UMB Financial Corp (UMBF) 2017 Q1 法說會逐字稿

Good day, and welcome to the UMB Financial First Quarter Results Conference Call.

(Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Kay Gregory.

Please go ahead, ma'am.

Good morning, and thank you for joining us.

On the call today are Mariner Kemper, President and CEO; Ram Shankar, CFO; and Mike Hagedorn, CEO of UMB Bank.

Before we begin, let me remind you that today's presentation contains forward-looking statements, all of which are subject to assumptions, risks and uncertainties.

Actual results and other future events, circumstances or aspirations may differ materially from those set forth in any forward-looking statements.

Information about factors that may cause them to differ is contained in our Form 10-K and subsequent Form 10-Q and other SEC filings.

Forward-looking statements made in today's presentation speak only as of today, and we undertake no obligation to update them.

Our earnings release as well as the supporting slide deck is available on our website at umbfinancial.com, under News & Events in the Investors section.

The slides are also available in the webcast link for your reference.

Reconciliations of non-GAAP financial measures have been included in the earnings release and on Pages 5 and 6 of the supporting slides.

With that, I'll turn the call over to Mariner Kemper.

Thank you, Kay.

Welcome, everyone, and thank you for joining us.

I'll start this morning's call with some high-level results, which reflect strong net interest income, solid growth in our noninterest income and once again, double-digit year-over-year loan growth.

Looking at our results for the first quarter on Slide 4, you'll see that net income was $44.2 million or $0.89 per diluted share and on a non-GAAP basis, adjusting for the items in the table on Slide 5, net operating income was $44.5 million.

We did see some typical first quarter noise in our results, specifically related to employee benefit expense, including FICA, medical insurance, and other cyclical accruals.

Ram, will give a more detailed look at both expense and income items in his remarks.

The improvement in net income, both on a linked quarter and year-over-year basis was primarily driven by rising net interest income, driven by the recent rate hikes in December and March, as well as our continued efforts to optimize the mix of earning assets on our balance sheet.

These factors combine to drive 9 basis point improvement in NIM over the fourth quarter and a 30 basis point improvement compared to the first quarter of 2016.

As a comparison, the publicly traded banks that had announced first quarter results as of last Friday, had a median NIM decrease of 1 basis point on a linked quarter basis and 4 basis points year-over-year.

On Slide 8, you'll see that once again we delivered solid loan growth with average balances for the first quarter increasing 8.3% on a linked quarter annualized basis and 10.6% compared to the same quarter last year.

Our credit quality metrics have remained steady, even as we've posted outsized loan growth for several years.

Nonperforming loans improved to 0.53% of loans in the first quarter compared to 0.67% in the fourth quarter.

With the largest portion of the improvement coming from loans that were paid down or otherwise resolved without loss.

And as shown on Slide 9, net charge-offs were just 0.28% of average loans for the first quarter and averaged 0.29% over the past 13 years shown.

Finally, as you know, last week we announced the agreement to sell Scout Investments to Carillon Tower Advisers, a subsidiary of Raymond James Financial, for consideration of $172.5 million in cash, subject to some adjustments at closing.

The decision to divest Scout Investments came after a detailed strategic review of our businesses, including the capital needs and goals for each of them.

We evaluated our core strengths and the competitive environment in which Scout operates and were faced with a decision to either double down and get scale through acquisitions or exit this business and deploy the capital generated into our core banking operations.

Even as the industry has experienced a paradigm shift towards passive management, there remains a robust potential for active managers.

While we are comfortable with this business, we view this transaction as an opportunity to invest in our core banking competencies and capitalize on the runway ahead of us in our banking and Asset Servicing businesses.

At the same time, Scout's partnership with Carillon will be a benefit to them with enhanced distribution, capabilities, and scale.

As I mentioned in the announcement last week, I want to be clear, that the exit from the Scout business does not diminish our commitment to investment management for individuals and institutions.

