December 31:

(in thousands)

 

2016

 

 

2015

 

(Dollars in thousands)

 

2019

 

 

2018

 

Deferred income tax assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses

 

$

6,724

 

 

$

6,565

 

 

$

8,412

 

 

$

7,435

 

Deferred loan fees and costs

 

 

1,594

 

 

 

1,486

 

 

 

1,635

 

 

 

1,920

 

OREO reserve and other

 

 

-

 

 

 

256

 

Fair value adjustments on certificates of deposit

 

 

79

 

 

 

300

 

 

 

100

 

 

 

135

 

Deferred compensation

 

 

565

 

 

 

534

 

 

 

419

 

 

 

429

 

Unrealized loss on securities

 

 

626

 

 

 

203

 

 

 

-

 

 

 

1,371

 

State franchise taxes

 

 

630

 

 

 

500

 

State income taxes

 

 

599

 

 

 

608

 

Other

 

 

563

 

 

 

527

 

 

 

612

 

 

 

902

 

 

 

10,781

 

 

 

10,371

 

 

 

11,777

 

 

 

12,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred income tax liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FHLB dividends

 

 

241

 

 

 

241

 

 

 

166

 

 

 

166

 

Mortgage servicing rights

 

 

328

 

 

 

375

 

 

 

172

 

 

 

182

 

Unrealized gain on securities

 

 

461

 

 

 

-

 

Basis difference in premises, equipment and other assets

 

 

413

 

 

 

1,149

 

 

 

1,262

 

 

 

938

 

 

 

982

 

 

 

1,765

 

 

 

2,061

 

 

 

1,286

 

Net deferred income tax assets

 

$

9,799

 

 

$

8,606

 

 

$

9,716

 

 

$

11,514

 

The Company believes, based on available information, that it is more likely than not that the net deferred income tax asset will be realized in the normal course of operations. Accordingly, no valuation allowance has been recorded at December 31, 2019 and 2018.

The impact of a tax position is recognized in the financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position. As of December 31, 2016, the Company had an uncertain tax position related to a rehabilitation credit.  As of December 31, 2015,2019 and 2018, the Company did not have any significant uncertain tax positions.  The Company includes any interest and penalties associated with unrecognized tax benefits within the provision for income taxes.  As of December 31, 2016, there was a liability of $200,000 for unrecognized tax benefits, and as of December 31, 2015, there was no liability for unrecognized tax benefits. The Company hopes to resolve the rehabilitation credit issue in the next twelve months.  Otherwise, the Company does not expect a material change to the total amount of unrecognized tax benefits in the next twelve months.

The Company elected to adopt the provisions of Accounting Standards Update 2016-09, Compensation—Stock Compensation (Topic 718) in 2016, which resulted in a $201,000 credit to current income tax expense related to tax- deductibletax-deductible stock compensation expense.expense was $0.2 million, $0.2 million and $1.2 million in 2019, 2018 and 2017, respectively.  

The Company files U.S. and state income tax returns in jurisdictions with various statutes of limitations. The 20132016 through 20162019 tax years remain subject to selection for examination as of December 31, 2016.2019. None of the Company’s income tax returns are currently under audit. As of December 31, 20162019 and 2015,2018, the Company has no net operating loss or tax credit carry-forwards.

103


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 8 — Commitments and Contingencies

Commitments to extend credit — In the normal course of business, the Company has outstanding commitments and contingent liabilities, such as commitments to extend credit and unused credit card lines, which are not included in the accompanying consolidated financial statements. The Company’s exposure to credit loss in the event of non-performance by other parties to the financial instruments for commitments to extend credit and unused credit card lines is represented by the contractual or notional amount of those instruments. The Company uses the same credit policies in making such commitments as it does for instruments that are included in the consolidated balance sheets.

92


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 8 — Commitments and Contingencies – Continued

Contractual amounts of off-balance sheet financial instruments were as follows:

(in thousands)

 

2016

 

 

2015

 

Commitments to extend credit, including unsecured commitments of $11,230 and $12,869 as of December 31, 2016 and 2015, respectively

 

$

445,645

 

 

$

382,928

 

Stand-by letters of credit and bond commitments, including unsecured commitments of $660 and $1,391 as of December 31, 2016 and 2015, respectively

 

 

29,332

 

 

 

36,333

 

Unused credit card lines, all unsecured

 

 

25,803

 

 

 

25,512

 

(Dollars in thousands)

 

2019

 

 

2018

 

Commitments to extend credit, including unsecured

   commitments of $32,995 and $16,304 as of December 31,

   2019 and 2018, respectively

 

$

632,577

 

 

$

577,612

 

Stand-by letters of credit and bond commitments, including

   unsecured commitments of $555 and $730 as of

   December 31, 2019 and 2018, respectively

 

 

23,860

 

 

 

22,979

 

Unused credit card lines, all unsecured

 

 

26,121

 

 

 

24,885

 

Commitments to extend credit are agreements to lend to a customerclient as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments to extend credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer.client.

Unused credit card lines are commitments for possible future extensions of credit to existing customers.clients. These lines of credit are uncollateralized and usually do not contain a specified maturity date and may not be drawn upon to the total extent to which the Company is committed.

The Company has entered into agreements to construct two branch facilities scheduled to open in 2017.  Estimated construction costs for the two branches are expected to be approximately $1.8 million.

 

Note 9 — Regulatory Capital Matters

The Company is subject to various regulatory capital requirements administered by its primary federal regulator, the FDIC. Failure to meet the minimum regulatory capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company and its consolidated financial statements. Under the regulatory capital adequacy guidelines and regulatory framework for prompt corrective action, the Company must meet specific capital guidelines involving quantitative measures of the Company’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Since January 2015, the Company has been subject to new risk-based capital adequacy guidelines related to the adoption of U.S. Basel III Capital Rules which impose higher risk-based capital and leverage requirements than those previously in place. Specifically, the rules impose, among other requirements, new minimum capital requirements including a Tier 1 leverage capital ratio of 4.0%, a new common equity Tier 1 risk-based capital ratio of 4.5%, a Tier 1 risk-based capital ratio of 6% and a total risk-based capital ratio of 8%. Since the Company only has common equity, our common equity Tier 1 risk-based capital ratio and our Tier 1 risk-based capital ratio are the same. Therefore, the Company only discloses the Tier 1 risk-based capital ratio since it has a higher required ratio for minimum and well-capitalized banks. As of December 31, 2016, management believes the Company meets all the capital adequacy requirements to which it is subject.


93


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 9 — Regulatory Capital Matters – Continued

As of December 31, 2016,2019, the Company was categorized as well capitalized under the regulatory framework. To be categorized as well capitalized, an institution must maintain minimum totalcommon Tier 1 (“CET1”), Tier 1 risk-based capital, Tier 1total risk-based capital, and Tier 1 to average assets (“Tier 1 Leverage”) capital ratios as disclosed in the table below.

104


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 9 — Regulatory Capital Matters – Continued

The Company’s actual and required capital amounts and ratios are as follows:  

 

December 31, 2016

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

Minimum Capital

 

 

Well Capitalized

 

 

 

 

 

 

 

 

 

 

Minimum Capital

 

 

Well Capitalized

 

 

Actual

 

 

Requirement

 

 

Requirement

 

 

Actual

 

 

Requirement

 

 

Requirement

 

(Dollars in thousands)

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CET1 Capital to Risk-Weighted Assets

 

$

302,291

 

 

 

17.18

%

 

$

79,193

 

 

 

4.50

%

 

$

114,390

 

 

 

6.50

%

Tier 1 Capital to Risk-Weighted Assets

 

 

302,291

 

 

 

17.18

%

 

 

105,590

 

 

 

6.00

%

 

 

140,787

 

 

 

8.00

%

Total Risk-Based Capital to Risk-Weighted Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

324,415

 

 

 

18.43

%

 

 

140,787

 

 

 

8.00

%

 

 

175,984

 

 

 

10.00

%

Consolidated

 

$

244,655

 

 

 

20.19

%

 

$

96,923

 

 

 

8.00

%

 

$

121,154

 

 

 

10.00

%

People's Intermountain Bank

 

 

208,526

 

 

 

17.32

%

 

 

96,309

 

