UMB Financial (UMBF) Q4 2019 Earnings Call Transcript

UMB Financial (UMBF -0.59%)
Q4 2019 Earnings Call
Jan 29, 2020, 9:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the UMB Financial Corporation fourth-quarter 2019 financial results conference call. All participants will be in listen-only mode. [Operator instructions]. After today's presentation, there will be an opportunity to ask questions.

[Operator instructions]. Please note this event is being recorded. I would now like to turn the conference over to Kay Gregory, director of investor relations. Please go ahead.

Kay Gregory -- Director of Investor Relations

Good morning, and welcome to our fourth quarter and year-end call. Mariner Kemper, president and CEO; and Ram Shankar, CFO, will share a few comments about our results; Jim Rine, CEO of UMB Bank will also be available for the question-and-answer session. 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 circumstances or aspirations may differ from those set forth in any forward-looking statement.

Details about factors that may cause them to differ are contained in our SEC filings. Forward-looking statements speak only as of today, and we undertake no obligation to update them except to the extent required by securities laws. Our earnings materials are available online at investorrelations.umb.com. All earnings per share metrics discussed on this call are on a diluted share basis.

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

Mariner Kemper -- President and Chief Executive Officer

Thank you, Kay, and thanks to everyone for joining us today as we recap our fourth quarter and full-year 2019 performance. As I look back on the last 12 months, I'm proud of our team's ability to produce solid results which include strong loan and deposit growth and continued fee income momentum. We earned $66.5 million or $1.35 per share in the fourth quarter, and $243.6 million or $4.96 per share for the full year of 2019 on total revenue of $1.1 billion. Average loan balances grew 10.6% on a linked-quarter annualized basis.

For comparison purposes, publicly traded banks that have reported to date have shown a median linked quarter annualized increase of 4.1% in average loan balances. For the total portfolio, fourth-quarter topline loan production was a record $1 billion. Total payoffs and paydowns were slightly more elevated than usual at $656 million this quarter or 4.9% of loans. Net average loan growth of $341 million for the quarter was led by C&I and CRE and the recent growth in residential real estate loans originated both from private banking and consumer continued in the fourth quarter.

In 2019, we added $111 million of mortgage balances on a year-over-year basis for an increase of 16.4% compared to an increase of 13.4% in 2018.We continue to see growth through both market share gains and in our underpenetrated markets, as line utilization trends have remained fairly steady. The top three loan-growth regions for the fourth quarter were St. Louis, Colorado and Texas. These are the areas with less than 2% market share for us.

Full-year 2019 production of $3.6 billion represented a 39% increase over 2018 levels and led to $1.2 billion of net growth on average. We experienced both growth and payoffs as a result of robust M&A activity among our clients. And in several markets have been able to take advantage of disruption caused by bank mergers. We continue to see opportunity in our markets, and the production pipeline remains strong as we look forward into the first quarter.

Net charge-offs for the fourth quarter were 0.23% of average loans, and on a full-year basis, net charge-offs were 0.27% of average loans in line with our historic averages. And consistent with our comments last quarter, non-performing loan balances did indeed decline by 22% from the third quarter. Our loan book remains well diversified, and I'm proud of our long-term track record of quality underwriting. These results and the quality of our portfolio drove the lower provision in the fourth quarter.

Now looking to the income statement, net interest income increased 2.4% compared to the third quarter driven by strong asset growth and lower funding costs. As we mentioned last quarter, our strong loan pipeline should help us continue to grow our net interest income even in the current rate environment. On the fee income side, we saw continued momentum with an increase of 6.5% compared to the third quarter. Corporate trust and fund services both posted strong results.

And our investment banking team saw increased underwriting activity and customer demand, which along with positive fixed income markets drove solid increases in agency, municipal and MBS trading revenue. Again this quarter, there was some noise in our other income line related to market adjustments that often have expense offsets, including positive impacts from COLI and equity earnings income. Our expenses for the quarter increased $12.1 million, compared to the third quarter driven largely by incentives tied to business and revenue growth, hiring in several growth businesses and overall company performance. The momentum in our fee income related businesses and the correlation with commission payments can add variability to our expense levels.

We estimate that approximately three-fourths of the quarter-over-quarter increase in expense was tied to business growth. We continue to invest in our business including the reinvigoration of our retail business. We've discussed before rolling out the new teller platform, online banking upgrades, and online account opening capabilities, which are nearing completion. In the fourth quarter we launched a retail credit card campaign which drove some of the increases in advertising and postage expense.