We will continue to offer Asset Management solutions to our Private Wealth, Prairie Capital Management and Institutional Banking clients.

We've experienced robust growth in these businesses and that growth continued in the first quarter as Mike will share in the bank discussion.

Diverse revenue streams continue to be part of our business model and noninterest income for the bank and Fund Services represented 43% of their combined total revenue for the quarter.

Diversity extends to several aspects of our business: geographically with national operations as well as our core banking franchise across 8 states; customer categories ranging from commercial, institutional, healthcare, and consumer banking; as well as our diverse set of products and services.

Overall, we are excited for the future of both UMB and Scout and look forward to keeping you updated as we move toward closing the transaction later in 2017.

Now, I'll turn the call over to Ram for a discussion on the drivers behind our results and the adjusted look at our segment disclosures.

Ram?

Thanks, Mariner, and good morning, everyone.

As we noted in last week's announcement, Scout will be reported as discontinued operations beginning in the second quarter.

For your reference, we presented this view, both at the back of our earnings release and in our investor presentation.

Today's discussion of first quarter results will include Scout in our operations as usual and then in the segment discussion, later in the call, I'll share some details to give you greater visibility into the impact of the sale.

Looking first at the income statement.

GAAP net interest income of $134.3 million for the quarter represents a linked quarter increase of 2.2% and a year-over-year increase of 13.9%.

Net interest margin for the first quarter was 3.09% and the 9 basis point improvement over the fourth quarter included approximately 5 basis points related to loan interest, driven equally by higher LIBOR and short-term rates as well as newer volumes at increased yields, 3 basis points related to investment securities as new purchase yields exceeded roll-off yield and premium amortization slowed, and 1 basis point related to improvements in other earning asset categories.

Compared to the first quarter of 2016, NIM increased 30 basis points.

The average yield on earning assets increased 14 basis points on a linked quarter basis to 3.31%.

Average loan yields topped 4% for the first time in 17 quarters coming in at 4.09% for the quarter.

Loans averaged 56% of earning assets during the period.

Slide 13 details the change in noninterest income, which increased 3.8% on a linked quarter basis.

This variance was largely driven by a $2.4 million increase in unrealized mark-to-market adjustments on the company's seed capital held in certain Scout Funds, which are included in the trading and Investment Banking line on the income statement.

It is expected that at or near the time of closing the sale of Scout, these investments will be returned to UMB.

Other items driving the linked quarter increase in fee income include volume-related growth in bank card fees and deposit service charges, particularly in our healthcare segment as well as fees generated by our nonbank qualified and corporate debts, which are newer growth engines in our Institutional Banking division.

This trading and underwriting revenue is also part of the Trading and Investment Banking line item.

Details on the primary drivers of the year-over-year increase in noninterest income are included on this slide.

Slide 15 and the press release contain detailed drivers of the changes in noninterest expense, which on an as stated basis, increased $2.4 million or 1.3% compared to the fourth quarter of 2016.

The increase was driven by expected higher FICA, 401(k) benefits, and medical insurance expense in the salaries and benefits line item.

These elevated expenses were partially offset by sequential decline in performance-based incentives at Scout, reduced marketing expense, and legal and consulting expenses, which typically are lower in the first quarter.

Finally, our lower effective tax rate of 22.9% resulted largely from an increase in excess tax benefits associated with stock compensation, recorded in the first quarter compared to the same period last year.

We expect the tax rate for the full year 2017 to be approximately 24%.

Now, turning to the balance sheet.

We had a solid quarter of loan growth, as Mariner mentioned, and Mike will provide more color on our loan portfolio in the bank segment discussion.

Slide 16 shows the composition of our investment portfolio.

The average balance of securities available for sale in the first quarter was $6.5 billion, essentially flat from last quarter and a 5.5% decrease from the same period in 2016.

The average yield in our AFS portfolio increased 9 basis points to 2.13% compared to 2.04% in the fourth quarter driven by new purchases at accretive yields and lower premium amortization.

