Q3 2023 UMB Financial Corp Earnings Call
Hello, and welcome you MB financial third quarter 2023 financial results Conference call.
My name is Eliot now recorded 19 your call today.
If you would like to register your question Terence Page. Please press star followed by one on your telephone keypad.
I'd now like to hand over to Kay Gregory Investor Relations. The floor is yours. Please go ahead.
Good morning, and welcome to our third quarter 2023 call Mariner, Kemper, President and CEO and Rob Shovlin CFO will share a few comments about our results Jim Rine CEO of <unk> Bank and Tom Terry Chief Credit Officer will also be available for the question and answer session.
Today's presentation contains forward looking statements, which are subject to assumptions risks and uncertainties. These risks are included in our SEC filings and are summarized on slide 46 of our presentation.
Results may differ from those set forth in forward looking statements, which speak only as of today, we undertake no obligation to update them, except to the extent required by securities laws.
All earnings per share metrics discussed on this call are on a diluted share basis, our presentation materials and press release are available online at Investor Relations, Scott <unk> Dot com.
Now I'll turn the call over to Mariner Kemper.
Thank you Jay good morning, I'm happy to be here with you today to share the details of our strong third quarter performance.
Our results reflect a strong disciplined loan growth stable deposits.
The momentum in many of our fee generating businesses expense control stable margin and solid asset quality.
I continue to be extremely proud of our long track record of prudent underwriting that has produced these asset quality metrics our loan portfolio remains healthy with eight basis point net charge for the third quarter and just six basis points year to date non.
Nonperforming loans improved seven basis points from nine basis points prior quarter provisions for credit losses was $5 million for the quarter compared to $13 million in the second quarter, driven largely by changes in macroeconomic variables and general improvement in the watch and classified categories.
The average charge off ratio for the five quarter period shown in our deck is the lowest in our history and impressive considering the 18% increase in average loan balances during that same time period.
We saw improvement in the levels of both pass what loans and classified loans.
Which declined 13% and 6% respectively from the second quarter.
Our watch list levels fluctuate from time to time as we manage the book and historically, we've seen very little migration to loss.
Our current historical credit performance has been achieved through our focus on risk management.
It's an approach that comes from having the same team working together for multiple cycles in decades.
We continue to closely monitor macroeconomic trends and have regular conversations with our clients across our footprint is something we do in all economic environments.
Despite uncertainty from a brewing geopolitical crisis as well as the volatility in interest rates, our commercial clients remain cautiously optimistic.
Now I'll cover a few highlights from the quarter and Ron will follow a few details and drivers.
GAAP net income for the third quarter with $96 6 million or $1 98 per share operating net income was $98 4 million or $2 <unk> per share.
Net interest income decreased one 5% from second quarter as loan growth improved asset mix and yields were offset by an increase in deposit cost.
Unknown Executive: My name is Elliott and I'll be coordinating your call today. If you would like to register a question during state event, please press star, followed by one on your telephone to your pad.
Kay Gregory: I'd like to hand over to Kay Gregory, Investor Relations, the floor is yours, please go ahead. Good morning and welcome to our third quarter, 2023 call.
While net interest income for the industry continues to be impacted by higher funding costs. Our net interest margin in the third quarter essentially flat on a linked quarter basis.
Flexibility on the asset side of our balance sheet helps mitigate the continued impact of liability pricing, we have a loan to deposit ratio lower than our peers and industry median.
Mayor and her camper: Mayor and her camper, President and CEO and Ram Shankar and CFO will share a few comments about our results.
Unknown Executive: Jim Rine, CEO of UMB Bang and Tom Terry, Chief Predator Officer, will also be available for the question and answer session. Today's presentation contains overlooking statements which are subject to assumptions, risks and uncertainty. These risks are included in our FCC filings and are summarized on slide 46 of our presentation. After our results may differ from those set forth and forward-looking statements which speak only as of today. We undertake no obligations to update them except to the extent required by security blogs. All earnings per share metrics discussed on the call are on a deleted share basis.
And largely variable asset base.
And strategically planned cash flows.
N D income we saw solid results in several lines of the.
Trust and Securities processing income increased eight 2% driven by growth in all business contributing to the client fund services corporate trust and private wealth.
Info services assets under administration reached $400 billion in the third quarter year to date. Our team has added nearly 50, new clients, which helped drive a nine 2% increase in revenue as we saw a linked quarter basis.
Unknown Executive: Our presentation materials and press release are available online and investorrelations.unb.com.
Our noninterest expense levels fell by three 8% and included variances in deferred compensation expense related to the reduced coli income.
Mayor and her camper: Now I'll turn the call over to Mayor and her camper. Thank you, Kay. Good morning. I'm happy to be here with you today to share the detail of our strong third quarter performance. Our results reflect a strong discipline loan growth, stable deposits, continuing momentum in many of our fee generating businesses, expense control, stable margin and solid asset quality. I continue to be extremely proud of the long track record of screwed and underwriting that has produced these asset quality metrics.
Additionally, severance expense decline alone with salary and wage expense, reflecting the ongoing efforts to control operating expenses, Ron will provide more additional color on these various drivers shortly.
Turning to the balance sheet the drivers behind our 10, 1% annualized growth in average loan balances. This quarter are shown on slide 24.
Mayor and her camper: Our loan portfolio remains healthy with eight basis points netcharna for the third quarter and just six basis points here today. Non-performing loans improve seven basis points from nine basis points prior order. Provision for credit loss was five million for the quarter compared to 13 million in the second quarter. Truman largely by chance has been macroeconomic variables and general improvement in the watch and classified categories. The average charge of ratio for the five quarter period shown in our deck is the lowest in our history and press is considering the 18% increase in average loan balances during that same time period.
For comparison, the banks that have reported results through October 20th at a median linked quarter annualized increase of five 3%. The federal reserve H eight data have predicted an increase in industry wide average loan balances of just 4% or one 6% annualized.
Despite some caution surrounding the current environment our relationship banking model continues to build a pipeline of quality plan and given what we've seen today, we expect some continued outperformance relative to the industry and loan growth metrics.
Total top line loan production as seen on slide 25 was $649 million with payoffs and pay downs declining slightly representing three 2% of loans for the quarter.
Mayor and her camper: We saw improvement in the levels of both past watch loans and classified loans which declined 13% and 6% respectively from the second quarter. Our watch list levels fluctuate from time to time as we manage the books and historically we've seen very little migration to loss. Our current historical credit performance has been achieved through our focus on risk management and consistent approach that comes from having the same team working together for multiple cycles and decades.
