pub-10q_20190331.htm

Indicate by check mark whether the registrant (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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 registrant was required to submit such files). Yes ☒ No ☐

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

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 checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes No ☒

As of April 30, 2019, the registrant had 18,801,642 shares of common stock $0.01 par value per share, outstanding. No preferred shares are issued or outstanding.

	March 31,			December 31,
(Dollars in thousands, except share data)	2019			2018
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	36,659		$	39,471
Interest bearing deposits		106,467			7,456
Federal funds sold		896			1,620
Total cash and cash equivalents		144,022			48,547
Investment securities:
Available for sale, at fair value		347,123			280,964
Held to maturity, at historical cost		-			65,462
Total investment securities		347,123			346,426
Non-marketable equity securities		2,623			2,551
Loans held for sale		7,184			10,267
Loans:
Loans held for investment		1,676,889			1,678,902
Allowance for loan losses		(25,923	)		(25,245	)
Total loans held for investment, net		1,650,966			1,653,657
Premises and equipment, net		37,836			36,532
Goodwill		25,673			25,673
Bank-owned life insurance		26,581			26,433
Deferred income tax assets, net		10,354			11,514
Accrued interest receivable		8,593			8,282
Other intangibles		3,301			3,412
Other real estate owned		-			-
Other assets		6,551			11,000
Total assets	$	2,270,807		$	2,184,294
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Non-interest bearing deposits	$	655,866		$	642,594
Interest bearing deposits		1,295,459			1,234,461
Total deposits		1,951,325			1,877,055
Short-term borrowings		-			-
Accrued interest payable		521			483
Other liabilities		17,634			16,594
Total liabilities		1,969,480			1,894,132

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; 18,797,280
and 18,728,823 shares issued and outstanding as of March 31, 2019
and December 31, 2018, respectively		188			187
Additional paid-in capital		86,892			86,308
Retained earnings		216,216			207,779
Accumulated other comprehensive loss		(1,969	)		(4,112	)
Total shareholders’ equity		301,327			290,162
Total liabilities and shareholders’ equity	$	2,270,807		$	2,184,294

	Three Months Ended
	March 31,
(Dollars in thousands, except share and per share data)	2019		2018
Interest income
Interest and fees on loans	$	26,980	$	25,783
Interest and dividends on investments		2,172		1,656
Total interest income		29,152		27,439
Interest expense		2,245		1,495
Net interest income		26,907		25,944
Provision for loan losses		1,550		2,050
Net interest income after provision for loan losses		25,357		23,894
Non-interest income
Mortgage banking		1,417		1,638
Card processing		615		723
Service charges on deposit accounts		657		673
Net gain on sale of investment securities		-		2
Other		648		682
Total non-interest income		3,337		3,718
Non-interest expense
Salaries and employee benefits		9,886		10,423
Occupancy, equipment and depreciation		1,456		1,543
Data processing		964		870
Marketing and advertising		116		446
FDIC premiums		90		329
Acquisition-related costs		-		349
Other		2,404		2,088
Total non-interest expense		14,916		16,048
Income before income tax expense		13,778		11,564
Income tax expense		3,273		2,560
Net income	$	10,505	$	9,004
Earnings per common share:
Basic	$	0.56	$	0.48
Diluted	$	0.55	$	0.48
Weighted average common shares outstanding:
Basic		18,781,210		18,598,436
Diluted		18,989,565		18,937,637

										Accumulated
					Additional					Other
	Common				Paid-in		Retained			Comprehensive
(Dollars in thousands, except share and per share data)	Shares		Amount		Capital		Earnings			Income (Loss)			Total
Balance as of January 1, 2018		18,511,797	$	185	$	84,532	$	174,804		$	(2,103	)	$	257,418
Net income		-		-		-		9,004			-			9,004
Other comprehensive loss		-		-		-		-			(1,851	)		(1,851	)
Cash dividends ($0.09 per share)		-		-		-		(1,672	)		-			(1,672	)
Share-based compensation		-		-		216		-			-			216
Issuance of shares under stock incentive plans		162,435		2		682		-			-			684
Balance as of March 31, 2018		18,674,232	$	187	$	85,430	$	182,136		$	(3,954	)	$	263,799

Balance as of January 1, 2019		18,728,823	$	187	$	86,308	$	207,779		$	(4,112	)	$	290,162
Net income		-		-		-		10,505			-			10,505
Other comprehensive income		-		-		-		-			2,143			2,143
Cash dividends ($0.11 per share)		-		-		-		(2,068	)		-			(2,068	)
Share-based compensation		-		-		191		-			-			191
Issuance of shares under stock incentive plans		68,457		1		393		-			-			394
Balance as of March 31, 2019		18,797,280	$	188	$	86,892	$	216,216		$	(1,969	)	$	301,327

	Three Months Ended
	March 31,
(Dollars in thousands)	2019			2018
Cash flows from operating activities:
Net income	$	10,505		$	9,004
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		1,550			2,050
Depreciation and amortization		974			738
Deferred income taxes		446			(561	)
Net amortization of securities discounts and premiums		574			682
Increase in cash surrender value of bank-owned life insurance		(148	)		(148	)
Share-based compensation		191			216
Gain on sale of loans held for sale		(942	)		(1,150	)
Originations of loans held for sale		(40,237	)		(56,474	)
Proceeds from sale of loans held for sale		44,262			57,877
Net changes in:
Accrued interest receivable		(311	)		(22	)
Other assets		4,423			(2,217	)
Accrued interest payable		38			1
Other liabilities		(1,129	)		2,834
Net cash provided by operating activities		20,196			12,830
Cash flows from investing activities:
Net change in loans held for investment		1,141			(58,963	)
Purchase of available-for-sale securities		(10,260	)		-
Proceeds from maturities/sales of available-for-sale securities		10,475			10,566
Proceeds from maturities of held-to-maturity securities		1,370			572
Purchase of bank-owned life insurance		-			(2,250	)
Purchase of premises and equipment		(2,154	)		(47	)
Proceeds from sale of other real estate owned, net of improvements		2,183			438
Purchase of non-marketable equity securities		(4,032	)		(7,115	)
Proceeds from sale of non-marketable equity securities		3,960			5,110
Net cash (used in) provided by investing activities		2,683			(51,689	)
Cash flows from financing activities:
Net increase in deposits		74,270			(8,307	)
Proceeds related to exercise of stock options		394			684
Net change in short-term borrowings		-			39,000
Cash dividends paid		(2,068	)		(1,672	)
Net cash provided by financing activities		72,596			29,705
Net change in cash and cash equivalents		95,475			(9,154	)
Cash and cash equivalents, beginning of period		48,547			51,027
Cash and cash equivalents, end of period	$	144,022		$	41,873
Supplemental disclosures of cash flow information:
Cash paid for interest	$	2,207		$	1,494
Income taxes paid	$	-		$	-
Supplemental disclosures of non-cash investing transactions:
Reclassifications from loans to other real estate owned	$	-		$	(745	)
Unrealized gains / (losses) on securities available-for-sale	$	2,856		$	(2,468	)
Measurement period adjustment to goodwill	$	-		$	(664	)
Transfer of HTM securities to AFS	$	64,648		$	-

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 operates all business activities through its wholly-owned banking subsidiary, People’s Intermountain Bank (“PIB” or the “Bank”), which was organized in 1913. The Bank is a Utah state chartered bank. The Bank operates under the jurisdiction of the Utah Department of Financial Institutions, and its deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”). The Bank 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. Both PUB and the Bank are subject to periodic examination by applicable federal and state regulatory agencies and file periodic reports and other information with the agencies. The Company considers the Bank to be its sole operating segment.