Details related to the past quarter's activity and portfolio statistics are shown on Slide 17.

Turning to liabilities.

At $15.6 billion, average deposits for the quarter were essentially flat compared to the prior quarter.

A 12% linked quarter increase in healthcare deposits and increases due to seasonal inflow of public funds deposits was offset by declines in institutional deposits, custody to the bank as more funds were deployed into the market.

The cost of interest-bearing deposits for the first quarter was 25 basis points, an increase of 4 basis points from the prior quarter, reflecting mix changes between deposit categories.

Including the impact of DDAs, the cost of our deposit base rose just 2 basis points while our all in cost of funds increased 6 basis points from the linked quarter.

While we saw some nominal sensitivity with total deposits, the seasonal increases in public funds, which are indexed, and borrowings, drove overall funding sensitivity higher.

Approximately 75% of our funding base is comprised of non-interest-bearing DDAs or other deposit products that have administered rates that are low-cost or have low sensitivity to market rates.

The remainder is either hard or soft indexed to short-term interest rates and thus have to reprice with higher interest rates.

Moving to Segments.

You'll see the financials beginning on Slide 21 followed by details on each.

Details for Scout begin on Slide 23.

I'll quickly cover net flows and market action for the quarter before moving to the financial impact from the announced divestiture.

Assets under management stood at $27.9 billion at March 31, an increase of 2.2% during the quarter.

Scout experienced total net outflows of just $1.8 million and positive market impact of $592 million, gaining ground in both equity and fixed income strategies.

As shown on Slide 24, net inflows of $89 million into separately managed accounts nearly offset $91 million of outflows from the Scout Funds.

Strong performance in several strategies continues and the Scout mid-cap fund received a 2017 Lipper Fund Award as the best mid-cap core fund for the 10-year period ending November 30, 2016.

Scout associates will continue their focus on performance as well as leveraging institutional, intermediary and sub-advisory distributional channels.

Now I'd like to share some detail about what our agreement to divest the Scout business means for our financials going forward.

As Mariner mentioned, the cash purchase price is $172.5 million and is subject to customary closing conditions and purchase price adjustments.

As I noted last week, the actual gain on sale may vary due to the purchase price adjustments.

However, based on assumptions at announcement, we estimate the benefit to regulatory capital ratios to be approximately $80 million to $100 million including the deconsolidation of approximately $55 million in intangible assets.

On Slide 26, we provided a view of how our reported GAAP financials would have appeared if presented in a discontinued operations format to help you understand the impact of the sale on UMB's ongoing business.

As shown here, net income attributed to the Scout business, that would have moved to discontinued operations, would have been $5.5 million for the full year 2016 and $2.3 million for the first quarter of 2017.

It's important to note that in 2016, there were some onetime items that reduced net income, namely the $2.7 million in pretax costs related to the termination of a marketing contract; and $2 million in pretax severance expense.

As I mentioned earlier, it's expected that our seed capital in the Scout Funds will be returned to us at or near the close of sale, reducing some of the volatility that the unrealized gain or loss brings to our continuing operations, noninterest income.

The adjustment in the first quarter was a positive $1.4 million and for the full year 2016, it was a positive $449,000.

Turning to Asset Servicing or fund services segment on Slide 27, assets under administration stood at $191.6 billion at quarter end compared to $180.7 billion a year ago.

The pretax margin for the quarter was 16.5% compared to 19.3% for the fourth quarter.

This decrease reflects steady to growing revenue, offset by higher first quarter expenses related to employee salaries and benefits.

As we shared at our Investor Day last year, our fund services teams have developed solutions to serve the high growth market segment, including a white label solution to accommodate exchange traded funds.

In the private equity space, we currently service approximately $13 billion in assets and our investment manager series trust provide a turnkey cost effective method for advisers to get into liquid alternatives businesses.