This campaign will build on the growth we've seen over the past year with 2019 retail card account originations up 63%, compared to 2018 levels. Additionally, we've been opportunistically adding to our teams and to our revenue-producing capabilities. For example, we have hired an experienced team of middle market commercial banker in the desirable twin cities area and a successful group of business banking professionals in Salt Lake City. Several of these new hires are onboard now and the rest are in process.

We will share more details on these teams in the coming quarters. In closing, our success in 2019 has set the bar high for us in 2020. With the current rate backdrop, year-over-year revenue growth is likely to moderate from the 8.5% levels we experienced in 2019. However, we aren't slowing our focus, and we remain very diligent about controlling expenses as tightly as we can without mortgaging our future.

As I shared earlier, we will continue to invest prudently in our business to enhance our revenue generating capabilities and improved customer-acquisition trends and experience, but we'll also have an eye on efficiency. While we typically do not give guidance, I believe we can do better than the current 2020 consensus earnings estimate barring any material unexpected deterioration in the operating environment. Now, I'll turn the call over to Ram for a more detailed discussion of our results. Ram?

Ram Shankar -- Chief Financial Officer

Thanks Mariner. The benefits from our strong loan and securities growth balance and lower funding costs that drove increase in net interest income were partially offset by declining asset yields and the payoff of some higher yielding balances that shifted the mix of our loan portfolio. Total earning asset yields fell 23 basis points to 3.76% from the linked quarter, driven largely by a 30-basis-point decline in loan yields. Approximately 61% of our loans are variable tied to short-term interest rates.

One month LIBOR fell 26 basis points in the fourth quarter, impacting 56% of our loans that repriced during that period. Interest-bearing deposit costs declined 22 basis points contributing to the 24-basi-point reduction in the cost of interest bearing liabilities and the 18-basis-point decline in total cost of funds. Net interest margin for the quarter was 3.02%, down seven basis points from the prior quarter. While our net interest spread at 2.66% was virtually unchanged from the prior quarter, the benefit from free funds declined by seven basis points sequentially as their value declined in a lower interest rate environment.

Overall, margin was positively impacted by approximately 16 basis points from lower funding costs and balance sheet mix changes and four basis points from higher loan fees. Negative offsets included approximately 17 basis points related to loan pricing, seven basis points from the decreased benefit of free funds and three basis points from excess liquidity, primarily driven by excess deposit flows in our institutional businesses. Repricing in the AFS book provided about one basis point of net interest margin improvement as cash flow rolling off at 2.43% during the quarter was reinvested at 2.69%. Considering recent market dynamics and our expectation that the fed will hold rates for now, we would expect approximately four basis points to five basis points of net interest margin compression for the first quarter.

As always, the actual outcome for net interest margin will depend on a variety of factors, such as the pace at which LIBOR moves, loan growth, the potential variability in our aviation trust and public fund businesses and our overall balance sheet mix and need for funding. Average total deposits increased 5.6% on a linked-quarter basis, largely in institutional and commercial money market balances along with the beginning of annual buildup of public funds. DDA balances rose by 5.2% to $6.4 billion, driven largely by corporate trust including our aviation business and the typical year-end buildup of cash for municipal payments. Our overall deposit composition by source is shown on Slide 14.

Moving back to the income statement. Mariner discussed some of the opportunities we're seeing in fee income and the detail on specific drivers are shown on slides 21 and 22. Total reported noninterest income was $110.4 million for the quarter, an increase of $6.7 million compared to the third quarter. Positives include trust and securities processing income, which improved $1.6 million or 3.6% over the third quarter, driven largely by fund services and corporate trust revenue.

Additionally, trading and investment banking income increased by $1 million due to higher trading volumes. Also included in the increase were some market and volume related items reported in the other line, $2.6 million of COLI income or a $3 million increase from the third quarter, which has a proportional offset in deferred compensation expense, a $2.5 million increase in equity earnings on alternative investments, which was one contributor to the bonus and commission expense and a $1.4 million-linked quarter increase in derivative income. $2.3 million of lower gains on sale of securities partially offset these increases. Non-interest expense for the fourth quarter was $203.5 million an increase of $12.1 million from the third quarter.

