Abby Wendel - Director, Investor Relations Mariner Kemper - Chairman and CEO Peter deSilva - President and COO Mike Hagedorn - President and CEO of UMB Bank Brian Walker - Chief Financial Officer.
Chris McGratty - KBW Matt Olney - Stephens Peyton Green - Sterne Agee.
Good morning ladies and gentlemen. Thank you for standing by. Welcome to the UMB Financial First Quarter 2014 Earnings Call. At this time all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions).
I would like to remind everyone that this conference call is being recorded today Wednesday April 23, 2014 at 8:30 am Central Time. I will now turn the conference over to Abby Wendel, Director of Investor Relations. Please go ahead..
Mariner will provide high level commentary on our results and Brian will review several details of our financials; then Mike and Peter will review results from our four business segments; following that, we’ll be happy to answer your questions. Now, I’ll turn the call over to Mariner Kemper..
Thank you, Abby. Good morning everyone and thank you for joining us today. Since the conference call discusses the first reporting period of the year, I’d like to take a moment to remind you that our priorities for 2014 remain the same.
First, we focus on quality through a strong balance sheet, solid credit metrics, low cost funding and effective risk management. Our second priority is to deliver profitable, sustainable growth. Third is to maintain diversified revenue streams. And fourth, we continue to focus on capital management.
We remain committed to our proven business model and doing what we believe is right to grow our business. We’ve proven the company can perform in all business cycles. Now let me share with you a few financial highlights from the quarter. As Abby mentioned, you will find the information in our earnings release and in our company’s slide deck.
Net income was $23.4 million or $0.52 per diluted share, a decrease of 33% compared to the first quarter of 2013. As you saw in the release, there are four items worth examining to understand the first quarter net income. First, we establish a $15 million contingency reserve based on the probability we will resolve objection.
To our calculation of an earn-out amount owed to the sellers of Prairie Capital Management and related incentive bonuses calculated. Although our view of the calculation differs, we have established the reserve based on the probability of resolution and because we want to avoid disruption to Prairie Capital’s ongoing operations.
It’s a high performing business unit and is important to our long-term strategies. Second, we recognized an adjustment to the contingent consideration liability mainly for Reams Asset Management in the amount of $4.5 million. The good news about this type of expense as we discussed is that the business is performing better than originally modeled.
A year ago at this time, we recognized $3.3 million in expense for acquisition earn-out adjustments. Third, we recognized $1.5 million in gains on the sale of securities this quarter compared to $5.9 million in the first quarter of 2013.
And finally, we had an unrealized gain of $2.5 million on Prairie Capital Management investments for the first quarter of 2014. This is another example of the positive returns PCM generates for our customers and shareholders. Moving on to the drivers for the quarter, total revenue increased 3.9% to $208.4 million.
Net interest income was $85.4 million and increased 7.5% from the first quarter of 2013. And non-interest income increased 1.6% to $123 million from $121 million in the first quarter of 2013 and was 59% of total revenue.
Average net interest margin for the quarter decreased 12 basis points to 2.39% reflective of lower loan yields, a larger fed account balance and slightly lower yield on average available for sale securities portfolio. Return on average assets and return on average equity were 0.58% and 6.18% for the quarter respectively.
Including the $15 million contingency reserve and $4.5 million in expense for the contingent consideration liability for acquisitions, non-interest expense was $172.2 million for the quarter, an increase of 14.5% compared to the first quarter of 2013.
I want to note however that despite these unique items, we have been successful and will remain committed to our objective to keep operating expenses within a 5% growth rate. With that being said, it will not be a surprise that our efficiency ratio was 79.67% compared to 73.46% on first quarter 2013.
Putting the noise in the quarter aside, I wanted to stress how pleased I am with our ongoing operations. Loan growth for the first quarter was strong. It was our 16th consecutive quarter of loan growth on a year-over-year basis and our 9th quarter of year-over-year double-digit loan growth.