 

 

8.00

%

 

 

120,386

 

 

 

10.00

%

Tier 1 Leverage

 

 

302,291

 

 

 

12.67

%

 

 

95,431

 

 

 

4.00

%

 

NA

 

 

NA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AltabankTM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CET1 Capital to Risk-Weighted Assets

 

$

297,108

 

 

 

16.88

%

 

$

79,191

 

 

 

4.50

%

 

$

114,387

 

 

 

6.50

%

Tier 1 Capital to Risk-Weighted Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

297,108

 

 

 

16.88

%

 

 

105,588

 

 

 

6.00

%

 

 

140,784

 

 

 

8.00

%

Consolidated

 

 

229,312

 

 

 

18.93

%

 

 

72,692

 

 

 

6.00

%

 

 

96,923

 

 

 

8.00

%

People's Intermountain Bank

 

 

193,277

 

 

 

16.05

%

 

 

72,232

 

 

 

6.00

%

 

 

96,309

 

 

 

8.00

%

Total Risk-Based Capital to

Risk-Weighted Assets

 

 

319,233

 

 

 

18.14

%

 

 

140,784

 

 

 

8.00

%

 

 

175,981

 

 

 

10.00

%

Tier 1 Leverage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

297,108

 

 

 

12.45

%

 

 

95,429

 

 

 

4.00

%

 

 

119,286

 

 

 

5.00

%

Consolidated

 

 

229,312

 

 

 

13.71

%

 

 

66,902

 

 

 

4.00

%

 

NA

 

 

NA

 

People's Intermountain Bank

 

 

193,277

 

 

 

11.81

%

 

 

65,453

 

 

 

4.00

%

 

 

81,816

 

 

 

5.00

%

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

Minimum Capital

 

 

Well Capitalized

 

 

 

Actual

 

 

Requirement

 

 

Requirement

 

(Dollars in thousands)

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CET1 Capital to Risk-Weighted Assets

 

$

264,790

 

 

 

15.11

%

 

$

78,857

 

 

 

4.50

%

 

$

113,904

 

 

 

6.50

%

Tier 1 Capital to Risk-Weighted Assets

 

 

264,790

 

 

 

15.11

%

 

 

105,142

 

 

 

6.00

%

 

 

140,190

 

 

 

8.00

%

Total Risk-Based Capital to

   Risk-Weighted Assets

 

 

286,747

 

 

 

16.36

%

 

 

140,190

 

 

 

8.00

%

 

 

175,237

 

 

 

10.00

%

Tier 1 Leverage

 

 

264,790

 

 

 

12.27

%

 

 

86,351

 

 

 

4.00

%

 

NA

 

 

NA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AltabankTM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CET1 Capital to Risk-Weighted Assets

 

$

261,703

 

 

 

14.94

%

 

$

78,833

 

 

 

4.50

%

 

$

113,870

 

 

 

6.50

%

Tier 1 Capital to Risk-Weighted Assets

 

 

261,703

 

 

 

14.94

%

 

 

105,111

 

 

 

6.00

%

 

 

140,148

 

 

 

8.00

%

Total Risk-Based Capital to

   Risk-Weighted Assets

 

 

283,654

 

 

 

16.19

%

 

 

140,148

 

 

 

8.00

%

 

 

175,185

 

 

 

10.00

%

Tier 1 Leverage

 

 

261,703

 

 

 

12.12

%

 

 

86,346

 

 

 

4.00

%

 

 

107,932

 

 

 

5.00

%

 

 

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

Minimum Capital

 

 

Well Capitalized

 

 

 

Actual

 

 

Requirement

 

 

Requirement

 

(Dollars in thousands)

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

Total Risk-Based Capital to Risk-Weighted Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

224,510

 

 

 

19.02

%

 

$

94,412

 

 

 

8.00

%

 

$

118,015

 

 

 

10.00

%

People's Intermountain Bank

 

 

187,326

 

 

 

15.98

%

 

 

93,796

 

 

 

8.00

%

 

 

117,245

 

 

 

10.00

%

Tier 1 Capital to Risk-Weighted Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

209,569

 

 

 

17.76

%

 

 

70,809

 

 

 

6.00

%

 

 

94,412

 

 

 

8.00

%

People's Intermountain Bank

 

 

172,480

 

 

 

14.71

%

 

 

70,347

 

 

 

6.00

%

 

 

93,796

 

 

 

8.00

%

Tier 1 Leverage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

209,569

 

 

 

13.42

%

 

 

62,457

 

 

 

4.00

%

 

NA

 

 

NA

 

People's Intermountain Bank

 

 

172,480

 

 

 

11.31

%

 

 

61,018

 

 

 

4.00

%

 

$

76,273

 

 

 

5.00

%

Federal Reserve Board Regulations require maintenance of certain minimum reserve balances based on certain average deposits. The Bank had reserve requirements of $9.1$9.4 million and $8.7$2.2 million as of December 31, 20162019 and 2015,2018, respectively.

The Company’s Board of Directors may declare a cash or stock dividend out of retained earnings provided the regulatory minimum capital ratios are met. The Company plans to maintain capital ratios that meet the well-capitalized standards per the regulations and, therefore, plans to limit dividends to amounts that are appropriate to maintain those well-capitalized regulatory capital ratios.

 


94105


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Note 10 — Shareholders’ Equity

The Company completed an initial public offering in June 2015 and raised additional capital of $34.9 million, net of underwriting discounts and offering costs. The Board of Directors declared semi-annualfollowing table summarizes dividends in 2014 and began declaring quarterly dividends in 2015. Dividends on quarterly earnings are generallyper share declared and paid subsequent to the end of the quarter. In 2015 the Board of Directors declared and paid three quarterly dividends of $0.06 per share, totaling $3.0 million. Subsequent to December 31, 2015, the Board of Directors declared and paid a quarterly dividend of $0.07 per share totaling $1.2 million on earningsquarter for the fourth quarter of 2015. In 2014, the Board of Directors declared and paid a semi-annual dividend of $0.08 per share, totaling $1.2 million and declared a semi-annual dividend of $0.14 per share, totaling $2.1 million, which was paid in the first quarter of 2015.periods indicated:         

 

 

Years Ended December 31,

 

 

 

2019

 

 

2018

 

First quarter

 

$

0.11

 

 

$

0.09

 

Second quarter

 

 

0.12

 

 

 

0.10

 

Third quarter

 

 

0.13

 

 

 

0.11

 

Fourth quarter

 

 

0.13

 

 

 

0.11

 

Total

 

$

0.49

 

 

$

0.41

 

Note 11 — Incentive Share-Based Plan and Other Employee Benefits

In June 2014, the Board of Directors (“Board”) and shareholders of the Company approved a share-based incentive plan (the “2014 Plan”) which replaced an existing share-based incentive plan. The 2014 Plan provides for various share-based incentive awards including incentive share-based options, non-qualified share-based options, restricted shares, and stock appreciation rights to be granted to officers, directors and other key employees. The maximum aggregate number of shares that may be issued under the 2014 Plan is 800,000 common shares. The share-based awards are granted to participants under both plans at a price not less than the fair value on the date of grant and for terms of up to ten years. The 2014 Plan also allows for granting of share-based awards to directors and consultants who are not employees of the Company.

Under the plans, share-based options are exercisable at the time of grant or other times subject to such terms and conditions as determined by the Board. Share-based options granted may be exercised in whole or in part at any time during the maximum option term of ten years. All share-based options are adjustable for any future stock splits or stock dividends. The Board has the authority to grant to eligible participants one or more of the various share-based incentive awards. To date, the Company has issued incentive share-based options, non-qualified share-based options and restricted stock units to participants. Fair value of the exercise price prior to the Company’s initial public offering in June 2015 was set at the time of grant by the Board based on independent valuations and related models; and after the initial public offering, fair value is based on market prices at the date of grant. The Company’s policy is to issue common shares to the person exercising share-based options.

