Q3 2024 UMB Financial Corp Earnings Call
Hello and welcome to the UMB Financial Third quarter 2024 Financial Results Conference for my name is Harry and I'll be coordinating your call today. All lines are currently in a listen only mode and there will be an opportunity for Q&A after Management's prepared remarks.
If you would like to enter the queue for questions, please dial star followed by one when your telephone keypad. If you change your mind, I would like to exit the queue, please dial star followed by two. It is now my pleasure to hand over to pay Gregory and best of relations to begin. Please go ahead.
Speaker Change: Good morning and welcome to our third quarter 2020 door call. Mayor and her timber, Chairman and CEO and Ram Shankar CFO, will share a few comments about our results and then we'll open the call for questions from our equity research analyst.
Speaker Change: Jim Rhoings, CEO of UMB Bank and Tom Terry, Chief Credit Officer will be available for the question and answer session.
Speaker Change: Before we begin, let me remind you that today's presentation contains forward-looking statements, including the discussion of future financial and operating results, benefits, synergies, gains and costs that the company expects to realize from the pending acquisition, as well as other opportunities management for seeds.
Speaker Change: Former looking statements in any pro-forma metrics are subject to assumptions, risks, and uncertainties as outlined in our FCC filing and summarized on slide 480-50 of our presentation.
Speaker Change: Actual results may differ from those set-for in forward-looking statements with speech only as of today. We undertake no obligation to update them except to the extent required by security laws.
Speaker Change: PresentationMaterial, we're available online at investorrelations.unb.com and include reconciliation of non-gap financial measures.
Speaker Change: Now I'll turn the call over to Mariner Kemper.
Mariner Kemper: Good morning everyone. Thanks for joining us as we discussed our third quarter results announced yesterday afternoon. We had another solid quarter with strong feed business performance and near-double digit Analyze loan growth driven by a record top line loan production of 1.4 billion.
Mariner Kemper: Our line utilization has remained steady at 37 to 39 percent over the past several quarters and our lone pipeline remains strong heading into the fourth border. Overall, we're pleased with the strength of both sides of our balance sheet as well as the robust traction in many of our key encompasses.
Mariner Kemper: We report a cap earnings, 109.6 million, or $2.23 per share driven by continuing momentum across our various kinds of business. On an operating basis, we earn $2.25 per share.
Mariner Kemper: The increase in interest in common with German primarily by continued loan growth and higher levels of liquidity, partially offset by changes in funding mix.
Mariner Kemper: The Streets of our University by Financial Model was evidence, this quarter, with strong feeding come growth from several areas including with narrow institutional distance, where assets under administration exceeded half the trillion dollars.
Mariner Kemper: and Investment Banking volumes increased largely in municipal and mortgage backed securities, driving 30% link order increased in the income. In corporate trust, higher off-balance sheet money mark, it balances contributed to stronger 12.1 fees in the quarter.
Mariner Kemper: and our private wealth team have brought in one billion in that new asset year to date, or 33% ahead of full year in 2023 levels.
Mariner Kemper: We focus on operating leverage, rather than a specific expense growth target. So compared to the third quarter year ago, we posted positive operating leverage of 4.4% on an operating basis.
Mariner Kemper: will provide more detail on income and expense driver shortly.
Mariner Kemper: Balochic Rope included a 9.8% link order in which increased an average well-balanced and contrast to many of our peers' comments on an image well-migrant and flowing utilization.
Mariner Kemper: in back for Banking Support at so far the median annualized increase in average loan balances has been just 3.4 percent.
Mariner Kemper: Long growth with led by commercial real estate with multi-family balances posting 13% clean-corder growth and by construction drive on previously approved lines.
Mariner Kemper: We also talked to all of you and I have to video with some increased M&A activity among our clients.
Mariner Kemper: Credit Quality and our loan portfolio remains excellent at a hallmark of our business.
Mariner Kemper: As I've done in five, just eight basis points of net chart out on a year-to-day basis, and non-performing loans of just eight basis points of total loss.
Mariner Kemper: Over the past eight quarters are not performing ratio as average just eight base of points compared to 39 base points for our peer group and 35 base of points for the industry of the whole.
Mariner Kemper: and I continue to perform well with just three basic points in that charge off for the quarter and never covered three out of the last four orders.
Mariner Kemper: Court of Justice, we're the largest component of our national heart off, and that was the case at the end of the third quarter.
Speaker Change: We have heard some consumer heavy lenders discuss borrowers of risk in several anecdotal comments for retail participants in the retail sector, seeming to support that sentiment.
Speaker Change: For you and me, however, consumer credit card represents just 1% of average total loan bounces and typically makes up approximately 5% of credit card per society. Most of our credit cards net chart dials for the quarter stems from our recent portfolio acquisition.
Speaker Change: which has a different credit profile than we normally underay.
Speaker Change: For context these acquired ounces averaged 118 million to the third quarter. On the flip side, relative to a sort of risk-al expectation, the portfolio yields on these acquired bounces have also outperform.
