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People's Utah Bancorp  (NASDAQ:PUB)
Q4 2018 Earnings Conference Call
Jan. 29, 2019, 12:00 p.m. ET

Contents:

Prepared Remarks:

Operator

Good day, and welcome to the People's Utah Bancorp Fourth Quarter and Year End Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Mark Olson, EVP and CFO. Please go ahead.

Mark K. Olson -- Executive Vice President & Chief Financial Officer

Thank you, Alison. Good morning. Thank you for joining us today to review our fourth quarter and year-end 2018 financial performance.

Joining me this morning on the call is Len Williams, President and Chief Executive Officer of People's Utah Bancorp. Our comments today will refer to the financial results included in our earnings announcement released last night. To obtain a copy of our earnings release, please visit our website at www.peoplesutah.com.

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

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

Len E. Williams -- President & Chief Executive Officer

Thank you, Mark. Good morning, and thank you for joining us on the call today.

People's Utah Bancorp achieved strong financial performance both in the fourth quarter and for all of 2018. The company achieved a return on equity of 14.9% for 2018, even as we build our tangible common equity to tangible assets to 12.1% compared with 10.9% a year ago. With the strong financial performance we've achieved, after the two acquisition transactions completed at the end of 2017, we've fully earned back the tangible book value dilution.

To add a little color to our past year, we ended the third quarter of 2017 with 19 branches. Since then, we added nine locations, consolidated two to bring us to our current total of 26. The organization added over 100 people to our staff, integrated two large credit portfolios and hired a new management team, all in the past year. We are now back to our third quarter 2017 asset quality, increased our reserve, earned back the book dilution and accomplished the desired efficiency gains.

We achieved a 33% or $426 million year-over-year average loan growth rate with total loans ending the fourth quarter at $1.7 billion. Total loans grew $51 million for the year, a 3.2% annualized growth rate. The lower loan growth rate for the year is primarily the result of a 2.3% or $40 million decline in total loans in the fourth quarter as we experienced seasonal trends in our construction loan portfolio due to more severe fall and winter as compared to a year ago. In addition, we sold $7 million hotel construction loan as we actively reduced our hotel loan concentration by 12% to $56 million overall, which is well within our guidelines.

Lastly, we had a couple of large construction projects that were completed in the fourth quarter with the long-term permanent financing coming from an outside source. Our ADC to total capital concentration fell to 112% at the end of the year compared to 148% a year ago. To the extent that we don't experience an extended winter into the first quarter, we expect our loan volume to increase based on our current loan pipeline.

Looking at deposits, we achieved 19% or $286 million year-to-date average deposit growth with the total average deposits ending the fourth quarter of 2018 at $1.81 billion. More importantly, deposits remained flat at $1.88 billion at the end of the fourth quarter compared with the linked third quarter. Historically, we've experienced an outflow deposits in the fourth quarter related to charitable donations made by our customers to religious organizations at the end of the year.

For the year, total deposits grew 3.5% or $62 million, despite expected deposit outflows from the acquisition of the Utah branches of Banner Bank and the merger of Town & Country Bank completed at the end of 2017. We achieved this growth despite experienced greater competition for deposits and competitive deposit pricing pressures from our peers. Our cost of deposits increased 17 basis points to 0.49% for all of 2018 as we matched our competitive deposit rates and enhanced our deposit pricing programs to reward and retain high value customer relationships. We expect that our cost of funds will increase as deposit betas continue to rise consistent with our competitors in the near term.

We continue to focus on diversifying our loan portfolio, in particular, growing our C&I portfolio. Currently, we operate two commercial banking centers that are located in Salt Lake County as mentioned on our last call. We expect to open a third commercial banking center in Utah County in the second quarter of 2019, and we are currently on target with that opening.

We are continuing our efforts to automate and digitize our commercial loan origination process through the implementation of an online commercial lending application, and have recently signed a contract with a vendor in Encino, which is an industry leader in the commercial banking loan operating system space. The goal of this project is to ensure that we continue to provide the high touch and unparalleled responsiveness as we continue to grow in size, complexity of products and services, and expand our geographic footprint. We expect to have this project completed in the fourth quarter of 2019.

