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Edited Transcript of PUB earnings conference call or presentation 26-Jul-19 4:00pm GMT

Q2 2019 People's Utah Bancorp Earnings Call

AMERICAN FORK Aug 6, 2019 (Thomson StreetEvents) -- Edited Transcript of People's Utah Bancorp earnings conference call or presentation Friday, July 26, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Len E. Williams

People's Utah Bancorp - President, CEO & Director

* Mark K. Olson

People's Utah Bancorp - Executive VP & CFO

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Conference Call Participants

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* Aaron James Deer

Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research and Equity Research Analyst

* Donald Allen Worthington

Raymond James & Associates, Inc., Research Division - Research Analyst

* Jeffrey Michael Pusich

D.A. Davidson & Co., Research Division - Research Analyst

* John Lawrence Rodis

Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts

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Presentation

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Operator [1]

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Good morning, and welcome to the People's Utah Bancorp 2019 Second Quarter Earnings Conference Call. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Mr. Mark Olson, Executive Vice President and Chief Financial Officer. Please go ahead.

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Mark K. Olson, People's Utah Bancorp - Executive VP & CFO [2]

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Thank you, and good morning. Thank you for joining us today to review our second quarter 2019 financial results. Joining me this morning on the call is Len Williams, President and Chief Executive Officer for People's Utah Bancorp.

Our comments today will refer to the financial results included in our earnings announcement released last night. To obtain a copy of our earnings release, please visit our website at www.peoplesutah.com.

Our earnings release contains forward-looking statements. All statements other than statements of historical fact are forward-looking statements. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and beyond the control of the company. We caution readers that a number of important factors could cause actual results to differ materially from those expressed in or implied or projected by such forward-looking statements. These forward-looking statements are intended to be covered by the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements speak only as of the date they are made, and we assume no duty to update such statements.

I will now turn the call over to Len Williams. Len?

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Len E. Williams, People's Utah Bancorp - President, CEO & Director [3]

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Thank you, Mark. Good morning and thank you for joining us on the call today. People's Utah Bancorp achieved strong financial performance in the second quarter of 2019 even as we continue to position, strengthen and fortify our balance sheet. We realized a return on equity of 14.3% for the second quarter after building our average equity to assets from 12.4% a year ago to 13.7% for the second quarter of 2019, while we also increased our allowance for loan losses from 1.3% a year ago to 1.7% at quarter end.

While the economy in Utah continues to be strong, we believe there are beginnings to be signs of a general economic slowdown, including the flattening of the treasury yield curve and comments from the Federal Reserve Chairman suggesting that they may lower interest rates at their next meeting. Fed funds futures indicate an extremely high probability that the Federal Reserve will lower interest rate by 25 basis points at their next meeting. We believe it's prudent for us to prepare for an economic slowdown so we're able to take advantage of market conditions to expand our market share either organically or through acquisitions.

Loans held for investment was essentially flat at the June 30 compared with the end of the year and down 1.1% compared with a year ago. This decline is primarily the result of declines in the acquisition, development and construction loan portfolio of $17.1 million or 5.26% from June 30, [2019] to December 31, 2018 and $66.4 million or 17.6% from a year ago, as we manage loan concentration levels and have become more selective with the type and size of construction projects that we're willing to finance given our perspective on the economy. We have reduced our acquisition, development and construction portfolio to a total capital concentration ratio from a high of 149% of capital at the end of the first quarter of 2018 to 100% of capital at the end of the second quarter 2019.

We achieved strong deposit growth of $200 million or 11.2% to $1.98 billion at June 30, 2019, compared with $1.78 billion a year ago. Our retail branches and commercial treasury management team have been successful in focusing on raising commercial deposits both from existing clients as well as the acquisition of new client relationships. We recently signed a contract to renew treasury management platform that we believe will help us continue to grow our commercial deposit base and improve on fee income. We anticipate rolling this new platform out by the end of 2019.

Our cost of interest-bearing deposits increased 34 basis points to 0.74% for the second quarter of 2019 compared with 0.4% for the same period a year ago. Our total cost of deposits increased 11 basis points to 0.49% for the second quarter of 2019 compared with 0.38% for the same period a year earlier. With the flat yield curve and the Fed suggesting that they will lower interest rates at the end of the month, we expect our deposit costs to remain flat near term.