PIB is a community bank that provides highly personalized retail and commercial banking products and services to small and medium sized businesses and to individuals. Products and services are offered primarily through 26 retail branches located throughout Utah and southern Idaho. PIB has three banking divisions, Bank of American Fork, Lewiston State Bank, and People’s Town & Country Bank; and a mortgage division, People’s Intermountain Bank Mortgage. The Bank 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 Bank also offers mortgage loans secured by personal residences. The Bank offers a full range of deposit services typically available in most financial institutions, including checking accounts, savings accounts, and time deposits. The Bank solicits these accounts from individuals, businesses, associations and organizations, and governmental entities.

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

These unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (SEC). In preparing these financial statements, the Company has evaluated events and transactions subsequent to March 31, 2019, for potential recognition or disclosure. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. Certain information and disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC and the accounting standards for interim financial statements. Certain reclassifications have been made to the 2018 Consolidated Financial Statements and/or schedules to conform to the 2019 presentation. These reclassifications may have affected certain ratios for the prior periods. The effect of these reclassifications is considered immaterial.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements. Various elements of the Company’s accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. In particular, management has identified several accounting policies that, due to the judgments, estimates and assumptions inherent in those policies, are significant to an understanding of the Company’s financial statements. These policies relate to (i) the methodology for the recognition of interest income, (ii) determination of the provision and allowance for loan losses, (iii) the valuation of financial assets and liabilities recorded at fair value, including other-than-temporary impairment (OTTI) losses, (iv) the valuation of intangibles, such as goodwill, core deposit intangibles (CDI) and mortgage servicing rights, (v) the valuation of real estate held for sale, (vi) the valuation of assets and liabilities acquired in business combinations and subsequent recognition of related income and expense, and (vii) the valuation or recognition of deferred tax assets and liabilities. These policies and judgments, estimates and assumptions are described in greater detail in subsequent notes to the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations (Critical Accounting Policies) in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC (2018 Form 10-K). There have been no significant changes in our application of these accounting policies during the first three months of 2019, except as described later in Note 1.

The information included in this Form 10-Q should be read in conjunction with our 2018 Form 10-K. Interim results are not necessarily indicative of results for a full year or any other interim period.

Note 1 — Basis of Presentation and Significant Accounting Policies – Continued

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 restricted stock units (“RSU”).

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

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 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 ASU broaden the scope of ASC Subtopic 350-40 to include costs incurred to implement a 104 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 internal-use software license). The costs are capitalized or expensed depending on the nature of the costs and the project stage during which they are incurred, consistent with the accounting for costs for internal-use software. The amendments in this ASU result in consistent capitalization of implementation costs of a hosting arrangement that is a service contract and implementation costs incurred to develop 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 fiscal years beginning after December 15, 2019 and interim periods within those fiscal 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, 2019. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this ASU and delay adoption of the additional disclosures until their effective date. Adoption of ASU 2018-13 is not expected to have a material impact on the Company’s Consolidated Financial Statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The ASU significantly changes the impairment model for most financial assets that are measured at amortized cost and certain other instruments from an incurred loss model to an expected loss model. This ASU is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted for all entities beginning after December 15, 2018, including interim periods within those fiscal years. The Company is in the process of identifying required changes to the loan loss estimation models and processes and evaluating the impact of this new guidance. Once adopted, we expect our allowance for loan losses to increase; however, until our evaluation is complete, the magnitude of the increase is not known.

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.

Note 1 — Basis of Presentation and Significant Accounting Policies – Continued

Lessees will 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, and entities are required to use a modified retrospective approach for leases. 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. leases terms of twelve months or less). The Company has eight real property leases under non-cancelable operating leases, three of which will be subject to this ASU that will result in the recognition of right-of-use assets and lease liabilities. All of the Company’s equipment is owned or on short-term leases. The Company compiled a complete inventory of 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.

Amortized cost and estimated fair value of investment securities available for sale are summarized as follows:

					Gross Unrealized Losses
					Less			12
			Gross		Than			Months
	Amortized		Unrealized		12			or			Fair
(Dollars in thousands)	Cost		Gains		Months			Longer			Value
As of March 31, 2019
U.S. Government-sponsored securities	$	48,955	$	9	$	-		$	(249	)	$	48,715
Municipal securities		73,074		283		(1	)		(242	)		73,114
Mortgage-backed securities		222,720		796		(55	)		(2,841	)		220,620
Corporate securities		5,000		-		-			(326	)		4,674
	$	349,749	$	1,088	$	(56	)	$	(3,658	)	$	347,123
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

Amortized cost and estimated fair value of investment securities held to maturity are as follows:

In August 2017, the FASB amended the Derivatives and Hedging topic of the FASB ASC. The primary focus of the amendment is to simplify hedge accounting and make the results of hedge transactions in the financial statements easier to understand. An ancillary result of the amendment is that an entity may make a one-time transfer of certain securities from the held to maturity classification to the available for sale classification. The amendment is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. As allowed under this accounting pronouncement, the Company has elected to makes a one-time transfer of $64.6 million of held to maturity securities to the available for sale classification as of January 1, 2019, and has recorded an unrecognized loss of $19,000, net of taxes, to other comprehensive income.

At March 31, 2019 and December 31, 2018, the gross unrealized losses and the fair value for securities available for sale and held to maturity were as follows:

	March 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	$	-	$	-		$	38,814	$	(249	)	$	38,814	$	(249	)
Municipal securities		289		(1	)		37,515		(242	)		37,804		(243	)
Mortgage-backed securities		15,179		(55	)		142,699		(2,841	)		157,878		(2,896	)
Corporate securities		-		-			4,674		(326	)		4,674		(326	)
	$	15,468	$	(56	)	$	223,702	$	(3,658	)	$	239,170	$	(3,714	)

	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	)

The amortized cost and estimated fair value of investment securities that are available for sale and held to maturity at March 31, 2019, by contractual maturity, are as follows:

Actual maturities may differ from contractual maturities because issuers may have the right to call obligations with or without penalties and other securities may experience pre-payments.

As of March 31, 2019, the Company held 259 available for sale investment securities with fair value less than amortized cost compared to 201 at December 31, 2018. In addition, the Company held 122 held to maturity securities with fair values less than amortized cost at December 31, 2018. The company had no held to maturity securities with fair values less than amortized cost at March 31, 2019. 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 no sales of available for sale securities during the three months ended March 31, 2019 and 2018, respectively. There were no available for sale securities in a nonaccrual status at March 31, 2019 or December 31, 2018.

The Company had no sales of held to maturity securities during the three months ended March 31, 2019 and 2018, respectively. The company had no held to maturity securities in a nonaccrual status at March 31, 2019 or December 31, 2018.

	Three Months Ended March 31, 2019
	Real		Construction			Commercial			Residential			Consumer
	Estate		and Land			and			and			and
(Dollars in thousands)	Term		Development			Industrial			Home Equity			Other			Total
Balance at beginning of period	$	9,968	$	7,022		$	7,227		$	729		$	299		$	25,245
Additions: Provisions for loan losses		204		133			1,281			72			(140	)		1,550
Deductions:
Gross loan charge-offs		-		(5	)		(1,086	)		(19	)		(64	)		(1,174	)
Recoveries		-		32			180			22			68			302
Net loan (charge-offs) / recoveries		-		27			(906	)		3			4			(872	)
Balance at end of period	$	10,172	$	7,182		$	7,602		$	804		$	163		$	25,923

	Three Months Ended March 31, 2018
	Real		Construction		Commercial			Residential			Consumer
	Estate		and Land		and			and			and
(Dollars in thousands)	Term		Development		Industrial			Home Equity			Other			Total
Balance at beginning of period	$	6,706	$	6,309	$	4,314		$	815		$	159		$	18,303
Additions: Provisions for loan losses		531		474		1,325			(200	)		(80	)		2,050
Deductions:
Gross loan charge-offs		-		-		(193	)		-			(65	)		(258	)
Recoveries		12		25		516			27			56			636
Net loan (charge-offs) / recoveries		12		25		323			27			(9	)		378
Balance at end of period	$	7,249	$	6,808	$	5,962		$	642		$	70		$	20,731

As of March 31, 2019, and December 31, 2018, there are $2.07 million and $ 2.24 million, respectively, in Purchased Credit Impaired (“PCI”) loans that are not performing to the original contractual terms. Including these PCI loans, total non-accrual loans are $4.7 million and $4.5 million at March 31, 2019, and December 31, 2018.

