Good morning, and welcome to the UMB Financial First Quarter 2015 Conference Call. [Operator Instructions] Please note this event is being recorded. .

I would now like to turn the conference over to Abby Wendel. Please go ahead. .

Thank you. Good morning, everyone, and thank you for joining us for our conference call and webcast regarding our first quarter 2015 financial results..

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 10-K for 2014 and subsequent 10-Qs 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..

By now, we hope most of you on the call or listening via webcast have had a chance to review our earnings press release that was issued yesterday morning. If not, the release is available on our website at umbfinancial.com.

Also on our website, we have provided supporting slides that contain additional details on some of the drivers and metrics we will discuss today. A link to the slides can be found in the Investors section of umb.com, under News and Events, Presentation. These will also be available after the call for your reference..

Mariner will provide high-level commentary, and Brian will review details on our financial results. Then Mike and Peter will review our 4 business segments. Following that, we'll be happy to answer your questions..

I'll now turn the call over to Mariner Kemper. .

Thank you, Abby. Welcome, everyone, and thank you for joining us. 2015 is off to a good start as results for the first quarter reflect continued solid performance in commercial loan production, Private Wealth Management and the payment solutions business, including our Healthcare Services division. .

I'll begin my remarks by referring to Slide 4 on our supplemental materials. Net income for the first quarter was $33.8 million, an increase of 44.2% compared to the first quarter 2014 net income of $23.4 million.

Diluted earnings per share were $0.74 per share, an increase of 42.3% compared to the first quarter of 2014 diluted EPS of $0.52 per share..

Turning to Slide 5. Return on average equity was 8.18%, and return on average assets was 0.81%. Our efficiency ratio improved on both a year-over-year and linked-quarter basis and was 75.67% for the first quarter. And finally, net interest margin improved 7 basis points year-over-year, due primarily to our strong year-over-year loan growth.

Net interest margin decreased on a linked-quarter basis, largely due to seasonality in our balance sheet, which use public funds deposited balances increased significantly in the first quarter of each year. .

Underpinning these results, I'd first like to call attention to yet another quarter of strong loan growth. As compared to the same quarter a year ago, as you can see on Slide 6, average loans on a year-over-year basis increased 11.8% or $791.2 million to $7.5 billion.

C&I and commercial real estate lending were once again the primary drivers behind this growth. We remain vigilant about adhering to our underwriting philosophy, which is demonstrated through first quarter NPLs of 0.39% and net charge-offs of 0.09%, as you'll see on Slide 8..

While point in time linked-quarter loan growth was not as robust as on an average basis, it was one of our strongest quarters for growth loan production. Term paydowns and loan payoffs partially offset sales for the quarter, resulting in a 1.7% linked-quarter annualized increase in actual loans compared to December 31, 2014.

Later in the call, Mike will provide additional detail on the results. .

Additionally, I'd like to acknowledge the revenue headwinds presented by the reduction in advisory fee income for Scout Funds. This revenue source decreased $8.9 million from the first quarter 2014 to the first quarter 2015, as we've seen in our press release.

As Peter will describe in greater detail, equity assets under management in the first quarter continue to make up a smaller percentage of total Scout AUM than in the first quarter of 2014, which changes the revenue profile of our business. .

In addition to these highlights, there are 4 items I'd like to point out from our results. First, we recognized $7.3 million of gains on sales securities available for sale in the first quarter compared to $1.5 million in the first quarter of 2014.

Second, the fair value adjustments to the earn-out liability related to the acquisition of Reams Asset Management and Prairie Capital Management amounted to a decrease to the liability of $2.3 million compared to an increase of $4.5 million in the first quarter of 2014. Third, we recognized $1.6 million in miscellaneous expense and fund services.

Finally, expenses included $790,000 related to the pending acquisition of Marquette Financial Companies..

Speaking of Marquette, we continue to plan for a midyear 2015 close on our announced acquisition, subject to regulatory approval. I look forward to keeping you posted on our future plans and integration efforts..

With that, I'll turn the call over to Brian Walker, our Chief Financial Officer, who will discuss our results in more detail.

Brian?.

Thanks, Mariner, and good morning, everyone. My comments will focus on our financial results for the first quarter 2015 compared to the first quarter 2014, with some color describing the linked-quarter changes as well. .