Credit quality is strong across our book and the CRE portfolio remains well diversified by property classification tenant type and geography as shown on the slide on page 36 and 37.
Looking ahead to the fourth quarter, we see opportunity across our various lending verticals and geographic regions.
We will continue to evaluate the best use of our capital and we remain disciplined on pricing further emphasizing lending opportunities accompanied by meaningful data partner relationships.
Mayor and her camper: We continue to closely monitor macroeconomic trends and have regular conversations with our clients across our footprint, something we do in all economic environments. Despite uncertainty from the brewing geopolitical prices as well as the volatility in interest rates our commercial clients remain cautiously optimistic.
On the other side of the balance sheet average total deposits were essentially flat versus the second quarter declines in brokered CD balances and typical seasonal reductions in public funds were offset by growth in commercial deposit balances we.
Mayor and her camper: Now I'll cover a few highlights from the quarter and Ron will follow up a few details and records. Gap net income for the third quarter was 96.6 million or a dollar 98 per share. Operating net income was 98.4 million or two dollars and two cents per share. Net interest income decreased 1.5% from second quarter as loan growth improved and asset makes and yields were offset by an increase in the public cost.
We expect public fund balances will begin to rebuild again in the fourth quarter.
As we've noted previously deposit balances will naturally ebb and flow.
The commercial customer base uses fun, our typical business purposes, including payroll dividends and other activities.
Finally, we strengthened our liquidity and capital positions, even further during the quarter as depicted on slide 32.
Our quarter end CET, one and total capital ratios were 10, 77% and 12, six 8% improved by 12 and nine basis points, respectively from June 30.
Mayor and her camper: While net interest income for the industry continues to be impacted by higher funding costs, our net interest market and third quarter essentially flat on the link quarter base. The flexibility on the asset side of our balance sheet helps mitigate the continued impact of liability pricing. We have a low-mid-pocket ratio lower than our peers and industry median and largely variable asset base and strategically planned cash flows.
Our CET one ratio compares favorably to the peer median.
And in our press release, we announced that the board had approved a two 6% increase in our dividend, bringing it to 39 per share payable in January.
Mayor and her camper: In D income we saw solid results in several lenses. Trust of security processing income increased 8.2% driven by growth in all business contributing to this line, fund services, court trust and private wealth. In fund services, asset center administration reached 400 billion in the third quarter. Year-to-date our team has added nearly 50 new clients which help drive the 9.2% increase in revenue that we saw on the link quarter base. Our non-issue expense level fell by about 3.8% and included variances and deferred compensation expense related to the reduced coley income. Additionally, severance expense declined along with salary and wage expense reflecting the ongoing efforts to control operating expenses.
As we've shown on slide 15 of our presentation, our quarterly dividend has increased 283% over the past 20 years.
There were 23 individual dividend increases during that period.
To wrap it up we're pleased with our results this quarter the planets have varying opinions, but it seems clear that inflation levels. However, you want to measure it hasnt reached the federal reserve expectations.
All indications are that the data dependent.
We'll pause on further interest rate hikes.
The variables now our win rates cuts may begin and how quickly they may happen, but we fully expect a higher for longer scenario at least through 2024.
Such a scenario would be favorable for our balance sheet as the pressure on deposit costs.
Leah.
While asset repricing continue through that period.
Mayor and her camper: Rom will provide more additional color on these various drivers shortly. Turning to the value sheet, the driver behind our 10.1% analyzed growth and average loan balances this quarter are shown on slide 24. For comparison, the bank center reported results through October 20 at a median link quarter annualized increase of 5.3%. The federal reserve H8 data have predicted an increase in industry wide average loan balances of just 0.4% or 1.6% annualized. Despite some caution surrounding the current environment, our relationship banking model continues to build a pipeline quality client and given what we've seen today, we expect some continued outperformance relative to the industry and loan growth metrics.
Additionally, earning asset yields will improve as we use cash flows from our securities portfolio to fund higher yielding loan with the uncertainty in the macro and geopolitical environment, we feel that our business model is prepared for a wide range of outcomes.
It has proven itself over time as we've adapted to the changing environment and set of circumstances.
Now I'll turn it over to Ron for a more detailed look at our results Rob.
Thanks, Mariner I will share a few additional drivers of our third quarter results then I'll discuss some key balance sheet items net interest margin for the third quarter was 243% a decrease of just one basis point from the linked quarter. The largest drivers include a positive impact of approximately 16 basis points from loan repricing and mix and 11 basis points from the benefit of <unk>.
Mayor and her camper: Total pipeline loan production at a scene on slide 25 was 649 million with payoff and paydown declining slightly representing 3.2% loans for the quarter. Credit quality is strong across our book and the CRE portfolio remains well diversified by property classification, tenant types and geography as shown on the slide on page 36 and 37. Looking ahead to the fourth quarter, we see opportunity across our various lending verticals and geographic regions where you continue to evaluate the best use for capital and we remain disciplined on pricing, further emphasizing lending opportunities accompanied by meaningful dot positive relationships.
These positives were mostly offset by a reduction of 25 basis points from changes in interest bearing deposit pricing.
Cycle to date, our earning asset beta has been 51% keeping pace with the total cost of funds beta of 51%.
Our deposit remix showed some signs of slowing this quarter and we ended the quarter with 32% total average deposits.
This level is in line with the low point during the 2015 2017 tightening cycle.
So it's difficult to know for certain we are expect we are approaching the bottom.
The decline in the EMEA balances largely reflects corporate trust activity, which can be episodic commercial DDA balances increased approximately 1% over the linked quarter.
Mayor and her camper: On the other side of the balance sheet, average total of the product was essentially flat versus the second quarter. The clients in brokerage CD balances and typical seasonal reductions in public funds were offset by growth and commercial deposit balance. We expect public fund balances when we again to rebuild again in the fourth quarter. As we've noted previously, deposit balances will naturally ebb and flow as our largely commercial customer base uses funds for difficult business purposes, including payroll dividends and other activities.
With the current consensus that the fed will hold rates at the time, we continue to expect the terminal beta of approximately 50% for total deposits and 60% for low through the end of this cycle.
Looking ahead for the fourth quarter, we expect NII to trend flat to slightly up while we'll see some additional modest margin compression driven by mixed shift right bearing public funds come on the balance sheet.
Our reported noninterest income of $133 3 million contains a market related variances to second quarter levels, including a $3 5 million decrease in company owned life insurance income and 896000 decrease in customer related derivative income as well as the impact of the $4 million.