On a linked-quarter basis, net loans increased 3.56% or 14.8% annualized. On a year-over-year basis, average loans were up $864.1 million or 14.9% and were 50.8% of deposits. Mike will elaborate on loan growth in his comments later in the call.
We were also pleased to see that our loan growth for the first quarter surpassed the industry growth as of April 21, 2014 to nearly 1,200 regulated financial institutions that had announced results, reported a median increase in the period loan balances of 4.5% on a year-over-year basis.
We attribute some of our success in growing the loan portfolio to diversification of our loan mix, which we’ve accomplished without sacrificing our underwriting standards. As proved, loan quality remains outstanding. Net charge-offs as a percent of average loans were 0.23%, of which 55% of the charge-offs related were credit cards.
Non-performing loans as a percentage of loans were 0.45%. Pricing in all loan categories remains competitive. Like us, our competitors are working to add higher yielding earning assets to their portfolios.
For the first quarter, loan yields dropped 24 basis points compared to the first quarter of 2013 and declined 4 basis points on a linked-quarter basis. Later in the call, Brian will provide more detail on our financials and will round out the balance sheet discussion.
Mike in his new role as CEO of the Bank will talk specifically about the Bank segment operations. And Peter in his role as COO of the holding company who has all the fee-based businesses reporting to him, will talk about institutional asset investment management, payment solutions and asset servicing segments.
As I mentioned earlier on the call, we remain optimistic about the business and we are pleased with our operating results, notwithstanding the volatility in earnings related to acquisitions.
Some of this volatility will go away once the earn-out periods end, but some will continue such as the unrealized gains from Prairie Capital’s activity in the past two quarters. While it is difficult to model, you should expect it to remain as a component of our results going forward.
We will certainly do our best to ensure you understand the factors affecting this in each situation. With that I will turn the call over to our new CFO, Brian Walker who will highlight a few additional financial results.
Brian?.
The reduction in gains on sales of securities of $4.4 million and lower trading investment banking revenue which was down $2.8 million compared to the first quarter of 2013. Revenue and bank card fees was down slightly year-over-year but increased on a linked-quarter basis. Peter will discuss the drivers behind this change later in the call.
On the expense side employee salaries wages and commission expense also contributed to increase non-interest expense. Next to the contingency reserve, salary and benefit was the most significant driver and increased 6.2% for the company on a year-over-year basis.
Compared to the first quarter of 2013 our average balance sheet grew 11.6% and average earning assets increased 12.4% to $15.4 billion.
Provision expense increased $2.5 million compared to the first quarter of 2013, as management has shared in several prior quarters calls there are several components that go into applying the same consistent methodology to calculate provision. Two of these items are historic losses and portfolio size.
As the portfolio grows the losses are applied to a larger base of loans in the calculation. In looking at other earning assets the average balance in our investment portfolio for the quarter was $7 billion 1.9% higher than the first quarter a year ago.
The average yield on securities was 1.98% an increase of one basis point from last quarter and flat compared to the first quarter of 2013. Slide 9 in the supplemental slide deck includes the detail on the available for sales portion of the investment portfolio which represents more than 96% of our total securities portfolio.
Yield was 1.89%, 2 basis points lower than in the first quarter of 2013.
While reinvestment yields have not yet bottomed, the rate of decline has slowed thereby lessening the impact of margin compressions for the quarter as we continue to shorten the portfolio’s duration consistent with our strategy to be poised to take advantage of a rising interest rate environment.
Additionally 67% of our total loan portfolios expected to reprice, mature or amortize in the next 12 months and 56% will reprice mature or amortize next quarter. As we’ve discussed, the percentage of loans repriced and maturing have been trending down over the past several quarters as we put on loans with slightly longer term.
Allowance for loan losses was $75.5 million and allowance as a percentage of total loans is now 1.12% compared to 1.16% a year ago. We believe this level is appropriate given the high quality of our loan portfolio and history of charge-offs.