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

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.

The following tables present TDRs that occurred during the periods presented and the TDRs for 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.

	March 31, 2019
	Real		Construction		Commercial		Residential		Consumer
	Estate		and Land		and		and		and
(Dollars in thousands)	Term		Development		Industrial		Home Equity		Other		Total
TDRs that occurred during the period ^{(1) (2)}
Number of loans		4		-		7		1		-		12
Pre-modification balance	$	4,256	$	-	$	2,391	$	18	$	-	$	6,665
Post-modification balance	$	4,256	$	-	$	2,391	$	18	$	-	$	6,665

TDRs that subsequently defaulted
Number of loans		-		-		-		-		-		-
Recorded balance	$	-	$	-	$	-	$	-	$	-	$	-


	March 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		2		-		3		-		-		5
Pre-modification balance	$	1,592	$	-	$	211	$	-	$	-	$	1,803
Post-modification balance	$	1,592	$	-	$	211	$	-	$	-	$	1,803

TDRs that subsequently defaulted
Number of loans		2		-		3		-		-		5
Recorded balance	$	1,449	$	-	$	150	$	-	$	-	$	1,599

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

	March 31, 2019
											Purchased
			30-89 Days		90+ Days		Non-		Total		Credit		Total
(Dollars in thousands)	Current		Past Due		Past Due		accrual		Past Due		Impaired		Loans
Commercial real estate:
Real estate term	$	895,363	$	1,453	$	-	$	1,775	$	3,228	$	918	$	899,509
Construction and land development		320,160		1,314		-		429		1,743		229		322,132
Total commercial real estate		1,215,523		2,767		-		2,204		4,971		1,147		1,221,641
Commercial and industrial		287,012		3,039		-		346		3,385		3,498		293,895
Consumer:
Residential and home equity		149,845		712		-		51		763		-		150,608
Consumer and other		14,825		229		16		17		262		-		15,087
Total consumer		164,670		941		16		68		1,025		-		165,695
Total gross loans	$	1,667,205	$	6,747	$	16	$	2,618	$	9,381	$	4,645	$	1,681,231

	December 31, 2018
											Purchased
			30-89 Days		90+ 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

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, Substandard, and Doubtful are summarized as follows:

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 Substandard asset with the added characteristics that the weaknesses make collection or liquidation in full highly questionable.

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

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

	March 31, 2019
			Special						Total		Total
(Dollars in thousands)	Pass		Mention		Substandard		Doubtful		Loans		Allowance
Commercial real estate:
Real estate term	$	874,115	$	10,715	$	14,679	$	-	$	899,509	$	10,172
Construction and land development		313,427		6,288		2,417		-		322,132		7,182
Total commercial real estate		1,187,542		17,003		17,096		-		1,221,641		17,354
Commercial and industrial		260,642		20,014		13,239		-		293,895		7,602
Consumer loans:
Residential and home equity		146,209		-		4,399		-		150,608		804
Consumer and other		15,081		-		6		-		15,087		163
Total consumer		161,290		-		4,405		-		165,695		967
Total	$	1,609,474	$	37,017	$	34,740	$	-	$	1,681,231	$	25,923

	December 31, 2018
			Special						Total		Total
(Dollars in thousands)	Pass		Mention		Substandard		Doubtful		Loans		Allowance
Commercial real estate:
Real estate term	$	865,472	$	14,339	$	11,320	$	-	$	891,131	$	9,968
Construction and land development		322,625		1,332		549		-		324,506		7,022
Total commercial real estate		1,188,097		15,671		11,869		-		1,215,637		16,990
Commercial and industrial		271,825		10,138		13,606		-		295,569		7,227
Consumer loans:
Residential and home equity		150,590		620		4,391		-		155,601		729
Consumer and other		16,574		29		18		-		16,621		299
Total consumer		167,164		649		4,409		-		172,222		1,028
Total	$	1,627,086	$	26,458	$	29,884	$	-	$	1,683,428	$	25,245

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

	March 31, 2019
	Real		Construction		Commercial		Residential		Consumer
	Estate		and Land		and		and		and
(Dollars in thousands)	Term		Development		Industrial		Home Equity		Other		Total
Allowance for loan losses:
Individually evaluated for impairment	$	229	$	133	$	1,929	$	130	$	-	$	2,421
Collectively evaluated for impairment		9,943		7,049		5,673		674		163		23,502
Purchased credit-impaired loans		-		-		-		-		-		-
Total	$	10,172	$	7,182	$	7,602	$	804	$	163	$	25,923
Outstanding loan balances:
Individually evaluated for impairment	$	13,763	$	1,882	$	9,497	$	4,483	$	-	$	29,625
Collectively evaluated for impairment		884,828		320,021		280,900		146,125		15,087		1,646,961
Purchased credit-impaired loans		918		229		3,498		-		-		4,645
Total gross loans	$	899,509	$	322,132	$	293,895	$	150,608	$	15,087	$	1,681,231

	December 31, 2018
	Real		Construction		Commercial		Residential		Consumer
	Estate		and Land		and		and		and
(Dollars in thousands)	Term		Development		Industrial		Home 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

	March 31, 2019
			Recorded Investment
	Unpaid						Total
	Principal		With No		With		Recorded		Related
(Dollars in thousands)	Balance		Allowance		Allowance		Investment		Allowance
Commercial real estate:
Real estate term	$	13,763	$	11,317	$	2,446	$	13,763	$	229
Construction and land development		2,585		-		1,882		1,882		133
Total commercial real estate		16,348		11,317		4,328		15,645		362
Commercial and industrial		10,012		3,236		6,261		9,497		1,929
Consumer loans:
Residential and home equity		4,483		2,499		1,984		4,483		130
Consumer and other		-		-		-		-		-
Total consumer		4,483		2,499		1,984		4,483		130
Total	$	30,843	$	17,052	$	12,573	$	29,625	$	2,421

	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, excluding PCI loans, was as follows:

	Three Months Ended
	March 31, 2019				March 31, 2018
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
(Dollars in thousands)	Investment		Recognition		Investment		Recognition
Commercial real estate:
Real estate term	$	10,117	$	123	$	9,332	$	108
Construction and land development		1,087		17		2,676		39
Total commercial real estate		11,204		140		12,008		147
Commercial and industrial		9,414		155		10,901		132
Consumer loans:
Residential and home equity		3,172		47		1,700		21
Consumer and other		-		-		-		-
Total consumer		3,172		47		1,700		21
Total	$	23,790	$	342	$	24,609	$	300

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 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 outstanding contractual unpaid principal balance of PCI loans, excluding acquisition accounting adjustments, was $7.4 million at March 31, 2019 and $7.7 million at December 31, 2018. The carrying balance of PCI loans was $4.6 million at March 31, 2019 and $4.7 million at December 31, 2018.