Mayor and her camper: Finally, we strengthen our liquidity and capital positions even further during the quarter, as depicted on slide 32. Our quarter end, CET1 and total capital ratios were 10.77% and 12.68% improved by 12 and 9 basis points respectively from June 30. Our CET1 ratio compares favorably to the peer median. And in our press release, we announced that the board had approved the 2.6% increase in our dividends, bringing it to 39 cents per share payable in January. As we've shown on slide 15 of our presentation, our quarterly dividend has increased 283% over the past 20 years. So we're 23 individuals dividend increase during that period.
On the sale of assets, we discussed last quarter. These.
These decreases were offset by a $5 $1 million increase in trust and securities processing income driven largely by the new client acquisition in our fund services Corporate Trust businesses.
The detailed drivers of our $231 4 million in noninterest expense are shown in our slides and press release, a few items of note.
We recorded $133 4 million in salary and benefits expense a decrease of $9 9 million compared to the second quarter included were just 425000.
Mayor and her camper: To wrap it up, we're pleased with our results this quarter. The plan is to have varying opinions, but it seems clear that inflation levels, however you want to measure it, haven't reached the federal reserve expectation. All indications are that a data-dependent Fed will pause on further interest rate acts. The variables now are when race cuts may begin and how quickly they may happen, but we fully expect a higher for longer scenario, at least through 2024.
Third compensation expense, a reduction of $2 8 million from the prior quarter. This is the offset to decreased coli income.
$2 4 million in severance expense, a reduction of $205 million or $1 $6 million decrease in salary and wages and $1 $3 million reduction in various other employee benefit costs.
Mayor and her camper: Such a scenario would be favorable for our balance sheet as the pressure on the positive cost largely abate while after it reprisings and continues through that period. Additionally, earning asset yields will improve as we use cash loads from our security portfolio to fund higher yielding loans. With the uncertainty in the macro and geopolitical environments, we feel that our business models were prepared for a wide range of outcomes. It has proven itself over time as we've adapted to a changing environment instead of circumstances.
These decreases were partially offset by a $1 $3 billion increase in operational losses.
Considering the impact of $2 4 million of severance along with the deferred compensation expense of typical timing variances, we would put our quarterly starting point for expenses close to $228 million. Looking ahead. We expect we will make a typical fourth quarter charitable contribution of approximately $2 billion.
Our effective tax rate was 18, 1% year to date compared to 18, 8% in the same period in 2020 to the.
ROM: Now I'll turn it over to ROM for a more detailed look at our results. From? Thanks, Mariner. I'll share a few additional drivers for third quarter results, then I'll discuss some key balance sheet items. Net interest margin for the third quarter was 2.43%, the decrease of just one basis point from the link quarter. The largest drivers included positive impacts of approximately 16 basis points from low repricing and mix and 11 basis points from the benefit of free parts.
The decrease rate was driven primarily by a larger portion of income from tax exempt securities and variations that level of coli income.
ROM: These positives were mostly offset by a reduction of 25 basis points from changes in the interest bearing deposit pricing. Faculty today, our earning asset beta has been 51%, keeping pace with the total cost of funds beta of 51%. Our deposit remake shows some kinds of slowing this quarter, and we ended the quarter with 32% of total average deposits in DDA. This level is in line with the low point during the 2015-2017 tightening cycle, and although it's difficult to know for certain, we expect we're approaching the bottom.
For the full year 2023, we continue to expect a tax rate between 17 and 19%.
Now turning to more detail on the balance sheet I'll start with our investment portfolio are shown on slide 48% to 49, our average investment security balances declined two 7% from the second quarter to $12 3 billion.
The held to maturity book included $1 2 billion.
Industrial revenue bonds.
During the quarter $240 million of securities with an average yield of 190% rolled off.
The yield on our total portfolio increased to $2, 74% and has a duration of just over four years the held to maturity portfolio exclusive of the IRB box I mentioned had an average yield of 231% for the third.
ROM: The D-slide and the EDA balance is largely reflects corporate trust activity, which can be episodic. Commercial DDA balance has increased approximately 1% over the link quarter. With the current consequences of the federal hold rates for the time being, we continue to expect the terminal beta of approximately 50% for total deposits and 60% for loans through the end of this Looking ahead for the fourth quarter, we expect NII to turn plasticizing up while we'll see some additional modest margin compression driven by makeshift as rate bearing public funds come on the balance sheet.
<unk>.
Additionally, the portfolio is expected to generate more than one $6 billion of cash flows in the next 12 months, providing further funding flexibility the roll off of the securities, which have a blended rate of two 8% will also improve our OCI position over that period.
As of September 30, the unrealized pre tax loss of the <unk> portfolio was 918 million or 12, 7% of the amortized cost for the HTM portfolio. This loss was $876 million, including the IR inbox.
ROM: Our reported non-interesting come of 133.3 million contains the market related variances to second quarter level, including a three and a half million dollar decrease in company owned life insurance income and a 896,000 decrease in customer related derivative income as well as the impact of the four million dollar gain on the sale of assets we discussed last quarter. These decreases were offset by a 5.1 million dollar increase in trusted security processing income driven largely by the new client acquisition in our fund services and corporate trust businesses.
Slide 32 highlights our liquidity position along with contingent sources of funding.
As of September 30, we had $18 1 billion in available liquidity sources liquidity coverage of adjusted uninsured deposits increased to 127% a quarter or.
Our tangible common equity ratio was 613% at September 30th.
Excluding the impact of <unk>.
<unk> ratio improved to 8.0% to 6%.
Book value was $52 six per share an increase of 8% compared to the same period a year ago. Since September 32018, we have experienced a five 3% annualized growth rate impacted book value per share.
ROM: The detailed drivers of our 231.4 million in non-interest expense are shown in our slide and trust release a few items of none. We recorded 133.4 million in salary and benefits expense a decrease of 9.9 million compared to the second quarter included where just 425,000 in deferred compensation expense a reduction of 2.8 million from the prior quarter. This is the offset to decreased polling income 2.4 million in severance expense a reduction of 2.5 million dollars a 1.6 million dollar decrease in salary and wages and 1.3 million dollar reduction in various other employee benefit costs.
As we noted last quarter, we maintained our focus as a growth company, while positioning our balance sheet to support that growth and provides the flexibility to address uncertainty in the industry.
That concludes our prepared remarks, and I'll now turn it back over to the operator to begin the Q&A portion of the call.
Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad. If you would like to withdraw your question. Please press star followed by two.
When preparing to ask a question. Please ensure your devices on mute locally.