Our coverage is more than 2.5 times the amount of non-performing loans, while the median industry allowance reported for the fourth quarter would have covered just over two-thirds of non-performing loans. We remain well capitalized with Tier 1 leverage and total risk-based capital ratios of 13.35%, 8.03% and 14.14% respectively.
Looking at the liability side of the balance sheet, average deposits for the quarter compared to the same period last year increased 12.8% to $13.1 billion. Average non-interest bearing deposits comprised nearly 40% of our total deposits, which puts us in the top 5% of the industry according to SNL Financials.
Our high percentage of free funds is a competitive advantage and is reflected in our low cost of funds. Our overall cost of funds was 15 basis points for the first quarter versus 21 basis points a year ago. If you factor in free funds, this brings the number down to just 10 basis points.
As you know, we have a substantial public fund business that typically results in a seasonal influx of deposits beginning in the fourth quarter and traditionally peaking in the first quarter.
The effect was less pronounced this quarter, since the balances from the large depositor that was previously disclosed less the balance sheet in late February and early March.
Although balances for public funds and repos have been running $756 million higher than in the same period a year ago, average shareholder equity was $1.5 billion a 20.7% increase from the same period a year ago due to the impact from the capital raise conducted in the third quarter of 2013.
Additionally total shareholder return over the past ten years was 201%. For the same period returns from the S&P 500 and SNL U.S. Bank Index were a 103% and negative 6% respectively. Now I will turn the call over to Mike who will review the results of the bank segment.
Mike?.
Good morning everyone. Thank you for joining us for our conference call. And I'd like to add my congratulations to Brian for his first appearance on our call today. I'm happy to talk with you this morning about the bank segment financials and business drivers which can be found starting on slide 12, in the supplemental materials.
For the first quarter of 2014 compared to the first quarter of 2013, net interest income increased 5.7% to $71.1 million driven primarily by rotating from investment securities to higher yielding loans coupled with loan growth. Provision for first quarter increased $2.1 million in accordance with our consistent methodology as Brian described.
Total non-interest income declined to $47.4 million from $52.7 million due primarily to the continued headwinds in fixed income trading and the $4.4 million decrease in gains on the sale of securities.
Non-interest expense increased 17.7% to $107.8 million due to the $15 million contingency reserve that Mariner discussed in higher salary and benefits expense. Net-income before tax was $8.4 million and the pre-tax profit margin for the bank was 7.1%. Performance in the bank segment’s ongoing operations was strong on several fronts.
First the C&I portfolio increased $303.5 million or 9.5% compared to the period ended March 31, 2013. We put on $402.2 million in new commitments for the quarter compared to the same period a year ago and the utilization rate for commercial loans in the quarter was 32.2% up from 29.8% for the first quarter of 2013.
Second, commercial real estate loans also contribute strongly to overall loan growth with an increase of $267.6 million or 18.5% compared to CRE loan balances on March 31, 2013. By diversifying our loan mix, we have been able to partially offset the seasonality inherent and C&I lending without sacrificing loan quality.
Third in the asset management businesses within the bank, we focus on institutions and high net worth individuals. Assets under management totaled $10.9 billion at the end of the first quarter an increase of 17.9%.
Of the $10.9 billion, $7.7 billion is private wealth plus brokerage assets under management and $3.2 billion is from Prairie Capital Management. Average private banking loans increased to $341.5 million from $292.5 million at the end of 2013 and average deposits increased to $909.7 million from $850.3 million at the end of 2013.
On the institutional side we have bolstered the corporate trust default workout business which generated 761,000 in first quarter revenue, up 163% compared to the first quarter 2013. And finally, in consumer banking HELOC balances increased 2.8% year-over-year to $558.6 million.
Our HELOC portfolio continues to perform extremely well with the utilization rate of 44.7% for the first quarter and delinquency rate of 0.17% at quarter end. This compares favorably to the industry average of 2.74% at the end of the fourth quarter 2013. With that I will turn the call to Peter to finish up our discussion on fee based businesses..