As mentioned earlier, we continue to focus on diversifying our loan portfolio, in particular growing our C&I portfolio. Currently, we have -- operating 2 commercial banking centers that are located in Salt Lake County, and we're in the process of building out a team to open a commercial banking center in Utah County. We expect to have the team -- we expected to have the team in place by the end of the second order, but we're still evaluating talent and potential team members. We anticipate having the center opened this quarter.

We're continuing our efforts to automate and digitize our commercial loan origination processes through the implementation of an online commercial lending application, and we have begun the building phase of nCino, which is an industry-leading leader in the commercial banking loan operating system space.

The goal of this project is to ensure that we continue to provide the high touch and unparalleled responsiveness to our clients that we currently offer and be able to offer the same client service that we do today as we continue to grow in size and complexity. We expect to have the first phase of this project completed in the fourth quarter 2019.

On the retail banking front, we mentioned on our last call our plan to have a new business-oriented branch in the fast-growing Pleasant Grove area, where a number of technology firms have recently built new corporate offices. The branch will focus predominantly on small- to medium-sized commercial clients. The branch has been opened, and we look forward to building additional business relationships in the area. We've also begun the demolition of our Alpine branch with an expected completion date of the new branch, its replacement, sometime in the fourth quarter of 2019. The Alpine branch is one of our oldest branches with over $120 million in deposits.

Also as I mentioned on our last call, we hired an outside marketing research firm to evaluate our overall brand strategy. The research firm provided us with enlightening information about our organization. The research indicated that our existing clients are extremely satisfied with their relationship with us and are loyal to our people and the style of business. Our clients believe we provide excellent service, deliver customized financial solutions, are responsive to their needs and are quick to complete financial transactions. This confirmed our belief and direction.

We also discovered that nonclients are not highly aware of us. Or if they are aware, they believe that we're too small to meet their banking needs, given our brand names. The use of multiple brands is causing confusion, both internally and externally, and diluting our brand awareness. As a result, we decided to simplify our branding strategy and come together in all respects as one unified community bank.

We hired a new community marketing director and retained a new outside marketing agency. We made significant progress in formally defining our brand promise, have made good progress in identifying a single name for our bank. We've also begun the work of designing a new logo, a more contemporary look for our marketing materials.

We expect to roll out our single brand around the end of the year. We've had some ongoing expenses associated with this brand realignment for the past year and expect those costs to increase over the next couple of quarters for marketing, design costs and rollout of the brand.

We're fortunate to be operating in one of the strongest economic markets in the country. Thus far, we haven't seen any significant slowdown in the economy in the markets we serve. We continue to actively evaluate potential acquisition opportunities both in Utah and in states contiguous to Utah, particularly along the I-15 corridor.

I'm also pleased to announce that the Board of Directors declared an increase in the quarterly dividend to $0.13 per common share. The dividend will be payable on August 12, 2019, to shareholders of record on August 5, 2019.

I'll now turn the call back over to Mark to discuss our financial performance. Mark?

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Mark K. Olson, People's Utah Bancorp - Executive VP & CFO [4]

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Thank you, Len. Net income was $11 million or $0.58 per diluted common share for the second quarter of 2019 compared with $10.5 million or $0.55 per diluted common share for the first quarter of 2019, and $10.5 million or $0.55 per diluted common share for the second quarter a year ago. As a result of strong financial performance, our return on average assets improved to 1.96% for the second quarter of 2019 compared with 1.93% a year ago.

For the second quarter of 2019, net interest income grew 2.8% or $0.7 million to $27.7 million compared with $27 million for the same period a year earlier. The increase was primarily the result of average interest-earning assets growing 3.1% or $64.8 million and yields on interest-earning assets increasing 8 basis points to 5.68% for the same comparable period. Higher yields on interest-earning assets was primarily the result of yields on loans increasing 23 basis points to 6.57% for the same comparable periods, offset by a 1.5% or $25.8 million decline in average loan balances. And by the percent of -- the percentage of total loans to interest-earning assets decreasing to 79.5% for the second quarter of 2019 compared with 83.2% for the second quarter of 2018 as we held more cash due to strong loan deposit growth during the same respective periods.