ROM: These decreases were partly offset by a 1.3 million dollar increase in operational loss. Considering the impact of 2.4 million of severance along with the deferred compensation expense and typical timing variances, we would put our quarterly starting point for expenses close to 228 million. Looking ahead, we expect will make a typical 4.4 charitable contribution of approximately $2 million. Our effective tax rate was 18.1% a year today compared to 18.8% in the same period in 2022.
First question today comes from Nathan race with Piper Sandler Your line is open.
Yes, hi, everyone. Good morning, Thanks for taking the question.
Rob in terms of kind of the expectations for it to be kind of flat to slightly down in the quarter curious kind of what that contemplates in terms of the size of the.
Earning asset base in the fourth quarter. It looks like you guys were able to reduce some.
Wholesale sources in the quarter and you also have about $1 nine.
1 billion maturing in the fourth quarter. So I'm just trying to think how we should think about the trajectory of the earning asset base.
ROM: The decrease rate was driven primarily by a larger portion of income from tax exempt securities and variations of the level of co-leaning income. For the full year 2023, we continue to expect a tax rate between 17 and 19%.
Yes sure.
No material change in our investment portfolio other than cash flows, but it will continue to rotate out into the loan portfolio. So you'll see that in one of our slide deck. We have what the expected cash flows from the portfolio is going to be we still haven't purchased any new securities as youll see in that disclosure as well and then everything else from the earning asset side is going to be largely loan growth.
ROM: That's turning to more detail on the balance sheet. I'll start with our investment portfolio shown on price 28 and 29. Our average investment security balances declined 2.7% from the second quarter to 12.3 billion. The health and maturity bill included 1.2 million dollars of industrial revenue bond. During the quarter, $240 million of securities to the average yield of 1.90% rolled up. The yield on our total ASS portfolio increased to 2.74% and has a duration of just the word 4 years.
So no material changes in the Fedex AUM balances, yes, we did bring down or liquidity balances from the second quarter to the third quarter, but don't expect it to change materially from where it was I would just add that as we've done in the past, we expect loan growth in the fourth quarter would be.
Like in strength.
To the quarter, we just ended.
Strong.
Got it that's helpful Jay.
ROM: The health and maturity portfolio, exclusive of the IRB bond I mentioned, had an average yield of 2.31% for the third quarter. Additionally, the portfolio is expected to generate more than $1.6 billion of cash flows in the next 12 months providing further funding flexibility. The roll-off of these securities, which have a blended rate of 2.18% will also improve our ALCI position over that period. As of September 30th, the Unrealized pre-tax loss of the ASS portfolio was 918 million or 12.7% of the amortized cost. For the HDM portfolio, this loss was 876 million, including the IRB loss.
Changing gears thinking about fee income going forward, obviously, you had nice growth in fund services revenue.
Corporate and institutional asset management.
Just curious how that pipeline looks in terms of new client win opportunities.
The rate of growth that we saw in <unk> versus <unk> is kind of sustainable going forward.
Yes.
The strength remains very good.
Fund services in particular, we mentioned in our deck as you had 50, new clients year to date.
Which represents I think it gives us over 10% growth.
Segment.
Pipeline remains very strong for that business, there's been a lot of dislocation continues to be a lot of dislocation.
ROM: Slide 32 highlights our liquidity position, along with contingent sources of funding. As of September 30th, we had 18.1 billion and available liquidity sources. Liquidity coverage of adjusted uninsured deposits increased of 127% at court rate. Our tangible common equity ratio was 6.13% at September 30th. When excluding the impact of AACI, that ratio improved to 8.06%. Tangible book value was $52.6 per share in increase of 8% compared to the same period a year ago. Since September 30th, 2018, we have experienced a 5.3% annualized growth rate in tangible book value for shares.
In space and the private equity firms have gotten into the business and acquiring our competitors.
It's been very good for our business and we expect that to continue to be the case corporate trust.
The money sent unlocked projects are getting done and private projects are getting done.
That's unlocking value for us there.
Everyone's seen what's happened with <unk>.
Your line activity.
And strong and moving again, so we continue to expect in the coming quarters for that that revenue to unlock in our at our.
Aviation vertical within corporate Trust.
Our health care business continues to be strong as we continue to focus more on direct sales or customer base.
ROM: As we know the last quarter, we maintain our focus as a growth company while positioning our balance sheet to support that growth and provide the flexibility to address uncertainty in the industry.
Our card spend.
We expect to continue to be strong going forward, whether it's health care spend or its commercial.
Unknown Executive: That concludes our prepared remarks and I will now turn it back forward to the operator to begin the Q&A portion of the call. Thank you. If you would like to ask a question, please press staff followed by one on your telephone keypad. If you would like to withdraw your question, please press staff followed by two. We're unprepared to ask your question, please ensure your device is unmuted locally.
So kind of all cylinders really you feel like there is a nice profile growth across all of our.
Noninterest income verticals.
Continue to feel good about that.
You note in the second quarter, we had that our sale of about $4 million. So if you take that out the trajectory.
Nathan Race: First questions, say it comes from Nathan Race or with Piper Sandler. Your line is open. Hi, everyone. Good morning. Thank you for taking the question. Good morning.
From quarter to quarter and looking forward, it's pretty strong.
Okay great.
ROM: Ron, in terms of the expectations for an AI to be kind of flat, slowly down the quarter, curious what that contemplates in terms of the size of the earning asset base in the fourth quarter. It looks like you guys were able to reduce some wholesale sources in the quarter and you also have about 1.9 billion returning in the fourth quarter. So just trying to think how we should think about the trajectory of the earning asset base.
And then just lastly, turning to credit quality it was great to see improvement across the board.
<unk>.
I think one thing that we've seen.
From some of your peers, thus far in earnings season is greater.
Greater scrutiny on shared national credits. So just curious if you could remind us how large that portfolio is and.
To what degree you guys agent.
Club deals.
Shared national credits within the portfolio.
ROM: No material change in our investment portfolio other than cash flows, but we'll continue to rotate out into the loan portfolio. So you'll see that in one of our slide decks. We have what the expected cash flows from the portfolio is going to be. We still haven't purchased any new securities else you see in that disclosure as well. And then everything else on the earning asset side is going to be largely loan growth.
Yes.
Harvest commentary Chief Credit Officer.
The shared national credits that we have.
About $2 $5 billion, maybe closer to $3 billion almost all of those were related to other businesses. So for example, our fund services business, we have large health insurance companies as clients and we will participate in there are shared national credits to support the fee income that we.
ROM: So no material changes in the FedExion balances. Yes, we did bring down or liquidity balances from the second quarter to the third quarter, but don't expect it to change materially from where it was. I was just happy that as we've done in the past, we expect low growth in the fourth quarter to be light and strength to the quarter. We just ended it with what's strong? Yeah, that's helpful.
