Altabancorp : Q3 2020 Earnings Call Transcripts - 29 October 2020

Altabancorp

Third Quarter 2020 Earnings Conference Call

October 29, 2020

Altabancorp - Third Quarter 2020 Earnings Conference Call, October 29, 2020

C O R P O R A T E P A R T I C I P A N T S

Len Williams, President and Chief Executive Officer

Mark Olson, Executive Vice President and Chief Financial Officer

Judd Kirkham, Executive Vice President and Chief Credit Officer

C O N F E R E N C E C A L L P A R T I C I P A N T S

Andrew Liesch, Sandler O'Neill & Partners LP

David Feaster, Raymond James

John Rodis, Janney Montgomery Scott

Jeffrey Rulis, D.A. Davidson

P R E S E N T A T I O N

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Altabancorp Q3 Earnings Conference Call.

At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during this time, you will need to press star, then one on your telephone. If you require any further assistance, please press star and zero.

I would now like to hand the conference over to your speaker today. Mark Olson, Chief Financial Officer, please go ahead.

Mark Olson

Thank you, Amy, and good morning. Thank you for joining us today to review our third quarter financial results.

Joining me this morning on the call is Len Williams, President and Chief Executive Officer of Altabancorp, and Judd Kirkham, Chief Credit Officer at Altabank.

1

ViaVid has made considerable efforts to provide an accurate transcription. There may be material errors, omissions, or inaccuracies in the reporting of the substance of the conference call. This transcript is being made available for information purposes only.

1-888-562-02621-604-929-1352www.viavid.com

Altabancorp - Third Quarter 2020 Earnings Conference Call, October 29, 2020

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 are made and we assume no duty to update such statements, except as required by law.

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

Len Williams

Thank you, Mark. Good morning, and welcome to our call. I'm grateful for this opportunity to meet with you, and I hope you and your loved ones are healthy and safe.

We reported solid earnings in the third quarter, demonstrating the strength of our organization to respond to difficult economic conditions. Our associates and clients have adjusted to this unusual environment, as we continue to focus on addressing our clients' financial needs. We've provided substantial financial relief to our clients through the participation in government programs, as well as our own payment relief programs, and we expect to participate with additional funding for SBA PPP loans if passed by the federal government. We will continue to work with our clients to provide financial solutions to assist them on their path to recovery as we all work to overcome the current hardships.

I'm incredibly proud of how our associates have responded to the pandemic and how quickly and dramatically altered how and where we work. We've seen strength and leadership emerge through this unprecedented business twist. Our Technology Team has continued to focus on addressing the needs of our associates, many of whom are still working from home, while we continue to ensure that we protect our clients' electronic assets. Our sales force continues to connect with our clients to ensure that we offer financial solutions and assistance wherever and whenever possible.

While we rapidly deployed our back office support areas, we did so in a safe and secure environment. We continued to ensure appropriate data security as our operations shifted to new delivery methods. We continue to focus on the safety and stability of our associates and their families through the allocation of technology and resources to ensure that a majority of our associates are able to continue to work from home. We've also enhanced cleaning protocols for our office spaces and branch locations to ensure that our associates and clients feel safe when they visit us.

The State of Utah has developed a COVID-19 transmission index, which categorizes level of transmission as high, moderate or low. Each county receives a rating every week. The Company's COVID-19 pandemic response plan directly correlates to the state's transition index. The counties where our branches are located presently have a transmission index of moderate or high. As a result, all of our branch lobbies are available by appointment only, while our drive-through windows remain open. To ensure the safety of our associates and clients, we require masks to be worn in all branch locations, and in our back office location when associates are unable to socially distance from other associates. Approximately 60% of our workforce remains working from home, and will continue to do so until the transmission index in the corresponding county moves to low.

2

ViaVid has made considerable efforts to provide an accurate transcription. There may be material errors, omissions, or inaccuracies in the reporting of the substance of the conference call. This transcript is being made available for information purposes only.

1-888-562-02621-604-929-1352www.viavid.com

Altabancorp - Third Quarter 2020 Earnings Conference Call, October 29, 2020

At the outset of the public health crisis, we responded swiftly to our clients' needs, including by actively participating in the Small Business Administration Paycheck Protection Program, or PPP. Since the inception of the program, we have funded over $85 million in PPP loans, helping over 330 regional small and medium-sized businesses. We have subsequently filed 62 applications, or 19% of the borrowers, for forgiveness with the SBA totaling $90 million, and have to date received loan forgiveness on 15 loans totaling just under a $1 million. Thus far, we have not received a denial on any forgiveness applications submitted to the SBA. We are participating in the PPPL facility offered by the Federal Reserve to fund our SBA PPP loans and receive regulatory capital relief for such loans. We expect to have most of our SBA PPP loans processed for forgiveness by the end of the second quarter 2021.

We also offered a temporary loan payment relief program to borrowers impacted by the COVID-19 pandemic. We extended payment relief to 415 businesses and a 108 individuals, totaling approximately $320 million, or 18.5% of total loans, excluding SBA PPP loans, to address borrowers' cash flow challenges. To date, the deferral period has ended for 237 borrowers, or 45% of loans deferred, totaling $128 million. This leaves 284 borrowers, or 55%, for loans totaling $191 million still on deferral. There are only four borrowers with small balance loans totaling $70,000 who have not made a loan payment for 30 days or greater, after their payment deferral agreement had expired. To date, we have not entered into any re-deferral agreements.

Since these loans were performing loans that were current on their payments prior to the COVID-19 pandemic, these modifications are not considered to be troubled debt restructurings pursuant to applicable accounting and regulatory guidance. However, we do expect a small percentage of clients who have or had deferral agreements to be renewed and converted to TDRs.

It is important to note that average deposit balances for clients who either apply for payment relief with us or who have had loan payments made by the SBA increased-deposit balances increased $98 million, or 363%, to $125 million from the first quarter to the third quarter of 2020. In particular, we have seen that many of our borrowers who requested payment deferments have held onto the cash that would have otherwise been used to make their monthly payments. We anticipate these additional funds held by these clients will provide cash flow, so they will be able to resume making payments on loans after their deferral periods. Approximately 15% of borrowers who requested a loan deferral continued to make their monthly payments through their deferral period.

Our overall asset quality trends have improved throughout 2020, and charge-offs across our portfolios have remained relatively low. We expect to see asset quality trends begin to deteriorate and charge-offs to increase beginning in 2021, as the positive effects of the government stimulus and loan payment relief programs come to an end. We believe our allowance for credit losses is adequate to cover our current expected losses. However, we will continue to monitor closely macroeconomic conditions and the overall performance of our loan portfolio to determine if we should adjust our expectations for credit losses.

Over the past 24 months, we've communicated each quarter our efforts to fortify our balance sheet based on our perspective that we were at the end of an economic cycle and wanting to be prepared for an economic turn down. While we certainly did not anticipate that the economic downturn would be the result of a pandemic, our strong balance sheet provides safety and security to our stakeholders. We believe our balance sheet strength has reflected in the level of allowance for credit losses held by us and our strong regulatory capital position.

In addition, our focus to reduce loan concentration in our ABC and commercial real estate portfolios, and the tightening of our overall underwriting standards over the past couple of years will helped to mitigate the negative effects the pandemic may have on our loan portfolio.

3

ViaVid has made considerable efforts to provide an accurate transcription. There may be material errors, omissions, or inaccuracies in the reporting of the substance of the conference call. This transcript is being made available for information purposes only.

1-888-562-02621-604-929-1352www.viavid.com