UMB Financial Corporation (UMBF) Q4 2014 Earnings Report, Transcript and Summary

Good day and everyone and welcome to the UMB Financial Fourth Quarter and Year End Financial Results Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Abby Wendel, Senior Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, everyone and thank you for joining us for our conference call and webcast regarding our fourth quarter and full year 2014 financial results. Before we begin, let me remind you that today’s presentation contains forward-looking statement, 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 statement. Information about factors that may cause them to differ is contained in our 10-K for 2013 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 afternoon. 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 Relations section of umbfinancial.com under News and Events, Presentations. These will also be available after the call for your reference. On the call today we have Mariner Kemper, Chairman and Chief Executive Officer; Brian Walker, Chief Financial Officer; Peter deSilva, President and Chief Operating Officer; and Mike Hagedorn, President and Chief Executive Officer of UMB Bank. The agenda for today’s call is as follows: Mariner will provide high-level commentary on our results and Brian will review the details from our financials; then Mike and Peter will review results from our four 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. I’ll start this morning’s call by highlighting some of the information provided in the presentation that accompanied in our press release yesterday afternoon. You can also find the slides on our website. On slide 4 and 5, you will see the results from our fourth quarter and the year. For the fourth quarter, net interest income was $90.9 million which is $5 million higher than the fourth quarter last year. Non-interest income was $115.2 million and is $20.4 million lower than the same period a year ago. Expenses for the quarter were down 2.2% to $166.7 million. Net income was $26.9 million or $0.59 per diluted share, a decrease of $7.7 million compared to the fourth quarter of 2013’s earnings of $34.7 million or $0.77 per diluted share. For the year, net interest income increased 5%, non-interest income 1.4% and non-interest expense increased 6.8% for net income of $120.7 million or $2.65 per diluted share. As you can see on slide 6, return on average assets was 0.66% and return on average equity was 6.47% for the fourth quarter. Two notable items affecting those returns included $4.5 million in losses on valuation of Prairie Capital Management investments compared to gains of $15.1 million in the fourth quarter of 2013, a $800,000 reduction to the earn out liability in the fourth quarter 2014 compared to a $6.9 million increase in the liability in the fourth quarter of 2013. For the full year, we had $4 million in gains on Prairie Capital Management investments compared to $19 million in gains in 2013, $4.1 million in gains on the sales securities available for sale compared to $8.5 million in 2013, $20.3 million in contingency reserve expenses related to Prairie Capital Management compared to no impact in 2013, $6.6 million in earn out liability expense compared to a $11.2 million in 2013 and $3.3 million in gains on sale of assets compared to 389,000 in 2013. Reviewing a few more highlights from the quarter, we announced the agreement to acquire market financial companies, a financial services company with $1.3 billion in assets as of September 30, 2014, headquartered in Minneapolis with two national lending platforms and banking operations in Phoenix and Dallas/Ft. Worth. For details on the agreement, I will refer you to the announcement we made on December 15th, the press release and the company in SEC filings can be found on our website in the Investor Relations area. We look forward to keeping you appraised on our integration efforts post close, which we anticipate happening in mid 2015 following regulatory approval. The expansion in fourth quarter net interest income of $5 million year-over-year was once again driven by loan growth. Average loan balances for the fourth quarter of 2014 increased 12.9% year-over-year and 4.6% linked quarter. As of December 31, 2014, these $512.5 million increase in C&I loans was up by 15.5% and accounted for more than half of a $943.9 million increase in net loan balances. Commercial real-estate loans – loan balances increased $164.2 million to $1.9 billion. Our commercial bank continues to demonstrate the value as a core of our business model deploying assets to fund higher yielding loans and just as important generating solutions for our customers. Reduction in non-interest income for the quarter was largely due to two items, mark-to-mark, mark-to-market valuation timing on the PCM related investments and lower non-interest income from Scout Investments. As we discussed with you in prior conference calls, results from Prairie Capital Management investments have introduced the higher level of volatility to our income statement. The impact of which – I outlined in my earlier comments about notable items in our quarter’s results. The second item affecting non-interest income for the fourth quarter of 2014 is a $5.7 million decrease in non-interest income or institutional investment management segment comprised of Scout Investments compared to the fourth quarter of 2013. For the past year, we shared with you the net asphalts from the international front due to relative – is due to relative underperformance in 2013 and 2014. We communicated that there would be a lag between the time that the outflows occurred and when the revenue would decline. Our results for the quarter and the year now have begun to reflect that impact. Reduction in equity assets coupled with an increase in fixed income assets as called a significant shift in the mix of assets under management and corresponding decline in revenue for Scout of $5.7 million in the fourth quarter. Total assets under management remained flat at $31.2 billion for the quarter year-over-year plus the composition has shift from 51% equity and 49% fixed income at year end 2013 to 33% equity and 67% fixed income at year end 2014. This shift has negatively impacted to Scout’s results for the year and is anticipated to continue into 2015. On the expense side fourth quarter 2014 non-interest expense reflects increased salary expense, increased equipment expense and cost associated with our recent M&A activity. Later in the call, Brian will provide additional detail regarding expenses in the fourth quarter. The challenging environment in 2014 and expectations for the same in 2015, regardless of the source is a very reason for our diversify business model. We continue to smartly diversify our businesses and the products within those businesses to drive growth despite cyclicality, For example, our 2010 acquisition Reams Asset Management unable to AUM at Scout to hold steady year-over-year. Similarly by continuing to build high-quality CRE portfolio, we have been able to expand our loan portfolio and yields. UMB is a unique company, differentiated from our peers in ways make us an attractive long-term investment, with a long runway for success. With that, I’ll turn the call over to Brian Walker, our Chief Financial Officer, who will discuss our result in further detail. Brian?