We get on the fund services side. So we're not interested in shared national credits for the sake of being inbound.
Im sure are ones that support other business and our high quality.
As far as agent team.
We agent very pardon me very few of those.
So.
Unknown Executive: Change of gears, think about being come going forward. You know, obviously had nice growth and fund services revenue, you know, corporate and institutional asset management. Just curious how that pipeline looks in terms of new client win opportunities. And in this kind of the rate of growth that we saw in 3Q versus 2Q is kind of sustainable going forward. Yeah, the strength remains very good. Fund services, in particular, we mentioned in our deck, you've had 15 new clients here today, which represents, I think it gives it over 10% growth in the segment.
Does that answer your question.
I think its outstanding outstanding bought much correct outstanding to be much much slower slower.
Yes, the three billions of equipment.
<unk>.
The most most of them today a lot of the the.
A comment on the on those funds service related lines, they're sort of really backup lines and a doomsday lines et cetera. They don't they don't really get used for the most part.
So utilization of $3 billion like 50% in terms of funded.
So the balance is.
The balance of that.
I'm 30 were about just under $500 million. So, yes utilization tends to be pretty low as Tom said. These are other clients that we have outstanding lines too, but don't get tap.
Unknown Executive: The pipeline main remains very strong for that business. There's been a lot of dislocation, continues to be a lot of dislocation in the space as the private equity firms have gotten into to the business and acquired our competitors, has been very good for our business, and we expect that's continue to be the case. Corporate trust, you know, the money's been unlocked, projects are getting done, public and private projects are getting done, and that's unlocking value for us there.
Yes, just to make sure commitments are larger.
Balances under 500 billion.
Got it and you really haven't seen any.
Negative credit migration within the portfolio.
Recently.
Not at all.
None of them on lessons credit.
Unknown Executive: Everyone's seen what's happened with airline activity of being up and strong and moving again, so we continue to and expect in the coming quarter for that revenue to unlock in our aviation, vertical within corporate trust. Our healthcare business continues to be strong as we continue to focus more on direct sales or customer base. Our part spend, we expect to continue to be strong going forward whether it's healthcare spend or commercial, so kind of all cylinders really, you feel like there's nice profile growth across all of our non-interesting come verticals, and continue to go a bit about that, as you know, you know, in the second quarter, we had that art sale, about 4 million, so you take that out, the trajectory from quarter and looking forward, it's pretty strong.
Okay, Great I'll step back.
Thank you for the color.
Okay.
Our next question comes from Chris Mcgratty with <unk>. Your line is open.
Oh, great good morning.
Good morning, Chris.
Unknown Executive: Okay, great.
Good morning, everybody.
And then maybe a question for you.
You've talked in done really good job historically on operating leverage.
Expenses were really well controlled this quarter, how should we be thinking about operating leverage.
Increasingly tough environment for revenue.
Okay.
Well I think you kind of.
Neil I'm Heather has seen an environment with really pretty much what's happened with interest cost rate.
The storyline, there it's more challenging in this environment to accomplish really I would guess what any of us want to accomplish.
We're still laser focused on it.
<unk>.
It's obviously, we don't give guidance, but it would be hard for us to point you in any one direction is kind of early in the year. If you think about the budget for next year.
Unknown Executive: And then just lastly turn to credit quality, you know, it's great to see improvement across the board in 3Q. You know, I think one thing that we've seen from some of your peers thus far in earning season is some greater scrutiny on shared national credits, so just curious if you could remind us how large that portfolio is and to what degree you guys agent in each club deal, there's shared national credits within the portfolio.
To.
Really be able to talk intelligently about where that might head, but we are operating leverage and.
As opposed to efficiency ratio is definitely where we put our emphasis and we'll continue to be focused on it.
Okay and then.
I want to make sure I heard you on the fourth quarter loan growth was there.
Unknown Executive: Yeah, this is part of the commentary, she credit officer. The shared national credits that we have about $2.5 billion, maybe closer to $3 billion, almost all of those related to other businesses. So for example, our fund services business, we have large health insurance companies as clients, and we will participate in their shared national credits to support the fee income that we get on the fund services side. So we're not interested in shared national credits for the sake of being in them.
What's the expectation moderation from this quarter or I might have missed that.
Similar similar in strength.
Okay got it.
And then finally.
In terms of the balance sheet some of your peers are thinking about.
Retooling some of the investment portfolio given the move in rates I mean, any appetite to move things around in the bond portfolio.
Obviously, you're not reinvesting, but any kind of restructuring that might be contemplated.
Hey, Chris as you know, we routinely evaluate these kinds of opportunities but at this time.
Unknown Executive: The lion's share are one that support other business and their high quality, as far as ageing, we're very, pardon me, very few of those. So does that answer your question? I think that would be a minimum of outstanding, outstanding, a lot of much, outstanding, we much much slower, slower. Yeah, that's the three billions of commitment. They're most I would say a lot of the comment on on the on those fun service related lines, they're sort of really backed up lines in Doomsday lines, etc.
Little appetite desire or need really to do any of that.
Okay.
Thanks for taking the questions.
Thanks, Chris.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad now.
Now turning to Tim <unk> with Wells Fargo Securities. Your line is open.
Hi, good morning.
Hey, Mark.
Hi, just following up on that last line of questioning was the seasonal inflow expected on the public funds I guess, what's the expectation for the bond book and side next quarter are you going to be reinvesting. Some of those proceeds that are rolling off or is the bond book and I remain a source of funds.
Unknown Executive: You know, they don't really get used for the most part. So utilization of three billions like 50% in terms of funded. The balance is, the balance is at 930, we're about 500, 500 million. So yeah, the legislation tends to be pretty low. As Tom said, these are other clients that we have outstanding lines to them, but don't get attacked. Yeah, just make sure commitments are longer and balances are under 500 million. Got it. And you really haven't seen any negative migration within that portfolio recently. Not at all. None of them are on the watch. Correct it.
Unknown Executive: Okay, great.
For the loan growth Youre seeing.
It will remain a source of funds through the end of the year and maybe early into next year and then we'll have to evaluate based on.
Loan production and deposit goals and whatnot, but at this point, we're still going to let it fund our balance sheet growth our loan growth I should say.
Okay, and then looking at the loan growth the CRE construction.
Growth remains pretty impressive I'm, just wondering how much of that is contractual if somebody's loans start to fund up on schedule and what that pipeline looks like over the next couple of quarters.
Unknown Executive: I'll sit back.
Unknown Executive: Thank you for the call.