Looking at our asset quality metrics, non-performing assets were $4.5 million at December 31, 2018, compared with $3.9 million a year earlier. Non-performing assets to total assets increased to 0.21% at December 31, 2018, compared with 0.18% for the same period a year ago.

We ended the year with no other real estate owned as we completed the sale of two foreclosed assisted living centers from the Town & Country Bank during the quarter. Allowance for loan losses increased $6.9 million or 37.9% at December 31, 2018, compared with the same period a year ago. The percentage of allowance to loans held for investment increased to 1.5% at December 31, 2018, compared to 1.12% a year ago. In addition to our allowance for loan losses, we have $8.8 million in discounts remaining on our acquired loan portfolio. We are actively monitoring the performance of the acquired loan portfolios, as well as our existing loan portfolio and believe we are adequately reserved.

The allowance for loan losses plus total non-accretable discounts to loans held for investment was 1.68% at December 31, 2018. We believe it is prudent for us to continue to build our overall allowance for credit losses, given that we believe we are nearing the end of an overall credit cycle.

As mentioned on our last call, we hired a seasoned treasury service specialist to lead our efforts in expanding our commercial banking treasury products and service offerings. We restructured our treasury service team, and are actively evaluating our side of treasury management products -- our suite of treasury management products and services to improve our sales and service processes. We expect to upgrade the systems by the end of the third quarter 2019. We've already experienced some positive trends with the treasury services team, bringing in more than $25 million in deposits since we hired the team a quarter ago.

On the retail banking front, we have mentioned on our last call, our plan to open a new business oriented branch in the fast-growing Pleasant Grove area during the first quarter, where a number of technology firms have recently built new corporate offices. The branch will focus predominantly on small to medium-sized commercial clients. We are on track to have that branch up and running in March. We also -- we are also rebuilding our Alpine branch with an expected completion date of sometime in the fourth quarter 2019. The Alpine branch is one of our oldest and largest branches with deposits over $120 million.

We're fortunate to be operating in one of the strongest economic markets in the country. Utah's unemployment rate at 3.1% for December remains below the national rate at 3.9%. Utah ranked number one in the nation and several indexes for 2018, including personal income growth, economic diversity and economic outlook. Utah has the third fastest population growth in the nation.

In December, job growth was 3.1% year-over-year versus 1.8% nationally. Thus far we haven't seen any significant slowdown in the economy in the markets we serve. We continue to actively evaluate potential acquisition opportunities, both in Utah and contiguous states, particularly along the I-15 corridor.

I'm pleased to announce that the Board of Directors declared a quarterly dividend of $0.11 per common share. The dividend will be payable on February 11, 2019, to shareholders of record on February 4, 2019.

Now, I will turn the call back over to Mark to discuss our financial performance.

Mark K. Olson -- Executive Vice President & Chief Financial Officer

Thank you, Len. Net income was $10.7 million or $0.56 per diluted common share for the fourth quarter of 2018, compared with $10.5 million or $0.55 per diluted common share for the third quarter of 2018, and $0.6 million or $0.03 per diluted common share for the fourth quarter a year ago. For the 12 months ended December 31, 2018, net income was $40.6 million or $2.14 per diluted common share, compared with $19.8 million or $1.08 per diluted common share for the same period a year earlier.

We have excluded non-recurring items including gains or losses on sale of investment securities, costs related to the acquisition of the Utah branches of Banner Bank and the merger of Town & Country bank incurred in both 2017 and 2018, and higher income tax expense related to the one-time revaluation of our deferred income tax assets recorded in 2017 to derive non-GAAP financial information related to our core operations. We believe this non-GAAP financial information is useful in understanding our core financial performance.