UMB Fund Services is ranked as the seventh largest mutual fund custodian in the U.S. based on '40 Act fund assets and is regularly recognized as an industry leader in client service.

I'll now hand it to Mike to cover the details and drivers for the bank then we'll be happy to take your questions.

Mike?

Thanks, Ram.

The bank segment posted pretax net income of $51.6 million for the quarter, a 1.6% increase on a linked quarter basis.

The solid improvement in revenue was partially offset by increased expenses, which include the lion's share of the higher employee benefit cost Ram discussed earlier as well as increased equipment expense related to investments in cyber security, disaster recovery readiness and the ongoing modernization of our core systems to support our future growth.

Average loan balances increased 8.3% on a linked quarter annualized basis with average yields on those loans rising by 13 basis points.

Approximately 7 basis points of that increase was related to increased LIBOR and Prime rates, 9 basis points to net growth and existing loans, and 4 basis points to new loans booked during the quarter.

Offsets include reductions from loans paid off during the quarter and lower deferred loan fees received this quarter versus fourth quarter.

Turning to Slide 32, we saw gross loan production of $594 million in the first quarter.

Total payoffs and paydowns for the quarter were $345 million, slightly lower than the average of $368 million we experienced over the prior 4 quarters.

As our CRE and construction book seasons, we do expect some volatility in the level of payoffs.

Trends are hard to predict with precision and can often be lumpy.

As we look ahead, strong top line production from a robust pipeline could be somewhat muted depending on the timing of payoffs.

The composition of our loan book and a regional view are shown on Slides 33 and 34.

Our commercial banking teams continue to lead in terms of loan growth with average balances in CRE and construction loans increasing $187 million or 5% during the first quarter.

Industrial and multifamily projects were the fastest-growing categories of new loans during the quarter, followed by senior housing and retail.

Regionally, Texas, Kansas, and Colorado combined represented more than 2/3 of our CRE and construction loan production.

We monitor our portfolio concentrations and continue to apply the same disciplined underwriting standards to investment CRE as we do with all lending activity.

Currently, multifamily and other investment CRE represents 31% of the total CRE and construction loans on our balance sheet and just under 12% of our total loan portfolio.

In the factoring business, we added 10 new borrowers during the first quarter and increased average balances by 34% compared to the fourth quarter 2016.

Deal flow and commercial finance remains strong and now represents more than half of our total factoring portfolio.

Transportation finance has shown improvement in the first quarter and trucking clients are seeing positive trends and inventory to sales ratios, which along with the rising manufacturing index, could point to an improved freight environment in the second half of the year.

Quarter end balances and asset-based lending were 8.6% higher year-over-year and our business development teams continue to build the pipeline.

Pending client commitments at the end of March were nearly 50% above March 2016 levels.

Our Personal Banking division, Private Wealth and Consumer continues to provide approximately 1/3 of our funding with deposits averaging $5.3 billion for the first quarter.

Private Banking deposits exceeded $1 billion during the quarter.

Slide 37 depicts the assets under management in our private wealth, institutional Asset Management, brokerage, and Prarie Capital Management businesses that are within the bank segment.

Combined AUM now stands at $13.9 billion, representing a 5-year CAGR of 10.1% for the first quarter 2012 AUM of $8.6 billion.

Although UMB is largely a commercial bank, a natural extension of those relationships is wealth and investment management.

Our commitment to Asset Management for the families and institutions we serve is unchanged and is as strong as ever.

On the consumer side, we continue to make changes to improve efficiency.

During the first quarter, we consolidated 2 branch locations, bringing the total to 104 banking centers and 3 commercial and private wealth facilities.

8 locations are scheduled for consolidation for the remainder of 2017.

In Institutional Banking, our non-bank channel sales teams have had phenomenal results with underwriting income from non-BQ municipal bonds increasing 307% compared to the first quarter of 2016.

Additionally, our newly established corporate debt underwriting desk made a solid contribution to bond trading income this quarter.