95106


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Note 11 — Incentive Share-Based Plan and Other Employee Benefits – Continued

Share-based option transactions are summarized as follows:  

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

Options

 

 

Weighted

 

 

Average

 

 

 

 

 

 

Options

 

 

Weighted

 

 

Average

 

 

 

 

 

 

Granted

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

Granted

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

for Common

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

 

for Common

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

(Dollars in thousands, except share and per share data)

 

Shares

 

 

Price

 

 

Term

 

 

Value

 

 

Shares

 

 

Price

 

 

Term

 

 

Value

 

Outstanding at January 1, 2014

 

 

1,031,058

 

 

$

5.52

 

 

 

 

 

 

 

 

 

Outstanding at January 1, 2017

 

 

762,716

 

 

$

7.42

 

 

 

 

 

 

 

 

 

Granted

 

 

64,514

 

 

 

10.71

 

 

 

 

 

 

 

 

 

 

 

17,692

 

 

 

29.59

 

 

 

 

 

 

 

 

 

Exercised

 

 

(146,089

)

 

 

5.18

 

 

 

 

 

 

 

 

 

 

 

(221,337

)

 

 

7.76

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(8,800

)

 

 

5.91

 

 

 

 

 

 

 

 

 

 

 

(14,358

)

 

 

15.41

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2014

 

 

940,683

 

 

 

5.92

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2017

 

 

544,713

 

 

 

10.14

 

 

 

 

 

 

 

 

 

Granted

 

 

190,448

 

 

 

12.90

 

 

 

 

 

 

 

 

 

 

 

33,382

 

 

 

32.31

 

 

 

 

 

 

 

 

 

Exercised

 

 

(152,508

)

 

 

5.31

 

 

 

 

 

 

 

 

 

 

 

(218,928

)

 

 

8.45

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(16,368

)

 

 

4.85

 

 

 

 

 

 

 

 

 

 

 

(8,524

)

 

 

7.61

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2015

 

 

962,255

 

 

 

7.42

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2018

 

 

350,643

 

 

 

13.38

 

 

 

 

 

 

 

 

 

Granted

 

 

86,831

 

 

 

15.66

 

 

 

 

 

 

 

 

 

 

 

545

 

 

 

27.53

 

 

 

 

 

 

 

 

 

Exercised

 

 

(285,568

)

 

 

5.62

 

 

 

 

 

 

 

 

 

 

 

(139,598

)

 

 

9.05

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(802

)

 

 

16.96

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2016

 

 

762,716

 

 

 

7.42

 

 

 

4.50

 

 

$

14,348

 

Exercisable at December 31, 2016

 

 

481,959

 

 

 

7.29

 

 

 

3.83

 

 

 

9,426

 

Exercisable at December 31, 2015

 

 

617,014

 

 

 

5.72

 

 

 

4.13

 

 

 

7,091

 

Outstanding at December 31, 2019

 

 

211,590

 

 

 

16.27

 

 

 

2.45

 

 

$

3,603

 

Exercisable at December 31, 2019

 

 

190,514

 

 

 

14.59

 

 

 

2.54

 

 

 

2,965

 

Exercisable at December 31, 2018

 

 

292,100

 

 

 

11.27

 

 

 

3.25

 

 

 

5,562

 

The weighted-average grant-date fair value of options per share granted, using the Black-Scholes method of valuation, was $2.26, $2.65$7.80, $3.58 and $2.01$3.82 during 2016, 20152019, 2018 and 2014,2017, respectively. The total intrinsic value of options exercised during the years ended December 31, 2016, 20152019, 2018 and 20142017 was $3.5 million, $1.6$5.2 million and $761,000,$4.2 million, respectively. Shares issued upon exercises of stock options in 20162019 were reduced by 47,41222,903 shares related to net settled option exercises or existing shares tendered as consideration.

107


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 11 — Incentive Share-Based Plan and Other Employee Benefits – Continued

Restricted stock unit transactions are summarized as follows:

 

Options

 

 

Weighted

 

 

Options

 

 

Weighted

 

 

Granted

 

 

Average

 

 

Granted

 

 

Average

 

 

for Common

 

 

Grant Date

 

 

for Common

 

 

Grant Date

 

(Dollars in thousands, except share and per share data)

 

Shares

 

 

Fair Value

 

 

Shares

 

 

Fair Value

 

Non-vested at January 1, 2014

 

 

-

 

 

 

 

 

Granted

 

 

3,198

 

 

$

11.10

 

Non-vested at December 31, 2014

 

 

3,198

 

 

 

11.10

 

Granted

 

 

40,035

 

 

 

12.54

 

Vested

 

 

(3,304

)

 

 

11.13

 

Non-vested at December 31, 2015

 

 

39,929

 

 

 

12.54

 

Non-vested at January 1, 2017

 

 

27,895

 

 

$

12.97

 

Granted

 

 

3,866

 

 

 

16.50

 

 

 

27,811

 

 

 

28.92

 

Vested

 

 

(14,228

)

 

 

12.81

 

 

 

(15,838

)

 

 

13.37

 

Forfeited

 

 

(1,672

)

 

 

12.54

 

 

 

(292

)

 

 

12.10

 

Non-vested at December 31, 2016

 

 

27,895

 

 

 

12.97

 

Non-vested at December 31, 2017

 

 

39,576

 

 

 

24.02

 

Granted

 

 

32,853

 

 

 

31.09

 

Vested

 

 

(28,420

)

 

 

32.06

 

Forfeited

 

 

(1,565

)

 

 

30.66

 

Non-vested at December 31, 2018

 

 

42,444

 

 

 

30.00

 

Granted

 

 

41,709

 

 

 

29.87

 

Vested

 

 

(24,980

)

 

 

25.96

 

Forfeited

 

 

(5,124

)

 

 

30.25

 

Non-vested at December 31, 2019

 

 

54,049

 

 

 

29.98

 

The total intrinsic value of RSU’sRSUs vested during the years ended December 31, 20162019, 2018, and 20152017 were $244,000$648,000, $911,000, and $56,000,$423,000, respectively.

As of December 31, 2016,2019, there was $484,000$1,007,000 of total unrecognized compensation expense related to stock options and RSUs granted to be recognized over a weighted-average period of 2.45 years.

As of December 31, 2018, there was $956,000 of total unrecognized compensation expense related to stock options and RSU’s granted to be recognized over a weighted-average period of 3.1 years.

As of December 31, 2017, there was $711,000 of total unrecognized compensation expense related to stock options and RSU’s granted to be recognized over a weighted-average period of 1.2 years.

96


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 11 — Incentive Share-Based Plan and Other Employee Benefits – Continued

The Company recorded share-based compensation expense of $544,000, $485,000$1,011,000, $891,000 and $221,000$510,000 for the years ended December 31, 2016, 20152019, 2018, and 2014,2017, respectively. The Company used the Black-Scholes pricing model using the following assumptions to calculate the fair value of incentive share-based options granted during 2016, 20152019, 2018, and 2014:2017: annual dividend yield of 0.7% to 2.3%; risk-free interest rates of 0.1% to 1.6%; expected option terms of 0.7 to 6.5 years; and volatility index of 13.3% to 29.9%. The assumptions for expected dividend yield and expected life reflected management’s judgment and include consideration of historical experience. Expected volatility is based on data from comparable public companies for the expected option term. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option.  Expected forfeitures are estimated based on the Company’s historical forfeiture experience.  Management believes that the assumptions used in the option-pricing model are highly subjective and represent only one estimate of possible value, as there is no active market for the options granted.

Share-based compensation expense related to restricted stock units and non-qualified stock options was $1,010,000, $862,000 and $342,000 for the years ended December 31, 2019, 2018, and 2017; and the related recognized income tax benefit associated with this expense is $236,000, $216,000 and $131,000, respectively.

108


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 11 — Incentive Share-Based Plan and Other Employee Benefits – Continued

Profit Sharing — The Company provides an annual discretionary profit sharing contribution to all eligible employees based on each years’ financial performance as recommended by management and approved by the Board of Directors.  The profit sharing contribution can be contributed to either the 401(k) plan or the company’s Employee Stock Ownership Plan (“ESOP”).  The company made profit sharing contributions of $1,148,000, $1,000,000 and $725,000 in 2019, 2018, and 2017, respectively.

401(k) plan — The Company offers a retirement savings 401(k) plan in which all eligible employees may participate. Currently, the Company contributes and allocates to each eligible participant’s account, a percentage of the participant’s elective deferral. The Company made matching contributions of $778,000, $708,000$1,054,000, $964,000 and $670,000$883,000 in 2016, 20152019, 2018, and 2014,2017, respectively.