More than 50% of the quarter-over-quarter increase in expenses were driven by higher bonus and commissions expense within the salaries line item tied to business and revenue growth and overall company performance. Deferred compensation expense, the offset for the increased COLI income, increased $2.5 million on a linked-quarter basis. More detail on quarterly expenses can be found on Slide 25. Our effective tax rate was 13.9% for the fourth quarter, and 14.8% for the full year 2019, benefiting from greater levels of income from tax-exempt sources, such as municipal bonds.

For 2020, we expect our tax rate to be between 15% and 16%. Finally, going back to Slide 17, in the asset-quality section, we've provided some high level preliminary detail about the implementation of CECL. We expect the day one impact on our reserves will be an increase of approximately 10% with very minimal impact on our common equity Tier 1 ratio at adoption. These estimates were calculated using current economic outlook on the current characteristics of our portfolio.

We plan to review, make any necessary modeling updates and present our final day one impact when we file our 10-K. Day two provisioning will depend on the mix of portfolio growth, as well as expectations for the macroeconomic variables highlighted on this slide. That concludes our prepared remarks. And I will now turn it back over to the operator to begin the Q&A portion of the call.

Questions & Answers:

Operator

We will now begin the question-and-answer session. [Operator instructions]. The first question is from Chris McGratty with KBW. Please go ahead.

Chris McGratty -- KBW -- Analyst

Mariner, I just want to start on the investments you're making. How should we be thinking about the level of expense growth in 2020 versus 2019 in light of this and in light of kind of the more challenging revenue outlook that we've been presented by lower rates?

Mariner Kemper -- President and Chief Executive Officer

Well, we don't obviously give guidance on that. But what I would say is that we talked about some of the level of business investment expense related to revenue and investing in teams and things like that, and some of the marketing dollars that hit the fourth quarter numbers making them look a little higher than they had been. Some of the answer to that will be spending on what the revenue picture looks like in 2020. And we talked about in our comments as we always do that the loan growth and pipeline numbers look pretty good as we look into the first quarter.

So as we mentioned in the comments investing in a couple of teams, in Salt Lake, and in Minneapolis. So those things will kind of weight right on the expenses. Ram do you want to add anything? We don't give any guidance on that. You shouldn't expect a big reduction in our expense load, right.

So I don't know if you have to say, Ram.

Ram Shankar -- Chief Financial Officer

Chris, we'll definitely be cautious on expenses, obviously, internally we focus a lot on operating leverage. So to your point and Mariner's comments, the revenue environment, the rate environment will be a tough one going into 2020. And as Mariner's said, we set the bar pretty high for us in 2019. But that doesn't mean we will not focus on the expense side of the equation.

Mariner Kemper -- President and Chief Executive Officer

We're definitely focused on making sure that we operate as efficiently as we can in 2020 without mortgaging the bright future that we see by continuing to invest in our company. I've never been as pumped as I am about investments we've made and the team that we have as I look into the next three and five years, I mean 2020 is going to be a tough operating environment, but the investments we've made and the team I've got on the field, if we could go to the Super Bowl, like our chiefs are going to the Super Bowl, I would say we have a Super Bowl contention team.

Chris McGratty -- KBW -- Analyst

I'm just trying to get a sense of where you are in the investments, sorry, the two teams, how much of the impact was felt in 2019 versus a continuation of what you see as some revenue opportunities to invest?

Mariner Kemper -- President and Chief Executive Officer

I'm sorry, because I don't know that we can give you too much more color on that without becoming a company that gives guidance.

Chris McGratty -- KBW -- Analyst

In terms of the quarter, there was a comment in the release about the derivatives offset. Just trying to make sure that's what seems like a one-time item, but just can you give some color on that?

Ram Shankar -- Chief Financial Officer

Yes, sure. Chris, this is Ram. So just to give you some context, for the full year 2019, our total derivative expenses were less than $200,000. So what you saw in this particular quarter was an adjustment or a benefit of $3.5 million that reduced our expenses.

Basically what it did was reversed out all the higher derivative expenses in the second and third quarters we've been talking about. So if you go to our press releases in second and third, our derivative expense spiked because of some activity. So our notional book on the back-to-back swaps has increased about 50% in 2019. So as part of that, we revisited our valuation adjustments or our valuation assumptions and made it more in line with where the industry is.

So that's why you see that quarter-over-quarter spike of $5.1 million swing, but I would look at the total expense line item on a full-year basis.