I'm also happy to announce that UMB was named the best investment bank in the Midwest by Global Finance Magazine based on criteria such as market share, deal size, service and advice, and structuring capabilities.

This is a testament to the expertise and commitment of our institutional banking associates as well as a realization of a strategy to further diversify our bond trading capabilities.

The number of HSA accounts in Healthcare Services increased 20% year-over-year to stand at $992,000 at the end of the quarter.

Combined deposits and assets reached the $2 billion mark at the end of the first quarter following a strong open enrollment and funding season.

On Slide 41 are the updated year-end 2016 rankings released by Devenir Research in February and UMB moved up 1 spot to rank fifth in the U.S. in terms of accounts and sixth in terms of deposits and assets.

Our previously announced acquisition of the Bancorp's HSA portfolio is expected to close in the second quarter adding approximately 40,000 accounts with $76 million in deposits and assets.

On the right side of the slide, you'll see that Devenir reported an industry-wide growth of deposits and assets of 22% in 2016 compared to the 37% achieved by UMB Healthcare Services.

We continue to watch developments in Washington related to healthcare reform and are optimistic about the future of this business.

Finally, you'll see our credit and debit card purchase volume trends on Slide 43.

Total card spending increased 18.6% from the fourth quarter to a record $2.8 billion driven by seasonally strong healthcare debit spending as well as steady growth in commercial card purchases.

With that, I'll conclude our prepared remarks and turn it back over to the operator, who will open up the line for questions.

(Operator Instructions) Today's first question comes from Chris McGratty of KBW.

Ram, maybe to start with you on the divestiture of Scout.

I'm looking to try to reconcile Slide 26 which show this quarter had about a $3 million pretax contribution and Slide 21, which shows around $1.6 million.

I see the expenses and the fees associated with it on Slide 21, but I'm hoping you can fully round out the impact to get to that $3 million so we can get the right revenues and expenses out in the model.

Sure, Chris.

In terms of ongoing impact of the divestiture, I would stick to Slide 26.

The difference between Slide 26 and 21 is, 21 is on a segment basis.

So as I said on the April 20 call, the segment results have some allocations due to corporate overhead, that's also the COLI assets mark-to-market in it, that's also the deferred comp to it.

So on a go-forward reporting basis, how our financials will look will mimic Slide 26.

So the impact of Scout's divestitures or Scout will be $2.5 million in the first quarter.

And as I said in the prepared remarks, it was about $5 million in all of 2016 but the $5 million also included the 2 one-time items for the contract termination and the severance expenses.

Just maybe on the $3.1 million of pretax.

What are the estimated or ballpark fees and expenses to get to that number?

Because I see it's all below the line.

So the impacted fees would be on the Trust Securities and processing line and the way we can get it is, if you look at our GAAP financial statements of fee income of $120 million and the discontinuing operations number of $102 million, that difference kind of gives you the Scout impact.

Same way you can get to the expenses as well and if you have any follow-up questions, Kay can walk you through the models.

So it's about $18 million of fees is what the ballpark (inaudible)?

Yes, exactly.

I get it.

That's great.

Maybe another one on the margin.

You're certainly benefiting from the higher short end of the curve.

I'm interested maybe, Ram, in new production yields, you talked about the 409 that's on your average balance sheet.

Where is new loan production coming on?

Is it materially accretive to that 409?

We're not able to predict that for you going forward.

Obviously, we're benefiting from a higher-rate environment and we've talked in the past about our discipline.

So we're being more disciplined and you also have our efforts around remixing.

So you're seeing more real estate term, which is also driving that.

Okay.

Maybe If I could sneak one more in on the credit quality.

Anything in the commercial portfolio?

You've had a little bit of a tick up in charge offs, again very low rates altogether, but anything in the commercial portfolio that, either sector or segment that you might be watching a little bit more closely?

This is Mariner, again.

Nothing material.

Nothing unusual.

Regular course of businesses.

