Ladies and gentlemen, thank you for standing by, and welcome to the Altabancorp Q4 Earnings Conference Call. At this time, all participants’ lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, speaker, Mark Olson, Chief Financial Officer. Thank you. Please go ahead, sir.

Thank you, and good morning. Thank you all for joining us today to review our fourth quarter and yearend 2020 financial results. Joining me this morning on the call is Len Williams, President and Chief Executive Officer of Altabancorp. Our comments today will refer to the financial results included in our earnings announcement and investor presentation released last night. To obtain a copy of our earnings release or presentation, please visit our website at www.altabancorp.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 and listeners 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 were made and we assume no duty to update such statements except as required by law. With that, I’ll now turn the call over to Len. Len?

Thank you, Mark. Happy New Year and good morning. Welcome to our call. Altabancorp reported solid earnings for the fourth quarter and for all of 2020 demonstrating the strength of our organization to respond to difficult economic conditions. Despite the negative effects of the pandemic and near zero interest rates, we reported net income of $11.1 million for the fourth quarter of 2020 compared to $11.7 million for the fourth quarter of 2019. Diluted earnings per common share were $0.58 for the fourth quarter of 2020 compared with $0.61 for the fourth quarter a year ago. For all of 2020, net income was $43.5 million, or $2.29 per diluted common share compared with $44.3 million, or $2.33 per diluted common share for the same period last year or a year earlier. Our net income declined by only 1.9% year-over-year despite the negative economic effects of the COVID-19 pandemic and interest rates near zero. I believe this performance speaks to our entire team working together to respond to these negative events and working diligently to solve our clients’ financial needs during this difficult time. Our return on average assets was by 1.52% and return on average equity was 12.44% for all of 2020 compared with 1.93% and 14.14% for 2019. As we begin this New Year, we reflected on what our team has accomplished over the past few years. We’ve spent considerable time, money, and effort to address significant shortfalls in processes, controls, and technologies. So we could maintain and build market share, enhance the cloud experience and stay competitive in a rapidly changing industry. We believe that it’s imperative that we improve our ability as a company to execute and to innovate. It’s also critically important that we improve ownership, accountability, and skill sets in our culture as we decentralize…

Thanks, Len. Total assets grew $960 million or 40% year-over-year to $3.37 billion at December 31, 2020, which is primarily the result of a significant increase in total deposits. Total deposits increased $860 million or 42% to $2.92 billion at the end of 2020. Non-interest bearing deposits increased $320 million or 45% to $1 billion at the end of 2020 compared with the same period a year earlier. And interest bearing deposits increased $540 million or 40% to $1.9 billion at the end of the year compared with the same period a year ago. Non-interest bearing deposits to total deposits increased to 36% at the end of the year compared with 35% a year earlier. The increase in total deposits is primarily the result of both governmental and bank relief programs, and businesses and consumers actively conserving cash to try to counter the negative effects of the pandemic. Last quarter, we mentioned that we anticipated deposits to decline throughout 2021, the most recent stimulus program and additional programs proposed by the federal government, we now anticipate that our deposit balances will continue to grow throughout 2021. Loans held for investment grew $15 million or 0.9% to $1.7 billion at the end of the year compared with $1.68 billion a year earlier. We originated over $1.4 billion in loans during 2020. However, we also actively managed out approximately $100 million of loans from clients with higher credit risk profiles that we are willing to assume, particularly given our concerns about the economic cycle that we’re in. We anticipate strong loan growth during 2021, given our strong balance sheet and available liquidity. The allowance for credit losses increased $9.8 million or 31% to $41.2 million at the end of the year, compared with $31.4 million for the same period a year ago.…

Thank you, Mark. [Indiscernible] 2020 was a challenging year for all of us. I’m very proud of our team and how we responded to the pandemic and focused on addressing our client’s needs during this unprecedented time. These were the financial performance we achieved this year, despite the headwinds from the pandemic and their zero interest rates. We build a fortress balance sheet that will withstand the negative effects of an economic downturn over pandemic. As we look forward to 2021, we’ve put into place that people, processes and systems that will allow us to safely grow our balance sheet and expand our market share in one of the strongest economies in the nation. As I mentioned before, we earned our independence every day, by the way, our team executes our strategic plan. I believe we make good progress and that we’re well positioned to succeed. Thank you so much for joining us today. And at this point, I’ll turn it back to the moderator to open up for analyst questions.