As Mariner mentioned, average loans increased 11.8% year-over-year and 2% linked quarter to $7.5 billion.

We are leaders in loan growth once again compared to the industry, which as of April 26 had reported a median increase of 5.6% in average loan balances for the first quarter compared to the year ago and a 0.4% increase on a linked-quarter basis according to SNL Financial.

As Mariner also mentioned, net interest margin improved to 2.46% compared to 2.39% in the first quarter 2014. Although the loan yield declined 9 basis points compared to the first quarter 2014, mix changes in the loan portfolio accounted primarily for the overall net interest margin improvement.

Whether the NIM is at an inflection point remains to be seen. .

As you can see on Slide 9, the yield on securities purchased for our available-for-sale security portfolio steadily increased throughout 2014. Based on our internal interest rate forecast, we anticipate that trend will continue, but wouldn't expect a significant change until the latter part of the year.

We continue to be successful putting on higher-yielding assets, and loans grew faster than deposits in the first quarter, allowing us to better optimize our balance sheet..

Turning to liabilities. Slide 10 shows average deposits for the first quarter of $13.3 billion, a $127.2 million increase year-over-year and an increase of $413.1 million compared to the fourth quarter.

The cost of interest-bearing liabilities for the first quarter was 16 basis points, and the cost of all interest-bearing plus noninterest-bearing deposit was 9 basis points. A high-quality balance sheet is a competitive advantage for us.

Average noninterest-bearing deposit balances in the quarter were 42.7% of our total deposits, which puts us in the top 4% of the industry, according to SNL Financial. And we pride ourselves on maintaining a highly liquid balance sheet to meet customer borrowing needs. .

Capital remains strong as well. As you might recall, this is the first quarter in which we've calculated our capital ratios under Basel III requirement. As we have indicated to you in prior conference calls, we believe we would remain well capitalized under the new standard. .

As you'll see on Slide 11, our total risk-based capital, Tier 1 Capital and Tier 1 leverage ratios for the first quarter 2015, were 13.62, 12.91 and 8.69, respectively. Also on this slide, you will see that we have included our Common Equity Tier 1 ratio as well, which was 12.91% as of March 31, 2015..

Turning to the income statement. My remarks will begin with noninterest income. For the first quarter 2015, noninterest income increased 1.8% to $125.2 million, driven primarily by gains on the sale of securities, trading and investment banking and brokerage fees.

Our historic primary driver of noninterest income growth, Trust and Securities Processing, declined $4.3 million or 6% compared to the first quarter of 2014. It declined $1.8 million or 2.6% compared to the fourth quarter 2014..

Slide 12 illustrates our noninterest income composition, and the table on the upper right shows that the decline was driven by a reduction in revenue from the Institutional Investment Management segment. .

In looking at first quarter expenses on Slide 13, total noninterest expense declined 4.5% to $164.4 million, primarily due to the contingency reserve booked in first quarter 2014 that did not repeat in first quarter 2015. You can also see that other expense, which includes earn-out liability adjustments, decreased $5.1 million or 49.1%.

These expense reductions were offset by salaries and benefits expense, which increased 10.9%.

Equipment expense increased $1.5 million largely because of the increases in software maintenance and software amortization expenses, which we expect to continue into 2015, primarily driven by the regulatory environment, cyber security and modernization of our core systems, due in part to our anticipated acquisition of Marquette.

Also, processing fees decreased $868,000 compared to the first quarter 2014 because of lower equity fund AUM. .

You'll also notice in our press release that we disclosed $790,000 in acquisition-related expenses. Post-close, we will provide regular integration updates as we combine Marquette Financial Companies into our ongoing operation..

There's one final item I'll review with you prior to turning the call over to Mike. As you're aware, we introduced a new income statement line item in 2013, equity earnings on alternative investment. That reflects one of the ways Prairie Capital Management, our high-net-worth investment adviser, earns revenue.

Hedge fund performance fees and private equity unrealized gains or losses are included in this line item..

If you turn to Slide 14, you will see the 2 components that make up equity earnings on an alternative investment. You'll also see the associated expenses, which I will discuss in a moment. In the first quarter 2015, total equity earnings on alternative investments were an unrealized loss of $842,000.