Thanks Mariner and good morning everyone. My comments will focus on our financial results for the fourth quarter and full year 2014. As you can see on our press release in the period assets were $17.5 billion, net loans increased 14.6% year-over-year and 5.2% linked quarter to $7.4 billion. We are the leaders in the loan growth once again compared to the industry, which as of January 27 had reported a median increase of 5.5% in December – as of December 31, 2014 loan balances, compare to December 31, 2013 and a 1.5% increase on a linked quarter basis. Picking up on slide 7, the available for sale securities portfolio at December 31, 2014, was $6.9 billion having increased 2.2% year-over-year and 2.3% linked quarter. Slides 8, so total deposits at December 31, 2014 were $13.6 billion, a $23.4 million decrease year-over-year, but an increase of $863.4 million linked quarter. This increase marks the beginning of the seasonal inflow of deposits in conjunction with our public fund business. Average noninterest-bearing deposit balances in the quarter were 42.1% of our total deposits, which puts us in the top 4% of the industry according to SNL financial. Turning to average balances in yields on slide 9, the yield on loans for the quarter was 3.49%, a decreased of 13 basis points year-over-year and a decreased of one basis points linked quarter. The yield on total earning assets was 2.61% for the three months ended December 31, 2014. The linked quarter cost of interest bearing deposit, so the fourth quarter was flat at 16 basis points on year-over-year, the cost of interest bearing deposit increased one basis point. Our high percentage of free funds is a competitive advantage and is reflected in our low cost of funds. Our overall cost of interest bearing liabilities was 15 basis points for the fourth quarter versus 14 basis points a year ago. If you factor in free funds, this brings the overall cost of funds down to 9 basis points for the quarter and 10 basis points for the year. The changes in our balance sheet resulted in a net interest margin of 2.52% for the quarter and 2.49% for the year, this compares to 2.51% for the fourth quarter of 2013 and 2.55% for the full year 2013. Our commitment to quality is demonstrated through the strength of our balance sheet, as you will see on slide 11. So the quarter nonperforming loans on this percentage of total loans at December 31, 2014 was 0.37%, a decreased 1.47% a year ago and net loan charge-offs for the quarter on the percentage of average loans was 0.23% slightly lower than the same period a year ago. For the year, net charge-off were 0.22%, before a transition to discussing the income statement in greater detail are also report for the capital remain strong with tier 1 capital at 13.29%, total risk based capital at 14.04% and leverage ratio at 8.72%, as noted on slide 12. Next, slide 13 and 14 present additional detail on the non-interest income results for the fourth quarter and the year. Non-interest income for the year increased 1.4% to $498.7 million driven primarily by increased trust and securities processing income and bankcard fees, which more than offset the decrease from equity earnings on an alternative investments and the decrease in net gain on the sale of securities available for sale. For comparison, the increase in non-interest income from 2012 to 2013 was 7.4%. Our fee-based business segment which together provides the majority of non-interest income all posted positive results for the full year 2014 with increases in both non-interest income and net income. In looking at fourth quarter expenses, salaries and benefit expense increased 1.61% due primarily to higher salaries. The increase in equipment expenses largely because of increases in software maintenance and software amortization expense, 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. As a partial offset to the year-over-year decrease in Scout’s fourth quarter non-interest income, processing fees decreased $1.4 million compared to the fourth quarter 2013 because of lower equity fund AUM. You will also notice that we disclose $1.9 million in acquisition related expenses in other non-interest expense, of which $1.7 million was for legal and consulting expenses related to the pending acquisition of Marquette Financial Companies. Post close, we will provide regular integration updates as we combine market into our ongoing operation. 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 all of you this morning about the bank segment’s financial and business drivers which can be found starting on slide 17. As you will see in this slide, the bank segment’s net income for the fourth quarter was $14.4 million and the pre-tax profit margin was 16.5%. Continued pressure on net interest margin reinforces our focus on strategically growing our loan portfolio. Volume increases in the portfolio offset the impact of declining margin and with our 19th consecutive quarter of year-over-year net loan growth at 14.6% compared to December 31, 2013, we are able to maintain net interest income without losing much ground to competitive pricing in the marketplace. As you will see on slide 20 in the deck, our top two markets for average loan growth on a percentage basis continue to be Dallas/Ft. Worth and Phoenix. On a volume basis, our top three markets for growth are Kansas City, Phoenix, and Dallas/Ft. Worth. New loans in Kansas City were 38% of the increase, production in Arizona represented 13% of new outstanding loans and new outstanding loans in Texas were 12% of the increase compared to 2013. Over the past quarter many of you have been asked for the outstanding balances to borrowers in the energy sector as you might suspect energy lending is not a large area of exposure for UMB. At the end of the year, energy-related loans totaled $269.1 million or 3.6% of net loans as of December 31, 2014. Breaking down the balances, total upstream including E&P was 17%, midstream was 37% of balances. Downstream was 11%, and service businesses represented 35% of outstanding balances. Moving on to other types of loans, mortgages and HELOCs, primarily to our private wealth management clients, also contributed to the increase in loan balances. Residential real-estate loans ended the year at $319.8 million, an increase of 10.5% compared to December 31, 2013 and HELOCs increased 13.7% to $644 million, a new record for UMB. Looking at the asset management businesses within the bank, where we focused on institutions and high networks individuals, I’m pleased to announce assets under management have reached $11.6 billion, an increase of 13.5% from $10.2 billion at the end of 2013. Assets managed by Prairie Capital increased $749 million and assets managed by private wealth and institutional asset management increased $565 million, brokerage assets increased $67 million. With that, I’ll turn the call over to Peter to finish up on our prepared comments with the discussion on the performance of our fee-based business segments.