Thank you. [Operator Instructions] You have a question from the line of David Feaster with Raymond James. Your line is open.

Good morning, David.

Good morning. Hey, growth was stronger than expected. It is great to see despite a challenging backdrop and I appreciate the commentary in the release, talking about focusing on more aggressive growth going forward. Just curious, the strategy to deploy the excess liquidity in the loans and accelerate that growth, whether it’s – is it the new hires that you’ve mentioned to facilitate the growth or the new technology investment allowing for more origination capacity. And just start from the growth trajectory and a strategy for it?

Anyway, that’s a great question. And actually, the answer is a combination of pretty much everything you’ve brought up. We’ve spent the last few years trying to get the credit underwriting process management system in place. We’re there. We’ve also done the same thing on the loan origination system and the automation to make the process consistent, smooth, manageable, measurable, that is now in place. And then over the last two months, it’s been incredible. We had – we’ve got like 40 positions, we have open 50% of those are new apps to staff to support the growth and its adds from both the commercial banker perspective to complement who we have already. And in the last month-and-a-half, we’ve added, I’m not sure the exact number seven to 10 people who have come to us from other institutionals and brought portfolios and pipelines with them. So our current lending pipeline as of this week is 30% higher than it’s been at any time since we’ve been here. So we’re very – this has been a very kind of slow consistent process building for that, but safety has got to be first in this business, as you know, and those processes are in place. And now, we’ve been fortunate to be able to be an organization that people believe in and have been joining us as one of the individual or a new leader in Salt Lake was the prior head of commercial banking for a large organization for a couple of States. And he joined us just two weeks ago and already has an eight-figure pipeline. So we’re pretty excited about where – what the future looks like right now.

That’s terrific. I guess, just in light of the – it’s obviously challenging in light of pay offs and pay downs. What kind of growth trajectory do you think you can have? Is this a high single digits or is even the low double digits possibility here?

I’ll let you run your models on that. I will tell you in the past, we’ve talked about numbers and we’re pretty confident about those numbers.

Okay. And then just thinking about the margin here in light of the likelihood for additional liquidity builds, just in close with the acceleration in loan growth. And it sounds like you’re staying – you stayed pretty short on the securities front. Has been NIM trough here exclusive of PPP? And should we expect core NIM expansion just in light of the improved during the asset mix as we look forward?

It’ll take a little while to get that asset mix completely changed, and we’re not necessarily short on those securities, but they’re income producing securities. We’ve got - Mark can speak to the…

Yes. No, David, we’re receiving about $50 million a month in additional cash from the securities that we’ve purchased. And we purchased amortizing securities specifically for that reason. We wanted the cash to come back to us, so that we could redeploy it in loans as we were ready to turn on the spigot there. So we’re excited about that. And frankly, to the extent that loan growth is stronger than we anticipated. We - right now, we have a $15 million unrealized gain in the portfolio would be – would love to sell some of that, if the growth is there. So we’ll look at that. The other thing that we’re doing, David, is that our mortgage banking group continues to grow at rates higher than what we anticipated. To the extent that they beat their budget with their volumes, we’ve worked with them to try to retain as many of the loans that we’re comfortable with on balance sheet to help grow our loan portfolio as well and provide a better return. Obviously, going out and buying government guaranteed securities, when you originating here, it’s just a lot cheaper to do it, if we cut out the middlemen. So that’s our thought as well.

That makes a lot of sense. And then just, on the commentary about driving operating leverage that you mentioned just, and doing so while retaining the high-touch client experience, you’ve done a great job investing to stay ahead of the competition with nCino and other automation initiatives. But as we look forward, kind of contemplating the additional investments that you talked about, inflationary pressures, but opportunities to reduce costs. I mean, how do you think about operating leverage? Is it more cost reductions or really leveraging your expense base for revenue growth?