As you know, both of these line items can move up or down depending on the valuation of the underlying investment vehicle. The expenses associated with the gains or losses fall into 2 categories of contingent consideration expense that you'll see on Slide 14. .

The first, which relates to the original Prairie Capital Management purchase agreement, will end when the final earn-out payment is made in July.

The second, which relates to specific private equity unrealized gains or losses, will continue after the earn-out period ends in July and will be absorbed into Prairie Capital Management compensation expense.

We decided to provide this explanation because once the earn-out period has ended, we expect much less volatility to our income statement from Prairie Capital Management on a net basis because the expenses associated with private equity unrealized gains or losses are now recorded in the same quarter.

I mention this because you will likely recall that we recognized unrealized gains in the fourth quarter 2013 and recorded an associated expense in the first quarter of 2014..

I would be happy to answer any questions during the Q&A portion of the call today. With that, I'll turn the call over to Mike and Peter for more detail regarding the drivers behind the segment results. .

Thanks, Brian. I'm happy to talk with you this morning about the bank's segments, financials and business drivers, which can be found starting on Slide 16. .

The bank segment's net income for the first quarter was $17.2 million, and the pretax profit margin was 19.3%. Despite the continued pressure from low interest rates plus competitive forces on net interest margin, first quarter net interest margin was 7 basis points higher than in the first quarter 2014.

Increased loan volume and loans, as a higher percent of earning assets, resulted in a lift in net interest income. Also a year ago, we were holding higher balances at the Fed Reserve in anticipation of the exit of a large depositor. .

For the first quarter of 2015, balances held at the Fed were about half of what they were in the first quarter 2014. End-of-period loan growth on a year-over-year basis remained very strong. Commercial and industrial lending increased $318.5 million or 9.1% to $3.8 billion.

And commercial real estate loans increased $232.2 million or 13.6% to $1.9 billion, both compared to balances as of March 31, 2014. In addition, our team continues to find high-quality construction loans. Compared to balances held on March 31, 2014, construction loans increased $70.3 million or 37.8% to $256.3 million..

$69.4 million reduction in revolving loan balances, $125.8 million in loan payoffs and $196.1 million in term paydowns. Loan balances, especially commercial lines of credit, can fluctuate daily. There were a handful of significant payouts in the quarter.

And as of March 31, 2015, short-term credit balances decreased by $54 million compared to balances as of December 31, 2014. That said, our loan pipeline for second quarter, especially in the commercial business, remains strong. While we can't predict what will close, we are pleased with the sales activities we are seeing thus far..

As you will see on Slide 18 in the deck, our top 2 markets for actual loan growth on a percentage basis continue to be Dallas-Fort Worth and Phoenix. On a dollar basis, our top 3 markets for growth are Kansas City, Phoenix and Dallas-Fort Worth. New loans in Kansas City were 46% of the increase.

Production in Arizona represented 16% of new outstanding loans. And new outstanding loans in Texas were 11% of the increase compared to 2014.

With this data in mind, we are all the more excited to close on our announced acquisition of Marquette Financial Companies and build upon their existing presence in the Dallas-Fort Worth and Phoenix Scottsdale regions..

As the Federal Reserve inches closer to raising interest rates, we are often asked about the percent of our loan portfolio that are variable rate loans. At March 31, 2015, 44% of our loan book is variable-rate loans. Of those, 43% is tied to prime for the next quarter and 56% is tied to LIBOR for the next quarter.

Overall, 55% of our loan portfolio will reprice, mature or amortize next quarter. And 66% will reprice, mature or amortize in the next 12 months..

Looking at the Asset Management businesses in the bank, where we focus on institutions and high-net-worth individuals. I'm pleased to announce assets under management have reached $11.7 billion at the end of March 2015. AUM and private wealth and institutional asset management stood at $7.7 billion.

Assets managed by Prairie Capital stood at $3.6 billion and brokerage assets were $428.6 million..

With that, I'll turn the call to Peter to finish up our prepared remarks with a discussion on the performance of our fee-based business segments. .

Thank you, Mike, and good morning. Let me begin with the Institutional Investment Management segment, which is comprised of Scout Investments, equity and fixed income mutual funds and separately managed investment accounts. .

average mutual fund and separately managed account assets under management; net flows; and finally, equity and fixed income market performance. .