Thank you Mike and good morning everyone. Let me begin with the institutional investment management segment, comprised of Scout investments, equity and fixed income mutual funds, and separately managed investment accounts. For the fourth quarter, Scout’s net income was $4.6 million, an increase of $438,000 or 10.5% compared to the fourth quarter of 2013. The previously mentioned revenue decline of $5.7 million due to the shift in AUM mix was offset by an expense decrease of $6.4 million, due primarily to lower processing fees and smaller expense adjustments to the contingent consideration liability for Reams Asset Management’s in the fourth quarter of 2014 compared to the same period of last year. As we discussed in the past, revenue in the segment is driven by average mutual fund and separately managed account assets under management, net flows, and finally, equity and fixed income market performance. Assets under management stood at $31.2 billion on December 31, 2014, which is flat compared to AUM as of December 31, 2013. On a linked quarter basis, AUM increased $550.8 million from $30.6 billion. Scout’s fixed income mutual funds closed the year with assets of $2.9 billion and Scout’s equity mutual funds with assets of $7.8 billion. Scout’s fixed income separate accounts totaled $18.1 billion and Scout’s equity separate accounts totaled $2.4 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 accounts. Page 23, of the supporting materials shows the drivers of the change in the assets under management, both net flows and market impact. For the past three quarters, we recorded to you significant net outflows from the Scout equity fund, driven primarily by net outflows from the Scout international fund. As of December 31, 2014, assets in Scout equity strategies decreased $2.5 billion compared to September 30, 2014. For a linked quarter analysis components of this decrease included $1.7 billion in net outflows for the Scout equity mutual funds, $610.3 million in net outflows from Scout’s separately managed equity accounts and a negative market impact of $166.3 million. For the year, assets under management in Scout equity strategies decreased $5.6 billion compared to AUM as of December 31, 2013. Components for the year include net equity fund outflows of $4.4 billion led by the international fund, net equity separately managed account outflows of $877.5 million and lastly negative market impact of $308.8 million. Assets under management in Scout’s fixed income strategies increased $3 billion on a linked quarter basis, included in this increase were $89.9 million and net outflows from the Scout fixed income mutual funds and $3.1 billion in net inflows in the Scout’s fixed income separately managed accounts driven primarily by Russell Investment’s selection of Reams to replace Tempco for a $2.7 billion sub-advised mandate in our long-duration and core plus strategy. And we experienced the net positive market impact of $55.6 million across all of our fixed income products during the quarter. For the year, assets in Scout’s fixed income strategies increased $5.6 billion compared to assets under management at December 31, 2013. Components driving this increase include $236.1 million in fixed income mutual fund net inflows, $4.9 billion in fixed income separately managed account net inflows and positive market impact of $439.4 million for the year. Overall, we remain enthusiastic about Scout despite the near-term challenges facing the business. As you well know, the industrial management business can produce somewhat lumpy results during periods of relative fund or strategy underperformance. During these periods, it is important that our investment teams remain focus on delivering long-term relative