Business as usual with our quality and our sector analysis.

Okay.

So there was no sector specification on the charge-offs in the quarter?

Any color you can give there?

No.

And our next question today comes from Steve Moss with FBR.

Following up on the margin here.

Last quarter, you had a couple of benefits from purchase accounting accretion and fees that was about 5 basis points.

I was kind of wondering this quarter, how much came from purchase accounting and fees, and how much just came from the Fed's rate hike?

I would say off the 9 basis points, maybe 1 basis point, Steve, is from, these unusual accounting items.

We had 4 or 5 basis points in the fourth quarter.

So as I said in the remarks, most of it was because of repricing, because of movement in short-term rates, because of new volumes at accretive yields.

Unusual margin.

Okay, perfect.

And then in terms of the HSA growth this quarter was solid.

Are you seeing more business opportunities here postelection?

Or is that just more normal seasonality?

It's Mike.

I would say it's more normal seasonality.

I don't see any impact yet in the business as it relates to any proposed actions that Trump or anybody else in Congress has done at this point.

And you just see from quarter-to-quarter, though -- year to year rather, really the maturity of the relationships with the clients.

So there's kind of a pick up at the corporate level, at each account level, of sort of fundings as the business matures.

(Operator Instructions) Our next question is a follow up from Chris McGratty with KBW.

Ram, on the Scout accounting.

Just want to make sure I got the numbers right on the equity adjustment.

You walked through, I think you said $80 million to $100 million benefit on redcap, which includes the $55 million reduction in the intangibles.

Number one, is that the right way -- did I get those numbers right?

And then secondarily...

Yes.

So as I said, the gain or the impact or the benefit to regulatory capital ratios would be $80 million to $100 million subject to all the adjustments we outlined in our 8-K.

So that includes both the gain and the deconsolidation of intangible assets attributed to Scout.

Okay.

And the same would be -- kind of assumption for regular book value.

Okay.

The question I have, maybe more strategically, is with the proceeds that you guys -- maybe this is a question for you Mariner, with the proceeds that you're going to get, you talk about reinvesting or continuing to invest more in the bank.

Does this suggest at all, kind of a more 00 better prospects for M&A or is this you're just going to continue to grow organically over the next year or 2?

Yes.

So we obviously, as we've said in the past, have an active M&A group, as we have so we will continue to pursue and build relationships with potential bank partners as well as a number of other business lines within the bank and outside the bank i.e.

fund services.

So we'll continue to work those opportunities, build those relationships.

There are a number of other things we can do with the capital, obviously, our loan growth continues to be strong.

And there are other various uses for capital to build our business and invest in our people and technology.

And ladies and gentlemen, our next question comes from Matt Olney with Stephens Inc.

I hopped on the call a few minutes late.

So I apologize if you addressed this but previously on the call, we've talked about operating expenses, increasing no more than 5% on an annualized basis.

Now, with Scout exiting the company, can you comment on just the expense outlook from here?

Does that 5% still hold?

Yes, I'd like to clarify a little bit, I think, the timeframes, we're talking about where we've might have referenced that.

We haven't, in recent periods, been giving guidance on a specific number that we're holding ourselves to.

What we in -- the latest periods have been talking about is making sure that we're laser focused on executing on our operating leverage and slowing the growth of our expenses.

So we remain very committed to that and I don't know if that would really answer your question but I'd stop there and see if that addresses...

This is Mike.

I'll maybe add to what Mariner said.

He did mention operating leverage and I think that's really the way you should look at this.

The best example of that in our company today would be healthcare with the speed at which that business is moving, fast consolidating.

It's almost like a startup.

You're going to have some difficulty sometimes getting some positive operating leverage out of it but you probably and most likely will get a greater bottom line.

So that's just one of the things that we consider when we look at overall expenses as what's the return on capital as we make those investments that you might see in our noninterest expense.

Okay.

That's helpful.

And then going back to a previous question on proceeds of -- capital proceeds from the Scout transaction.