Net income from core operations was $10.7 million or $0.56 per diluted common share for the fourth quarter of 2018, compared with $10.4 million or $0.55 per diluted common share for the third quarter of 2018, and $8.1 million or $0.43 per diluted common share for the fourth quarter of 2017. For the 12 months ended December 31, 2018, net income from core operations was $40.6 million or $2.14 per diluted common share, compared with $28.1 million or $1.53 per diluted common share for the same period a year earlier.

As a result of our strong financial performance and lower income taxes, our return on average assets for the fourth quarter of 2018 was 1.94% compared with 1.91% for the third quarter of 2018, and 0.12% for the fourth quarter of 2017. For the year, return on average assets was 1.87% compared with 1.11% for the same period a year earlier. Return on average assets from core operations for the fourth quarter of 2018 was 1.94% compared with 1.89% for the third quarter of 2018 and 1.58% for the third quarter a year earlier. For the year, return on average assets from core operations was 1.87%, compared with 1.57% for the same period a year earlier.

Return on average equity for the fourth quarter was 14.84% compared with 14.97% for the third quarter of 2018, and 0.92% for the fourth quarter of 2017. For the year, return on average equity was 14.85% compared with 8.18% for the same period a year ago. Return on average equity from core operations was flat at 14.84% for both the fourth and third quarter, and 12.59% for the fourth quarter a year ago. For the year, return on average equity from core operations was 14.82% compared with 11.6% for the same period a year ago.

I'll now discuss the financial results in detail. For the fourth quarter of 2018, net interest income grew 17.2% or $4.1 million to $28.1 million compared with $23.9 million for the same period a year earlier. The increase is primarily the result of average interest earning assets growing 6.9% or $133 million, and yields on interest earning assets increasing 64 basis points to 5.8% for the same comparable periods. Higher yields on interest earning assets was primarily the result of yields on loans increasing 58 basis points to 6.56% for the same comparable periods, and the percentage of loans to total interest earning assets increasing to 83% at the end of the year compared with 80.4% for the fourth quarter of 2017.

For the fourth quarter of 2018, total cost of interest bearing liabilities increased 27 basis points to 0.64% compared with the same period a year ago, and is the result of the cost of interest bearing deposits increasing 27 basis points to 0.63% for the same comparable periods, and short-term borrowing remaining flat at $10.5 million with the borrowing rate increasing 144 basis points to 2.79% for the fourth quarter of 2018 compared with the same period a year earlier.

For the fourth quarter of 2018, acquisition accounting adjustments, including the accretion of loan discounts and amortization of certificate of deposits premium, added 14 basis points to the net interest margin.

For the 12 months ended December 31, 2018, net interest income grew 34.2%, or $27.5 million, to $108 million compared with $80.6 million for the same period a year earlier. The increase is primarily the result of average interest earning assets growing 20.3%, or $346 million, and yields on interest earning assets increasing 70 basis points to 5.64% for the same comparable periods. Higher yields on interest earning assets was primarily the result of yields on loans increasing 34 basis points to 6.38% for the same comparable periods, and the percentage of loans to interest earning assets increasing to 83% compared with 75% a year ago.

For the 12 months ended December 31, 2018, total cost of interest bearing liabilities increased 26 basis points to 0.58% compared with the same period a year ago, and is the result of the cost of interest bearing deposits increasing 17 basis points to 0.49% for the same comparable periods, and an increase in short-term borrowings of $64.4 million at a borrowing rate of 1.98% for all of 2018. The company expects the increase in cost of interest bearing deposits to continue to increase over the next several quarters as financial institutions increase their competitive deposit pricing.

For the 12 months ended December 31, 2018, acquisition accounting adjustments, including the accretion of loan discounts and amortization of certificate of deposits premium, added 15 basis points to the net interest margin.

For the fourth quarter of 2018, provision for loan losses was $3.2 million compared with $0.8 million for the same period a year earlier. The increase in provision for loan losses in the fourth quarter of 2018 is due primarily to an increase in charge-offs and the increase in allowance for loan losses to loans held for investment. For the fourth quarter of 2018, the company incurred net charge-offs of $1.2 million compared with net charge-offs of $0.1 million for the same period a year ago.