Profit-sharingEmployee Stock Ownership Plan — The Company providesformed an annual profit-sharing contributionESOP in 2018 to allprovide eligible employees based on each year’s profitability and as approved bywith the Boardbenefits of Directors. Profit sharing contributions were $600,000, $600,000 and $450,000ownership in 2016, 2015 and 2014, respectively.the Company’s stock.

 

 

Note 12 — Fair Value

Fair value measurements — The Company measures and discloses certain assets and liabilities at fair value. Fair value representsis defined as the exchange price that would be received forto sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants onat the measurement date. To measuredate (that is, not a forced liquidation or distressed sale). GAAP establishes a consistent framework for measuring fair value GAAP has established a hierarchy whichand disclosure requirements about fair value measurements.  Among other things, the standard requires an entityus to maximize the use of observable inputs and minimize the use of unobservable inputs. This hierarchy uses three levelsinputs when measuring fair value. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s estimates for market assumptions. These two types of inputs to measurecreate the following fair value of assets and liabilities as follows:hierarchy.

Level 1

Quoted prices in active markets for identical assets or liabilities.

Level 2

Observable inputs other than Level 1 including quoted prices for similar assets or liabilities, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data.

Level 3

Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.


 

97Level 1Quoted prices in active markets for identical instruments. An active market is a market in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.

Level 2Observable inputs other than Level 1 including quoted prices in active markets for similar instruments, quoted prices in less active markets for identical or similar instruments, or other observable inputs that can be corroborated by observable market data.

Level 3Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation; also includes observable inputs from non-binding single dealer quotes not corroborated by observable market data. In developing Level 3 measurements, management incorporates whatever market data might be available and uses discounted cash flow models where appropriate. These calculations include projections of future cash flows, including appropriate default and loss assumptions, and market based discount rates.

109


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Note 12 — Fair Value – Continued

The following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation methodology:

Investment securities, available for sale — Where quoted prices are available in an active market, securities are classified within Level 1 of the hierarchy. Level 1 includes securities that have quoted prices in an active market for identical assets. If quoted market prices are not available, then fair values are estimated using pricing models, quoted prices of securities with similar characteristics or discounted cash flows, and accordingly, are classified as Level 2 or 3. The Company has categorized its available-for-sale investment securities as Level 1 or 2.

Impaired loans and other real estate owned — Fair value applies to loans and other real estate owned measured for impairment. Impaired loans are measured at an observable market price (if available) or at the fair value of the loan’s collateral (if collateral dependent). Fair value of the loan’s collateral is determined by appraisals or independent valuation which is then adjusted for the cost related to liquidation of the collateral. The Company has categorized its impaired loans and other real estate owned as Level 2.

Assets measured at fair value are summarized as follows:

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

As of December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair valued on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available for sale

 

$

1,008

 

 

$

334,601

 

 

$

-

 

 

$

335,609

 

Fair valued on a non-recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans

 

 

-

 

 

 

4,342

 

 

 

-

 

 

 

4,342

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair valued on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available for sale

 

$

2,017

 

 

$

330,719

 

 

$

-

 

 

$

332,736

 

Fair valued on a non-recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans

 

 

-

 

 

 

5,580

 

 

 

-

 

 

 

5,580

 

Other real estate owned

 

 

-

 

 

 

460

 

 

 

-

 

 

 

460

 

Fair value of financial instruments — The following table summarizes carrying amounts, estimated fair values and assumptions used to estimate fair values of financial instruments:

 

 

Carrying

 

 

Estimated

 

(in thousands)

 

Amount

 

 

Fair Value

 

As of December 31, 2016

 

 

 

 

 

 

 

 

Financial Assets:

 

 

 

 

 

 

 

 

Net loans held for investment

 

$

1,103,162

 

 

$

1,101,890

 

Financial Liabilities:

 

 

 

 

 

 

 

 

Interest bearing deposits

 

 

981,974

 

 

 

982,380

 

 

 

 

 

 

 

 

 

 

As of December 31, 2015

 

 

 

 

 

 

 

 

Financial Assets:

 

 

 

 

 

 

 

 

Net loans held for investment

 

$

1,032,418

 

 

$

1,029,540

 

Financial Liabilities:

 

 

 

 

 

 

 

 

Interest bearing deposits

 

 

900,677

 

 

 

901,211

 


98


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Note 12 — Fair Value – Continued

The above summary excludesestimated fair value amounts of financial assetsinstruments have been determined by the Company using available market information and liabilities for which carrying value approximatesappropriate valuation methodologies. However, considerable judgment is required to interpret data to develop the estimates of fair value. For financial assets, these include cash and cash equivalents, held-to-maturity securities (see Note 2), loans held for sale, bank-owned life insurance, accrued interest receivable and FHLB stock. For financial liabilities, these include non-interest bearing deposits, short-term borrowings, and accrued interest payable. Also excluded fromAccordingly, the summaryestimates presented herein are financial instruments recordednot necessarily indicative of the amounts the Company could realize at a future date. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value on a recurring basis, as previously described.

Fair valuesamounts. In addition, reasonable comparability between financial institutions may not be likely due to the wide range of off-balance sheet commitments such as lending commitments, standby letterspermitted valuation techniques and numerous estimates that must be made given the absence of credit and guarantees are based on fees currently charged to enter into similar agreements, taking into account the remaining termsactive secondary markets for many of the agreements andfinancial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values. Transfers between levels of the counter parties’ credit standing. The fair value hierarchy are deemed to occur at the end of the fees as of December 31, 2015 and 2014 were insignificant.reporting period.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Net loans —Cash and cash equivalents: The carrying amount of these items is a reasonable estimate of their fair value.

Securities: The estimated fair values of investment securities are priced using current active market quotes, if available, which are considered Level 1 measurements. For most of the portfolio, matrix pricing based on the securities’ relationship to other benchmark quoted prices is used to establish the fair value. These measurements are considered Level 2.  

Non-marketable securities: The fair value is based upon the redemption value of the stock, which equates to its carrying value.

Loans Held for Sale: The carrying amount of these items is a reasonable estimate of their fair value.

Loans held for investment: The fair value is estimated by discounting the future cash flows and estimated prepayments using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining term. Some loan types were valued attypes’ fair value approximated carrying value because of their floating rate or expected maturity characteristics.

Interest bearingDeposits: The carrying amount of deposits — with no stated maturity, such as savings and checking accounts, is a reasonable estimate of their fair value. The fairmarket value of interest bearing depositscertificates of deposit is estimated by discountingbased upon the estimated futurediscounted value of contractual cash flowsflows. The discount rate is determined using the rates currently offered for depositson comparable instruments.

Short-term borrowings: Short-term borrowing are overnight advances with similar remaining maturities.the FHLB and their carrying amount is considered a reasonable approximation of their fair value.  

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in the above methodologies and assumptions could significantly affect the estimates. Further, certain financial instruments and all non-financial instruments are excluded from the applicable disclosure requirements. Therefore, the fair value amounts shown in the table do not, by themselves, represent the underlying value of the Company as a whole.