Chris Mcgratty: Next question comes from Chris McGratty with KBW. Your line is open. Oh, great morning. Good morning. Good morning, everybody. Mariner, maybe a question for you. You've talked and done really good job historically on operating leverage expenses are really well controlled this quarter. How should we thinking about operating leverage in this increasingly tough environment for revenue? Well, I think you kind of hit with the meal on head there in the environment with really pretty much what's happened with interest costs, right?
It's a mix.
A lot of the funding we've seen certainly are deals that we approved over the last six and 12 months that are now hitting the construction base.
There is still activity, we're still seeing long demand for multifamily and <unk>.
For industrial.
Albeit it's probably slowed a little bit, but there is still demand still seeing activity. So it's a couple of answer your question specifically in terms of funding, though it's a mix of what we have approved over the last six to 12 months.
Okay.
Chris Mcgratty: It's a storyline there. It's more challenging in this environment to accomplish really how it gets what any of us want to accomplish. We are still lazy or focused on it. And it's, you know, obviously we don't give guidance, but it'd be hard for us to point you in any one direction kind of early in the years thinking about the budget for next year. Just to really be able to talk intelligently about where that might have, but we are operating leverage and as opposed to efficiency ratio is definitely where we put our emphasis.
Okay.
Okay and then just.
On the construction.
And specifically any any ill effects from the broader environment are you hearing.
Are you hearing that borrowers are taking more of a wait and see approach, whether it's rates or just economic uncertainty I guess any kind of color you can provide on some of the early stage.
Building conversations you are having.
I think it will.
Echo the comments smear that Tom said, which is that.
There is plenty of opportunity the mix is changing right. So.
Chris Mcgratty: And we'll continue to be focused on it. Okay, and then I think I want to make sure I heard you on the fourth quarter longer. It was the was the expectation moderation from this quarter, or I might have missed that. Similar and strength. Okay, got it. And then finally, in terms of the balance, you know, some of your peers are thinking about retooling some of the investment portfolio given the movement rates.
Multifamily and industrial remained very strong well, obviously office and other categories are winning significantly so.
With a higher interest rate environment, and a low supply of housing supply in the marketplace.
There is still a very strong interest and demand for multifamily there are pockets in the country, where that isn't the case there are places where theres over investment there are places where people are building class a and when the need is class b et cetera. So we pay attention to those kinds of issues, we stay away from problems, but there is strong.
Chris Mcgratty: I mean, any appetite to move things around in the bottom portfolio. Obviously you're not reinvesting, but any kind of restructuring that might be comfortable. Hey, Chris, if you know we, you know, routine to evaluate these kinds of opportunities, but at this time, very little appetite desire or need really to do any of that. Thank you. Thanks for taking the questions. Thanks Chris.
<unk> demand that we understand for <unk>.
Multifamily and industrial continues to be strong because there is.
A real need for last mile distribution until type buildings to support the Amazon application of America and delivery and then all of the businesses that either support Amazon or compete with Amazon. So there is there's a pretty significant build out underway that we believe.
Unknown Executive: As a reminder, if you'd like to ask a question, please press on the public funds, I guess what's the expectation for the bond book in size next quarter? Are you going to be reinvesting some of those proceeds that are rolling off or is the bond book in a remain of source of funds for the longer of your same? It will remain a source of funds through the end of the year and maybe early into next year, and then we'll have to evaluate based on, you know, loan production and deposit goals and whatnot.
And understand still too.
Support the way.
Consumers receive delivery of goods in America. So we think those two things continue to present strong high quality opportunities for us the real shift.
Our book going forward.
In the environment we're in.
With excess liquidity gone from the system is we're more focused on making sure we reserve our capital for customers and people, who do business with us and are willing to.
Put their deposits and broaden their relationship with us so that would be the only difference as you think about the landscape of opportunity.
We still see quite a bit opportunity and really really about us honing in that and making sure that we're observing that for for people, who really want to deepen their relationships with us.
Unknown Executive: But at this point, we're still going to let it fund our bounty growth or longer, if I should say. Okay, and then looking at the loan growth, the CRE construction growth remains pretty impressive. I'm just wondering how much of that is contractual if some of these loans start to fund up on schedule and what that pipeline looks like over the next couple of quarters? It is a mix. A lot of the funding we've seen certainly are deals that we have proved over the last six and 12 months that are now hitting the construction base.
Great. Thanks for that and then just last for me on the expense side. Appreciate the guide for fourth quarter, maybe as we look into 'twenty four and again parlaying on Christine's question, how much of how.
How much leverage is there on the expense base in order to drive positive operating leverage should we expect expenses to grind higher through 'twenty four as their confidence that those can be fairly well maintained and be a positive source of operating leverage.
We certainly think we can continue to maintain.
At a minimum maintain what we've been able to accomplish.
Unknown Executive: There's still activity. We're still seeing loan demand for multi-family and for industrial, obvious. It's probably slowed a little bit, but there's still demand still seeing activity. So it's a cut to answer your question specifically in terms of funding. So it's a mix of what we've approved over the last six to 12 months. And then it's not coming in. Okay, and then just on the construction component, specifically, any, any ill effects from the broader environment.
It's too early to tell what what else.
And we don't give any guidance but.
Theres always room to improve and to be better.
I would think any any at any company and we continue to look for those opportunities.
To do business I would say the new business smarter and we're always looking for those opportunities.
I think we'll forever uncover them.
Great. Thanks for the question.
Thanks, Steve.
We have a follow up question from Nathan race Piper Sandler Your line is open.
Unknown Executive: Are you hearing, are you hearing that borrowers are taking more of a weight and see approach, whether it's rates or just economic uncertainty? I guess any kind of color you can provide on some of the early stage building conversations you're having. I think, you know, it'll echo the comments, Samariner, that Tom said, which is that there's plenty of opportunity. The mix is changing, right? So multi-family and industrial remain very strong, while obviously office and other categories are winning significantly.
Yes.
For taking the follow up.
Just kind of curious thinking about how you guys are thinking about the margin trajectory next year.
For longer rate environment, obviously, youre seeing less pressure on the indexed deposits under that scenario and you have some kind of lagging repricing in terms of the duration of the portfolio.
So on the loan side of things.
So any kind of preliminary thoughts on how you guys are thinking about the margin trajectory next year under those frameworks.
Unknown Executive: So with a higher interest rate environment and a low supply, housing supply in the marketplace, there's still very strong interest and demand for multi-family. There are pockets in the country where that isn't the case. There are places where there's over and that's going to be places where people are building class A, when the need is class B, you know, et cetera. So we pay attention to those kinds of issues to stay away from problems, but there's strong demand that we understand for multi-family and industrial continues to be strong because there's a real need for last mile distribution until tough buildings to support the Amazon location of America and delivery and then all the businesses that either support Amazon or compete with Amazon.