For the 12 months ended December 31, 2018, provision for loan losses was $8.6 million compared with $2.8 million for the same period a year earlier. The increase in provision for loan losses for all of 2018 is due primarily to a $0.5 million increase in charge-offs and a 38 basis points increase in allowance for loan losses to loans held for investment. For the twelve months ended December 31, 2018, the company incurred net charge-offs of $1.7 million compared with net charge-offs of $1.2 million for the same period a year ago. Annualized net charge-offs were 10 basis points in 2018, compared with 9 basis points in 2017.

For the fourth quarter of 2018, non-interest income was $3.6 million compared with $3.9 million for the same period a year ago. The decrease was primarily due to a $0.5 million decline in mortgage banking income resulting from lower loan originations, which is primarily the result of a higher interest rate environment for the same comparable periods.

For the 12 months ended December 31, 2018, non-interest income was $15.1 million compared with $14.4 million for the same period a year ago. The increase was primarily due to a loss on sale of securities a year ago, an increase in service charges on deposit accounts and card processing fees compared with a year earlier, offset by $1.3 million lower mortgage banking income year-over-year resulting from lower loan originations, which is primarily the result of a higher interest rate environment for the same comparable periods.

For the fourth quarter of 2018, non-interest expense was $14.8 million compared with $19.1 million for the same period a year earlier and is primarily the result of the company recording $4.1 million in non-recurring costs associated with the acquisition of both the Utah Banner Bank branches and the merger of Town & Country Bank in the fourth quarter of 2017.

For the fourth quarter of 2018, the company's efficiency ratio was 46.94% compared with 68.46% for the same period a year ago. Fourth quarter, the company's efficiency ratio from core operations was 46.94% compared with 53.67% for the same period a year earlier.

For the 12 months ended December 31, 2018, non-interest expense was $62 million compared with $56 million for the same period a year earlier. Non-interest expense increased as a result of $5.5 million of higher salary and employee benefits primarily from the addition of employees from the two acquisition transactions, $1.2 million of higher occupancy, equipment and depreciation costs associated with these transactions, and $0.7 million in higher data processing costs associated with an increase in total accounts from both organic growth and acquisition transactions for the same comparable period. Higher non-interest expense in 2018 compared with 2017 was offset by recording $4.6 million in non-recurring costs associated with these two acquisition in 2017.

For the 12 months ended December 31, 2018, the company's efficiency ratio was 50.28% compared with 58.88% for the same period a year ago. For the fourth quarter, the company's efficiency ratio from core operations was 50.23% compared with 53.57% for the same period a year earlier.

For the fourth quarter of 2018, income tax expense was $2.9 million compared with $7.5 million for the same period a year earlier. Income tax expense in the fourth quarter was reduced by $0.3 million to reflect the final impact of the Tax Cuts and Jobs Act as well as filing the company's 2017 federal tax return this quarter.

For the 12 months ended December 31, 2018, income tax expense was $12.1 million compared with $16.5 million for the same period a year ago. In the fourth quarter of 2017, the Tax Cuts and Jobs Act was signed into law, which amended the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses.

For businesses, the Act reduced the federal corporate tax rate from a maximum of 35% to a flat rate of 21%. The rate reduction was effective January 1, 2018. Consequently, the lower corporate income tax rate reduces the future net tax benefits of timing differences between book and taxable income recorded by the company as net deferred income tax assets.

As a result, the company remeasured its net deferred income tax assets at the end of 2017, and recorded a one-time additional income tax expense of $4.7 million related to the writedown of deferred net income tax assets for tax benefits that the company did not expect to realize.

For the fourth quarter of 2018, the effective tax rate was 21.5% compared with 33.9% for the same period a year ago, excluding the one-time adjustments. For the 12 months ended December 31, 2018, the effective tax rate was 22.9% compared with 32.3% for the same period a year ago.