The following table presents the changes in the accretable yield for PCI loans for the three months ended March 31, 2019, and 2018:

As of March 31, 2019 and December 31, 2018, the non-accretable difference between the contractually required payments and cash flows expected to be collected were $2.8 million and $2.9 million, respectively.

Loans and Deposits to affiliates — The Company has entered into loan transactions with certain directors, affiliated companies 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, 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 approximately $5.8 million and $5.6 million as of March 31, 2019, and December 31, 2018, respectively. Available lines of credit for loans and credit cards to affiliates were approximately $712,000 and $951,000 as of March 31, 2019, and December 31, 2018, respectively. Deposits from affiliates were $7.8 million and $8.8 million as of March 31, 2019 and December 31, 2018, respectively.

Litigation contingencies — The Company is involved in various claims, legal actions and complaints which arise in the ordinary course of business. In the Company’s opinion, all such matters are adequately covered by insurance, are without merit or are of such kind, or involve such amounts, that unfavorable disposition would not have a material adverse effect on the financial condition or results of operations of the Company.

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.

Commitments to extend credit are agreements to lend to a customer 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.

Unused credit card lines are commitments for possible future extensions of credit to existing customers. 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 measures and discloses certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (that is, not a forced liquidation or distressed sale). GAAP establishes a consistent framework for measuring fair value and disclosure requirements about fair value measurements. Among other things, the standard requires us to maximize the use of observable inputs and minimize the use of unobservable inputs 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 create the following fair value hierarchy:

The estimated fair value amounts of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret data to develop the estimates of fair value. Accordingly, the estimates presented herein are not 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 amounts. In addition, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates that must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values. Transfers between levels of the fair value hierarchy are deemed to occur at the end of the reporting period.

The following methods were used to estimate the fair value of each class of financial instruments:

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. Level 3 measurements were determined using discounted cash flow analyses based on the net present value of each security’s projected cash flows using observable market data for similar securities.

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 fair value approximated carrying value because of their floating rate or expected maturity characteristics.

Deposits: The carrying amount of deposits with no stated maturity, such as savings and checking accounts, is a reasonable estimate of their fair value. The market value of certificates of deposit is based upon the discounted value of contractual cash flows. The discount rate is determined using the rates currently offered on comparable instruments.

The following table presents estimated fair values of the Company’s financial instruments as of March 31, 2019 and December 31, 2018:

			March 31, 2019				December 31, 2018
			Carrying		Estimated		Carrying		Estimated
(Dollars in thousands)	Level		Value		Fair Value		Value		Fair Value
Financial Assets:
Cash and cash equivalents		1	$	144,022	$	144,022	$	48,547	$	48,547
Investment securities available-for-sale		2		332,579		332,579		280,964		280,964
Investment securities available-for-sale		3		14,544		14,544		-		-
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		7,184		7,184		10,267		10,267
Loans held for investment		3		1,650,966		1,634,952		1,653,657		1,637,617

Financial Liabilities:
Total deposits		2	$	1,951,325	$	1,712,862	$	1,877,055	$	1,675,992

(Dollars in thousands)	Level 1		Level 2		Level 3		Total
As of March 31, 2019
Fair valued on a recurring basis:
Investment securities available for sale	$	-	$	332,579	$	14,544	$	347,123
Fair valued on a non-recurring basis:
Impaired loans		-		-		391		391

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

Income tax expense was $3.3 million and $2.6 million for the three months ended March 31, 2019 and 2018, respectively. The Company’s effective tax rate for the first quarter of 2019 was 23.8% compared with 22.1% in the first quarter of 2018. The tax rate in the first quarter of 2019 is higher than the same quarter in 2018 due primarily to higher tax benefits related to tax-deductible stock compensation expense in 2018.

The consolidated Tier 1 Leverage ratio increased to 12.70% as of March 31, 2019 from 12.27% at December 31, 2018. Federal Reserve Board Regulations require maintenance of certain minimum reserve balances based on certain average deposits, which, as of March 31, 2019 and December 31, 2018, were $3.4 million and $2.2 million, 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.

In June 2014, the Board of Directors (“Board”) and shareholders of the Company approved a share-based incentive plan (“the Plan”). The 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 Plan is 800,000 common shares. The share-based awards are granted to participants under the Plan at a price not less than the fair value on the date of grant and for terms of up to ten years. The Plan also allows for granting of share-based awards to directors and consultants who are not employees of the Company.

During the three months ended March 31, 2019, the Company granted 30,205 restricted stock units (“RSU”) at a weighted-average fair value of $30.15 per unit. The RSU’s generally vest over periods from one to three years. The Company recorded share-based compensation expense of $191,000 and $216,000 for the three months ended March 31, 2019 and 2018, respectively. Additionally, the Company did not grant any options for the purchase of common shares during the three months ended March 31, 2019.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is intended to provide a more comprehensive review of People’s Utah Bancorp’s operating results and financial condition than can be obtained from reading the Unaudited Condensed Consolidated Financial Statements alone. The discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and the notes thereto included in “Part I. Item 1. Financial Statements.”

This Quarterly Report on Form 10–Q may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views and are not historical facts. 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 financial 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 are forward-looking statements and 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 in this report and our Annual Report on Form 10-K for the year ended December 31, 2018 (“Form 10-K”), and other parts of this report 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 which could cause our actual results to differ materially from our forward-looking statements in this prospectus:

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.

Please take into account that forward-looking statements speak only as of the date of this Form 10-Q. We do not undertake any obligation to release publicly our revisions to such forward-looking statements to reflect events or circumstances after the date of this Form 10-Q.

People’s Utah Bancorp (“PUB”) is the holding company for People’s Intermountain Bank. People’s Intermountain Bank (“Bank”, “PIB”) is a full-service community bank providing loans, deposit and cash management services to individuals and businesses. People’s Intermountain Bank has 26 branch locations in three banking divisions, Bank of American Fork, Lewiston State Bank, and People’s Town & Country Bank; and a mortgage division, People’s Intermountain Bank Mortgage. We provide banking services to small to medium sized businesses and individuals in our primary markets including Utah, Salt Lake, Davis, Cache, and Washington Counties. Our business customers are involved in a variety of industries including residential and commercial construction and development, 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. The Bank has been serving communities in Utah and southern Idaho for more than 100 years.

Our recent loan growth is the result of mergers and acquisitions as well as organic growth that we believe was generated by our seasoned relationship managers and supporting associates who provide outstanding service and quick responsiveness to our customers. The primary source of funding for our asset growth has been the generation of core deposits, which we raised through acquisitions 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. 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 by the sum of net interest income and non-interest income.

Utah Branches from Banner Bank — On October 6, 2017, we completed our 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 Bank paid a deposit premium of $13.8 million based on average deposits at closing. The seven branch locations in Utah include Salt Lake City, Provo, South Jordan, Woods Cross, Orem, Salem, and Springville. The Woods Cross and Orem branches were consolidated into our existing Bank of American Fork Bountiful and Orem branches, respectively. We are operating these acquired branches under the name of Bank of American Fork, a division of PIB.

Town & Country Bank — On November 13, 2017, we completed the merger of Town & Country Bank located in St. George, Utah, including the acquisition of $117 million in loans and the assumption of $124 million in deposits. We consolidated our existing St. George branch and Town & Country’s branch into one branch. Under the terms of the merger, each outstanding Town & Country common share converted into the right to receive 0.2917 PUB common shares and $4.23 per common share in cash, including $2.0 million of cash held in escrow that is subject to indemnification claims. Town & Country shareholders also received an additional cash distribution of $1.68 per common share in cash. A total of 466,546 PUB common shares were issued in this transaction. We operate this branch under the name of People’s Town & Country Bank, a division of PIB.