Thanks Mike and good morning, everyone. For the final part of our call I will review results from our three primarily fee based business segments.
Starting with Institutional Investment Management which is comprised of Scout Investment, for the first quarter of 2014 versus the same period a year ago, non-interest income was strong at $34.1 million an increase of 19.4%.
Non-interest expense increased 37.4% to $25.9 million, this includes the $4.2 million adjustment to contingent consideration liabilities for Reams Asset Management. Reflective of those two components net income before tax was $8.2 million a decrease of 15.5% and the pre-tax profit margin was 24%.
Revenue in this segment is driven by average mutual funds and institutional and other managed current assets, the mix of those assets, net flows and finally equity and fixed income market performance.
Net inflows to our fixed income strategies and positive fixed income market performance combined with some net outflows from our equity strategies provide the context for Scouts results this quarter. At quarter-end, assets under management stood at $32.2 billion, an increase of 24.9% compared to first quarter of 2013.
The Scout mutual funds closed the period with assets of $15.5 billion. Scout fixed income institutional and other management accounts totaled $13.4 billion and Scout equity institutional and other management accounts totaled $3.3 billion in assets under management.
We look at flows separated by equity and fixed income strategies across all Scout products. Page 18 of your supporting materials shows the drivers of the change in assets under management both net flows and market impacts. For the quarter, the Scout funds flow rate was 2.2%.
As of March 31, 2014, assets under management and Scout equity strategies had decreased by $283.3 million compared to December 31, 2013. Net outflows were primarily driven by the international fund, partially offset by net inflows to the MidCap fund.
Consistent with our strategy to further product diversification and offer new investment product, on March 28th, we launched the Scout Equity Opportunity Fund; whose primary objective is long-term growth of capital. Over the past three years, we have launched six new funds including this most recent offering.
Turning now to fixed income, Scout fixed income strategies increased assets under management by $1.3 billion from December 31, 2013 to March 31, 2014. The unconstrained bond fund continues to lead the way capturing the majority of the flows in the fixed income strategies.
As you can see from the slide, the fixed income market moved favorably for us [netting] $248.8 million increase in fixed income assets under management. Also of particular note, Scout received approval for a UCITS structure this quarter. Similar to the U.S.
mutual fund structure, UCITS allowed Scout to distribute these strategies internationally in a commingled product format mainly in the EU and parts of Asia and South America. The unconstrained bond strategy will be the first product launch under this structure.
Expanded international distribution of our strategies is a key component of our goal to grow assets under management. Next up is the payment solution segment. For the first quarter of 2014 compared to the first quarter of 2013, net interest income increased 7.3% to $12.4 million. Total non-interest income increased 4.1% to $20.2 million.
Non-interest expense increased 4.5% to $21 million. The net income before tax was $9.5 million, an increase of 3.9% from a year ago. And the pre-tax profit margin and payment solution was 29.2%. I’d like to spend a minute and walk you through the ways in which this segment contributes to our overall results.
There are three business units within this segment; healthcare services, our credit and debit card related activities and a unit that provides treasury management products to broker/dealer and mutual fund industry we call institutional banking and investor services or IBIS.
Healthcare services contributes spread income after deposits in HSA accounts per account fees and interchange when customers use their healthcare-related debit card that are attached to their FSA or HSA account. The [prior] group is similar and that we earned spread and outstanding credit card balances.
And we earned an interchange fee on each debit and credit card transaction. IBIS is a little different. Think of this group as a white label approach for ACH, checks, wire services and other treasury services for broker dealers and mutual fund companies.
As you can see in the supplemental materials on slide 21, first quarter purchase volume was $2.1 billion, an increase of 17.1% compared to the same quarter a year ago. Interchange revenue for the first quarter was $16.7 million, up 1% from the first quarter a year ago.
There are a couple of factors that contributed to the lower percentage increase in interchange revenue relative to the increase in purchase volume in the first quarter of this year. First, we would subject to the litigation settlement between U.S. retailers and Visa Master Card for a 10 basis point reduction over an 8 month period.