The lower effective tax rate for both the three and 12 months ended December 31, 2018, compared with the same periods a year earlier is primarily the result of the reduction in the federal corporate tax rate to a flat 21%, the reduction of the Utah state corporate tax rate to 4.95%, as well as tax benefits related to tax-deductible stock compensation expense.

I'll turn the call back to Len. Len?

Len E. Williams -- President & Chief Executive Officer

Thank you, Mark. We are excited to begin the 2019 New Year and believe that we're well positioned to take advantage of the outstanding economic prospects in the markets we serve. We believe we can continue to grow our business organically, diversify our loan portfolio, and expand our low-cost core deposit base. We're passionate and enthusiastic about our prospects to expand our commercial and industrial lending to small and medium-sized businesses with our commercial banking centers, and increase our emphasis on growing our commercial deposits with the expansion of our treasury management services team and through improving the products and services we offer.

As mentioned earlier, we continue to actively pursue potential acquisition opportunities throughout the Intermountain West, which we believe is a crucial component to our business strategy going forward.

Thank you so much for joining us today. At this point, I will now turn it back to Alison to open it up for questions.

Questions and Answers:

Operator

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions) Our first question today will come from Jeff Rulis of D.A. Davidson. Please go ahead.

Jeff Rulis -- D.A. Davidson -- Analyst

Thanks. Good morning.

Mark K. Olson -- Executive Vice President & Chief Financial Officer

Good morning, Jeff.

Len E. Williams -- President & Chief Executive Officer

Good morning, Jeff.

Jeff Rulis -- D.A. Davidson -- Analyst

First couple of questions on the margin. Mark, what -- so you mentioned 14 basis points of benefit to the margin in accretion and other, what was that linked quarter? I guess, if you have a 5.27% this quarter, what was that in the prior quarter?

Mark K. Olson -- Executive Vice President & Chief Financial Officer

What was the net interest margin on third quarter or what was the benefit from the accretion?

Jeff Rulis -- D.A. Davidson -- Analyst

Yeah. Right.

Mark K. Olson -- Executive Vice President & Chief Financial Officer

Yeah, hold on one second, I can give you that information. It's in the earnings release.

Jeff Rulis -- D.A. Davidson -- Analyst

Sure. Maybe, if I've got Len there, on just the margin outlook then you talked about the deposit pressure and kind of from there and we can kind of get it in the quarter, but what do you see on the margin front?

Mark K. Olson -- Executive Vice President & Chief Financial Officer

It's actually surprised us a little bit that has held up as well as it has. We've been relatively conservative on our deposit beta movement with the rate changes and actually saw some pretty good growth in the third quarter, and then moderate growth in the fourth quarter, which is the first time we went back in history. It's the first time we've actually seen growth in the organization in the fourth quarter deposit. We attribute a lot of that to the commercial business focus, and to the efforts of all the lenders in the organizations, focusing, kind of laser-focused on the deposit gain and then the increase in addition to the treasury management team.

So that outlook still looks quite positive for us. We think there's a good opportunity to continue that focus and obtain low cost deposits. Last year, as I mentioned, as we're talking through this, there was a lot going on. We had to integrate quite a bit. This year, the focus will be more on both loan and deposit quality sustainable profitable growth. So Jeff, if you look at our non-GAAP financial table in the back, you'll see that for the third quarter, we had 5 basis points of accretable yield in that number. So our -- excluding that, our net interest margin would have been 5.2%, and for the fourth quarter, it was 5.27%. So kind of a 5.25% is a number I think that makes sense.

Jeff Rulis -- D.A. Davidson -- Analyst

You say 5.25% that makes sense for the outlook?

Mark K. Olson -- Executive Vice President & Chief Financial Officer

Yeah, excluding the accretion. Now we had a large -- some large payoffs in the fourth quarter and that's why you saw an increase in accretable yield in the fourth quarter.

Jeff Rulis -- D.A. Davidson -- Analyst

Right. Okay. And then on the credit side, some -- a big drop in the NPAs and you walk through a couple sales of the Town & Country loans, but could you just itemize maybe what kind of went out of both non-performers and OREO and in the makeup of what was in net charge-offs?