Mariner, perhaps you could kind of go in more detail and tell us what you're thinking in terms of what's on the table?

What's off the table?

It seems like in the past you've had some mixed commentary about traditional bank M&A.

So as you sit here now, what are your thoughts about traditional bank M&A for UMB?

Yes.

So yes, I have commented in the past that I thought the environment was not conducive to us getting a bank deal done.

And I guess I would still just say that we are subject to that environment but still very interested in finding the right partner and doing a deal.

We think we're good at it.

So we will continue to look for those opportunities.

Whether or not they'll present themselves and be priced out or whatever the case may be, that's yet to be determined.

But we are definitely interested in looking for the appropriate transactions in that space.

And our next question today comes from Peyton Green with Piper Jaffray.

Mariner, I was just wondering, or Mike, maybe if you can comment a little bit.

If we think about the overall banking segment and the pretax, pre-provision income was about $242 million annualized in the first quarter.

And that pretax pre-provision ROA would be about 130 basis points.

Given the sale of Scout, does that put more pressure to generate a more normal banking efficiency ratio in the 60s versus the 70s, so which is where the efficiency ratio has been more recently?

Yes.

And does the sale of Scout imply capital pressure growth wise?

A more upbeat growth outlook for the bank, going forward.

So you can get this information off the UBPR.

The bank's efficiency ratio is lower than the company.

So your belief or your suspicion that it could get to a more normalized, your words -- banking [ROA] or efficiency ratio, yes, that's correct.

And the investments that we're making in the banking side and the growth that we would expect to occur in the banking side should help drive down that efficiency ratio.

I mean, obviously, the 2 biggest movers on the bank's efficiency ratio have been Marquette and bring on $101.3 billion in assets and all the related costs that we took off their income statement and then #2, just the growth in NIM that mostly affects the bank segment.

So you're on the right path.

I might ask you to rephrase your second question because I'm not sure I (inaudible).

Okay.

So the bank, last time you had capital pressure, you raised equity rather than undergo a strategic review of the business lines to potentially sell and improve capital ratios.

Does the sale of the business reflect a stronger growth outlook for balance sheet growth relative to maybe what you've seen over the past year or 2?

I see.

You're trying to tie the 2 together.

I would say that the sale of Scout was totally independent of any conversations that we're having about our capital.

It was entirely a strategic conversation about whether -- like I said in previous comments, whether to double down in Scout or deploy capital elsewhere.

So...

Okay.

And then --.

Okay.

So it's really a Scout independent decision?

Yes.

Right.

That's what I would say.

Great.

And then maybe Mariner, maybe if you could comment a little bit about where you think we are cyclically?

How are you -- I mean, obviously, the loan yields you all have been able to drive, very significant improvement in loan yields.

How are credit spreads holding up relative to how you like the price credit?

Peyton, that's a great question.

We're paying a lot of attention to the moving pieces and parts around the economy and the global landscape and I would say that our general outlook is pretty good.

You look across our footprint, it's a little different from the one place to the next.

As Mike mentioned in his comments, the real estate growth and the stability in some of that has been coming from places like Texas where we still feel very good about that type of activity.

Just examples in Denver, we think some of the multifamily stuff is overheated.

So we've moved a little bit of our interest away there.

So we watch these activities and the economic behavior from market to market.

As far as pricing goes, we are feeling some stability there.

It feels like we -- this is somewhat anecdotal because it just seems to be fluid but it does feel like we're seeing kind of a bottom on the pricing side.

I think terms are still kind of, I would describe a little bit, the Wild West as we compete and look out there, it seems like the peer group is still willing to do interesting things on the terms side.

But pricing seems to be somewhat stable.

Okay.

And then last question from me.

Maybe this is better for Ram.

Ram, how much did the lower premium amortization benefit the bond yield in the quarter relative to the fourth quarter?

It wasn't material.

It was probably about $200,000 to $300,000 slow down from the last quarter.

