Record-breaking earnings achieved in 2020
On behalf of BOU Bancorp, Inc., the holding company of Bank of Utah and Utah Risk Management, Inc. (collectively, the Bank), we are pleased to report record-breaking earnings in 2020, despite the many unforeseen challenges the year brought with it. Just as important, we are pleased to have found new and unique ways to support customers, businesses and communities burdened by the stresses of the COVID-19 pandemic.
Financially speaking, Net Income for 2020 was $31.6 million compared to $31.2 million in 2019, a 1.4 percent increase. Total assets grew to $1.88 billion in 2020 from $1.43 billion in 2019, a 32 percent increase. This resulted in a significant change to the size of the Bank. Our Net Interest Margin declined to 3.90 percent in 2020 from 4.70 percent in 2019 due to lower interest rates; however, the Bank overcame the decrease in interest rates through impressive loan production volume and loan fee income generation. Net Interest Income (fully taxable equivalent basis) grew to $62.4 million in 2020 from $61.9 million in 2019. In addition, mortgage loan production soared to $667.9 million in 2020, recording gains of $16.6 million from the sale of these loans. This resulted in a 91 percent increase over 2019. Trust revenue of $11.7 million also contributed to our growth with a 9.3 percent increase from 2019.
The success we experienced in 2020 allowed us to pay $5.9 million in dividends to stockholders, representing $0.35 per share. This is a 2.7 percent return on Tangible Book Value.
How did this growth happen, you ask, especially during a pandemic and during a year when we would find ourselves facing a number of other surprising obstacles? We are proud to say our success is a direct result of Bank employees stepping up to navigate 2020’s unique challenges. Our exceptional team worked hard to follow new local, state and federal coronavirus mandates, to ensure that fellow employees and customers stayed safe. And, in a year where we were instructed to distance ourselves socially, we created ways to come together for our customers, communities and each other.
We provided vital services with minimal disruption. The Bank worked diligently to help customers in our drive-thrus and by appointment when COVID-19 prevented the opening of our lobbies. We also made sure that we, as a Bank, were there for our employees, with new technology, upgraded teleconferencing systems and improved capabilities for working remotely. Even though we were apart from each other for a good portion of 2020, employees continued to give an extraordinary team effort, ultimately providing necessary services and innovative solutions to customers.
We delivered much-needed funds to struggling businesses through the Paycheck Protection Program (PPP). When the U.S. government announced the PPP as part of the CARES Act, banks suddenly became economic first responders in their communities. Bank employees successfully navigated multiple rounds of PPP loans and federal regulatory revisions to the loan application process, oftentimes staying into the night and early morning to finalize paperwork. By the end of 2020, the Bank had processed and funded 1,273 loans totaling just over $172 million, bolstering our neighbors and local businesses in a time of great need and uncertainty. During this time, we gained over 500 new customer relationships by assisting them with their PPP loans. We hope to make many of these new customer relationships permanent.
We supported customers’ financial needs in new, digital ways. While the implementation of our online deposit account opening process began in 2019, the COVID-19 pandemic expedited its adoption. The new digital platform safely allows community members to open a variety of accounts online, in five minutes or less. The Bank also made Zelle® available to customers through online and mobile applications, giving them a quick and safe way to make digital payments to people they know and trust. In addition, our Treasury Management team helped business customers adjust to pandemic-related disruptions by assisting them with the integration of digital business solutions, such as remote deposit capture and ACH payment services. Many of these digital solutions not only helped small businesses innovate, but also survive the economic downturn.
We enriched the community through volunteerism and financial support. The Bank’s commitment to service grows stronger every year, and especially in times of crisis. It’s a responsibility we take seriously. In 2020, the Bank sponsored and partnered with many community organizations to support service ventures. For example, we provided boxed lunches to frontline health and rescue workers — a project that prompted some Bank employees to personally donate to the cause. In the early days of the pandemic, the Bank also kicked off our “Chow Down Challenge,” a social media campaign that infused money into Utah’s struggling restaurant industry, which was partially shut down by COVID-19.
Our customers showed remarkable resilience throughout 2020, and the Bank itself showed remarkable dedication by responding quickly and meaningfully to customers’ unique needs. For these reasons, and the many others mentioned above, we were able to achieve record results for 2020.
Total deposit growth for the year was $419.6 million or 36 percent. This level of growth was unexpected, and we believe over $150 million can be attributed to government fiscal stimulus, PPP loan proceeds remaining at the Bank, and reduced spending by businesses and consumers due to the pandemic. The remainder was due to the Bank’s ability to increase relationship deposits with multiple businesses, consumers and Corporate Trust customers.
The Bank’s loan portfolio performed well in 2020 increasing $232.9 million or 22 percent, another record year for growth despite many unprecedented changes mostly related to COVID-19. Some of the Bank’s customers struggled, so we were pleased when two benefits were brought forward to help. The first benefit was that Bank regulators encouraged us to modify loans and defer payments without threat of excessive regulatory scrutiny. The second was the Federal Reserve establishing the PPP program, providing short-term loans that could be completely forgiven.
The Bank made payment modifications on 103 loans aggregating $180 million. None of these short-term modifications were to prop up businesses that didn’t appear to have good long-term prospects. By the end of 2020, there were 18 loans remaining with modifications for $31.5 million. We believe the small number of customers asking for further help is a very positive sign regarding the strength of our loan portfolio. Credit metrics at year-end were superb with no non-performing loans and payment delinquency at zero percent of loans.
The Bank’s unique Corporate Trust division, which specializes in the aviation industry, assisted in hundreds of sale-leaseback arrangements. These transactions enabled many of the world’s largest airlines to strengthen their balance sheets by raising capital in an effort to weather the effects of the pandemic.
Even with the unprecedented loan production activity, the Bank was able to control costs as evidenced by an improvement in the Efficiency Ratio to 50.6 percent in 2020 from 52.7 percent in 2019. Thus, we are in the top 10 percent of all Banks in keeping our operating costs low in respect to earnings.
Tangible book value increased by $26.6 million, or 13.9 percent over the prior year. We are proud of our history of steady increases, and we will continue to focus on growing the Bank’s tangible book value each year. We provided exceptional shareholder returns with a 14.6 percent Return on Average Equity and 1.82 percent Return on Average Assets for the year.
As Utah carefully takes steps toward normalcy, we believe our economy, which was already strong pre-pandemic, is rebounding ahead of the national economy. With outdoor recreation widely available and enjoyed, with our business-friendly environment attracting more companies and their employees to Utah, and with housing being in such great demand, our future looks bright.
The Bank’s role in strengthening the state’s economy is critical. Utah is one of the fastest-growing states and has one of the lowest unemployment rates in the nation. Whether it’s helping customers navigate economic and financial challenges, plan for the future or simply bank safely in branches or at home, the Bank is ready to serve the people and businesses of Utah and the Mountain West now, and for years to come, because …
We are loyal.
We are hard-working.
We are customer and community-oriented.
And together, we are Utah.
Douglas L. DeFries
President & CEO, Bank of Utah
Frank W. Browning
Chairman, BOU Bancorp, Inc.