Len E. Williams -- President & Chief Executive Officer

The charge-offs were related predominantly to the leasing portfolio. We've talked about that on last couple of quarterly calls. Those were anticipated charges. We don't have any more OREO. We only had two properties in there. Both of them were related to assisted living centers. The amount of reserves held this quarter were a mix between some specific allocation and just general increases. We've always been conservative in that arena. And knowing that we are pretty heavy in the real estate construction business, we want to ensure we have adequate comfortable reserves in there, but there's nothing highlighted in there as far as big problems looming.

Jeff Rulis -- D.A. Davidson -- Analyst

Now, Len, the net charge-offs from the leasing portfolio, are there still to come, or is that going to be an area of continued higher losses, what's the --

Len E. Williams -- President & Chief Executive Officer

That's kind of the $64,000 question, Jeff. The issue with the leasing program and that's why we've exited the business except for in our market with our clients, the very nature of that doing business out of state, out of the market. When you find out there is an issue, there is an issue versus managing traditional credits through the credit rating system. They go from performing to non-performing when you hear about it. That portfolio is down to about $40 million, dropping relatively quickly, yields on the back-end are pretty high, but no surprises and we take the marks as soon as the -- as soon as we hear there's a problem. Right now, we're in a low unless I just jinxed it.

Jeff Rulis -- D.A. Davidson -- Analyst

What was the peak of that portfolio?

Len E. Williams -- President & Chief Executive Officer

It's about $53 million.

Jeff Rulis -- D.A. Davidson -- Analyst

Got you. And then maybe last one, I guess, Len, you touched on this a bit, but the end market transaction very recently of the FNB Bancorp just kind of, if you could also additional comments about your interest in that institution and kind of what else dialog on the M&A front that you're having?

Len E. Williams -- President & Chief Executive Officer

Yeah. The FNB, we really don't have a comment on. They were acquired as you know by glacier, great organization, phenomenal institution that will provide some good competition. Obviously, you've seen what they can do with their currency value in their stock price, which certainly would have given them an advantage on that particular transaction, but we continue to have active conversations in and near the market, and we hope we can continue forward and have some positive news in that front.

As you know we absorbed to a year ago and we really focused a lot on that absorption, and frankly, building relationships with some of the banks in the market. So there are active conversations obviously nothing concrete at this point. And our currency valuation is strong. We think that gives us an opportunity to continue to aggressively try to acquire banks and we are seriously focused on that. We spent a great deal of time looking at acquisition opportunities. So, any one of them that come up, we're looking at it.

Jeff Rulis -- D.A. Davidson -- Analyst

Okay. Thanks, guys.

Mark K. Olson -- Executive Vice President & Chief Financial Officer

Thank you.

Len E. Williams -- President & Chief Executive Officer

Thanks, Jeff.

Operator

Our next question will come from Andrew Liesch of Sandler O'Neill . Please go ahead.

Thomas Gallagher -- Sandler O'Neill -- Analyst

Good morning. This is Thomas on for Andrew today.

Len E. Williams -- President & Chief Executive Officer

Hi, Thomas.

Mark K. Olson -- Executive Vice President & Chief Financial Officer

Hi, Thomas.

Thomas Gallagher -- Sandler O'Neill -- Analyst

So, it sounds like most of the -- the lower loan portfolio balances at the end of the quarter were mostly construction, but was there anything else driving the portfolio lower?

Len E. Williams -- President & Chief Executive Officer

No, it's predominantly the construction portfolio. And as we mentioned on the call, we see seasonality in the fourth quarter, and weather-related activities slowed down as well as people anticipated the weather, and so they complete projects. And so we expect some pay downs in the fourth quarter usually. Last year was very warm and projects continued on into the fourth quarter, and that's a big part of the difference between the two periods.

Thomas Gallagher -- Sandler O'Neill -- Analyst

Okay, got it. And how is the pipeline looking heading into this quarter?