99110


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 12 — Fair Value – Continued

The following table presents estimated fair values of the Company’s financial instruments as of December 31, 2019 and 2018:

 

 

 

 

2019

 

 

2018

 

 

 

 

 

Carrying

 

 

Estimated

 

 

Carrying

 

 

Estimated

 

(Dollars in thousands)

 

Level

 

Amount

 

 

Fair Value

 

 

Amount

 

 

Fair Value

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

1

 

$

211,981

 

 

$

211,981

 

 

$

48,547

 

 

$

48,547

 

Investment securities available for sale

 

2

 

 

395,410

 

 

 

395,410

 

 

 

280,964

 

 

 

280,964

 

Investment securities available for sale

 

3

 

 

10,585

 

 

 

10,585

 

 

 

-

 

 

 

-

 

Investment securities held to maturity

 

2

 

 

-

 

 

 

-

 

 

 

50,905

 

 

 

50,364

 

Investment securities held to maturity

 

3

 

 

-

 

 

 

-

 

 

 

14,557

 

 

 

14,402

 

Non-marketable securities

 

2

 

 

2,623

 

 

 

2,623

 

 

 

2,551

 

 

 

2,551

 

Loans held for sale

 

2

 

 

18,669

 

 

 

18,669

 

 

 

10,267

 

 

 

10,267

 

Loans held for investment

 

3

 

 

1,649,492

 

 

 

1,639,480

 

 

 

1,653,657

 

 

 

1,637,617

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total deposits

 

2

 

$

2,056,367

 

 

$

1,851,954

 

 

$

1,877,055

 

 

$

1,675,992

 

Assets measured on a recurring and non-recurring basis are as follows:

(Dollars in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

As of December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair valued on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available for sale

 

$

-

 

 

$

395,410

 

 

$

10,585

 

 

$

405,995

 

Fair valued on a non-recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans

 

 

-

 

 

 

-

 

 

 

17,497

 

 

 

17,497

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair valued on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available for sale

 

$

-

 

 

$

280,964

 

 

$

-

 

 

$

280,964

 

Fair valued on a non-recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans

 

 

-

 

 

 

-

 

 

 

7,304

 

 

 

7,304

 

Non-recurring Measurements:  Impaired loans are classified with Level 3 of the fair value hierarchy.  The estimated fair value of impaired loans is based on the fair value of the collateral, less estimated costs to sell.  The Company receives an appraisal or performs an evaluation for each impaired loan.  The key inputs used to determine the fair value of impaired loans include selling costs, and adjustment to comparable collateral.  Valuations and significant inputs obtained by independent sources are reviewed by the Company for accuracy and reasonableness.  Appraisals are typically obtained at least on an annual basis.  The Company also considers other factors and events that may affect the fair value.  The appraisals or evaluations are reviewed at least on a quarterly basis to determine if any adjustments are needed.  After review and acceptance of the appraisal or evaluation, adjustments to impaired loans may occur.

111


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Note 13 — Contingencies and Concentrations of Credit Risk

Litigation — The Company may from time to time be subject to legal proceedings arising in the normal course of business. Management does not believe the outcome of any currently pending matters will have a material impact on the financial condition, results of operations, or liquidity of the Company.

Concentrations of credit risk — The Company has concentrated credit risk exposure, including off-balance-sheet credit risk exposure, related to real estate loans as disclosed in Notes 3 and 8. The ultimate collectability of a substantial portion of the loan portfolio is susceptible to changes in economic and market conditions in the region. The Company generally requires collateral on all real estate lending arrangements and typically maintains loan-to-value ratios of no greater than 80%.

Investments in municipal securities principally involve governmental entities within the State of Utah. Loans are limited by state banking regulation to 15% of each Bank’s total capital, as defined by banking regulations. As a matter of practice and in accordance with applicable Utah state law, the Bank does not extend credit to any single borrower or group of related borrowers in excess of 15% of the Bank’s total capital. As of December 31, 2016, PIB’s2019, The Bank’s lending limit was $31.5$53.8 million.

The contractual amounts of credit-related financial instruments, such as commitments to extend credit and credit-card arrangements, represent the amounts of potential accounting loss should the contract be fully drawn upon, the customerclient defaults, and the value of any existing collateral becomes worthless.

Note 14 — Condensed Financial Statements of Parent Company

Financial information pertaining only to PUB, on a parent-only basis, is as follows as of and for the years ended December 31:

(in thousands)

 

2016

 

 

2015

 

Balance Sheets

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,946

 

 

$

2,637

 

Available for sale investment securities, at fair value

 

 

34,507

 

 

 

34,796

 

Investment in subsidiaries

 

 

192,578

 

 

 

172,460

 

Due from subsidiaries, net

 

 

-

 

 

 

-

 

Other assets

 

 

391

 

 

 

489

 

Total assets

 

$

230,422

 

 

$

210,382

 

Liabilities and shareholders' equity

 

 

 

 

 

 

 

 

Due to subsidiaries, net

 

$

1,411

 

 

$

257

 

Other liabilities

 

 

494

 

 

 

717

 

Shareholders' equity

 

 

228,517

 

 

 

209,408

 

Total liabilities and shareholders' equity

 

$

230,422

 

 

$

210,382

 

 

(Dollars in thousands)

 

2019

 

 

2018

 

Balance Sheets

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,895

 

 

$

3,286

 

Investment in subsidiaries

 

 

327,178

 

 

 

287,075

 

Other assets

 

 

370

 

 

 

520

 

Total assets

 

$

332,443

 

 

$

290,881

 

Liabilities and shareholders' equity

 

 

 

 

 

 

 

 

Due to subsidiaries, net

 

$

61

 

 

$

337

 

Other liabilities

 

 

20

 

 

 

382

 

Shareholders' equity

 

 

332,362

 

 

 

290,162

 

Total liabilities and shareholders' equity

 

$

332,443

 

 

$

290,881

 


100112


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Note 14 — Condensed Financial Statements of Parent Company – Continued

(in thousands)

 

2016

 

 

2015

 

 

2014

 

(Dollars in thousands)

 

2019

 

 

2018

 

 

2017

 

Statements of Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividend and other income from subsidiaries

 

$

3,884

 

 

$

8,730

 

 

$

9,170

 

 

$

11,400

 

 

$

7,900

 

 

$

5,300

 

Interest and dividends on investment securities

 

 

363

 

 

 

174

 

 

 

-

 

Interest and dividends

 

 

13

 

 

 

6

 

 

 

310

 

Total income

 

 

4,247

 

 

 

8,904

 

 

 

9,170

 

 

 

11,413

 

 

 

7,906

 

 

 

5,610

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

1,100

 

 

 

6,100

 

 

 

5,741

 

 

 

121

 

 

 

283

 

 

 

1,455

 

Other expenses

 

 

461

 

 

 

429

 

 

 

274

 

 

 

775

 

 

 

666

 

 

 

420

 

Total expenses

 

 

1,561

 

 

 

6,529

 

 

 

6,015

 

 

 

896

 

 

 

949

 

 

 

1,875

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

2,686

 

 

 

2,375

 

 

 

3,155

 

 

 

10,517

 

 

 

6,957

 

 

 

3,735

 

Income tax benefit

 

 

624

 

 

 

216

 

 

 

289

 

 

 

208

 

 

 

266

 

 

 

575

 

 

 

3,310

 

 

 

2,591

 

 

 

3,444

 

 

 

10,725

 

 

 

7,223

 

 

 

4,310

 

Equity in undistributed net income of subsidiaries

 

 

20,300

 

 

 

17,023

 

 

 

11,461

 

 

 

33,599

 

 

 

33,409

 

 

 

15,536

 

Net income

 

$

23,610

 

 

$

19,614

 

 

$

14,905

 

 

$

44,324

 

 

$

40,632

 

 

$

19,846

 

 

(in thousands)

 

2016

 

 

2015

 

 

2014

 

Statements of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

23,610

 

 

$

19,614

 

 

$

14,905

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Equity in undistributed net income of the Banks

 

 

(20,300

)

 

 

(17,023

)

 

 

(11,461

)

Net amortization of securities discounts and premiums

 

 

89

 

 

 

55

 

 

 

-

 

Change in other assets and liabilities

 

 

1,002

 

 

 

886

 

 

 

(671

)

Net change provided by operating activities

 

 

4,401

 

 

 

3,532

 

 

 

2,773

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of available-for-sale securities

 

 

(20,995

)

 

 

(50,227

)

 

 

-

 

Proceeds from maturities/sales of available-for-sale securities

 

 

21,267

 

 

 

15,149

 

 

 

-

 

Return of escrow funds

 

 

-

 

 

 

-

 

 

 

287

 

Net change provided by (used in) investing activities

 

 

272

 

 

 

(35,078

)

 

 

287

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of common shares

 

 

-

 

 

 

34,897

 

 

 

-

 

Proceeds from exercise of stock options

 

 

777

 

 

 

847

 

 

 

769

 

Dividends paid

 

 

(5,141

)

 

 

(5,052

)

 

 

(1,177

)

Net change provided by (used in) financing activities

 

 

(4,364

)

 

 

30,692

 

 

 

(408

)

Net change in cash and cash equivalents

 

 

309

 

 

 

(854

)

 

 