For the second quarter of 2019, total cost of interest-bearing liabilities increased 17 basis points to 0.74% compared with the same period a year ago and is the result of cost of interest-bearing deposits increasing 34 basis points to 0.74% for the same comparable periods, while the company had no short-term borrowings for the second quarter of 2019 compared with $128 million of short-term borrowings in the second quarter a year earlier. As a result, our net interest margin narrowed 2 basis points to 5.24% for the second quarter of 2019 compared with 5.26% for the same period a year earlier.

For the linked quarters, net interest margin declined 5 basis points as yields on interest-earning assets declined 5 basis points, which is primarily the result of the percentage of loans to total interest-earning assets declining to 79.5% for the second quarter of 2019 compared with 81.2% for the linked first quarter.

Acquisition accounting adjustments, including the accretion of loan discounts and amortization of certificate of deposit premium, added 7 basis points to our net interest margin for the second quarter of 2019 compared with 11 basis points in the first quarter of 2019 and 16 basis points in the second quarter a year earlier. The positive impact of acquisition accounting adjustments will continue to decline going forward.

For the second quarter of 2019, provision for loan losses was $2.2 million compared with $1.5 million for the same period a year earlier. The increase in provision for loan losses in the second quarter of 2019 is due primarily to us setting aside $3.3 million in specific reserves, of which $2.2 million were reserved for the unguaranteed portion of 4 government-guaranteed loans acquired in the Town & Country purchase. For the second quarter of 2019, the company incurred net charge-offs of $34,000 compared with net recoveries of $0.1 million for the same period a year ago.

Looking at our asset quality metrics, nonperforming assets were $5.1 million or 0.22% of total assets at June 30, 2019 compared with $8.6 million or 0.4% a year ago. Our annualized net charge-offs for the second quarter of 2019 was 0.01% compared with 0.21% for the first quarter of 2019 and net recoveries of 0.02% for the second quarter of 2018.

For the 6 months ended June 30, 2019, annualized net charge-offs were 0.11% compared with net recoveries of 0.06% for the same period a year earlier. The allowance for loan losses increased $5.7 million or 26% at June 30, 2019 compared with the same period a year ago. The percentage of the allowance to loans held for investment increased to 1.68% at the end of June 30, 2019 compared with 1.55% at March 30, 2019, and 1.32% a year earlier.

In addition to our allowance for loan losses, we have $6.7 million in both nonaccretable and accretable credit discounts remaining on our acquired loan portfolios. The allowance for loan losses plus total credit discounts to loans held for investment was 2.08% at June 30, 2019. We believe that it is prudent for us to continue to build our overall allowance for credit losses, given that we believe we are nearing the end of an overall economic cycle.

For the second quarter of 2019, noninterest income was $3.6 million compared with $4.1 million for the same period a year ago. The decrease was primarily due to a onetime gain on sale of securities of $0.3 million for the second quarter of 2018 and $0.2 million loss on the disposal of assets in the second quarter of 2019.

For the second quarter of 2019, noninterest expense was $14.7 million compared with $15.8 million for the same period a year earlier, and the decline is primarily the result of $0.7 million in lower salary and employee benefits; $0.3 million in lower other noninterest expense, primarily related to lower legal fees; and $0.2 million in lower FDIC premiums; and $0.1 million in lower marketing costs.

As Len mentioned, we are in the middle of our rebranding initiative. We have discontinued many of our current marketing and advertising campaigns as we prepare to roll out the new brand later in the year. We anticipate higher marketing and advertising costs over the next couple of quarters resulting from the rollout of our new brand.

For the second quarter of 2019, the company's efficiency ratio was 46.9% compared with 51% for the same period a year ago. Noninterest expense to average assets was 2.6% for the second quarter of 2019 compared with 2.9% for the same period a year earlier.

For the second quarter of 2019, income tax expense was $3.5 million compared with $3.3 million for the same period a year ago. The effective tax rate was 24.1% compared with 23.9% for the same respective periods.

I'll now turn the call back over to Len.