In addition to financial results presented in accordance with generally accepted accounting principles ("GAAP"), this Management’s Discussion & Analysis contains certain non-GAAP financial measures. We have presented these non-GAAP financial measures because we believe that they provide useful and comparative information to assess trends in our core operations and facilitates the comparison of our financial performance with the performance of our peers and the comparative years presented. We have excluded acquisition related costs, net gains and losses on the sale of certain securities, and the write-down of our deferred income tax assets due to the reduction in the Federal corporate income tax rate to derive non-GAAP financial information related to the company’s core operations. The Company believes this non-GAAP financial information is useful in understanding the Company’s core financial performance.

However, these non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP. Where applicable, we have also presented comparable earnings information using GAAP financial measures. For a reconciliation of these non-GAAP financial measures, see the tables below. Because not all companies use the same calculations, our presentation may not be comparable to other similarly titled non-GAAP measures as calculated by other companies.

^(NG) Non-GAAP Financial Measures
In addition to financial results presented in accordance with GAAP, this schedule contains certain non-GAAP financial measures. Management has presented these non-GAAP financial measures because it believes that they provide useful and comparative information to assess trends in core operations and facilitate the comparison of our financial performance with the performance of our peers.

(Dollars in thousands)	Three Months Ended
	March 31,		December 31,		March 31,
Revenue from Core Operations	2019		2018		2018
Net interest income (GAAP)	$	26,907	$	28,074	$	25,944
Total non-interest income		3,337		3,551		3,718
Total GAAP revenues		30,244		31,625		29,662
Exclude net (gain) on sale of investment securities		-		-		(2	)
Revenue from core operations (non-GAAP)	$	30,244	$	31,625	$	29,660

	Three Months Ended
	March 31,		December 31,		March 31,
Non-interest Income from Core Operations	2019		2018		2018
Total non-interest income (GAAP)	$	3,337	$	3,551	$	3,718
Exclude net (gain) on sale of investment securities		-		-		(2	)
Non-interest income from core operations (non-GAAP)	$	3,337	$	3,551	$	3,716

	Three Months Ended
	March 31,		December 31,		March 31,
Non-interest Expense from Core Operations	2019		2018		2018
Total non-interest expense (GAAP)	$	14,916	$	14,845	$	16,048
Exclude acquisition-related costs		-		-		(349	)
Non-interest expense from core operations (non-GAAP)	$	14,916	$	14,845	$	15,699

	Three Months Ended
	March 31,		December 31,		March 31,
Net Income from Core Operations	2019		2018		2018
Net income (GAAP)	$	10,505	$	10,678	$	9,004
Exclude net (gain) on sale of investment securities		-		-		(2	)
Exclude acquisition-related costs		-		-		349
Exclude tax related benefit		-		-		(77	)
Revaluation of deferred income tax assets (DTA)		-		-		-
Net income (non-GAAP)	$	10,505	$	10,678	$	9,274

^(NG) Non-GAAP Financial Measures
In addition to financial results presented in accordance with GAAP, this schedule contains certain non-GAAP financial measures. Management has presented these non-GAAP financial measures because it believes that they provide useful and comparative information to assess trends in core operations and facilitate the comparison of our financial performance with the performance of our peers.
(Dollars in thousands)	Three Months Ended
	March 31,			December 31,			March 31,
Acquisition Accounting Impact on Net Interest Margin	2019			2018			2018
Net interest income (GAAP)	$	26,907		$	28,074		$	25,944
Exclude discount accretion (premium amortization) on purchased loans		(528	)		(701	)		(1,166	)
Exclude premium amortization on acquired certificates of deposit ("CD")		(35	)		(35	)		(35	)
Net interest income before acquisition accounting impact (Non-GAAP)	$	26,344		$	27,338		$	24,743

Average earning assets (GAAP)	$	2,063,149		$	2,057,403		$	2,017,090
Exclude average net loan discount on acquired loans		8,500			9,124			11,924
Average earning assets before acquired loan discount (Non-GAAP)	$	2,071,649		$	2,066,527		$	2,029,014

Net interest margin ("NIM") (GAAP)		5.29	%		5.41	%		5.22	%
Exclude impact on NIM from discount accretion		-0.10	%		-0.13	%		-0.23	%
Exclude impact on NIM from CD premium amortization		-0.01	%		-0.01	%		-0.01	%
Net interest margin before acquisition accounting adjustments (Non-GAAP)		5.18	%		5.27	%		4.98	%

(Dollars in thousands)	Three Months Ended
	March 31,			December 31,			March 31,
Additional Non-GAAP Financial Information	2019			2018			2018
Diluted earnings per share (GAAP)	$	0.55		$	0.56		$	0.48
Diluted earnings per share (non-GAAP)	$	0.55		$	0.56		$	0.49

Efficiency ratio (GAAP)		49.32	%		46.94	%		54.10	%
Efficiency ratio (non-GAAP)		49.32	%		46.94	%		52.93	%

Non-interest income to average assets (GAAP)		0.62	%		0.64	%		0.70	%
Non-interest income to average assets (non-GAAP)		0.62	%		0.64	%		0.70	%

Non-interest expense to average assets (GAAP)		2.77	%		2.69	%		3.04	%
Non-interest expense to average assets (non-GAAP)		2.77	%		2.69	%		2.97	%

Return on average assets (GAAP)		1.95	%		1.94	%		1.70	%
Return on average assets (non-GAAP)		1.95	%		1.94	%		1.75	%

Return on average equity (GAAP)		14.38	%		14.84	%		13.96	%
Return on average equity (non-GAAP)		14.38	%		14.84	%		14.38	%

You should read the selected financial information data set forth below in conjunction with our historical consolidated financial statements and related notes.


	March 31,			December 31,			September 30,			March 31,
(Dollars in thousands, except share data)	2019			2018			2018			2018
Selected Balance Sheet Information:
Book value per share	$	16.03		$	15.49		$	14.94		$	14.13
Tangible book value per share	$	14.49		$	13.94		$	13.38		$	12.57
Non-performing loans to total loans		0.28	%		0.27	%		0.34	%		0.44	%
Non-performing assets to total assets		0.21	%		0.21	%		0.40	%		0.34	%
Allowance for loan losses to loans held for investment		1.55	%		1.50	%		1.36	%		1.23	%
Loans to Deposits		84.98	%		88.65	%		91.01	%		92.86	%

Asset Quality Data:
Non-performing loans	$	4,706		$	4,499		$	5,830		$	7,398
Non-performing assets	$	4,706		$	4,499		$	8,815		$	7,398

Capital Ratios:
Tier 1 leverage capital		12.70	%		12.27	%		11.90	%		11.26	%
Total risk-based capital		16.86	%		16.36	%		15.46	%		14.71	%
Average equity to average assets		13.55	%		13.04	%		12.76	%		12.20	%
Tangible common equity to tangible assets ⁽¹⁾		12.15	%		12.11	%		11.47	%		11.00	%

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 primarily 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.