Chris McGratty -- KBW -- Analyst

And then the last one on the seasonality in the deposits. How do we think -- I mean it seems like this quarter seasonality was even more meaningful than prior fourth quarters. How do we think about kind of first quarter, first second quarter of just the balance sheet as accordions up and down? Thanks.

Ram Shankar -- Chief Financial Officer

As I said in the prepared remarks, some of the seasonality is typical with public funds. Those come in the second half of December really. So there wasn't a big impact in the fourth quarter because of public funds necessarily a lot of the deposit inflows and the excess liquidity had to deal with our institutional businesses, particularly asset servicing, because funds weren't readily deploying some of the cash balances into the market. And then the aviation trust business, which is fairly new to us, and so there's a little bit of volatility to it.

Probably since public funds typically peaks in the first quarter and then steps it down, it's really hard to say what's going to happen to some of these deposit balances given that very nature -- they tend to be very transient in nature short-term. They get deployed pretty easily in the markets. So a lot of things can change on us, which is why it's really hard to give a clear answer on what will happen to deposits and margin for that matter.

Mariner Kemper -- President and Chief Executive Officer

I would add though, the aviation trust business, it is new to us, so we don't have a lot of experience with it. But as the business continues to expand, one second here, something is going by on the road here, snowblower, snow truck just went by. Anyways, our expectations for the aviation trust business are that as it expands, and we have more business coming along that the growth in that deposit base stays behind should grow, because the number of clients is growing. So there is an expectation that, that deposit base continues to grow, even though we don't have a lot of history with it.

Operator

The next question is from Nathan Race with Piper Sandler. Please go ahead.

Nathan Race -- Piper Sandler -- Analyst

Going back to the last question on deposit growth expectation, just question more broadly just think about 2020 in aggregate, deposits exceeded loan growth in 2019. So just curious just given that where your pricing and given some of the expansion in the corporate trust side of things, if you still expect deposit growth to exceed loan growth in 2020?

Jim Rine -- Chief Executive Officer, UMB Bank

No. This is Jim, Nate. We don't anticipate that. However, on the increase in expenses that you saw in fourth quarter, the increased marketing expense for the consumer division was to continue to attract consumer deposits.

The increase in the consumer card spend that we're currently doing that we've seen success is to continue to build our consumer franchise. So we are looking to balance some of that growth in our consumer division. We have been able to successfully attract obviously commercial deposits via yield but with the new markets that we're going into, those teams are laser-focused on deposit collection as well, not just loan-building balances. So we do anticipate those to be successful obtaining balances in Salt Lake, as well as Minneapolis.

But to exceed our loan balance expectations, I don't anticipate that.

Nathan Race -- Piper Sandler -- Analyst

That's helpful color. Appreciate it, Jim. And then just changing gears and thinking about the institutional segment, the pre-tax margin ticked up nicely in the quarter. And I think it's the highest level that we've seen last seven or eight quarters or so.

So just curious, just given some of the investments that you've made in a number of those units, and just given the scale that you guys are seeing there, if we can kind of see this as a sustainable pre-tax margin level going forward or if you think there's more investments or maybe going to limit that expansion of this level going forward?

Jim Rine -- Chief Executive Officer, UMB Bank

I would think we could anticipate this level going forward. We continue to make investments. As you know, we closed on the last corporate trust acquisition, while smaller in revenue. We have made considerable investments.

We've discussed what we're doing with the various fintech partnerships that we established as far as the FDI sweep relationships, but the corporate trust business, as well as the traditional broker dealer business, but we've seen increases in the bond trading month-after-month, quarter-after-quarter, which have been reflected in the year-end results. And we're very excited with what we're seeing with institutional. I think I'm confident you will see continued results from that division.

Mariner Kemper -- President and Chief Executive Officer

Yes, it's very leverageable at this point, the investments that have been made.

Operator

The next question is from Gordon McGuire with Stephens. Please go ahead.

Gordon McGuire -- Stephens Inc. -- Analyst

I wanted to follow-up on the discussion around the bonus and commissions. How much of the -- call it $40 million increase in compensation this year was related to that and tied to the revenue side and volumes?