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Len E. Williams, People's Utah Bancorp - President, CEO & Director [5]

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Thank you, Mark. We're pleased with our financial performance for the second quarter of 2019, particularly regarding our deposit momentum and expense management. We continue to focus on taking advantage of the outstanding economic prospects in the market we serve. We believe we can continue to grow our business organically, diversify our loan portfolio and expand our low-cost core deposit base. We're passionate and enthusiastic about our prospects to expand our commercial and industrial lending to small- and medium-sized businesses with our commercial banking centers and increase our emphasis on growing our commercial deposits with the expansion of our treasury management service team and through improving the products and services we offer.

As I mentioned earlier, we continue to actively pursue potential acquisition opportunities throughout the Intermountain West, which we believe is a crucial component to our business strategy and shareholder value creation model going forward. In closing, we had a strong earnings quarter and new technology initiatives, and cost controls are on target. Current priorities include loan growth, fee income initiatives along with a smooth, well-orchestrated brand transition.

Thank you all for joining us today. And at this point, I'd like to open the lines for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today will come from Andrew Liesch with Sandler O'Neill and Partners.

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Aaron James Deer, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research and Equity Research Analyst [2]

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This is actually Aaron Deer on for Andrew this morning. I want to start -- I was interested to hear some of your commentary surrounding the economic outlook. You sound a more I guess cautious tone than what I'm hearing from a lot of other banks. I'm just curious if there is anything specific within your markets that you can point to that are indicative of a real slowing?

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Len E. Williams, People's Utah Bancorp - President, CEO & Director [3]

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Nothing specific. The market has had just minor, minor downward movement in a couple of construction areas. The residential inventory has increased slightly, just minor changes. They've gone from almost unbelievable to really good. We also know it won't last forever. So we continue to be conservative on how we manage the credit portfolio and what we bring on.

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Aaron James Deer, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research and Equity Research Analyst [4]

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Okay. And I guess then, maybe related to that, you mentioned among your 3 top priorities is loan growth. Where does the pipeline stand today? And what are you thinking about in terms of loan growth for the back half of the year?

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Len E. Williams, People's Utah Bancorp - President, CEO & Director [5]

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Yes. That's a great question. One of our biggest issue has been the history of a heavy construction lending organization. With that comes the duration of a portfolio that is much less than most banks. Our average duration is 1.2 years. So the productivity to stay level is incredible. So that production continues to go. Where we plan to expand that is more measurable, consistent, commercial banking-type activity to supplement the real estate business that we do. Thus we're adding some people in some locations to beef up that sector. We still have a very low market share, particularly in Salt Lake County, that even if we're in a depression, we've got people to call on and business to do. So our focus is making sure the balance sheet is strong enough, the capital base is strong enough, and that regardless where the economy goes, we're in position to have the doors open for business.

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Aaron James Deer, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research and Equity Research Analyst [6]

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Okay. So it sounds like just maybe as you let that construction book pay down more, there's just kind of a headwind that you're fighting on the growth front?

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Len E. Williams, People's Utah Bancorp - President, CEO & Director [7]

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Yes. The market is still strong, which makes competition a little bit more -- how can I put it? A little more open to be outside of some of the standard underwriting that we're not comfortable in going all the way there.

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Aaron James Deer, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research and Equity Research Analyst [8]

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Okay. Got it. And then on the expense side, maybe just to the extent you can provide some guidance on the costs surrounding the rebranding and particularly as the marketing launches related to that, both specific to that line and then maybe two, just kind of -- if you can provide any numbers surrounding your overall noninterest expense expectations through the back half of the year and maybe even heading into the next year as those costs really hit their full run rate?

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Mark K. Olson, People's Utah Bancorp - Executive VP & CFO [9]

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Sure. We have a position that we don't provide core guidance with respect to forward periods. But what I would say, as we mentioned, we do anticipate an increase in our overall marketing costs. If you look at what we spent in marketing a year ago, we would anticipate that we'd have a similar dollar amount by the end of the year. With costs overall, on the mortgage lending front, we've seen some good activity going on there. And as a result, we anticipate that salary and employee benefits would go up as we pay additional commissions for that volume that we're seeing as rates have declined. So we would expect expenses to go up in short term, just given some of the initiatives that we have going on.