So it really was just higher roll-on yields relative to --.

It was higher roll-on yields.

You can see in the slide deck the roll-off versus roll-on, we still had a positive GAAP on that one.

Okay.

And then would you caution us to maybe think of a lower roll-on yield going forward given the move down in rates in the back part of the first quarter and so far in the second quarter or what would be your suggestion there?

I mean, we still have a slight positive spread between the roll-off and roll-on.

Obviously, the flattening of the curve because of the long end doesn't help the reinvestment yields.

But compared to what's rolling off, you'll see in our -- one of our investment securities pages, we give you what the next 12 months roll-off yield is.

So you'll see some positive accretion but, clearly, because of the flattening, it's diminished a little bit.

And compared to previous periods, as you've seen we are rotating more than we have in the past as a total percentage of earnings assets into loans than we have in the past.

So that's really the ultimate goal on the reinvestment side.

Okay.

And I apologize.

One more question.

Mariner, Mike, on the deposit side, the deposit growth was decelerated for you all relative to historical levels.

Is this really just customer cash utilization improving and then taking money that they maybe left on balance sheet with you all longer than they would have given a normal cycle?

And what would you expect deposits?

Are you more hopeful about deposit growth going forward or is this still a normalization process?

Yes, so as I said in my prepared remarks, I think the biggest reduction we've had is just some dollars coming out of the institutional side and going into the market.

So your assumption there is correct.

We're not doing things right now to necessarily grow certain aspects of our deposits.

We're not aggressive in our campaigns.

So I think as you look forward, the majority of our growth is probably going to come from our commercial and industrial side.

And we'll see some growth in healthcare balances as well.

Now that's absent us going out in the market with some kind of marketing or more aggressive deposit gathering.

And honestly, with the yield curve the way it is right now and the flattening of the curve, it's made it more difficult.

We are laser focused, however, deposit growth, as you've tracked us for a long time, Peyton, we pay a lot of attention to our core deposits, as we believe it's really our franchise value.

So we talk a lot about deposits.

It comes up in every conversation and we are super focused on making sure that we do all that we can to grow our core deposits base.

Yes, and Mike, as we've said before in our prior quarters, the benefit of our pre funds wasn't really there when money was essentially zero, right?

And now you are starting to see that.

And so our shareholders are seeing a lift in net interest income as a result.

That's one of the positive things impacting margin.

And (Operator Instructions) Our next question comes from John Rodis of FIG Partners.

Ram, just a question for you on expenses.

You mentioned that FICA 401(k), I think maybe something else was higher in the quarter.

Can you give a dollar amount to that?

Yes.

So it's typical seasonality that you would expect, John, as the calendar year resets, there's definitely some FICA expenses.

I would say, typically, the first quarter, 35% to 40% of the entire year's FICA expenses are incurred in the first quarter so let's call it $3 million to $4 million increase.

The other 2 items, similar trends with the medical expenses and 401k match that go into the salaries and pending line items.

Okay.

And then maybe one other kind of question.

I guess you guys reauthorized your share buyback plan yesterday, and obviously, you guys really haven't been active with that.

But with sale of Scout, is there any reason to believe you guys would be more active with that plan?

John, as I kind of mentioned earlier, we are going to be stewards of our capital and look at all our options.

Of course, that is one of the many options.

But we are not committed to any particular use of our capital at this point in time.

And ladies and gentlemen, this concludes our question-and-answer session.

I'd like to turn the conference back over to the management team for any closing remarks.

Thank you for joining us today.

This call can be accessed via replay at our website beginning in about 2 hours and it will run through May 10.

And as always, you can contact UMB Investor Relations with any follow-up questions by calling (816) 860-7106.

Again, we appreciate your interest and time.

Thank you.

And thank you, ma'am.

The conference has now concluded.

And we thank you all for attending today's presentation.

You may now disconnect your lines.

Have a wonderful day.

Thank you.