outperformance for Scout’s investors. Next, I will discuss the Payment Solution segment. As you can see on slide 26, net income was $5.6 million for the fourth quarter and the pre-tax profit margin improved to 21.4% compared to the fourth quarter of 2013. Looking at the bottom of the slide, fourth quarter purchase volume for the segment was $2.1 billion, an increase of 27.3% compared to the same quarter a year ago. On the next slide, you will see that healthcare purchase volume of $1.1 billion represented 50.7% of total quarter purchase volume. Within healthcare’s purchase volume, $431.8 million is attributable to a healthcare virtual card program or likely what we call V-cards. A V-card is a single use payment mechanism that insurance companies use to pay medical providers. As you can see on slide 27, this product continues to gain traction as a percentage of healthcare related purchase volume. Total interchange revenue was $18 million, an increase of 13.4% year-over-year for the quarter. Revenue earned from transactions made with traditional credit cards provided 70%, while interchange revenue attributable to all of our healthcare card payments was 16.5%. 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. To highlight some additional detail on our healthcare services line of business, HSA deposits increased 41.5% compared to the fourth quarter of 2013 to $841.7 million. HSA investment assets increased 59.7% to $75.8 million. The number of HSA accounts reached 588,000 for a 34.4% year-over-year growth rate. Flexible spending arrangement benefit cards reached 3.8 million issues, which is a 19.1% increase compared to the fourth quarter of 2013. In 2014, we process $2.5 million V-card payments versus just 567,000 payments at the same point last year. In the more traditional credit and debit card space, the commercial credit card product in terms of both purchase volume and interchange dollars increased nicely for the fourth quarter. Purchase volume for commercial cards increased 12.8% year-over-year and was 17.1% of total card spend. To round out the discussion on payment solutions, I’d also mentioned that like most card issuers, we are not immune to retailers’ data breaches and for the full year related costs for fraud losses and card reissuance totaled approximately $4.3 million, an increase of 60.4% compared to the same period last year. The final segment I’ll discuss today is asset servicing segment comprised of UMB Fund Services, which ended the year with a $198.3 billion in total assets under administration, an increase of 3.8% compared to a $191 billion a year ago. Since the second quarter of 2012, the fund services team had successfully replaced more than $50 billion in custody AUA with more profitable assets in our fund accounting and administration, alternative investments, and investment management series trust products. Due in large part to these efforts, fourth quarter non-interest income increased 7.8% compared to the fourth quarter of 2013 and increased 10.1% on a full year basis. Pre-tax profit margin for the year improved 19.7% from 12.3% in 2013. Non-interest income in our asset servicing segment is based on a variety of factors depending on 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. Page 29 and 30 of the supporting materials shows metrics of some of our various services within UMB Fund Services. Overall, Fund Services added 143 net new funds over the past 12 months including 30 new funds in fund accounting and admin. With that, I’ll conclude our prepared remarks and turn it over to the operator who will open up the line for your questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Ebrahim Poonawala of Bank of America Merrill Lynch. Please go ahead.