In addition to that, Len mentioned some technology projects that we're working on, both nCino and the Treasury Management System. And those additional costs will be coming in line as well or on line as we implement those applications. So we feel like we've done a good job in cost containment, but there's things that we have to do to be able to develop the infrastructure necessary to go to the next level as an organization. And so there will be additional costs going forward.

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Operator [10]

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The next question will come from Jeff Rulis with D.A. Davidson.

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Jeffrey Michael Pusich, D.A. Davidson & Co., Research Division - Research Analyst [11]

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This is actually Jeff Pusich (inaudible).

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Len E. Williams, People's Utah Bancorp - President, CEO & Director [12]

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You're coming in pretty faintly. I can barely hear you.

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Jeffrey Michael Pusich, D.A. Davidson & Co., Research Division - Research Analyst [13]

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Right. Can you hear me better now?

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Len E. Williams, People's Utah Bancorp - President, CEO & Director [14]

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Got you. This is good.

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Jeffrey Michael Pusich, D.A. Davidson & Co., Research Division - Research Analyst [15]

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This is Jeff Pusich on for Jeff Rulis this morning. First question I wanted to touch on was just in regards to your margin outlook with the probability of Fed easing being more likely. Just kind of walking through some different rate cut scenarios, what you guys have kind of laid out for that in regards to margin for the back half of the year?

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Mark K. Olson, People's Utah Bancorp - Executive VP & CFO [16]

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Yes. As we look at net interest margins, all banks are going to be negatively impacted by a decline in interest rate. I mean it's just a function of our business. But as Len mentioned, our construction portfolio, one of the positive things with that is that, that portfolio churns about 3.5 to 4x a year. And with that, any origination fees that we get associated with those projects are fully amortized over that time period. So that helps negate decline in the overall yields. So that's a positive thing for our balance sheet overall. But we do have a short duration and an asset-sensitive balance sheet. So we anticipate that, that's going to have some impact on us going forward.

We're going to be aggressive in lowering deposit costs as rates go down, which will somewhat negate the negative effects of lower interest rates overall. And then one of the other things we're looking at is, again, a 1.2-year effective duration is pretty short. So we feel good that we could go out and grow in some of the term financing and extend the duration a little bit so that we could lock in some additional rates. We're looking at our owner-occupied real estate portfolio, for example. And while it's very competitive, we think that we could grow that a bit to extend the duration overall. But yes, declining interest rates are not good for banks.

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Jeffrey Michael Pusich, D.A. Davidson & Co., Research Division - Research Analyst [17]

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Awesome. Yes. Great. Great color. Okay. Moving on from there, just kind of wanted to touch on the loan loss provision in the quarter. You guys had mentioned that a majority of that was from the Town & Country government-guaranteed loans. I just wanted to kind of, with some little runoff -- loan runoff and NPAs flat, no net charge-offs, could we have anticipated that being closer to 0 outside of the Town & Country government loans?

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Mark K. Olson, People's Utah Bancorp - Executive VP & CFO [18]

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As far as the provision?

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Jeffrey Michael Pusich, D.A. Davidson & Co., Research Division - Research Analyst [19]

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Yes. As far as the provision.

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Mark K. Olson, People's Utah Bancorp - Executive VP & CFO [20]

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Yes. I mean we -- as we mentioned, we've -- our views on the economy is that we're at the end of a credit cycle. And so with that, our overall general reserves have built over the last year, and we will continue to evaluate that over time. So I would say that our intent is to reassess loan reserves every quarter and look at the economic conditions overall and decide where we should be.

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Len E. Williams, People's Utah Bancorp - President, CEO & Director [21]

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Jeff, this is Len. It's an area -- the credit management scenario we're pretty conservative in. We brought in a new Chief Credit Officer who is going through the complete portfolio, doing a phenomenal job identifying the more conservative approach. We also hired a new loan review manager recently that's on top of the portfolio. If you'll notice, and I know it's not mentioned in here but will show up in the quarterly, I mean delinquencies are at all-time lows. NPAs are still solid. Charge-offs are low, but yet we're seeing the way we classify things are a little more strict than maybe we have been historically. That's just part of the conservative credit culture. We've taken reserves. And as you'll notice on this deal, I think Mark mentioned it in the release, that we have charged-off 100% of the nonguaranteed portion. Historically, have we lost 100%? That has not been the case, but we take a pretty conservative approach. So we'll continue to operate math like that.