The first quarter impact was $692,000. Second, within healthcare, an innovative high growth, but interchange rate product is gaining traction. This product call payer to provider is essentially a single use virtual credit card.
And third, we maintained numerous third-party relationships with our distribution partners with whom we share a portion of the gross interchange revenue. All that being said we remain very enthusiastic about this business and its future prospects. As noted in our press release, HSA deposits increased 31.3% to $751 million.
A future of HSA accounts allows customers to move a portion of their deposit dollars to investment vehicle. When they do, those amounts move off our balance sheet and our considered HSA assets. For the first quarter of 2014, HSA assets increased 60.5% to $57.1 million.
HSA and FSA accounts [topped] $4 million or a $29.7 million year-over-year growth rate. Deposit service charges for this segment totaled $7.4 million, an increase of 11.3% compared to the first quarter of 2013. The increase was driven by the growth in healthcare account in new business earned in IBIS.
The final segment in my prepared remarks this morning is asset servicing. For the first quarter of 2014 compared to the same period a year ago, total non-interest income for this segment was $21.2 million, an increase of 4.6%. Non-interest expense decreased 11.6% to $17.6 million. As a reminder, the earn-out period for the acquisition of J.D.
Clark & Company ended a year ago at this time. Net-income before tax rose $5.6 million for the quarter and resulted in a pre-tax profit margin of 24.1% for the first quarter. Asset servicing ended the quarter with $195.5 billion in assets under administration compared to $165.4 billion at the end of the first quarter of 2013.
During the quarter UMB fund services was recognized for two prestigious awards including the Best Hedge Fund That Funds Administrator as part of acquisition internationals 2014, International Hedge Fund Award and the Best Administrator in North America as part of the 2014 Hedge Week Award based upon [reader] voting.
We also announced the consolidation of the J.D. Clark & Company brand into UMB Fund Services. The results of each of these three segments are important to our overall strategy of furthering sustainable growth and expanding diverse revenue sources.
Along with strong quality and effective capital management, we have a unique business model that has stood the test of time in all economic environments. Thank you for joining us today. We appreciate your continued interest in our company. With that, I will hand the call back over to the operator who will open the line for your questions..
Thank you. (Operator Instructions). Your first question comes from Chris McGratty with KBW. Please go ahead..
Hey, good morning everybody..
Hey Chris..
Good morning..
A lot of discussion in the market today is about higher short-term rates, I am interested, Mariner or whomever, your expectations for higher margin, which is pretty low today would react kind of when the [fed] begins to move..
Do you want to take that Brian?.
That’s fine. Yes, I can take this. Within the Q we have a market risk schedule that talks about shop analysis in a quick rising rate environment we are poised to take advantage of our positioning of our balance sheet, right now we are fairly neutral..
Okay. I am also interested, Brian on the impact to many interest fee businesses.
Are any of them tied to higher -- will they benefit from higher short-term rates?.
Peter, why don’t you take that, nothing any significantly way….
Not particularly our fixed income business at Reams Asset Management might have some impact as rates move on our fixed income portfolios with that be it..
That’s been more of a rotation thing for us, positive on the side likely..
Okay.
And just last one on this sensitivity; can you remind us the proportion of the loan portfolio of that variable favorably?.
67% re-prices within the next 12 months..
That’s correct, right..
That’s correct. And within that 67%, 53% of that in the commercial portfolio re-pricing is 12 months or less..
Okay. And just last one on the expense guidance, you talked about 5% full year, I just want to make sure that I heard that correctly, I think that’s consistent with what you guys talked about last quarter.
But do that adjust for all the kind of unusual items, is that I hear that right?.
Exactly, that’s the case we’re making as you should expect without noise. You should expect five or less expense growth rate from us..
Great. And just last one on capital, I saw that you announced some of the buyback last night.