Mariner Kemper -- President and Chief Executive Officer

So, we didn't break it out exactly for you. We'll probably going to stick with the answer we gave in our prepared remarks, which is that three-fourths of the expense increase came from business generation activities, of which included in bonus and so you had bonus and commissions tied to new business, we had some marketing dollars related to the increased activities for our credit card and deposit-gathering activities. There's some expenses related to the hiring, the regional hirings of the folks that we've added in Minneapolis and Salt Lake. And Ram, you might have a couple of additions.

Ram Shankar -- Chief Financial Officer

Yes. Gordon, if you go to Page 25 of our slide deck, we've kind of enumerate where the drivers of the salaries and benefits are. So I'll go back to what Mariner said about 70% of the quarter-over-quarter increase was because of volume and revenue growth. And then my comments also 50% of the expense growth is related to bonus and commissions again.

So of the $10.7 million increase in salary and $6.8 million was tied to bonus and commissions. Again, overall company performance, widget growth, revenue growth, all of that.

Gordon McGuire -- Stephens Inc. -- Analyst

Yes. I guess I was just trying to get at given the really strong balance sheet growth, the strong fee growth, how you gauge whether you're kind of at a high level watermark for bonus and commissions specifically for this year?

Mariner Kemper -- President and Chief Executive Officer

Well, I mean, it was a hell of a good quarter, I guess, love to repeat it. I mean, again, we don't give guidance on. It was a pretty good quarter.

Gordon McGuire -- Stephens Inc. -- Analyst

And then switching to fees, specifically cards, purchase volumes were up double-digits this year, but interchange fees kind of low single-digit growth. Can you talk about the headwinds you're seeing on interchange rates and whether you see that continuing?

Mariner Kemper -- President and Chief Executive Officer

Well, to a high level, and then Jim reports them, can go deeper. But as we talked in the past 60 some odd percent of our interchange income comes from the healthcare business. And we've talked about that business in the sense that we don't necessarily control what we have paid there, because we have partners and we have sharing arrangements. So that holds down what would be the numbers otherwise.

So, we carry better interchange in the commercial and the consumer but the volume you see in our slide deck on Page 37 you can see the breakdown of the percentages, and that's really what pulls it down. I don't want to add anything to it, but it's a sharing relationships with our healthcare business pulls it down. Now the beauty is it's working right is it should be volume-driven, right? So all those partners and all those relationships, so from a just an earnings growth perspective it's a lower margin but a decent growth. So $3.2 billion in the quarter of interchange spend, right.

So we expect that number to continue to grow on a quarterly basis.

Jim Rine -- Chief Executive Officer, UMB Bank

In that model it's obviously tied together with the deposit growth coupled with the account fees. So the cards is a piece of it but certainly lower net margin, which Mariner just described.

Gordon McGuire -- Stephens Inc. -- Analyst

That's helpful. And then Mariner just any updates on M&A prospects, where the focus would be. And just readiness for any kind of M&A given the internal investments this year?

Mariner Kemper -- President and Chief Executive Officer

Sure. So, I mean, as far as readiness goes, all of the things we talked about, the investments we made, etc. were ready. We're very much would like to know.

No new comments really from quarter-to-quarter as far as we are with it. We've got an active effort, active team, active calling effort, very much we'd like to do a deal that we can see all the right things from whether it's synergies or cultural overlap to ultimately spread our expenses over a larger organization within our footprint or contiguous. So we're ready to go and will have an active effort and continue to look for the right deal on the banking side. And then, again, no new real comments, we continue to look for corporate trust opportunities, aviation trusts, anything related to our corporate for us and trust activities.

We've had in our investment services business where we're providing banking services to broker dealers and fintech companies. And we're looking across that whole spectrum for either product additions, where we can add more products on the truck to the customer, or in bolt-on type acquisitions or consolidation opportunities. We believe that on the corporate trust side, we can continue to be a consolidator there as we've been successful about and are already having a lot of success. We continue to see opportunities there, and we would like to continue to see opportunities there.

Operator

The next question is from Ebrahim Poonawala with Bank of America Securities. Please go ahead.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

So most questions have been asked and answered. A couple of just follow ups and sorry if I missed this. The $2.2 billion in period end deposit growth. Now, I understand there is some seasonal outflows we should expect in the first quarter.

But any sense of how much of that you expect to retain beyond 1Q of the $2.2 billion?

Ram Shankar -- Chief Financial Officer

It's really tough to say. Ebrahim, this is Ram. It's really tough to say with some of these businesses, that's the traditional seasonality that we've talked about historically about public funds. But as I said earlier, and Mariner added to it some of these businesses, we're fairly new, especially the corporate trust aviation business, and that's growing really nicely on a steady basis.