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Mark K. Olson, People's Utah Bancorp - Executive VP & CFO [22]

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And just to clarify, we didn't charge it off. We did just set aside specific reserves on that portfolio.

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Len E. Williams, People's Utah Bancorp - President, CEO & Director [23]

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Correct.

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Jeffrey Michael Pusich, D.A. Davidson & Co., Research Division - Research Analyst [24]

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Awesome. And then just one last one for me. Kind of just broad-based capital plans moving forward. I mean you guys have a TCE ratio in the mid-12% range. Can you kind of just give any color of what you guys have been discussing? Any chatter you're having on that front?

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Mark K. Olson, People's Utah Bancorp - Executive VP & CFO [25]

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Yes. You bet. So I guess the first thing I'd say, yes, it is higher than most banks, but I would also say that getting a 14.3% ROE on that higher capital is a pretty good return for our shareholders. And I think they should be pleased with that. We are holding capital. One of the things is we'd like to be able to use some of that powder with an acquisition, and so we continue to look for those opportunities. So certainly that's something we're looking at. But yes, if that continues to grow, we're going to have to make a determination of what we're going to do. We increased the dividend this quarter and we will evaluate that going forward. Our stock price is pretty high, but we've had discussions about maybe repurchasing shares and we will continue to evaluate that, given where our stock price is right now.

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Jeffrey Michael Pusich, D.A. Davidson & Co., Research Division - Research Analyst [26]

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Awesome. Yes, is there any particular markets you guys are looking into or have been considering outside of your core markets?

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Len E. Williams, People's Utah Bancorp - President, CEO & Director [27]

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Yes. We continue to look at the contiguous states to Utah with a particular focus up the I-15 corridor. There are not a ton of banks throughout that area and the market has been pretty good and that's why we want to make sure we're in strong capital shape and earnings shape and credit quality shape when things do turn. I think that will put us in a nice position.

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Operator [28]

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Our next question comes from John Rodis with Janney Montgomery.

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John Lawrence Rodis, Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts [29]

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Just -- I guess I want to make sure I understand this right. So just back to the provision, so you said in the press release you set aside $3.3 million in specific reserves this quarter, is that correct?

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Mark K. Olson, People's Utah Bancorp - Executive VP & CFO [30]

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That's correct.

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John Lawrence Rodis, Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts [31]

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Okay. So -- but then so the actual provision of $2.1 million or $2.2 million, so does that imply without that specific reserve, you would've had a negative provision?

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Mark K. Olson, People's Utah Bancorp - Executive VP & CFO [32]

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That's correct. Yes.

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John Lawrence Rodis, Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts [33]

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Okay. And then -- okay. Okay. I just wanted to make sure I was looking at that right. Okay.

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Mark K. Olson, People's Utah Bancorp - Executive VP & CFO [34]

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You're correct.

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John Lawrence Rodis, Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts [35]

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Okay. And I guess the reason for the negative provision would be NPA trends, your comments on delinquencies and basically no net charge-offs and so forth, correct?

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Mark K. Olson, People's Utah Bancorp - Executive VP & CFO [36]

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Right. Loan growth, [lack of] loan growth, yes, for sure. And then if you look at our overall concentrations, they certainly have declined. And we've always been more conservative on the construction side of things, so we evaluate the reserves overall.

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John Lawrence Rodis, Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts [37]

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Yes. So Len, I know you sort of answered the question on loan growth going forward. But -- so year-to-date, your -- the loan balances are down slightly. I mean would you expect to see some net growth in the second half of the year?

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Len E. Williams, People's Utah Bancorp - President, CEO & Director [38]

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Well, the fourth quarter is always a little tougher. Third quarter, we've got 4 or 5 internal initiatives underway right now, that is the hope and that's what we're driving for. We're also looking at business lines. I don't want to go into detail at this point, but we're looking at streamlining some of the operations. We're also looking at operations we don't have that would fit into our organization and our delivery platform well. So we've got 4 or 5 initiatives underway, all of them with a singular focus of driving more loan activity, more consistent quality, profitable, diversified.

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Mark K. Olson, People's Utah Bancorp - Executive VP & CFO [39]

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Yes.