Mariner, can you maybe offer us again on whether this is just out there opportunistically, I mean giving your price book multiple, I’d imagine there is probably better uses of capital at these levels?.
Yes. If you pay attention to our annual vote results, you’ll notice that we have been voting that in every year; it’s really just to give us that flexibility if circumstances will look good to do so. So it’s nothing new; we’ve been approving that amount for many years..
All right, thanks a lot..
Welcome..
Your next question comes from Matt Olney with Stephens. Please go ahead..
Hi, thanks. Good morning guys..
Good morning Matt..
Good morning Matt..
Hey. Going back to the margin discussion, obviously the margin got hit in the first quarter from high liquidity.
Can you give us more of an outlook on the margin and how comfortable are you assuming the margin has bottomed from here, if we assume that liquidity follows this normal seasonal patterns and decreases in next three quarters? And you get the continued positive mix shift towards loans.
I mean can we see the margin improve throughout ‘14 and have a positive bias into 2015, notwithstanding higher short-term rates?.
I am going to ask Mike to answer that as the Treasurer reports to him at this point, Mike?.
Yes, thanks Matt. Without the large depositor that we’ve previously discussed, we estimate that our net interest margin in the first quarter would have been 14 basis points higher.
And as we’ve looked it throughout the first quarter, we’ve actually seen improvement in the margin as a result, not to kind of the future thing given that we have so much of our earning asset base in the short-term the ability to re-price in a relatively quick basis, we would expect that with interest rate movements, yes, our earning asset base will price up.
On the liability side, we’re talking about can you get one basis point better, so I don’t think that’s going to be much of a driver of future NIM performance..
The negative side is moderating for sure..
Absolutely..
All right. That’s helpful. And then Peter, going back to the discussion on interchange on slide 21, you highlighted the litigation settlement impact in the first quarter, I missed the details of this.
What was the dollar amount, the impact in the first quarter and if first quarter, the first quarter be the impact of this or could discontinue for a while?.
So the settlement ramp from September last year through the first quarter of this year and for the first quarter of this year the impact was $695,000; it is essentially done at this point..
Okay.
And then lastly Peter, you mentioned you launched some new products more recently, can you remind us where you are in the overall product sales and should we expect additional product launches for the rest of the year?.
Yes. We continue to look at the market opportunistically for places where we think we have expertise, where we can launch new products. The Scout equity opportunity fund that we just launched was a manager that we picked up out of Denver, who had an expertise that we’re able to add on to our portfolio. So we’re always looking at new products.
And you can expect that from us in the future..
Yes, I would just add simply that that’s definitely part of the strategy and the structure of the future for the organization..
Thanks guys..
Your next question comes from Peyton Green with Sterne Agee. Please go ahead..
Yes, good morning. I was wondering if you could just clarify with regard to Prairie. I guess the purchase was done on July 30 of ‘10 and I guess earn-out will roll on July 30, of ‘15, but the original purchase price was somewhere around $53 million.
And I guess the thought is that that did not capture the incremental $15 million that’s due under the earn-out or I mean how much of the 15 million is all of the earnings, I mean is that all the earnings that Prairie has generated over the time, or I mean help us understand the magnitude of what’s really going on and when would you expect the disputed amount to be fully resolved?.
Peyton, good morning. I’m going to start, kick this off and then ask Brian to try chime into this, mostly an accounting issue. I think what we need to clear up for you is that multiple things going on here. And I think sometimes it’s interpreted in the same bucket.
So, I’m going to turn it over to Brian to try to help further explain what the $15 million means to us..
Yes, good morning Peyton. Taking you back in trying to frame this acquisition, in 2010, we paid $25.9 million in cash; and at that point in time, we estimated $26 million in earn-out payments over the five year period. As of 12/31 we had estimated $16.6 million.
And that number shouldn’t be confused with our unrealized gains that are the similar numbers. And then this earn-out period will be evaluated up and down through the end of July 2015.
Does that help?.