2,652

 

Cash and cash equivalents, beginning of year

 

 

2,637

 

 

 

3,491

 

 

 

839

 

Cash and cash equivalents, end of year

 

$

2,946

 

 

$

2,637

 

 

$

3,491

 


 

(Dollars in thousands)

 

2019

 

 

2018

 

 

2017

 

Statements of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

44,324

 

 

$

40,632

 

 

$

19,846

 

Adjustments to reconcile net income to net cash provided

   by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Equity in undistributed net income of the Bank

 

 

(33,599

)

 

 

(33,409

)

 

 

(15,536

)

Net amortization of securities discounts and premiums

 

 

-

 

 

 

-

 

 

 

-

 

Change in other assets and liabilities

 

 

(487

)

 

 

214

 

 

 

(1,204

)

Net change provided by operating activities

 

 

10,238

 

 

 

7,437

 

 

 

3,106

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of available for sale securities

 

 

-

 

 

 

-

 

 

 

-

 

Maturities/sales of available for sale securities

 

 

-

 

 

 

-

 

 

 

34,278

 

Investments in banking subsidiary

 

 

-

 

 

 

-

 

 

 

(46,977

)

Net change (used in) provided by investing activities

 

 

-

 

 

 

-

 

 

 

(12,699

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common shares

 

 

-

 

 

 

-

 

 

 

13,977

 

Exercise of stock options

 

 

596

 

 

 

887

 

 

 

1,395

 

Dividends paid

 

 

(9,225

)

 

 

(7,657

)

 

 

(6,106

)

Net change (used in) provided by financing activities

 

 

(8,629

)

 

 

(6,770

)

 

 

9,266

 

Net change in cash and cash equivalents

 

 

1,609

 

 

 

667

 

 

 

(327

)

Cash and cash equivalents, beginning of year

 

 

3,286

 

 

 

2,619

 

 

 

2,946

 

Cash and cash equivalents, end of year

 

$

4,895

 

 

$

3,286

 

 

$

2,619

 

101113


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

Note 15 —Acquisitions

Utah Banner Bank Branch Acquisition

On October 6, 2017, the Company acquired the loans and deposits of seven Utah branch locations from Banner Bank (“Banner branches”).  The Company acquired $257 million in loans, assumed $160 million in deposits, and paid a deposit premium of $13.8 million based on average deposits at closing.  Two of the seven branches were consolidated into existing Bank branches.  The Company has successfully completed the conversion of these branches into its core-banking platform and integrated personnel into the Company’s operations.  

The acquired assets and assumed liabilities were recorded at fair value at the date of the acquisition.  In accordance with GAAP guidance for business combinations, the Company recorded $14.9 million of goodwill and $2.6 million of other intangibles as of the acquisition date. The other intangible asset is related to core deposits and is being amortized using a straight-line method over a period of ten years with no significant residual value. For tax purposes, the purchase accounting adjustments, including goodwill and other intangibles related to the Banner branch acquisition are taxable or deductible.  

The following table summarizes the consideration paid and the fair value of the assets acquired and liabilities assumed and recognized at the acquisition date.  

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

Purchase Price

 

 

 

 

 

 

 

 

Cash

 

 

 

 

 

$

100,283

 

Premium paid on average deposits

 

 

 

 

 

 

13,762

 

Total consideration

 

 

 

 

 

$

114,045

 

Recorded amounts of assets acquired and liabilities

   assumed

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Loans, net of discounts

 

$

251,782

 

 

 

 

 

Premises & equipment

 

 

3,467

 

 

 

 

 

Core deposit intangible

 

 

2,604

 

 

 

 

 

Other assets

 

 

1,761

 

 

 

 

 

Total assets

 

 

259,614

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Deposits, net of premiums

 

 

160,292

 

 

 

 

 

Other liabilities

 

 

175

 

 

 

 

 

Total liabilities assumed

 

 

160,467

 

 

 

 

 

Total net assets from merger

 

 

 

 

 

$

99,147

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

 

 

 

$

14,898

 

Direct costs related to the branch acquisition were expensed as incurred in the year ended December 31, 2017. Such expenses primarily related to professional and legal services, human resource costs and information system charges. For the year ended December 31, 2017, the Company incurred $1.7 million of expenses related to the acquisition of the Utah branches of Banner Bank.

114


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 15 —Acquisitions – Continued

Pro forma income statements are not being presented as the information is not practicable to produce.

Town & Country Bank Acquisition

The Company also completed the merger with Town & Country Bank (“TC Bank”) located in St. George, Utah on November 13, 2017, including the acquisition of $117 million in loans and assumption of $124 million in deposits.  

The Company successfully completed the conversion of this branch into its core-banking platform, consolidated its existing branch and the TC Bank branch in St. George into one branch, and integrated personnel into the Company’s operations.  The Company exchanged TC Bank shares for 466,546 PUB common shares and paid cash of $11.6 million of which $2.0 million is being held in escrow to cover potential loss indemnifications.  

The acquired assets and assumed liabilities were recorded at fair value at the date of the respective acquisitions.  In accordance with GAAP guidance for business combinations, the Company recorded $11.1 million of goodwill and $845,000 of core deposit intangibles and $702,000 in deposit premium on certificates of deposit related to TC Bank on the acquisition date. The core deposit intangible is being amortized using a straight-line method over a period of ten years with no significant residual value. The deposit premium is being accreted into net interest income over the life of the certificates of deposit. In accordance with the applicable accounting guidance for business combinations, there was no carry-over of TC Bank’s previously established allowance for loan losses. The acquisition was a tax-free exchange; therefore, for tax purposes, purchase accounting adjustments, including goodwill, for the TC Bank acquisition are all non-taxable and/or non-deductible.

115


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 15 —Acquisitions – Continued

The following table summarizes the consideration paid and the fair value of the assets acquired and liabilities assumed and recognized at the acquisition date.

(Dollars in thousands, except share data)

 

 

 

 

 

 

 

 

Purchase Price

 

 

 

 

 

 

 

 

PUB common shares issued for Town & Country shares

 

 

 

 

 

 

466,546

 

PUB share price at closing

 

 

 

 

 

$

29.96

 

Consideration from common stock conversion

   (0.2916 ratio)

 

 

 

 

 

$

13,977

 

Cash

 

 

 

 

 

 

11,603

 

Total consideration

 

 

 

 

 

$

25,580

 

Recorded amounts of assets acquired and liabilities

   assumed

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

13,401

 

 

 

 

 

Investment securities

 

 

9,585

 

 

 

 

 

Loans, net of discounts

 

 

110,334

 

 

 

 

 

Premises & equipment

 

 

145

 

 

 

 

 

Core deposit intangible

 

 

845

 

 

 

 

 

Bank owned life insurance

 

 

3,332

 

 

 

 

 

Deferred income tax asset

 

 

2,571

 

 

 

 

 

Other assets

 

 

4,161

 

 

 

 

 

Total assets

 

 

144,374

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Deposits, net of premiums

 

 

123,777

 

 

 

 

 

Other liabilities

 

 

6,127

 

 

 

 

 

Total liabilities assumed

 

 

129,904

 

 

 

 

 

Total net assets from merger

 

 

 

 

 

$

14,470

 

Goodwill

 

 

 

 

 

$

11,110

 

Direct costs related to the branch acquisition were expensed as incurred in the year ended December 31, 2017. Such expenses primarily related to professional and legal services, human resource costs and information system charges. For the year ended December 31, 2017, the Company incurred $3.1 million of expenses related to the TC Bank acquisition, the majority of which is tax deductible.

The two acquisitions were consistent with the Company’s strategy to expand our presence in Utah. The acquisitions offer the Company the opportunity to increase profitability by introducing existing products and services to the acquired client base as well as add new clients in Utah.  Goodwill arising from the acquisition consisted largely of synergies and the cost savings resulting from the combined operations.

During 2018, the Company made acquisition related measurement period adjustments of $335,000 to goodwill.  Changes to initially estimated fair values from a business combination are recognized as an adjustment to goodwill over the measurement period, which cannot exceed one year from the acquisition date. The adjustments to goodwill related to changes in the preliminary goodwill recorded for the TC Bank acquisition and were related to loan valuations.