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John Lawrence Rodis, Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts [40]

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Okay. Okay. Mark, did I hear you correctly when you were going through your commentary, did you say there was a -- was it about a $200,000 loss on disposal of assets? I guess was what probably (multiple speakers) -- was that in other noninterest income?

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Mark K. Olson, People's Utah Bancorp - Executive VP & CFO [41]

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That's right. Yes.

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John Lawrence Rodis, Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts [42]

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Okay. Can you just elaborate on what that was?

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Mark K. Olson, People's Utah Bancorp - Executive VP & CFO [43]

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Oh, you bet. So as we mentioned, that we're -- we've demolished the Alpine branch and we're rebuilding it. So we wrote off any fixed assets associated with the demolition of the branch. We also had some property that was located next to a branch that we sold and took a loss on that as well. So nothing major, but that's where it came from.

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John Lawrence Rodis, Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts [44]

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Okay. And then maybe just one other question. And just back to expenses and I realize you don't give guidance. But -- so you've been able to keep operating expenses below $15 million for the last -- what? Two to 3 quarters. And it looks like this quarter, correct me if I'm wrong, but it looks like a pretty clean quarter at $14.7 million. And all things equal, taking into account your new initiatives, marketing and so forth, do you sort of think you can keep expenses below $15 million going forward? Or is that going to be a challenge on a quarterly basis?

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Len E. Williams, People's Utah Bancorp - President, CEO & Director [45]

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We don't really provide the guidance, but that's going to be a tough number to hit in the third quarter.

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John Lawrence Rodis, Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts [46]

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Keeping below $15 million?

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Len E. Williams, People's Utah Bancorp - President, CEO & Director [47]

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Yes.

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John Lawrence Rodis, Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts [48]

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Okay. Okay. I just wanted to make sure directionally I was...

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Len E. Williams, People's Utah Bancorp - President, CEO & Director [49]

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Yes, I understand you're working on the model.

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Operator [50]

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(Operator Instructions) Our next question comes from Don Worthington with Raymond James.

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Donald Allen Worthington, Raymond James & Associates, Inc., Research Division - Research Analyst [51]

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On mortgage banking, looked like you had a fairly good quarter relative to last quarter anyway. Where do you think that's going in the second half?

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Len E. Williams, People's Utah Bancorp - President, CEO & Director [52]

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That business has been pretty robust of late. I mean I guess one benefit from the declining long-term yields. So that activity continues to be pretty strong for us, so we're hoping to continue to see momentum at least through the third quarter on that.

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Donald Allen Worthington, Raymond James & Associates, Inc., Research Division - Research Analyst [53]

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Okay. Okay. And then during this quarter, you mentioned kind of the turn in the construction portfolio. But did you have any other elevated payoffs that maybe you weren't expecting?

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Len E. Williams, People's Utah Bancorp - President, CEO & Director [54]

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They were basically all out of that portfolio.

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Donald Allen Worthington, Raymond James & Associates, Inc., Research Division - Research Analyst [55]

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Okay. So nothing on the, say, commercial real estate or whatever there?

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Len E. Williams, People's Utah Bancorp - President, CEO & Director [56]

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No. No. The construction and some of the nonowner-occupied real estate that we had many firms on, that was coming to maturity of the many, they've taken them to institutional investors. We've lost a couple that way, but they were planned.

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Donald Allen Worthington, Raymond James & Associates, Inc., Research Division - Research Analyst [57]

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Okay. All right. And then I guess lastly, any change in the tax rate going forward or pretty much where it was this quarter?

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Mark K. Olson, People's Utah Bancorp - Executive VP & CFO [58]

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Yes. Where it is this quarter is what we would expect in future quarters.

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Operator [59]

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This concludes our question-and-answer session. I would now like to turn the conference back over to Len Williams for any closing remarks.

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Len E. Williams, People's Utah Bancorp - President, CEO & Director [60]

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Great. Thank you so much, and thank you all for joining us today. We appreciate the support in the organization. I would also add, if you have any direct questions, don't hesitate to give either Mark or myself a call, we'd love to entertain your calls.

Thank you, and have a great day and great weekend.

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Operator [61]

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And the conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.