Appreciate the opportunity to make our case for our investment thesis.
Yes, we do believe that in under a higher for longer scenario, if the fed stops which that would that.
That would be the scenario, where we would anticipate and under that scenario.
The deposits.
Pressure on the deposits that alleviate and new and re pricing credit would continue to add value along with the rollout with the investment portfolio into higher yielding assets. So.
That is that is the expectation if the fed does stop.
Okay, great and our newest difficult to predict future provisioning impacts under seasonal.
But just kind of any thoughts on kind of how you guys are thinking about providing for growth and assuming you.
Unknown Executive: So there's a pretty significant build out underway that we believe and understand still to support the way consumers receive delivery of goods in America. So we think those two things continue to present strong high quality opportunities for us, the real shift in our books going forward in the environment we're in. With access liquidity gone from the system is we're more focused on making sure we reserve our capital for customers and people who do business with us and are willing to put their deposits and broaden their relationship with us.
We haven't really seen any material credit issues on the horizon.
Yes.
Question.
So.
As you've seen in the last few quarters, given our credit quality most of our provision really comp came from both macroeconomic variables changing in this past quarter because movies.
Move towards more of a soft landing our provision was low comparator in the north charge offs were low as well so it really.
It depends on what level of loan growth that we have and what happens to the macroeconomic variables as Mariner said, we have 13% decline in quarter over quarter on our past watch loans at 6% and our classified so from a portfolio of health perspective, that's not a lot of pressure, but as we've said the magic map that we have to work.
Unknown Executive: So that would be the only difference as you think about the landscape of opportunity. We still see quite a bit of opportunity and really really felt us honing in that and making sure that we're serving that for people who really want to deepen their relationship with us. Thanks for that.
It sometimes is trying to get our coverage ratio at or close to 1% right.
Kind of what we would like entering any kind of cycle.
It's good or bad.
So it sounds like absent material.
Unknown Executive: And then just last for me, on the expense side, appreciate the guide for fourth quarter. Maybe as we look into 24 and again, parlaying on Chris's question, how much of, how much leverage is there on the expense base in order to drive positive operating leverage? Should we expect expenses to grind higher through 24 or is there confidence that those can be fairly well maintained and be a positive source of operating leverage?
No deterioration in the expectations for you guys to build the reserve growth.
Next few quarters, just in support of loan growth and as we mature we're at 90%.
We're within spitting distance, we're at 97 basis points coverage, so I would say.
Plus or minus a few basis points here and there.
Our coverage ratio and there'll be yes.
Yes.
Got it and then just one last one I know you guys don't pay a ton of attention to end of period balances.
Unknown Executive: We certainly think we can continue to maintain, at a minimum, maintain what we've been able to accomplish. You know, it's too early to tell what, what else, and we don't give any guidance. So, you know, there's always room to improve and to be better. I would think any, at any company, and we continue to look for those opportunities to be, to do business, I would say to do business smarter. And we're always looking for those opportunities. And I think we'll forever uncover them. Great. Thanks for the question. Thanks, Timur.
But principally the noninterest bearing.
<unk> accelerated versus last quarter.
And kind of when that could bottom based on what youre seeing in terms of client spending and so forth.
So if you look at what happened as I said in the script, our commercial DDA balances, so what you're alluding to but cash usage that actually was up 1% on an average basis.
The decline in the third quarter DDA balances were more episodic because of some of our corporate trust deals there is always a seasonal buildup.
Tax payments go out so we know and it's very predictable from that standpoint, So I would say on the commercial side things are fairly stabilized again.
Nathan Race: We have a follow up question from Nathan race, that pipe is on there. Your line is open. Yep.
<unk>.
Unknown Executive: Thanks for taking the follow up. I'm just kind of curious thing about how you guys are thinking about the margin trajectory next year, you know, in a higher for longer rate environment. And obviously you're seeing less pressure on the index deposits under that scenario. And you have some kind of lagging, repricing in terms of the duration of the portfolio and of itself on the long side of things. So any kind of preliminary thoughts on how you guys are thinking about the margin and I trajectory next year under those frameworks.
As we said we think we're approaching the bottom in terms of our 32% DDA to total deposits, which was the cycle low from lifestyle.
But to your earlier question, that's the biggest factor on what can change our margin or net interest income.
Up from here.
None of Us know right, but I would just suggest.
And the way our income statement is worth in our customer base works. We've said this all summer long we would go through this first because our customers are our largest commercial we've seen that.
Unknown Executive: Appreciate the opportunity to make our case for our investment thesis. Yeah, we do believe that an under a higher for longer scenario is the Fed stocks, which that would, you know, that would be the scenario where we would anticipate and under that scenario. You know, the deposits, the pressure on the deposits would alleviate and new and repricing credit would continue to add value along with the role of investment portfolio into higher yielding assets. So that is, that is the expectation if the Fed does stop.
<unk> largely done and we.
Predicted that because the last hasn't been at 32, that's done we're at 32 today. So from here. Your guess is as good as ours using the history and the behavioral patterns. It seems it was nowhere near the bottom on that on that shift.
Okay, Great and then just in terms of overall deposit expectations average deposits were flat in the quarter. Just curious based on what you're going to see in terms of your pipeline, how youre thinking about overall deposit growth expectations.
Unknown Executive: Okay, great. And I knew it's difficult to predict, you know, future provisioning impacts under Cecil. But just kind of any thoughts on kind of how you guys are thinking about providing for growth and assuming you haven't really seen any material credit issues on the horizon. Yeah, that's a, you know, really no question. So, you know, as you've seen the last few quarters given our credit quality, most of our provision really come came from both macroeconomic variables, changing in this past quarter because movies, you know, moved towards more of a soft landing or provision was low compared and then our targets are low as well.
Next several quarters.
We continue to.
Have a strong pipeline. This all comes down to cost end of the day, we have.
A very very strong.
Ability I think in a way that most banks our size don't two tax deposits.
Really about <unk>.
Market rate for them, and then really it's about asset and liabilities that our disciplined approach to pricing assets not just the deposits and so.
Unknown Executive: So it really depends on what level of loan growth that we have and what happens to the macroeconomic variables. As Mariner said, we have 15% decline in quarter or quarter on our past block loans and 6% in our classified. So from a portfolio health perspective, that's not a lot of pressure. But as we've said, the magic math that we have to work sometimes is trying to get our coverage ratio at or close to 1%.