David, it’s more leveraging the platform with the growth than cost saves. We want to get more efficient. And to the extent that we’re able to do that and that happens through growth, that’s definitely the best way to do it. But we’ll have to evaluate that overall. Obviously, we are not going to make cost reductions in the front face scenario. That’s our bread and butter and that’s critical, but we do want to be efficient on the back-end and frankly, we want to grow, so that we just grow that platform a little more slowly. To speak to your point a little bit more, David, the expense and the technology growth we’ve implemented in the last few years has – it’s made us scalable. So it even makes the attraction of either picking up a portfolio, a lift out an acquisition, we don’t need to add backroom people to do that. We’re pretty well equipped with the technology. So as Mark stated, we’ve just got to leverage that. And we’ll continue to look and compare ourselves to the industry on those costs. But it’s a lot more fun to grow yourself into prosperity versus to save yourself into it.

Yes. And frankly, David, we were fortunate that we had implemented nCino when we had, because with the pandemic, that gave us opportunity to be able to use that – use our LOS anywhere, whether at home or with our clients and not miss a beat. So, obviously, more than we spend on technology to make it easy for everybody, I think the better off we’re going to be.

Absolutely. That’s great color. Thanks, guys.

Thank you.

Our other question from the line of Andrew Liesch with Piper Sandler. Your line is open, sir.

Hey, good morning, guys. I think, Mark, your reference maybe you managed out of $100 million of loans last year with some higher risk profiles. Where does that stand? Is it still more back to come? Or do you feel comfortable with the portfolio right now? And it’s just going to be growth from here on out?

Yes. We’re comfortable with where we’re at. It should be growth from here on. We spent a lot of time looking at the portfolio. And Judd Kirkham, our Chief Credit Officer and his team have done a fantastic job and cleaned it up and making sure that we’re ready to expand and not have to worry about those credit issues. So we’re done and we’re ready to grow.

Great. Great. And then just on the optimism around non-interest income and mortgage, so is the growth - is a lot of it going to be from market expansion and just expanding your operation because obviously there the seasonal factors. And I don’t know, if anybody’s expecting the same refi volume that we saw last year. So is it really just from a market expansion that’s going to drive that?

That’s a great point. Actually, the mortgage group has been built Andrew to be able to expand and contract based on market demand. I agree with you that we’ll probably see some shrinks at some point, we’re going to have to, I would think in the refi market. The flip side of that in Utah and the builder – the cooperation with our builder finance group and the in migration of the area, we still have an above average demand and opportunity for the new business in the mortgage arena. But that said, the other part of our non-interest income expansion opportunity really is through leveraging the treasury management system that’s going into place this quarter. It’s not been measured in the past. We spent the last year and a half getting that put in place and that’s ready to go. And frankly, the new bankers that have joined us are a little bit more up here from a market perspective from a size of loans that demand those treasury management services. So having those in place now with the bankers coming on at the same time, we think there’s going to be some significant treasury management non-interest income growth as well.

Just to add, Andrew, when you look construction jobs in Utah are up 5% year-over-year, even during the pandemic. We’ve got inventories that all time low. So we believe there’s going to be a lot of opportunities from the mortgage side, both with construction as well as term financing.

Okay. Very good. That’s encouraging to hear. Thanks so much. Covered all my other questions.

Thank you, Andrew.

[Operator Instructions] The question from the line of John Rodis of Janney. Your line is open.

Hey guys, good morning,

Good morning, John.

Hope you guys are doing well, interesting times. Actually, I guess, Andrew basically asked my question on fee income. I mean, I guess just maybe just to say it another way and given your comment in the press release about improving net interest – I’m sorry, improving non-interest income. So is it – I guess, just to be clear, is it your expectation that you can – that you think you can increase non-interest income year-over-year in 2021?

Yes.

It is. Okay. And again, that would be the new treasury management and some combination of mortgage, I guess.

Yes. This is the time of the year where you normally see mortgage start to decline and we haven’t seen it. So we’re hopeful at least for the near-term in that area to continue at their record breaking pace.

Okay. That’s helpful guys. Thank you very much.

Thank you, John.

[Operator Instructions] There are no further questions at this time. Presenters, you may proceed.

Great. Thank you very much. And again, happy new year to all who have joined us. We appreciate the support and we look forward to a fantastic 2021. Thank you so much.

Goodbye. Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.