116


PEOPLE’S UTAH BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 16— Unaudited Quarterly Financial Data

Summarized unaudited quarterly financial data is as follows:

 

 

Quarters Ended 2016

 

(Dollars in thousands, except share and per share data)

 

March 31

 

 

June 30

 

 

September 30

 

 

December 31

 

Net interest income

 

$

16,700

 

 

$

17,211

 

 

$

17,637

 

 

$

18,333

 

Provision for loan losses

 

 

200

 

 

 

225

 

 

 

325

 

 

 

150

 

Non-interest income

 

 

3,763

 

 

 

4,398

 

 

 

4,386

 

 

 

4,332

 

Non-interest expense

 

 

12,135

 

 

 

12,400

 

 

 

11,902

 

 

 

12,540

 

Income before income tax expense

 

 

8,128

 

 

 

8,984

 

 

 

9,796

 

 

 

9,975

 

Income tax expense

 

 

2,885

 

 

 

3,407

 

 

 

3,548

 

 

 

3,433

 

Net income

 

$

5,243

 

 

$

5,577

 

 

$

6,248

 

 

$

6,542

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.30

 

 

$

0.31

 

 

$

0.35

 

 

$

0.37

 

Diluted

 

$

0.29

 

 

$

0.31

 

 

$

0.34

 

 

$

0.36

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters Ended 2015

 

(Dollars in thousands, except share and per share data)

 

March 31

 

 

June 30

 

 

September 30

 

 

December 31

 

Net interest income

 

$

14,499

 

 

$

14,903

 

 

$

15,789

 

 

$

16,449

 

Provision for loan losses

 

 

150

 

 

 

450

 

 

 

200

 

 

 

200

 

Non-interest income

 

 

4,144

 

 

 

4,143

 

 

 

3,965

 

 

 

3,752

 

Non-interest expense

 

 

11,219

 

 

 

11,483

 

 

 

11,444

 

 

 

12,622

 

Income before income tax expense

 

 

7,274

 

 

 

7,113

 

 

 

8,110

 

 

 

7,379

 

Income tax expense

 

 

2,476

 

 

 

2,449

 

 

 

2,844

 

 

 

2,493

 

Net income

 

$

4,798

 

 

$

4,664

 

 

$

5,266

 

 

$

4,886

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.32

 

 

$

0.31

 

 

$

0.30

 

 

$

0.28

 

Diluted

 

$

0.31

 

 

$

0.30

 

 

$

0.29

 

 

$

0.27

 

 

 

 

Quarters Ended 2019

 

(Dollars in thousands, except share and per share data)

 

March 31

 

 

June 30

 

 

September 30

 

 

December 31

 

Net interest income

 

$

26,907

 

 

$

27,720

 

 

$

28,191

 

 

$

27,100

 

Provision for loan losses

 

 

1,550

 

 

 

2,150

 

 

 

2,100

 

 

 

1,200

 

Non-interest income

 

 

3,337

 

 

 

3,598

 

 

 

4,467

 

 

 

3,779

 

Non-interest expense

 

 

14,916

 

 

 

14,699

 

 

 

16,068

 

 

 

14,589

 

Income before income tax expense

 

 

13,778

 

 

 

14,469

 

 

 

14,490

 

 

 

15,090

 

Income tax expense

 

 

3,273

 

 

 

3,480

 

 

 

3,355

 

 

 

3,395

 

Net income

 

$

10,505

 

 

$

10,989

 

 

$

11,135

 

 

$

11,695

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.56

 

 

$

0.58

 

 

$

0.59

 

 

$

0.62

 

Diluted

 

$

0.55

 

 

$

0.58

 

 

$

0.59

 

 

$

0.61

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters Ended 2018

 

(Dollars in thousands, except share and per share data)

 

March 31

 

 

June 30

 

 

September 30

 

 

December 31

 

Net interest income

 

$

25,944

 

 

$

26,978

 

 

$

27,182

 

 

$

28,074

 

Provision for loan losses

 

 

2,050

 

 

 

1,475

 

 

 

1,925

 

 

 

3,175

 

Non-interest income

 

 

3,718

 

 

 

4,066

 

 

 

3,794

 

 

 

3,551

 

Non-interest expense

 

 

16,048

 

 

 

15,823

 

 

 

15,280

 

 

 

14,845

 

Income before income tax expense

 

 

11,564

 

 

 

13,746

 

 

 

13,771

 

 

 

13,605

 

Income tax expense

 

 

2,560

 

 

 

3,279

 

 

 

3,288

 

 

 

2,927

 

Net income

 

$

9,004

 

 

$

10,467

 

 

$

10,483

 

 

$

10,678

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.48

 

 

$

0.56

 

 

$

0.56

 

 

$

0.57

 

Diluted

 

$

0.48

 

 

$

0.55

 

 

$

0.55

 

 

$

0.56

 

 

 

 


Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There have been no changes or disagreements with accountants on accounting and financial disclosure.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the disclosure controls and procedures (as required by Exchange Act Rules 240.13a-15(b) and 15d-14(a)). Based on that evaluation, the CEO and CFO have concluded that as of the end of the period covered by this report, the disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in reports that are filed or submitted under the Securities Exchange Act of 1934 are recorded, processed, summarized and timely reported as provided in the SEC’s rules and forms.

 

Management’s Report on Internal Control Overover Financial Reporting

 

ManagementManagement’s Annual Report on Internal Control over Financial Reporting is responsible for establishingincorporated herein by reference in “Item 8. Financial Statements and maintaining effective internal control over financial reporting as it relates to its financial statements presented in conformity with GAAP. The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes self-monitoring mechanisms and actions are taken to correct deficiencies as they are identified.Supplementary Data”.

 

There are inherent limitations in any internal control, no matter how well designed and misstatements due to error or fraud may occur and not be detected, including the possibility of circumvention or overriding of controls. Accordingly, even an effective internal control system can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of an internal control system may vary over time.

Management assessed its internal control structure over financial reporting as of December 31, 2016. This assessment was based on criteria for effective internal control over financial reporting described in the “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management asserts that the Company maintained effective internal control over financial reporting as it relates to its financial statements presented in conformity with accounting principles generally accepted in the United States of America.

Tanner LLC,Moss Adams LLP, the independent registered public accounting firm that audited the financial statements for the year ended December 31, 2016,2019, has issued an attestation report on the Company’s internal control over financial reporting. Such attestation report expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 20162019 and is included in “Item 8. Financial Statements and Supplementary Data.”

Changes in Internal Controls

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the year ended December 31, 2016,2019, to which this report relates that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

Item 9B. Other Information

None


PART III

Item 10. Directors, Executive Officers and Corporate Governance

Information regarding “Directors and Executive Officers” is set forth under the headings “Election of Directors” and “Management – Executive Officers who are not Directors” of the Company’s 20172020 Annual Meeting Proxy Statement (“Proxy Statement”) and is incorporated herein by reference.

Information regarding “Compliance with“Delinquent Section 16(a) of the Exchange Act”Reports” is set forth under the section “Compliance with“Delinquent Section 16 (a) Filing Requirements���16(a) Reports” of the Company’s Proxy Statement and is incorporated herein by reference.

Information regarding the Company’s audit committeecorporate governance and board committees is set forth under the heading “Meetings and Committees of the Board of Directors – Committee Membership” in the Company’s Proxy Statement and is incorporated by reference.

Consistent with the requirements of the Sarbanes-Oxley Act, the Company has a Code of Ethics applicable to senior financial officers including the principal executive officer, principal financial officer and principal accounting officer. The Code of Ethics can be accessed electronically by visiting the Company’s website at www.peoplesutah.com. The Code of Ethics is also listed as Exhibit 14 to this report, and is incorporated by reference to the Company’s 2016 annual report Form 10-K.www.peoplesutah.com.

Item 11. Executive Compensation

Information regarding “Executive Compensation” is set forth under the headings “Compensation of Directors” and “Executive Compensation” of the Company’s Proxy Statement and is incorporated herein by reference.

Information regarding “Compensation Committee Interlocks and Insider Participation” is set forth under such heading of the Company’s Proxy Statement and is incorporated herein by reference.