Len E. Williams -- President & Chief Executive Officer

Pipeline looks pretty good. Actually the last month has been relatively heavy. The issue being in a construction business is that starts out low and builds over time. We will probably start to see some of those peak in the second quarter, but build -- start building in this quarter.

Thomas Gallagher -- Sandler O'Neill -- Analyst

Okay. And then just turning to expenses, is this a good run rate going forward or will there be a step up in operating costs just due to bonus accruals and payroll taxes this quarter?

Mark K. Olson -- Executive Vice President & Chief Financial Officer

Yes. So we did have some adjustments to bonus accruals in the fourth quarter that improved our overall expenses. We will have a 3% increase in salaries overall just with our annual merit increases in the first quarter. So this would be a little bit lower than what we would expect. Going forward, we would expect to be more in the 10.7% and 10.8% range.

Thomas Gallagher -- Sandler O'Neill -- Analyst

Okay. And then looking at the provision that's definitely helped to build the allowance. Is there a reserve ratio you guys are kind of targeting or looking to build toward this year?

Len E. Williams -- President & Chief Executive Officer

We don't have a specific. We continue to look at our portfolio, do specific allocations when the opportunity presents itself, and stay relatively conservative. We feel pretty good about where we are right now, however.

Thomas Gallagher -- Sandler O'Neill -- Analyst

Okay, thanks. And just one last question, what's your outlook for deposit growth this year? And where are you guys kind of comfortable allowing the loan to deposit ratio to rise to if at all?

Mark K. Olson -- Executive Vice President & Chief Financial Officer

Yes. That depends on a couple of issues. One is we don't provide guidance on actual or budgeted growth. We do expect a moderate deposit growth. I'll leave it that at that (ph). And then as -- what was the other part of the question?

Thomas Gallagher -- Sandler O'Neill -- Analyst

Loan to deposit.

Mark K. Olson -- Executive Vice President & Chief Financial Officer

Loan to deposit. And where we're at right now is a good level -- comfortable zone. However, we do have plenty of borrowing liquidity. We're not in a position to slow down our lending because of it. But we prefer that 90% range. We got up as high as 95% last year, which is higher than we're comfortable at, thus the deposit focus, but we've got plenty of liquidity to take care of anticipated loan growth.

Thomas Gallagher -- Sandler O'Neill -- Analyst

Got it. Thanks for taking my questions. I'll step back.

Mark K. Olson -- Executive Vice President & Chief Financial Officer

Thank you.

Len E. Williams -- President & Chief Executive Officer

Thank you, Thomas.

Operator

(Operator Instruction) Our next question will come from John Rodis of FIG Partners. Please go ahead.

John Rodis -- FIG Partners -- Analyst

Good morning, guys.

Mark K. Olson -- Executive Vice President & Chief Financial Officer

Hi, John.

Len E. Williams -- President & Chief Executive Officer

Hi, John.

John Rodis -- FIG Partners -- Analyst

Hi. Maybe circling back first to the question on expenses, you said $10.7 million to $10.8 million, is that salary expense?

Mark K. Olson -- Executive Vice President & Chief Financial Officer

Yeah. No, that number was not correct. Len may give you a better number. (multiple speakers)

Len E. Williams -- President & Chief Executive Officer

Yeah, it's $15.3 million for total non-interest expense?

John Rodis -- FIG Partners -- Analyst

$15.3 million is sort of a starting point?

Mark K. Olson -- Executive Vice President & Chief Financial Officer

Yeah.

John Rodis -- FIG Partners -- Analyst

Okay. So you had bonus to accrual adjustments of what, roughly, $600,000 I guess?

Mark K. Olson -- Executive Vice President & Chief Financial Officer

Yeah.

John Rodis -- FIG Partners -- Analyst

Okay. And then, I guess, just given the various initiatives, do you still think sort of low to mid single-digit loan growth for next year?

Mark K. Olson -- Executive Vice President & Chief Financial Officer

That's probably a pretty -- pretty good guess. The market is still in decent shape, but it has slowed a bit. We've seen some slowing.