We don't concern ourselves too much with the ability to grow our deposits.
We just have to make sure that we're disciplined on the way, we manage assets and liabilities.
Making sure, which we've been able to do to date that could bring on loans until very comfortable about our ability to price them appropriately.
Maintain.
No.
<unk>.
A respectable margin spread.
Okay.
Okay, Great I appreciate you guys, taking my follow ups.
Unknown Executive: That's kind of what we would like entering any kind of cycle whether it's good or bad. Joe, it sounds like, you know, apps and material, macro deterioration, the expectations for you guys to build a reserve close won't stop over the next few quarters, just in support of bone growth, and assuming chart, yeah, we're at 97 bits, yeah, we're within fitting this in, we're at 97 basis points coverage, so I'd say, you know, plus or minus few basis points here and there on what our coverage ratio is, and they'll be. Yeah.
Again.
Thanks, Yes, I might just remind everybody we're done just because.
Because it has been a.
You started in April with the way the World look and you look and then you get to where we are now we feel pretty good about our where we sit and I just want to remind you of a couple of things I said a moment ago.
<unk> said early on in the summer and spring than we would get to.
Likely get to 32% on noninterest bearing to total and Thats about where we sit here now.
We said we would go through the margin trouble early and then.
Unknown Executive: Got it. And then just one last one, I know you guys don't pay a ton of attention to end the period balances, but those are probably seen in not just bearing attrition accelerate versus last quarter, any thoughts on kind of when that could bottom based on what you see in terms of client spending and so forth. So if you look at what happened, if it in the script, our commercial DDA balance is what you're alluding to cash usage, that actually was out 1% on an average basis, and the decline in the third quarter DDA balance, this were more of a facade because of some of our corporate trust deals, there's always a seasonal build up and cash payments go out.
While others were seeing the declines we flatten out on a linked quarter basis, you've seen us flatten out margin on a linked quarter basis.
We continue to tell you we're going to have outsized loan growth, we continue to have outsized loan growth.
We continue to tell the street about our ability over time to manage asset quality and while everybody's asset quality looks good right now ours looks good in the last cycle.
We continue to have excellent.
Asset quality and we've had the best five quarters links together, we've had in our history from an asset quality standpoint, and we had the same management team.
Unknown Executive: So we know, and it's very predictable from that standpoint, so I would say on the commercial side, things are fairly stabilized. Again, you know, it's really, you know, as we said, we think we're approaching the bottom in terms of our 32% DDA to total deposits, which was the cycle low from last time. But that's the, to be a earlier question, that's the biggest exact factor on what can change our market in order, our credit for student come current from here.
Managing credit that we've seen it seen through the last few cycles and still on top of credit this cycle.
And we expect that will continue to manage our company. The way, we always have and lastly, we're one of the few banks this quarter on a linked quarter basis to show a reduction in expenses of three 4% in our case and so really across the board everything that we can control we have control and.
Unknown Executive: I mean, I would, none of us know, right? But I would suggest that it's done in the way our income statement is worth and our customer base works. We've said this all summer long, we would go through this first because our customers were large commercial. We've seen that, we think that's largely done. And we, you know, we predicted that because the last cycle be in a 32, that's done, we're at 32 today. So from here, your guess is as good as ours, using the history and the behavioral patterns, it seems that we're near the bottom on that, on that ship.
<unk> performed.
And.
Any business every one small for geopolitical reasons or otherwise their input costs go up and so this is his job to manage how you pass on those costs.
Or become more efficient.
And.
We're doing our job.
And we're pleased with the results and we hope you are as well.
Thank you Sir.
Thanks, everyone for joining us today, and if you have any follow up questions can always reach us at 806 860710.
Thank you and have a great day.
Unknown Executive: Okay, great. And then just in terms of overall deposit expectations, you know, average deposits are flat in the quarter. Just curious based on what you guys see in terms of your pipeline, you know, how you're thinking about overall deposit growth expectations or the next several quarters. I, you know, we continue to have a strong pipeline. You know, this all comes down across in the day. You know, we have a very, very strong ability, I think, in a way that most banks are sized, don't, to tax deposits.
Turn it back to the operator for <unk>.
Close the call.
Ladies and gentlemen, please call has now concluded. Thank you for your participation you may now disconnect your lines.
Yeah.
[music].
Unknown Executive: It's really about paying market rate for them. And then really, it's about acrimanial activities, about our discipline approach, the pricing assets, not just the deposits. And so, we don't concern ourselves too much with the ability to grow our deposits. We just have to make sure that we're disciplined on the way we manage assets and liabilities and making sure, which we've been able to do today, if we bring on loans, we feel very comfortable about our ability to price them appropriately, to maintain, you know, and a respectable Martin and Fred.
Unknown Executive: Okay, great. I appreciate you guys taking the follow-ups. Thanks again. Thanks.
Mayor and her camper: Yeah, I might just remind everybody that we're done just because it has been a, you know, you start in April with the way the world looks and you look and then you get to where we are now. Will you be feel pretty good about where we sit and I just want to remind you of a couple things. A set of moment ago, UMB set early on in the summer and spring that we would get to, likely get to 32% on a non-interesting total.
Mayor and her camper: That's about where we sit here now. We suddenly would go through the margin trouble early and then while others were seeing the clients we flattened out on a link quarter basis. You've seen us flatten out margin on a link quarter basis. We continue to tell you we're going to have outside Sloan Grove. We continue to have outside Sloan Grove. We continue to tell the street about our ability over time to manage aspect quality.
Mayor and her camper: And while everybody's aspect quality looks good right now, ours looks good in the last cycle. So we continue to have excellent aspect quality because the best five quarters links together, we can have an artistry from an aspect quality standpoint. And we have the same management team, managing credit that we've seen through the last few cycles with still on top of credit, this cycle. And we expect that we'll continue to manage our company the way we always have.
Mayor and her camper: And lastly, we're one of the few banks this quarter on a link quarter basis to show reduction in expenses of 3.4% in our case. And so really across the board, everything that we can control, we control and have performed. And you know, any business, every once in a while for geopolitical reasons or otherwise, their input costs go up. And it's a business job to manage how you pass on those costs or we become more efficient.
Unknown Executive: And we're doing our job and we're pleased with everyone for joining us today. And if you have any follow up questions, can always reach us at 816-860-7106. Thank you and have a great day.
Unknown Executive: Turn it back to the operator for close to call. Ladies and gentlemen, the day's call is now concluded.
Unknown Executive: We'd like to thank you for your participation in our disconnecture lines.