Good morning guys.

Good morning.

Good morning.

I guess Peter, if we can talk a little bit about the institutional investment revenues, the international fund has struggled for the last two years as you mentioned. I guess what are we doing in terms of reversing that where there could be alternate funds that could help attract some equity assets? And how should we think about revenues for that sort of segment as we look at least for the next few quarters, given the lag that you mentioned between outsourcing the revenue impact and the potential for lower fees on the fixed income assets going forward?

Ebrahim, it’s Peter. So a couple of thoughts in that regard, number one, we have a diversified portfolio of investment products, and yes, the international fund was a large equity product and still is a large equity products at over $5 billion in assets. But we have a diversified set of products and we see traction in some of our other equity products as we’re getting lots of nibbles and bites from advisors and such. In terms of what to look for going forward from a revenue standpoint we’ve already talked about the mix shift that’s occurred and we expect that shift will probably continue for the foreseeable future, as we continue to see good flows and fixed income and try to rebuild our equity – our equity AUM. In terms of forward looking, we don’t provide guidance. We’ve told you that during the quarter, we had $5.7 million reduction in our non-interest income in the segment. We did have obviously fund fees made up a big part of that. But we also had some positive impact to offsetting some of the fund pressures from our separate accounts and fixed income.

Understood. And I guess on separate question in terms of loan growth was pretty strong in the fourth quarter. You pointed out Dallas, I guess as we think about loan growth going forward, do you expect growth coming – stemming from the rest of the Dallas market too slow over the next few quarters?

This is Mariner. Thanks for the question. I would say that broadly we expect the pipeline looks as strong as it did going into the fourth quarter. The pipeline looks similar going into the first quarter. Dallas, if you’re referring to the energy issues, we are not in Dallas to do energy lending. So while it is a component of what we’re going to do in Dallas, we are down there because it’s a big, the large population base and we think we can do all the same things in Dallas, we do elsewhere. So we don’t expect energy related issues to slowdown our loan growth in Dallas.

Understood. Thanks for taking my questions.

Our next question will come from Chris McGratty of KBW. Please go ahead.

Hi, good morning everybody.

Good morning.

Good morning, Chris.

In the past you guys have talked about trying to keep the expense growth at around 5% year-over-year. Obviously, you have the acquisition closing, which will distort it a bit. But can you maybe comment about – and maybe I missed this in the prepared remarks. Can you comment about the outlook for expense growth, maybe in light of kind of some softening that we’re seeing in fee income line items given the flow situation?