	Three Months Ended
	March 31, 2019								March 31, 2018
				Interest		Average						Interest		Average
	Average			Income/		Yield/			Average			Income/		Yield/
(Dollars in thousands, except footnotes)	Balance			Expense		Rate			Balance			Expense		Rate
ASSETS
Interest earning deposits in other banks and federal funds sold	$	38,921		$	219		2.28	%	$	13,458		$	45		1.36	%
Securities: ⁽¹⁾
Taxable securities		276,903			1,604		2.35	%		252,491			1,214		1.95	%
Non-taxable securities⁽²⁾		69,521			322		1.88	%		82,518			382		1.88	%
Total securities		346,424			1,926		2.26	%		335,009			1,596		1.93	%
Loans⁽³⁾
Real estate term		889,114			13,047		5.95	%		854,982			12,164		5.77	%
Construction and land development		315,810			6,231		8.00	%		366,739			6,875		7.60	%
Commercial and industrial		296,854			5,122		7.00	%		314,027			5,090		6.57	%
Residential and home equity		156,298			2,316		6.01	%		106,910			1,336		5.07	%
Consumer and other		16,781			264		6.39	%		19,857			318		6.49	%
Total loans		1,674,857			26,980		6.53	%		1,662,515			25,783		6.29	%

Non-marketable equity securities		2,947			27		3.74	%		6,108			15		1.01	%
Total interest earning assets		2,063,149			29,152		5.73	%		2,017,090			27,439		5.52	%
Allowance for loan losses		(25,805	)							(18,715	)
Non-interest earning assets		149,701								145,181
Total average assets	$	2,187,045							$	2,143,556

LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest bearing deposits:
Demand and savings accounts	$	799,641		$	994		0.50	%	$	718,242		$	451		0.25	%
Money market accounts		249,535			604		0.98	%		224,322			157		0.28	%
Certificates of deposit less than or equal to $250,000		144,282			412		1.16	%		161,979			331		0.83	%
Certificates of deposit greater than $250,000		37,663			171		1.84	%		37,570			128		1.38	%
Total interest bearing deposits		1,231,121			2,181		0.72	%		1,142,113			1,067		0.38	%
Short-term borrowings		9,813			64		2.63	%		100,555			428		1.73	%
Total interest bearing liabilities		1,240,934			2,245		0.73	%		1,242,668			1,495		0.49	%
Non-interest bearing deposits		635,031								628,869
Total funding		1,875,965			2,245		0.49	%		1,871,537			1,495		0.32	%
Other non-interest bearing liabilities		14,719								10,411
Shareholders’ equity		296,361								261,608
Total average liabilities and shareholders’ equity	$	2,187,045							$	2,143,556
Net interest income				$	26,907							$	25,944
Interest rate spread							5.00	%							5.03	%
Net interest margin							5.29	%							5.22	%

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.

	Three Months Ended March 31,
	2019 vs. 2018
	Increase (Decrease) Due to:
(Dollars in thousands)	Volume			Rate			Net
Interest income:
Interest earning deposits in other banks and federal funds sold	$	128		$	46		$	174
Taxable securities		125			265			390
Non-taxable securities		(60	)		-			(60	)
Total securities		65			265			330
Loans
Real estate term		494			389			883
Construction and land development		(991	)		347			(644	)
Commercial and industrial		(286	)		318			32
Residential and home equity		699			281			980
Consumer and other		(49	)		(5	)		(54	)
Total Loans		(133	)		1,330			1,197

Non-marketable equity securities		(11	)		23			12
Total interest income		49			1,664			1,713
Interest expense:
Demand and savings accounts		56			487			543
Money market accounts		20			427			447
Certificates of deposit less than or equal to $250,000		(39	)		120			81
Certificates of deposit greater than $250,000		-			43			43
Short-term borrowings		(514	)		150			(364	)
Total interest expense		(477	)		1,227			750
Net interest income	$	526		$	437		$	963

Net interest income increased $1.0 million to $26.9 million for the three months ended March 31, 2019 compared with $25.9 million for the same period of 2018. The increase is primarily the result of average interest earning assets growing 2.3%, or $46.1 million, and yields on interest earning assets increasing 21 basis points to 5.73% for the same comparable periods. Higher yields on interest earning assets were primarily the result of yields on loans increasing 24 basis points to 6.53% for the same comparable periods, offset by the percentage of loans to total interest earning assets declining to 81.2% for the first quarter of 2019 compared with 82.4% for the first quarter of 2018.

For the three months ended March 31, 2019, total cost of interest bearing liabilities increased 24 basis points to 0.73% compared with the same period a year ago, and is the result of the cost of interest bearing deposits increasing 34 basis points to 0.72% for the same comparable periods, while short-term borrowing declined $90.7 million, or 90.2%, to $9.8 million with the borrowing rate increasing 90 basis points to 2.63% for the first quarter of 2019 compared with the same period a year earlier. The Company expects the increase in cost of interest bearing deposits to accelerate over the next several quarters as financial institutions increase their competitive deposit pricing.

Net interest margin increased 7 basis points to 5.29% for the three months ended March 31, 2019 compared with the same period a year earlier. Acquisition accounting adjustments, including the accretion of loan discounts and amortization of certificate of deposits premium, added 11 basis points to the net interest margin for the three months ended March 31, 2019.

	Three Months Ended
	March 31,		March 31,		$ Better /			% Better /
(Dollars in thousands)	2019		2018		(Worse)			(Worse)
Interest income	$	29,152	$	27,439	$	1,713			6.2	%
Interest expense		2,245		1,495		(750	)		-50.2	%
Net interest income		26,907		25,944		963			3.7	%
Provision for loan losses		1,550		2,050		500			24.4	%
Net interest income after provision for loan losses		25,357		23,894		1,463			6.1	%
Non-interest income		3,337		3,718		(381	)		-10.2	%
Non-interest expense		14,916		16,048		1,132			7.1	%
Income before income tax expense		13,778		11,564		2,214			19.1	%
Income tax expense		3,273		2,560		(713	)		-27.9	%
Net income	$	10,505	$	9,004	$	1,501			16.7	%

Net Income. Net income increased $1.5 million to $10.5 million for the three months ended March 31, 2019, compared with $9.0 million for the three months ended March 31, 2018. This was primarily attributable to an increase in net interest income of $1.0 million, a decrease in provision for loan losses of $0.5 million, and a decrease in non-interest expense of $1.1 million, offset by a decrease in non-interest income of $0.4 million, and an increase in income tax expense of $0.7 million.

Net Interest Income and Net Interest Margin. The increase in net interest income for the three months ended March 31, 2019 compared with the same quarter in 2018 was primarily the result of average interest earning assets growing 2.3%, or $46.1 million, and yields on interest earning assets increasing 21 basis points to 5.73% for the same comparable periods. Interest expense in the three months ended March 31, 2019 increased from the same period in 2018 due to an increase in average interest bearing deposits, combined with an increase in the cost of deposits of 24 basis points.

The yield on our average interest earning assets was 5.73% for the three months ended March 31, 2019 compared with 5.52% for the same period of 2018. The cost of total funding increased in the three months ended March 31, 2019 to 0.49% from 0.32% in the comparable quarter in 2018.

Provision for Loan Losses. The provision for loan losses in each period is a charge against earnings in that period. The provision is that 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.

For the three months ended March 31, 2019, provision for loan losses was $1.6 million compared with $2.1 million for the same period a year earlier. The decrease in provision for loan losses in the three months ended March 31, 2019 is due primarily to a decline in loans held for investment from the fourth quarter of 2018 to the first quarter of 2019 compared with an increase in loans held for investment for the same comparable periods a year ago. For the three months ended March 31, 2019, the Company incurred net charge-offs of $0.9 million compared with net recoveries of $0.4 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:

For the three months ended March 31, 2019, noninterest income was $3.3 million compared with $3.7 million the same period a year ago. The decrease was primarily due to a $0.2 million decline in mortgage banking income resulting from lower loan originations for the same comparable periods, and a $0.1 million decline in card processing fees due primarily to conversion related costs.