Yes, it helps. But I guess I mean $15 million versus $16 million, I mean that's half, I mean where -- what generates the dispute I guess? I mean how, the accounting is one thing, but it sounds like legal.
What’s the real issue?.
The dispute is over non-cash items. The $16.6 million that we booked in the third and fourth quarter of 2013 was an unrealized gain. And the disputes around that amount and whether it should be included in the earn-out and not. And we have not included it in the earn-out.
But we have chosen to provide a best estimate for a resolution to their objections to maintain distractions from future operations..
Yes, we are negotiating this to get it behind us. We still think it should have been in our calculation. But we don’t want to deal with this dispute and very successful organization driving all sorts of fantastic results for us. We want to just get this behind us and move forward and keep building the business..
Okay.
So I mean you’ll book an incremental expense going forward as they continue to generate those unrealized gains, is that right?.
The unrealized gains will become -- we haven’t got to an agreement yet, but the unrealized gains would become a proxy to how we calculate either up and down through the end of the period..
Okay, all right. And then I guess Mariner, if you could comment about loan growth, which seem to be -- loan growth certainly going back over the last two or three years up until the last couple of quarters, substantially stronger than the industry and that seems like competitive factors may be slowing this growth down a little bit.
How does the pipeline look and do you think double digit loan growth is sustainable over the coming year?.
As I said in previous quarters, our pipeline remains the strong going into the second quarter as did in the first quarter. It’s important to note as we did in -- talked about fourth quarter results, we did have a couple large credits payoff in the fourth quarter.
And in the first quarter, we also moved off some higher yielding, lower performing credit off as we worked cleaning up our balance sheet. So, our growth rate is actually still remaining, we feel pretty, still feel very good about our pipeline and actual new business growth for the organization looking into second quarter..
Okay, and then last question and I will get back in the queue. But with regard to the bond portfolio referenced on slide 9, you have got about 260 million or so in cash flow coming in the fourth quarter.
Based on market rates, I mean do you still see kind of a 100 basis point or 75 basis point give-up on what you are willing to buy? Is that the right way to think about the marginal cash flow that’s going to get reinvested so for a 2 to 2.03 over the next year expect reinvestments rates around 1.25 or have you pretty much done the shortening that you would like to do?.
I am going to take a stab at least to set that up or to answer that for you. Keep in mind, if we are successful with our strategy, we shouldn’t have to reinvest that much cash flow as our real goal is to not reinvest that cash flow and put to work loans.
So if that happens, we won’t even be talking about this or at least we will talking about a lesser amount. If it is -- if it does go into investments within the fixed income portfolio, it’s going to be a function of our expectation for future interest rates and what we believe are acceptable asset classes to buy at that time..
So, I guess are you making an assumption that deposit growth will be zero?.
No I just think that we are trying to execute our strategy to reduce our dependency on the fixed income portfolio and have more of earning assets and loans..
Okay. Well, I mean I guess at the end of the day, if you grow deposits you are going to be doing something with the cash flow. I guess and my assumption is you are going to grow deposits I guess, but maybe that’s not right..
It’s fair, no it’s fair assumption..
So, if you did grow deposits, I mean is the reinvestment rate in the 1.25 range is that reasonable?.
Depends on what we buy; I think it’s not unreasonable given what we might buy from a mix perspective, what we know today..
You are just using what you know which is what we did in the first quarter, so that’s a proxy which I mean Mike is trying to tell that there are variables but it’s the first quarter is a proxy you have got, you are making good assumption..
Okay, right. I mean I am just trying to understand if you kind of achieved all you wanted to achieve and now you be more -- maybe take advantage of opportunities that that came about. Okay, great..
(Operator Instructions). There are no further questions at this time. Please continue..
Thank you for joining us for our first quarter 2014 financial results. As a reminder, the call will be available on our website for replay until May 9th. And as always, if you have additional questions, you may contact UMB Investor Relations at 816-860-1685. Thank you for joining us today..
Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. You may now disconnect your lines..