As shown on Slide 22, assets under management stood at $30.6 billion on March 31, 2015, which is a decrease of 4.8% compared to AUM as of March 31, 2014, and a decrease of 1.8% compared to AUM as of December 31, 2014.

Scout fixed income mutual funds finished the quarter with assets of $2.8 billion, and Scout equity mutual fund with assets of $7.2 billion. Scout fixed income separate accounts totaled $18.3 billion, and Scout equity separate accounts totaled $2.3 billion in assets under management.

We look at flows separated by equity and fixed-income strategies across all Scout products, including the Scout Funds and separately managed account..

$129.4 million in net outflows from the Scout fixed income mutual funds, $50.1 million in net inflows into Scout's fixed income separately managed accounts and a positive market impact of $172 million across all of our fixed income products during the quarter.

Overall, we continue to focus on improving performance, which is the best way to stem future outflows. .

And we remain enthusiastic about Scout. Despite the revenue reduction this quarter, the business maintained a strong pretax profit margin of 33.6%, largely because expenses decreased as well.

It remains an important component of our diversified strategy, and it's important that our investment management team remains focused on delivering long-term relative out-performance for Scout's investors..

Next, I will discuss the Payment Solutions segment. Turning to Slide 25. Net income was $8 million for the first quarter. And the pretax profit margin was 30.6%, an improvement of 120 basis points compared to the first quarter of 2014..

Looking at the next slide. Total interchange revenue was $18.4 million, an increase of 9.6% year-over-year. Revenue earned from transactions made with commercial and consumer credit cards provided 65.2%. While interchange revenue attributable to all healthcare card payments was 21.5%.

It's important to note that healthcare interchange is a net revenue number, reflecting the various sharing arrangements between our business and the third-party administrators we work with to distribute our product. .

First quarter purchase volume for the segment was $2.3 billion, an increase of 11.4% compared to the same quarter a year ago. You will see on this slide that we show the components of purchase volume to give a sense of the main driver. Healthcare purchase volume was $1.4 billion and represented 59.6% of total first quarter purchase volume.

Healthcare purchase volume increased 21.1% year-over-year and 32.4% on a linked-quarter basis. .

As you can see on Slide 27, purchase volume for healthcare-related payments tends to be the highest in the first quarter of each year because flexible spending arrangement cardholders tend to make healthcare-related purchases early in the new year when their FSA balances become available..

Within healthcare's purchase volume, $403.9 million is attributable to virtual cards in our healthcare business. We call them V cards. A V card is a single-use payment mechanism that insurance companies use to pay medical providers. As you can see, this product continues to gain nice traction as a percentage of healthcare-related purchase volume.

You might have seen our press release earlier this year announcing that Healthcare Services reached $1 billion in total deposits in assets, as seen on Slide 28. To highlight additional detail, HSA deposits as of March 31, 2015, increased 41.3% to $1.1 billion compared to the March 31, 2014. HSA investment assets increased 62.2% to $92.6 million.

The number of HSA account reached $604,000 or a 31.9% year-over-year growth rate. Flexible spending arrangement benefit cards reached 3.7 million issued, which is a 14.5% increase compared to the first quarter of 2014. In the first quarter 2015, we processed 795,000 V card payments versus 373,000 payments at the same point last year..

In a more traditional credit and debit card space, the commercial credit card product, in terms of purchase volume and interchange, increased nicely year-over-year. Purchase volume for commercial cards increased 8.3% and was 15.1% of total card spend..

The final segment I'll discuss today is our Asset Servicing segment, comprised of UMB Fund Services, which ended the first quarter, with $202.7 billion in total assets under administration, a nice increase of 3.7% compared to $195.5 billion just a year ago.

Net income for this segment decreased $1.9 million to $2.2 million for the first quarter of 2015, reducing its pretax profit margin to 12.8% compared to 24.2% in the first quarter of 2014. .

The net income reduction was due mainly to a $1.6 million increase in miscellaneous expense. This amount represents a client refund related to aged uncollectible foreign tax credit.

Noninterest income in our Asset Servicing segment is based on a variety of factors depending on our client agreement, including basis points on assets administered, transaction fees or per account fees.