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

For the three months ended March 31, 2019, noninterest expense was $14.9 million compared with $16.0 million for the same period a year earlier and is primarily the result of $0.5 million in lower salaries and employee benefits, $0.3 million in lower acquisition related costs incurred in 2018, $0.3 million in lower marketing and advertising, and $0.2 million in lower FDIC premiums. For the three months ended March 31, 2019, the Company’s efficiency ratio was 49.32% compared with 54.1% for the same period a year ago.

Income Tax Expense. For the three months ended March 31, 2019, income tax expense was $3.3 million compared with $2.6 million for the same period a year earlier. For the three months ended March 31, 2019, the effective tax rate was 23.8% compared with 22.1% for the same period a year ago. The tax rate in the first quarter of 2019 is higher than the same quarter in 2018 due primarily to higher tax benefits related to tax-deductible stock compensation expense in 2018.

Total assets were $2.27 billion at March 31, 2019, a 4.0% increase compared with December 31, 2018. Total loans held for investment were $1.68 billion at March 31, 2019, a slight decrease of 0.1% from December 31, 2018. Total deposits were $1.95 billion at March 31, 2019, an increase of 4.0% compared with December 31, 2018.

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

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 the carrying value of these loans held for sale to be the approximate fair value.

The following table shows the amounts of outstanding loans, which, based on remaining scheduled repayments of principal, were 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.

										Rate Structure for
										Loans Maturing Over
	Maturity									One Year
				One
	One			through		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	$	81,753		$	198,555	$	619,201	$	899,509	$	84,019	$	733,737
Construction and land development		242,200			58,046		21,886		322,132		16,443		63,489
Total commercial real estate loans		323,953			256,601		641,087		1,221,641		100,462		797,226
Commercial and industrial loans		135,709			125,496		32,690		293,895		94,226		63,960
Consumer loans:
Residential and home equity		13,690			32,213		104,705		150,608		15,777		121,141
Consumer and other		6,120			6,678		2,289		15,087		8,520		447
Total consumer loans		19,810			38,891		106,994		165,695		24,297		121,588
Total gross loans held for investment	$	479,472	⁽¹⁾	$	420,988	$	780,771	$	1,681,231	$	218,985	$	982,774	⁽¹⁾

Concentrations. As of March 31, 2019, in management’s judgment, a concentration of loans existed in real estate related loans. At that date, real estate related loans comprised 81.6% of total loans held for investment, of which 53.5% are real estate term loans, 19.1% are construction and land development loans, and 9.0% are residential and home equity loans. We require collateral on real estate lending arrangements and typically maintain loan-to-value ratios of up to 80%, except for some residential construction loans of up to 95% loan-to-value provided the loan includes pre-approved long-term financing. Our concentration in commercial and industrial loans has decreased to 17.5% at March 31, 2019 from 17.6% at December 31, 2018.

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 non-performing assets table, excluding PCI loans, 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:

	March 31,		December 31,
(Dollars in thousands)	2019		2018
Non-accrual loans, not troubled-debt restructured
Real estate term	$	355	$	309
Construction and land development		429		-
Commercial and industrial		216		347
Residential and home equity		51		-
Consumer and other		17		-
Total non-accrual, not troubled-debt restructured loans		1,068		656
Troubled-debt restructured loans non-accrual
Real estate term		1,420		1,449
Construction and land development		-		-
Commercial and industrial		130		150
Residential and home equity		-		-
Consumer and other		-		-
Total troubled-debt restructured, non-accrual loans		1,550		1,599
Total non-accrual loans⁽¹⁾		2,618		2,255
Accruing loans past due 90 days or more		16		17
Total non-performing loans (NPL)		2,634		2,272

OREO		-		-
Total non-performing assets (NPA)⁽²⁾	$	2,634	$	2,272
Accruing troubled debt restructured loans	$	12,374	$	5,912
Non-accrual troubled debt restructured loans		1,550		1,599
Total troubled debt restructured loans	$	13,924	$	7,511

As of March 31, 2019, and December 31, 2018, there are $2.1 million and $2.2 million, respectively, in PCI loans that are not performing to the original contractual terms. Including these PCI loans, total non-accrual loans are $4.7 million and $4.5 million at March 31, 2019, and December 31, 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 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. TDR loans were $13.9 million and $7.5 million at March 31, 2019 and December 31, 2018, respectively. Our TDR loans are considered impaired loans of which $1.6 million were designated as non-accrual for both periods ending March 31, 2019, and December 31, 2018.

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:

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 allowance for loan losses for the periods indicated:

	Three Months Ended
	March 31,			March 31,
(Dollars in thousands)	2019			2018
Allowance for loan losses:
Beginning balance	$	25,245		$	18,303
Loans charged off:
Real estate term		-			-
Construction and land development		(5	)		-
Commercial and industrial		(1,086	)		(193	)
Residential and home equity		(19	)		-
Consumer and other		(64	)		(65	)
Total charge-offs		(1,174	)		(258	)
Recoveries:
Real estate term		-			12
Construction and land development		32			25
Commercial and industrial		180			516
Residential and home equity		22			27
Consumer and other		68			56
Total recoveries		302			636
Net loan charge-offs		(872	)		378
Provision for loan losses		1,550			2,050
Ending balance	$	25,923		$	20,731
Loans held for investment	$	1,676,889		$	1,687,530
Average loans		1,674,857			1,662,515
Selected ratios:
Net loan charge-offs / (recoveries) to average loans		0.21	%		-0.09	%
Provision for loan losses to average loans		0.38	%		0.50	%
Allowance for loan losses to loans held for investment		1.55	%		1.23	%

The allowance for loan losses to loans held for investment was 1.55% at March 31, 2019 compared with 1.23% at March 31, 2018. In accordance with acquisition accounting, loans acquired from the Utah branches of Banner Bank and Town & Country Bank were recorded at their estimated fair value, which resulted in a net discount to the loans’ contractual amounts, a portion of which reflects a discount for possible credit losses. Credit discounts are included in the determination of fair value, and as a result, no allowance for loan and lease losses is recorded for acquired loans at the acquisition date. The discount recorded on the acquired loans is not reflected in the allowance for loan losses or related allowance coverage ratios. Remaining discounts on acquired loans were $8.3 million at March 31, 2019. The allowance for loan losses is also adjusted based on changes to the underlying loan portfolio, changes to our historical loss rates, and adjustments to qualitative ALLL factors due to changes in current conditions.

Our construction and land development portfolio reflects borrower concentration risk, and also carries the enhanced risks encountered with construction loans generally. 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 usually underwritten at a loan to value ratio of up to 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 in each category to total loans as of each of the following dates:

Investment securities were $347.1 million at March 31, 2019 and $346.4 million at December 31, 2018. As of March 31, 2019, our portfolio of investment securities is comprised of available for sale securities. During the three months ended March 31, 2019, we transferred the held to maturity securities to available for sale. At March 31, 2019, we held no investment securities from any issuer which totaled over 10% of our shareholders’ equity.

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:

						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	$	28,999		1.27	%	$	19,956		2.09	%	$	-		0.00	%	$	-		0.00	%	$	48,955		1.61	%
Municipal securities		15,382		1.59	%		35,133		1.92	%		19,342		2.03	%		3,217		2.55	%		73,074		1.92	%
Mortgage-backed securities		-		0.00	%		19,761		1.53	%		35,455		1.88	%		167,504		2.76	%		222,720		2.51	%
Other securities		-		0.00	%		2,000		3.77	%		3,000		2.45	%		-		0.00	%		5,000		2.98	%
Total		44,381		1.38	%		76,850		1.91	%		57,797		1.96	%		170,721		2.75	%		349,749		2.27	%
Held to maturity securities:
Municipal securities		-		0.00	%		-		0.00	%		-		0.00	%		-		0.00	%		-		0.00	%
Total investment securities	$	44,381		1.38	%	$	76,850		1.91	%	$	57,797		1.96	%	$	170,721		2.75	%	$	349,749		2.27	%

Actual 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.