And then there's volatility, especially at the end of the quarter sometimes. So it's really hard to say, long answer to say, it's really hard to say what the outflow is going to look like.

Jim Rine -- Chief Executive Officer, UMB Bank

And then we've talked about the success really across the board on fee income, which is coupled in a lot of ways with deposit growth. So fund services is having success and with every account we bring on our fund services, there's a bit of institutional deposit business that comes with each and every one of those relationships. So hard to tell at this point. Certainly there'll be some contraction just because of the public funds business.

Mariner Kemper -- President and Chief Executive Officer

I talked about the three key-basis-point impact to margin from excess liquidity. And if you look at on a quarter-over-quarter basis, we're probably about 500 million to 600 million richer in liquidity. So that's probably a diet for you to consider and answering your question too.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

And what was public funds at the end of the year in balances?

Mariner Kemper -- President and Chief Executive Officer

I don't have that handy, Ebrahim, December is it when it starts picking up. So first quarter is the seasonal peak for it. I can get back to you later.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

And just thinking separately, so you had a strong quarter on loan growth. You've been steadfast I think through back half of last year even in things were macro wise not looking great in terms of high single-digit-loan growth expectations. Just talk to us in terms of anything in the markets that seems concerning and what are the markets you're seeing the best growth and industry verticals where you're seeing the best opportunities?

Mariner Kemper -- President and Chief Executive Officer

It's really coming from everywhere. My remarks have been the same for quite some time about why we continue to see sort of better than industry loan growth, which is a lot of it is, I'll hit them high level again, but under penetration in a lot of our large markets. So just being able to execute right people on the ground, plenty opportunity for us to just get a decent market share in several large markets. And we continue to be underpenetrated vertically also, right, as it relates to stronger efforts over time to put specific specialty individuals and marketing and all that and hiring against particular verticals and in marketing to them specifically more than we were used to be generally.

So those two things, which we've talked about for some time continue to drive a lot of opportunity for us. And we think there's a long runway for that. We also just have a really good team. There's a lot of tenure putting people, particularly in the commercial lending side is, I think a lot of you know, you're able to put the same people in front of your prospects and clients for a long period of time.

It bodes well for you and it's a long sales cycle in this business. So, we were uninterrupted from crisis. So we don't have to retrain our prospects and customers. And again, it's kind of same remarks I've had about that for quite some time.

I don't know, Jim, if you want to add something.

Jim Rine -- Chief Executive Officer, UMB Bank

We've seen loan growth in every market, but one and it was more of a real market for us. Industry wise, there hasn't been -- I mean there are pockets. We are seeing some slowdown in transportation. I believe I've mentioned that last quarter as well.

Nothing in our portfolio that we're concerned with, but just macro indicators that raise concerns. But our production last quarter, almost 50% was from C&I. So with that C&I business, we get the treasury business and the ancillary accounts. And so it's been exactly with the addition of the real estate, which is over the last five to six years on the CRE books, but it's what we have always done and our market penetration as Mariner addressed earlier the markets that have historically been underpenetrated but we have a compelling story and we're continuing to tell it in the markets that we've expanded into over the years with that great growth in Texas and Colorado, St.

Louis, and it continues to move forward on the Salt Lake and Minneapolis.

Operator

The next question is from David Long with Raymond James. Please go ahead.

David Long -- Raymond James -- Analyst

Ram, I think you indicated for the first quarter, what you were looking at said that the NIM may be down four basis points to five basis points. And just curious if you could provide a little color on how you see asset yields and the funding side of the balance sheet, both working in the first quarter to get to that point?

Mariner Kemper -- President and Chief Executive Officer

Yes, so if you just look at one month LIBOR, right? Since year-end, it's come down about 15 basis points. It's right now at 165. So as I said in my prepared comments, about 40% of our book is tied to one month LIBOR. So, I think the fed doesn't do a whole lot just because of the movement in LIBOR, you should see some pressure on the asset yields or I should say loan yields.

But that should be offset by the growth prospects that both Jim and Mariner talked about. And then on the portfolio side, if you look at our disclosures, we have about $1.1 billion of roll-offs, or cash flows coming due in the next 12 months. And approximately a quarter of them were in the first quarter, and the roll-on roll-off difference was about positive 30 basis points, 35 basis points. So that should offset some of that asset yield pressure just from what's happening with the LIBOR rates.