Drivers include new business, growth in the number of funds and shareholders we service, transaction volumes in our clients' funds and accounts and overall asset valuation. This chart notwithstanding, the fundamental drivers of the Asset Servicing segment remain solid. .

Pages 29 and 30 of the supporting material show metrics for some of our various services within Fund Services. Overall, Fund Services added 126 net new funds over the past 12 months, including 23 new funds in fund accounting and administration and 67 alternative investment funds..

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

[Operator Instructions] And our first question comes from Ebrahim Poonawala of Bank of America Merrill Lynch. .

I just wanted to clarify. I want to make sure I heard Peter correctly on Slide 21, where you talked about the expenses for Scout going down to $17.9 million this quarter.

Did we say there was a $5.3 million onetime benefit to that number this quarter?.

This is Peter, Ebrahim. There is a $5.3 million reduction in the earn-out liability charge this quarter related to our Reams acquisition. .

So all else equal, that goes away, so this probably resets higher again next quarter?.

Just as a reminder, each quarter is a new set, if you will, mark-to-market adjustment on the value of the contractual relationship with that purchase agreement. .

All right. Okay. And just big picture, I think taking a step back in terms of the equity outflows that we've seen. And I understand that you need performance in these funds for assets to follow.

I think -- is there any sense in terms of how you feel about the equity assets as of the end of the quarter, and if that bleeding is slowing or coming to an end? And outside of that, do you see M&A opportunity to pick up a sizable equity assets to sort of jump start that business again? That shift that's occurred towards fixed income versus equities tails back towards, at least, 50-50 or towards equity assets?.

Yes, Ebrahim. This is Peter again. We did see a negative flow rate of 3.8% during the quarter. Certainly, the International Fund and the Mid Cap Fund are the 2 that have had the most pressure.

The level of equity outflows was significantly less, however, this quarter than the $2.3 billion experienced last quarter and the $1.36 billion experienced in the third quarter of 2014. So we're beginning to see some ebbing in that regard. Also during the quarter, we saw some improvement in the performance of our equity strategies.

Year-to-date through April 16, the Scout International Fund is now in the 71st percentile. The Scout Mid Cap Fund is in the fifth percentile, according to their respective Lipper rankings. Also, the Scout Equity Opportunity Fund is ranked in the second percentile on a year-to-date basis and the first percentile an a 1-year basis.

So over the past 5 years, we've also launched some new funds. We've launched 3 new strategies, 5 new funds and 1 UCIT, which gives us greater product into the marketplace. So yesterday, we are 2/3, 1/3, fixed versus equity, different than the 50-50 we were about a year ago.

Personally, I'm optimistic that the seeds of a performance turnaround have been put in place, which over the longer term, should yield better equity flows. In terms of M&A, we're always looking and interested in strategies that are complementary -- potentially complementary to what we do today. We look at team lift-outs.

We look at outright acquisitions and other ways that we can build the AUM, the equity AUM in Scout. .

Got it. And just on a separate topic around health care deposits. I'm wondering if you can comment in terms of resolve significant growth this quarter in terms of deposits.

If there was some seasonality in 1Q and how we should think about growth for the rest of the year? And what sort of the market size that you think in front of you where, what this could be 12 to 24 months from now in terms of, at least it's deposit contribution?.

So Healthcare has been growing very nicely, as you noted. In terms of the market size, as of 12/31/2014, according to Debonair [ph], which is one of the market studies that we subscribe to, there were 14 million accounts, HSA accounts in the United States, and they grew 29% year-over-year in 2014.

There were $24 billion in deposits in these HSA accounts in 2014, at the end of 2014, also up about 25% of the year-over-year basis. So the industry continues to grow.

And from everything we can tell and see from the discussions we're having with our partners, there does not seem to be any less of an appetite for HSAs as it is one of the ways we are finding our ability to control the increasing cost of health care. There is some seasonality, as you know.

I think the majority of our deposits come in, in the fourth quarter of 2014. This is a benefits enrollment business, if you will. So the vast majority of our deposits come in Q4. And throughout the year, we do add some deposits, but the majority comes in at the end of the year. .

Our next question comes from Chris McGratty of KBW. .

I wanted to follow-up on the question of Scout. I think the industry data I had was as of February. But it appears that the flows turned positive in March.