Yeah, so we did in the remarks we talked a little bit about the increase in the fourth quarter and equipment expense and maintenance, software amortization etcetera, related to several things in the fourth quarter, which we expect to the continued investments in such things as regulatory compliance, modernizing our systems related to the Marquette, anticipation of the Marquette acquisition, making our system stronger for cyber security etcetera. So we expect the trend in the fourth quarter to continue – as we continue to invest in our company.

That’s helpful, Mariner. I just maybe some clarity – does that suggest perhaps at least temporarily a upward bias towards that 5% mid-single digit number, you’ve talked about in the past, just given the necessity to kind of invest? Is that fair way to assume?

Yeah, we are refocusing more on operating leverage and efficiency ratio not so much focusing on the absolute level of expense, over a long period of time, right. We expect overtime that continue to see leverage there and I would just point to the trends in the fourth quarter on those areas.

Okay, understood. One last one on the account deposits, you guys are certainly under levered in terms of the balance sheet and deposits were flat this year. How should we thinking about kind outside the acquisition, the earning asset remix that potentially could occur whether deposits will grow in ‘15 or will you just naturally allow some higher stuff to flow off the balance sheet? Thanks.

Hi, Chris, this is Mike. I want to remind you and everybody else listening that we have spent a lot of time over the last several years building diverse sources of revenue. And so as we go out business certainly we would expect our balance sheet to grow and that would include deposits, but inflows your question is the impact of surge deposits. I would remind you again we have built all these diversified sources, healthcare being a very large part of that and the past growing part of that, private wealth management we talked about being 42% on non-interest bearing. So I think that our impact in a raising rate environment will be somewhat subdued relative to competitors because of the nature of deposits that we’ve attracted.

We’ve had exceptional loan growth, but we’ve also had exceptional deposit growth, right? So and what we want to remain strategic so we’re not going to run off and shrink our balance sheet to improve our metrics, we believe long-term franchise value comes from making sure you’ve got a strong deposit franchise. So, we expect to – as long as they’re strategic, we expect to continue to build our deposit franchise.

Great, thanks a lot.

Our next question will come from David Long of Raymond James. Please go ahead.

Good morning guys.

Good morning, David.

Good morning, David.

I’m looking at slide 20 and trying to come up with a number here on your exposure directly to Texas and the Dallas market. Do you have a dollar amount that you can say is the amount that you are exposed to that market right now?

Can you ask that again?

Just looking at the slide on slide 20, you gave commercial loans by region. And within Texas, it looks like a pretty small, small number, but I was just wondering if you had a dollar amount that you can put on that.

We would be happy to get that to you later, I don’t know if that’s in our public materials.

Yes, not on the slide, I mean as far as – if you’re looking for dollars, no, it’s not.

So, we haven’t – we can get – let us process that and see if we are ready to make that public.

Okay. And where I’m going as you said you had $269 million in energy exposure. Is that all in that Texas market?

No, no, not at all.

Okay.

It’s all across – we’ve been making energy loans for as long as you’ve been in business. So it’s in Oklahoma, it’s in Denver, it’s in Texas. Most of Texas stuff is in the Permian basin, which as you know has lower lift costs and so you know lower breakeven for the players in that particular state.

Got it. And then just as a follow-up, in the Marquette acquisition, they have some exposure in the Texas market as well. You gave your exposure direct to energy. Can you give us the Marquette’s exposure to energy?

Sure, David, this is Mike, $34 million and it is about 4% of the loan portfolio. So I would certainly argue that that’s not material.

Got it.

As of September 30.

Right, right. All right, great, that’s all I have. Thanks, guys.

[Operator Instructions] The next question will come from Matt Olney of Stephens. Please go ahead.

Hi, thank you, good morning guys.

Good morning, Matt.

Good morning, Matt.

I apologize. I hopped on the call a few minutes late. I wanted to ask about the loan yields. It looks like they continue to stabilize here in the last few quarters. Any incremental commentary on loan yields in the fourth quarter and the outlook there?