Total deposits were $1.95 billion at March 31, 2019 and $1.88 billion at December 31, 2018. The increase in total deposits is attributed primarily to organic growth as a result of enhanced deposit pricing. Non-interest bearing demand deposits were $655.9 million, or 33.6% of total deposits at March 31, 2019 compared with $642.6 million, or 34.2% of total deposits at December 31, 2018. Interest bearing deposits are comprised of interest bearing DDA accounts, money market accounts, regular savings accounts, certificates of deposit of $250,000 or less, and certificates of deposit of more than $250,000.

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

Additionally, the following table shows the maturities of CDs of $250,000 or more:

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. We expect that deposit cost will continue to increase in future quarters.

Shareholders’ equity totaled $301.3 million at March 31, 2019, an increase of $11.2 million or 3.8% since December 31, 2018. The increase in shareholders’ equity for the three months ended March 31, 2019 was primarily due to an increase of $0.6 million in additional paid in capital from exercises of stock options, share-based compensation, and net income of $10.5 million for the period less dividends paid of $2.1 million.

Dividends of $0.11 per share were declared during the three months ended March 31, 2019 representing 19.7% of the net income for the same period. We announced a quarterly dividend of $0.12 per share on April 25, 2019, payable on May 13, 2019 for shareholders’ of record on May 6, 2019. Future cash dividends will depend on a variety of factors, including net income, capital, asset quality, general economic conditions, and regulatory considerations.

We are subject to risk-based capital adequacy guidelines related to the adoption of U.S. Basel III Capital Rules. Specifically, the rules impose, among other requirements, new minimum capital requirements including a Tier 1 leverage capital ratio of 4.0%, a 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%.

PUB and the Bank were well-capitalized at March 31, 2019, December 31, 2018 and March 31, 2018 for federal regulatory purposes.

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

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

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 have borrowing lines at a correspondent bank totaling $25.0 million. We also have a current borrowing line with the FHLB, totaling $638.1 million at March 31, 2019, which is secured by various real estate loans pledged as collateral totaling $624.8 million and investment securities of $219.1 million. Additionally, we have a borrowing line with the Federal Reserve Bank of $23.6 million, which is secured by $24.2 million of investment securities.

We believe our liquid assets are adequate to meet our cash flow needs for loan funding and deposit cash withdrawal for the next 60 to 90 days. At March 31, 2019, we had approximately $239.2 million in net liquid assets comprised of $144.0 million in cash and cash equivalents, including interest bearing deposits of $106.5 million and federal funds sold of $0.9 million, $347.1 million in available for sale investment securities and $7.2 million in loans held for sale, less $259.1 million of available for sale securities pledged as collateral for short-term borrowings.

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, deposit withdrawals and pending acquisitions. All of these needs can currently be met 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, depreciation and amortization, amortization of investment discount and premiums, share based compensation, changes in the value of bank owned life insurance and other gains and losses.

Our primary investing activities are the origination of real estate, commercial and consumer loans and purchases and sales of investment securities. At March 31, 2019, we had outstanding loan commitments of $567.6 million, credit card commitments of $22.8 million and outstanding letters of credit of $25.0 million. We anticipate that we will have sufficient funds available to meet current loan commitments.

Net cash provided from financing activities for the three months ended March 31, 2019 was $72.6 million, principally from an increase in deposit balances, offset by dividends paid to shareholders during the period.

The Company’s assessment of market risk at March 31, 2019 indicates there have been no material changes in the quantitative and qualitative disclosures from those in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC.

The Company’s Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as required by Exchange Act Rules 240.13a-15(b) and 15d-14(a)) at March 31, 2019. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s current disclosure controls and procedures are effective and timely, providing them with material information relating to the Company required to be disclosed in the reports the Company files or submits under the Exchange Act.

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 three months ended March 31, 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.

The Company is involved in various claims, legal actions and complaints which arise in the ordinary course of business. In the Company’s opinion, all such matters are adequately covered by insurance, are without merit or are of such kind, or involve such amounts, that unfavorable disposition would not have a material adverse effect on the financial condition or results of operations of the Company.

There have been no material changes in our assessment of our risk factors from those set forth in our Annual Report on Form 10-K for the year ended December 31, 2018.

Pursuant to the requirements 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 May 10, 2019.

UTAH		87-0622021
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)
1 East Main Street American Fork, Utah		84003
(Address of principal executive offices)		(Zip Code)

PART I. FINANCIAL INFORMATION
Item 1 – Financial Statements
Unaudited Consolidated Balance Sheets	3
Unaudited Consolidated Statements of Income	4
Unaudited Consolidated Statements of Comprehensive Income	5
Unaudited Consolidated Statements of Changes in Shareholders’ Equity	6
Unaudited Consolidated Statements of Cash Flows	7
Notes to Unaudited Consolidated Financial Statements	8
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3 – Quantitative and Qualitative Disclosures about Market Risk	39
Item 4 – Controls and Procedures	39
PART II. OTHER INFORMATION
Item 1 – Legal Proceedings	40
Item 1A – Risk Factors	40
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3 – Defaults upon Senior Securities	40
Item 4 – Mine Safety Disclosures	40
Item 5 – Other Information	40
Item 6 – Exhibits	41
Signatures	42

	March 31,		December 31,
(Dollars in thousands)	2019		2018
Commitments to extend credit, including unsecured commitments of $16,986 and $16,304 as of March 31, 2019 and December 31, 2018, respectively	$	567,636	$	577,612
Stand-by letters of credit and bond commitments, including unsecured commitments of $695 and $730 as of March 31, 2019 and December 31, 2018, respectively		22,780		22,979
Unused credit card lines, all unsecured		25,020		24,885

Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☒

	March 31,			December 31,
(Percentage of total loans held for investment)	2019			2018
Loans held for investment:
Commercial real estate loans:
Real estate term		53.5	%		52.9	%
Construction and land development		19.1	%		19.3	%
Total commercial real estate loans		72.6	%		72.2	%
Commercial and industrial loans		17.5	%		17.6	%
Consumer loans:
Residential and home equity		9.0	%		9.2	%
Consumer and other		0.9	%		1.0	%
Total consumer loans		9.9	%		10.2	%
Total loans held for investment		100.0	%		100.0	%

	Basel III
	Regulatory
	Requirements -
	Well Capitalized			PUB
	(Greater than or			Actual as of			Actual as of			Actual as of
	Equal to Stated			March 31,			December 31,			March 31,
	Percentage)			2019			2018			2018
Common equity tier 1 capital		6.50	%		15.60	%		15.11	%		13.47	%
Tier 1 risk-based capital		8.00	%		15.60	%		15.11	%		13.47	%
Total risk-based capital		10.00	%		16.86	%		16.36	%		14.71	%
Tier 1 leverage capital ratio		5.00	%		12.70	%		12.27	%		11.26	%

			Payments Due by 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	$	567,636	$	365,744	$	96,536	$	19,750	$	85,606
Standby letters of credit		22,780		22,780		-		-		-
Credit cards		25,020		25,020		-		-		-
Total	$	615,436	$	413,544	$	96,536	$	19,750	$	85,606

Exhibit Number		Description

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 Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 is formatted in XBRL: (i) the Unaudited Consolidated Statements of Financial Condition, (ii) the Unaudited Consolidated Statements of Income, (iii) the Unaudited Consolidated Statements of Stockholders’ Equity and Comprehensive Income, (iv) the Unaudited Consolidated Statements of Cash Flows, and (v) the Notes to Unaudited Consolidated Financial Statements