I guess, number one, is that a fair statement? If it is, what were they? And then number two, how should we be thinking about, kind of once we do get stabilization in flows, any lag effect on the revenue side that could correspond it?.

Sorry.

Your first part of the question was regarding the industry or Scout specifically?.

I'm sorry, Scout. Yes, the million -- the $1.1 billion that you had -- closed in the quarter, I think I have the first 2 months.

But was there any discernible difference in March?.

No, no, there was nothing particularly noteworthy. The flows, the outflows have been steady, but not lumpy in any particular way.

And I'm sorry, your second question was?.

Was just -- once we do get a charge -- I think performance is doing a little bit better.

Once we do get some stabilization in-flows, maybe neutral, call it, how should we be thinking of it as analysts of kind of a lag effect? If that $25 million, $26 million number that you put in the quarter, what's the lag if there's a lag on growing that?.

Yes, there's really not a lag. I mean, once we have the assets the assets -- we get paid on the assets that we manage each and every day. And so if assets move up, we're going to get paid -- we're going to get paid better. Obviously, there's still the mix question of fixed-income versus equity.

So if we were to see big inflows into fixed income on the fund side, then certainly that would be less lucrative to us than on the equity side. But there's no lag effect. Once the assets are in the door, we begin to get paid on the higher asset levels. .

I would just tail on to that. It's dependent on when that outflow or inflow occurred. So if it occurred toward the end of the quarter, you could have as much of a quarter lag to actually receive the results in our reporting. .

Got it. Okay, that's helpful. I want to follow-up on the expenses from the previous question. In the release, you called out about $1 million of merger charges.

Is that the only adjustment in terms of -- concerning, a run rate for the first quarter? That's the only adjustment you would said kind of guide us to do this in terms of making an outlook, correct? That $5 million, I think that was asked before, that was a Q4 event?.

The $5 million that was discussed was specifically related to Reams on their earn-out adjustment. Overall, for all of the earn-out liability adjustment in the first quarter of 2015, there was a $2.3 million reduction in expense.

And in the first quarter of 2014, there was an increase in expense of $4.4 million or an overall year-over-year reduction in expense of $6.7 million to the earn-out liability.

Does that answer your question?.

I think so. I know you guys don't give guidance. So I'm just trying to get a -- you reported $164.4 million of expenses. You adjust for the onetimer. And it sounds like they were a little bit low because of the fact that we talked about, if you adjust for the earn-out.

But is that a fair characteristic to kind of set the outlook for?.

So for our run rate of expenses, yes, I mean we're not going to give a guidance on that. You are correct that the biggest item year-over-year -- you'll remember the first quarter of 2014, we did have that $15 million contingency reserve. And so that did not repeat this first quarter.

The only thing I would add is we're not pleased with our expense levels and continue to look at them. So we'll continue to look at ways to slow the growth of expenses, given the headwinds that we have in the organization. .

Okay, last question.

What's the tax rate we should be using going forward?.

Can you say that again? I missed it. .

The tax rate. .

Oh, yes. In the first quarter of 2014, you just want to know the consistent run rate. Currently, this quarter, we had a 29.9% effective tax rate, and that's pretty consistent with our estimates for the year. .

[Operator Instructions] Our next question comes from Matt Olney of Stephens. .

Sticking with that discussion on expenses, pretty big sequential increase on staff expense.

Was there anything nonrecurring within that? Or any additional commentary as to why the big increase?.

No, nothing unusual. You've heard us talk about regular, regulatory pressure and stuff like that. We've certainly been hiring in that area. But nothing significant or unusual, some incentive expense in there related to sales activity and such, but nothing out of the ordinary. .

Any higher pension expense or anything else?.

No. .

Well, as far as the discussion on trying to get positive operating leverage. I mean we stalled out here the last few quarters. And I'm trying to figure out kind of what the strategic response is to this.

Is there a big opportunity, Mariner, for some overhead cuts?.

Well, I would point you in a different direction. So we've clearly recognized the pressures we have related to, for some low interest rates, the headwinds we have in Scout, regulatory pressures. We recognize that headwinds we have, and we're not standing still.

You can already see -- strategically, the answer to your question at the top of the list is the efforts we've undertaken to affect our loan-to-deposit ratio and continue to address the mix within the earning asset portfolio. So you can see early indications of that in the first quarter.