Yeah, on a linked quarter, Matt, what I would say is you know our new customer growth, which was around $145 million, if you’re looking at just the effect on yields at price of 326 certainly helped our loan yield, so putting on some new business, we’ve had a little bit of reduction in payoffs and pay downs, so that’s not in as high as it has been in prior quarters. So given the loan growth numbers that we talked about earlier and the contribution that new loans are adding to are at least helping on an overall basis, maintain our margin, or at least reduced the reduction if you look at that way, we feel pretty good about that.

The reduction is stabilizing.

Okay. And then switching over on the other side, I think Peter already addressed some of the headwinds on the revenue side from institutional investment management, the outflows from Scout. Can you talk more about how committed you are to delivering the positive operating leverage in 2015 that you addressed earlier, Mariner, especially in light of your expense commentary?

Can you repeat that, I’m sorry?

Well, I’m just trying to reconcile some of the comments from before as far as you talked about positive operating leverage in 2015. And I’m trying to figure out how you’re going to get there in light of some of the headwinds on the revenue from the Scout outflows.

So, sorry if that’s the way that came across. The message is meant to be overtime. We expect to gain that as we make these investments. We expect the headwinds remain in 2015.

Okay. All right, that’s all my questions. Thank you.

And our next question will come from John Rodis of FIG Partners. Please go ahead.

Good morning, guys.

Hi, John.

Good morning, John.

Peter, I think you talked a little bit about fraud losses in 2014. I think you said they were around $4 million. It sounds like at least half of that was in – roughly half of that was in the fourth quarter. Can you sort of – it sounds like the trend is higher, but can you just talk a little bit about that?

Yeah, so you got the number right. It was $4 million on a full year basis and $1.7 million in the fourth quarter. These events tend to be episodic. So it’s hard to really know when these are going to happen, but clearly the industry is still experiencing these sorts of compromises primarily at the retailers and we are going to be subject to them as we go forward.

Okay. And the increase in losses in the fourth quarter – is it fair to assume it was probably driven by one or two different locations or retailers, I guess?

Yeah. You see the new like we do. We issue cards across the country and so we are subject to the same compromises that you are reading about in the newspapers.

We are not impacted by anything different than any other card issuer is correct, yeah.

Okay, fair enough and Mariner, maybe just a question for you on your thoughts on M&A activity going forward. Obviously, you have got the Marquette deal outstanding, but sort of what your thoughts once you get that integrated and so forth?

Well, without spend a lot of time on the data about transaction, which you can go back and look at over – in our presentation off our Investor Relations site, but we expect it to be accretive pretty quickly and we’re going to be able to really leverage it. It gives us a lot of extra. If you’re talking about specifically Marquette, it’s going to give us a lot of presence in Phoenix and Dallas, takes our presence in both those states to the next level overnight and the highly lent-up institution, so we get the benefit of that on our loan deposit ratio, loan yields. There is some great benefit from the cost of funds etcetera. There are a lot of things – it’s all in that presentation. I don’t know if you’re talking about that one or just whether we are still interested in M&A.

Yeah, I’m sorry, Mariner. I guess I was talking more going forward. Have you seen more inbound calls and so forth?

Got it, that okay, I wasn’t sure whether it was – okay. So we remain – we have an active M&A group internally and we continue to look for opportunities, we would like to continue to build our banking franchise and quite frankly looking for opportunities in the other three business segments as well. But we do like the opportunity right now to continue to build the banking franchise. First, for the typical ongoing reasons, also in this heightened regulatory environment where it costs more to be in business, we see some benefit also being a large organization to spread those cost across.

Yeah, okay. Thanks guys.

Thanks.

[Operator Instructions] At this time we were showing no additional questions, so this will conclude the question-and-answer session. I would like to turn the conference back over to Abby Wendel for any closing remarks.

Thanks, Denise. And thank you very much for you interest in UMB. This call can be accessed via a replay at our website beginning in about two hours and it will run through February 11. 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.

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