Information regarding the “Compensation Committee Report” is set forth under the heading “Report of Compensation Committee” of the Company’s Proxy Statement and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information regarding “Security Ownership of Certain Beneficial Owners and Management” is set forth under the headings “Beneficial Ownership” of the Company’s Proxy Statement and is incorporated herein by reference.

Information regarding “Equity Compensation Plan Information” is set forth under the headings “Equity Compensation Plan Information” of the Company’s Proxy Statement and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Information regarding “Certain Relationships and Related Transactions, and Director Independence” is set forth under the heading “Transactions with Management” and “Corporate Governance – Director Independence” of the Company’s Proxy Statement and is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

Information regarding “Principal Accounting Fees and Services” is set forth under the heading “Auditors – Fees Paid to Independent Registered Public Accounting Firm” of the Company’s Proxy Statement and is incorporated herein by reference.


 


PART IV

Item 15. Exhibits

List of Financial Statements and Financial Statement Schedules

(a) The following documents are filed as a part of this report:

(1) Financial Statements and

(2) Financial Statement schedules required to be filed by Item 8 of this report.

(3) The following exhibits are required by Item 601 of Regulation S-K and are included as part of this Form 10-K:

 

Exhibit
Number

 

Description

 

 

 

2.1  2.1#

 

Purchase and Assumption Agreement between Banner Bank and People’s Intermountain Bank dated July 26, 2017(5)

  2.2#

First Amendment to Purchase and Assumption Agreement between Banner Bank and People’s Intermountain Bank dated October 4, 2017(6)

  2.3#

Merger Agreement betweenamong People’s Utah Bancorp, People’s Intermountain Bank, Town & Country Bank, Inc. and Lewiston Bancorpthe Shareholders’ Representative dated June 18, 2013 May 31, 2017(1)(7)

  2.4#

Amendment No. 1 to Merger Agreement dated August 31, 2017(7)

  2.5#

Amendment No. 2 to Merger Agreement dated October 25, 2017(7)

3.1

 

Amended and Restated Articles of Incorporation of People’s Utah Bancorp (1)

3.2

 

Amended and Restated Bylaws of People’s Utah Bancorp (1)

4.1

 

Specimen Share Certificate for Common Shares of People’s Utah Bancorp (3)

4.2

 

Shareholders’ Agreement by and among People’s Utah Bancorp and certain shareholders dated October 18, 2013 (1)Description of Registered Securities

10.1*

 

People’s Utah Bancorp 2014 Incentive Plan (1)

10.2*

 

People’s Utah Bancorp Amended and Restated 2008 Incentive Plan (1)

10.3*

 

People’s Utah Bancorp Incentive Plan (1999 Incentive Plan) and all amendments thereto (1)

10.4*

 

People’s Utah Bancorp Deferred Compensation Plan for Directors (1)

10.5*

 

Form of 2014 Incentive Plan Notice of Stock Option Grant and Stock Option Agreement (1)

10.6*

 

Form of 2014 Incentive Plan Restricted Stock Unit Award Agreement (1)

10.7*10.7

 

Form of Director and Officer Indemnification Agreement(2)

10.8*

Employment Agreement by and between People’s Utah Bancorp, People’s Intermountain Bank and Bank of American Fork and Richard T. BeardLen E. Williams (2)(10)

10.8*10.9*

 

Employment Agreement by and between People’s Utah Bancorp, People’s Intermountain Bank and Bank of American Fork and Wolfgang T. N. MuelleckMark K. Olson (2)(10)

10.1310.10*

 

Form of DirectorChange In Control Agreement by and Officer Indemnification Agreementbetween People’s Utah Bancorp, People’s Intermountain Bank, and Rick W. Anderson (2)(10)

10.14*10.11*

 

Lewiston StateChange In Control Agreement by and between People’s Utah Bancorp, People’s Intermountain Bank, Supplemental Executive Retirement Plan effective as of January and Judd J. Austin(1 2008, as amended by that First Amendment dated April 17, 2008 (2)1)

21 ~10.12*

 

Subsidiaries of the CompanyPeople's Utah Bancorp Employee Stock Ownership Plan Trust Agreement (2018 Statement)(9)

23 ~16.1

 

Consent ofLetter from Tanner LLC(8)

31.1 ~21

 

Subsidiaries of the Company


23.1

Consent of Moss Adams  LLP

23.2

Consent of Tanner LLC

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002

31.2 ~

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002

32 ~

 

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002

101 ~

 

The following financial information from People’s Utah Bancorp Annual Report on Form 10-K for the year ended December 31, 20162019 is formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements

 


__________

~

Exhibit omitted from the 2016 Annual Report to Shareholders

*

Compensatory plan or arrangement

#

Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K.  The Company agrees to furnish a copy of any such omitted schedule or exhibit to the SEC upon request.

(1)

Filed as part of the Registrant's Draft Registration Statement on Form S-1 filed on March 11, 2015.

(2)

Filed as part of the Registrant's Registration Statement on Form S-1 filed on April 20, 2015.

(3)

Filed as part of the Registrant's Amendment No.1 to Registration Statement on Form S-1 filed on May 5, 2015.

(4)

Filed as part of the Registrant’s Quarterly Report on Form 10-Q filed on May 9, 2017.

(5)

Filed as part of the Registrant's Quarterly Report on Form 10-Q filed on August 8, 2017.

(6)

Filed as part of the Registrant's Quarterly Report on Form 10-Q filed on November 7, 2017.

(7)

Filed as part of the Registrant’s Annual Report on Form 10-K filed on March 15, 2018.

(8)

Filed as part of the Registrant’s Current Report on Form 8-K filed on April 3, 2018.

(9)

Filed as part of the Registrant’s Current Report on Form 8-K filed on December 4, 2018.

(10)

Filed as part of the Registrant’s Current Report on Form 8-K filed on March 5, 2019.

(11)

Filed as part of the Registrant’s Current Report on Form 8-K filed on October 1, 2019.

All other financial statement schedules required by Regulation S-X are omitted because they are not applicable, not material or because the information is included in the consolidated financial statements or related notes.

 

Item 16. Form 10-K Summary

None.

 

 

 


SIGNATURESSIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 10, 2017.13, 2020.

 

PEOPLE’S UTAH BANCORP

/s/ Richard T. BeardLen E. Williams

Richard T. BeardLen E. Williams

President and Chief Executive Officer

(Principal Executive Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 10, 2017,13, 2020, by the following persons on behalf of the registrant and in the capacities indicated.

 

/s/ Richard T. BeardLen E. Williams

 

Director, President and Chief Executive Officer

Richard T. BeardLen E. Williams

 

(principal executive officer)Principal Executive Officer)

 

 

 

/s/ Wolfgang T. N. MuelleckMark K. Olson

 

Director, Executive Vice President and Chief Financial Officer

Wolfgang T. N. MuelleckMark K. Olson

 

(principal financialPrincipal Financial and accounting officer)

Board of Directors

Accounting Officer)

 

 

 

/s/ Paul R. GuntherRichard T. Beard

 

Director, Chairman

Paul R. Gunther

/s/ Dale O. Gunther

Director, Vice Chairman

Dale O. GuntherRichard T. Beard

 

 

 

 

 

/s/ David G. Anderson

David G. Anderson

/s/ R. Brent Anderson

R. Brent Anderson

 

Director Senior Vice President and Chief Credit Officer

Director

David G. Anderson

/s/ Deborah S. Bayle

Director

Deborah S. Bayle

 

 

 

 

 

/s/ Blaine C. GuntherMatthew S. Browning

 

Director

Blaine C. GuntherMatthew S. Browning

 

 

 

 

 

/s/ Fred W. Fairclough Jr.

 

Director

Fred W. Fairclough Jr.

 

 

 

 

 

/s/ Len E. WilliamsNatalie Gochnour

 

Director

Len E. WilliamsNatalie Gochnour

 

 

 

 

 

/s/ R. Brent AndersonJonathan B. Gunther

 

Director

Jonathan B. Gunther

/s/ Paul R. Brent AndersonGunther

Paul R. Gunther

 

 

Director

 

/s/ Douglas H. Swenson

 

Director

Douglas H. Swenson

 

 

/s/ Deborah S. Bayle

Director

Deborah S. Bayle

/s/ William D. Marsh

Director

William D. Marsh

 

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