And we are laser-focused on bringing up our loan-to-deposit ratio more to like the peer averages. And we're seeing early indications of success with that. And that's the top of the list strategically, really, is putting on more earning assets and moving them from a fixed income portfolio to the loans.

And also within the loan portfolio, making sure that we're remixing and moving from working cap -- not entirely, but on the margin moving from working capital to determine real estate, carrying higher yields. Secondarily but in the same vein, would be our acquisition of Marquette, which we expect to hear from the government soon.

We'll immediately and effectively bring up our loan-to-deposit ratio all by itself, and with higher-yielding loans, assuming we can also run off some of the more expensive deposits in short order. So those are the highest priorities strategically that will really affect our results in operating leverage short term.

All that pain [ph] is in the bank, really for the organization. We're laser-focused on it. Lastly, of course, and we can't give guidance on this, but we aren't going to let a higher expense structure carry us through this slower, this lower earning period. So we're focused on making changes on our expense structure as well. .

And going back to the compliance expense build-out that you attributed to first -- here in the first quarter, are we now there? Are there further investments to be made the next few quarters?.

Again, I'm sorry to not be able to give you specific numbers. I can certainly tell you the pressure -- and I'm sure you're hearing this from all of your other investments, but the regulatory pressure is certainly consistent and persistent. And we are both committed to complying as well as maintaining our risk profile with them.

And so you'll see us continue to invest and against a progressive and persistent environment -- regulatory environment. .

people cost, obviously, technology burdens that we're forced to deal with whether it be cyber security, or BSA/AML or PCI compliance, et cetera; and then some revenue limitations as well as we have had to absorb some of the new rules. .

But when I say we're focused on our expenses, I would say it's inclusive of recognizing those pressures. So we're going to do what it takes to control and control the growth of our expenses. .

Okay, that's helpful. And pushing over to loan growth. I think Mike you gave some commentary as far as good production in the quarter, but just offset by low utilization, payouts, paydowns.

Any commentary on how much of this was just normal seasonality that you expected versus some payouts and paydowns that were a little bit higher than you expect -- expected a few months ago?.

Yes. Again I mentioned earlier, that we we're working on remixing and adding more term debt. So overall, over time, we should see our term paydowns continue to grow a little bit against the production on term loans. So you will -- we did see a little bit of increase in that area in the first quarter.

And we'll probably continue to see a little bit against that. But of course, also the loan portfolio will be growing alongside that. So shouldn't see, as a percentage, any material changes there.

The activity is actually kind of down in the middle on the fairway, nothing unusual about the activity, except that as we mentioned in the quarter was, as far as I can recall, I've been here 20 years at $440-plus million in production, highest quarter I can -- $471 million, to be exact. But it's the strongest quarter I can recall us being here.

So the efforts we're taking are working. And I think there we're some unusually high, certainly payoffs in the quarter than we now have been saying. But the paydown side is probably in line related to the increased activity in term loan production. .

And Mariner, if those payoffs do remain elevated in near time, is that low double-digit loan growth goal you guys have? Is that still reasonable?.

The only thing I can point to is we have consistently produced outsized loan production against the industry. Our pipeline remains as strong as it has been, and so I can't predict exactly where we'll come in, but we continue to maintain a strong pipeline. .

All right. Last question for me.

Can you talk more about capital management, your expectations with the authorization out there? Anything in terms of what we should be expecting from you guys in terms of utilizing the authorization?.

No. Nothing. We put that in place every year to give us the flexibility to take action, and we have nothing identified to utilize that at this point, always looking for the right time and the right way to use it but nothing identified. .

This concludes our question-and-answer session. I would like to turn the conference back over to Abby Wendel for closing remarks. .

Thanks again. Before I close up the call, I wanted to just draw all participants' attention to Slide 21 and the percent change on the linked-quarter basis. We just had a couple of issues with the slides there. We'll be correcting that and reposting it following the call. And so with that, I want to thank you very much for your interest in UMB.

This call can be accessed via a replay at our website beginning at about 2 hours, and it will run through May 14. And as always, you can contact UMB Investor Relations with any follow-up questions by calling (816) 860-1685. Again, we appreciate your interest and time. .

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..