And then on the funding side, we're being very diligent on the funding side, obviously we will be very cautious and react to the environment. And so, we should see some alleviation of pressure on deposit costs. And overall, if the interest rate stays the way it is, same thing on net interest margin as well.

David Long -- Raymond James -- Analyst

And then as it relates to the Commerce Trust acquisition, I believe that closed at the end of November. Did that contribute to any of the deposit growth that you had in the quarter?

Mariner Kemper -- President and Chief Executive Officer

Not materially, no. That's a small acquisition.

David Long -- Raymond James -- Analyst

And lastly, as it relates to CECL, as you guys are getting closer to actually having to report results under CECL, have you thought of or does it change your appetite for any particular type of loan? Does it change either your willingness to make that loan or the pricing that you have historically done versus what you may do in the future?

Mariner Kemper -- President and Chief Executive Officer

Not really because I think whatever we would do is going to come on the margin and it's going to come in over time. As you've probably learned, there's different asset classes that carry different weighting, the mortgage business, for example, is one of those. And currently for us that's not a big part of our balance sheet, so it doesn't have a big impact. We do plan on and we talked about that expanding our mortgage business but it should happen over time and have an impact that you would imagine would come something that happens a measured in over time.

So not really, nothing we expect to change the way we do business. Actually, the way we bring in business today and the type of business we bring in today is actually more beneficial to us than a lot of our peers really as it relates to CECL.

Jim Rine -- Chief Executive Officer, UMB Bank

And it all comes down to competition. So what the big banks do, if they react to CECL, which is unlikely, then we'll have to change our terms too but otherwise it's strictly on our industry folks.

Operator

[Operator instructions]. The next question is a follow up from Chris McGratty with KBW. Please go ahead.

Chris McGratty -- KBW -- Analyst

Just two quick ones. First, any thoughts on any updated thoughts on the buyback? You obviously have been using it because of the organic growth, but any kind of change in philosophy on levels of where you might consider buying stocks?

Mariner Kemper -- President and Chief Executive Officer

No. for those who haven't heard it before, I mean we obviously want to put our capital work to build the business first. So we're going to prioritize our capital against acquisition, lift out and things like that. And then to the extent that those aren't coming as quickly as we like, we can obviously always do buyback and/or increase our dividend and do some more acquisitions.

So it could be a mix of all of it. We keep an eye on it. You've seen us do it before, so we have a willingness. Did our first ASR not long ago.

So certainly willing to do it when the time is right, and it's appropriately priced and we feel good about it. But other than that, we're going to be focused on putting our capital to work, building the business.

Chris McGratty -- KBW -- Analyst

Great. And Mariner on the M&A front, I think your last deal was Marquette, was $1.5 billion in assets. Can you remind us the range of what you might be considering? Obviously 2019 and 2020 seems to be the market moving toward more transactional and transformational deals but maybe your appetite for precise?

Mariner Kemper -- President and Chief Executive Officer

There is no hard and fast rule there. The smaller the deal, you doing all the same amount of work to do that. And you don't get the list out of it. So, certainly the Marquette deal would be a nice bottom end of the range.

The bigger the best. So and then the only other thing I'd say because we take risk very seriously, the bigger the opportunity, the less risk we're going to want to take doing the deal. So those are going to have to be banks look a lot like us. They're bigger.

That makes sense, but we're prepared to do deal as Marquette or larger.

Operator

This concludes our question-and-answer session. Now I'd like to turn the conference back over to Kay Gregory for any closing remarks.

Kay Gregory -- Director of Investor Relations

Thank you, and thanks for joining us today. This call can be accessed via replay at our website. And as always, you can contact the investor relations at 816-860-7106 with any follow up questions. Again, we appreciate your interest and time.

Thank you.

Operator

[Operator signoff]

Duration: 43 minutes

Call participants:

Kay Gregory -- Director of Investor Relations

Mariner Kemper -- President and Chief Executive Officer

Ram Shankar -- Chief Financial Officer

Chris McGratty -- KBW -- Analyst

Nathan Race -- Piper Sandler -- Analyst

Jim Rine -- Chief Executive Officer, UMB Bank

Gordon McGuire -- Stephens Inc. -- Analyst

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

David Long -- Raymond James -- Analyst

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