John Rodis -- FIG Partners -- Analyst

Well, I'm sorry, on the expense side?

Mark K. Olson -- Executive Vice President & Chief Financial Officer

As far as what? I'm not sure I understand the question.

John Rodis -- FIG Partners -- Analyst

I'm sorry, I didn't know. I meant expense growth, I said low to mid single digit expense growth?

Mark K. Olson -- Executive Vice President & Chief Financial Officer

Yeah. Yeah, that's about right.

John Rodis -- FIG Partners -- Analyst

Okay. And then I think your -- maybe your response as far as you said, Mark, you don't see the market slowing. Is that more loan growth, I guess, is that sort of what you were pointing there?

Mark K. Olson -- Executive Vice President & Chief Financial Officer

Yes.

John Rodis -- FIG Partners -- Analyst

Okay. So, low to mid, because for the year you guys put up loan growth of what, 3%, 3.2% or so.

Mark K. Olson -- Executive Vice President & Chief Financial Officer

3.4%, yeah.

John Rodis -- FIG Partners -- Analyst

Yeah. So, historically, you guys have done better than that.

Mark K. Olson -- Executive Vice President & Chief Financial Officer

And we would expect some improvement over that this year?

John Rodis -- FIG Partners -- Analyst

Okay. Okay. Maybe just revisiting the provision, you obviously grew the reserve. As far as, on an absolute basis, the provision was $8.6 million this year. Do you think it will be that high again this year. And then on a percentage basis, it was around 50 basis points of average loans. Do you still anticipate it being that high?

Mark K. Olson -- Executive Vice President & Chief Financial Officer

A lot of it's going to be driven by loan growth during the year. That percentage is comfortable with from where we are now. We continue to be conservative there. But I don't anticipate it growing at the rate it grew this year.

John Rodis -- FIG Partners -- Analyst

Okay. But it could be at a similar -- I mean, it could be a net $8 million range?

Mark K. Olson -- Executive Vice President & Chief Financial Officer

I doubt it.

John Rodis -- FIG Partners -- Analyst

Okay. Probably something less?

Mark K. Olson -- Executive Vice President & Chief Financial Officer

Yeah, I mean we don't give forward guidance. But we believe that's a reasonable level from a reserve perspective. We have to build it this year; next year, it's more maintenance.

John Rodis -- FIG Partners -- Analyst

Makes sense. And then just one other question on the tax rate. So for the year, you were roughly 23%. I think you sort of said 23%, 24% going forward??

Mark K. Olson -- Executive Vice President & Chief Financial Officer

That's right.

John Rodis -- FIG Partners -- Analyst

Okay. So, that's still good.

Mark K. Olson -- Executive Vice President & Chief Financial Officer

Yeah.

John Rodis -- FIG Partners -- Analyst

Okay. Thank you, guys.

Mark K. Olson -- Executive Vice President & Chief Financial Officer

Yeah, I'd say about just under 24.

John Rodis -- FIG Partners -- Analyst

Thank you.

Mark K. Olson -- Executive Vice President & Chief Financial Officer

Thanks, John.

Len E. Williams -- President & Chief Executive Officer

Thank you.

Operator

And ladies and gentlemen, this will conclude our question-and-answer session. At this time, I'd like to turn the conference back over to Len Williams for any closing remarks.

Len E. Williams -- President & Chief Executive Officer

Thank you, Alison, and thank you all for joining us and your interest in the organization. Please feel free to give us a call any time, we're pretty transparent about where we are. If you have specific questions, give either Mark or myself a call and we'll be glad to address it with you. So thank you for joining us and have a great day.

Operator

Ladies and gentlemen, the conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.

Duration: 38 minutes

Call participants:

Mark K. Olson -- Executive Vice President & Chief Financial Officer

Len E. Williams -- President & Chief Executive Officer

Jeff Rulis -- D.A. Davidson -- Analyst

Thomas Gallagher -- Sandler O'Neill -- Analyst

John Rodis -- FIG Partners -- Analyst

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