Speaker Change: If food and losses on credit cards, our net chart operates as quarter would have been only two basis points.
Speaker Change: The Higher Provision Excent and the Quarter Larger than reflects the impact of well-grilled, along with some general portfolio trends.
Speaker Change: our coverage show increased to 1% of the total.
Speaker Change: Abbot Shuttle Devoses through 951 million or 11.1% on a link ordering like bases, including the essential reduction of broker CD Bouses.
Speaker Change: for a comparison, thanks that a reporter third quarter results so far at a median analyzer in the process of just 4.9%.
Speaker Change: Welcome, virtual DDA balances increase the lead on person on any of the United States' overall average DDA balances decline largely driven by tax payments and other activity in assets servicing and corporate trust.
Speaker Change: and the past, these cash distributions by our large institutional clients can be a psychoneyser and there are some seasonality in the balance, especially among municipal and corporate trustee bias.
Speaker Change: Finally, we're on track to complete our pending acquisition of Heartman Financial Subjects, Proofables and have updated milestones and progress on the integration planning in the depth.
Speaker Change: Our integration teams are collaborating well with ACLF and we are well on our way with preparations for legal day one still anticipated for some time in the first quarter.
Speaker Change: Again, we believe this transactual, accelerantum, means bro's strategy, further diversifying, de-riscing our business model. The addition of the high quality franchise is a great fit from the strategic financial and cultural perspective, and we look forward to serving our perspective plans and geographies.
Speaker Change: as well as welcoming new associates to you and me. Now I'll turn it over to Ram.
Ram Shankar: Thank you, Werner. Netendon's income of 247 million represented in increase of 2.3 million, or just under 1% reflecting continued low growth and higher levels of liquidity partially offset by the higher cost related to a funding mix shift.
Ram Shankar: The mixed shift was driven both by a $1.6 billion increase in average inter-apparent upon the balances, as well as the $6.11 billion decrease in DDAs, which impacted net interest margin by five basis points.
Ram Shankar: and the Activity of Oregon's institutional clients, which may include tax and bond payments as part of being the trustee for funds that were deployed in the market in the AAP and servicing business.
Ram Shankar: Additionally, as Mayor and I noted, activity for our corporate trust and especially the trust clients can be lumpy and isn't thought of in nature.
Ram Shankar: and Results are leading analysis where the lower ends of the 9 and a half $10 billion range between recent quarters and generally represents a low point of the year from a season that I think perspective.
Ram Shankar: Average interest bearing liabilities increased 4% with increases in interest bearing deposits partially offset by a decrease of 280 million in borrowed funds.
Ram Shankar: at Notre Dame's slide 34 of the decks, before the reduced borrowing levels for the loan quarter and paying up $800 million in BTSC prior to its contractual maturity in January 2025. While the BTSC balances contributed 1.1 million in net interest income in the third quarter, it was almost four-based earnings delivered in net interest marks.
Ram Shankar: Additionally, the 250 million in both FHLB advances and Brokex CD matured earlier in October, which should also benefit more than going forward.
Ram Shankar: Medical Sports in the third quarter, decreased 5-8 points sequentially to 2.46% largely due to the decline in average CDA balances. As you can see from our yield tables, Medical Spread was unchanged from the Linkwater as the benefit of three funds declined 5-8 points and impacted more.
Ram Shankar: Looking into the fourth quarter, we expect netted as margin to improve a few basis points from the third quarter, driven by pulses funding maternity as well as the casket of repriced actions on indexed topics from the mid September rate.
Ram Shankar: This may be partially offered by delayed loan repricing on loans tied to silver and primes, as well as the impacts of continued contraction in one month's super-rate in the event of anticipated rate cuts in November and December.
Ram Shankar: and I'm going to ask you where the one month before race has declined 20-based points through last week in advance of the expected 25-based points cut on November 7.
Ram Shankar: I will add my usual caveat that the trajectory of our margin will depend on the timing and pace of interest rate cuts, levels of activity primarily in our institutional businesses that can impact the mix of reliability and the overall pricing environment for low and deposit.
Ram Shankar: As an additional reminder, approximately 35% of our total deposits are hard and next to short term interest rates. As a pent-pons rate changes, these deposits reprise down immediately.
Ram Shankar: An additional 18% of our deposits are softened next. Bountains, negotiate and occur in prevailing more can rates. On these softened deposits, we will generally move rates down pretty quickly following FedTUTS.
Ram Shankar: We estimate that for the 50 basis point rate cut that happened in September, we were able to garner close to 90% beta on our index deposits.
Ram Shankar: While the cost of interest-bearing deposits increased quarter over quarter due to new institutional deposit growth, the cost of rate-bearing deposits in September declined 8 basis points from August compared to a 10 basis point decline in loan yields.
Ram Shankar: Our interest rate simulation results on page 33 of our deck show us benefiting from interest rate cuts in year 1 with a more modest benefit for year 2. Our projections now show us likely liability sensitive based on a static balance sheet as of September 30th and current market assumptions for interest rates and prepayments.
Ram Shankar: As a reminder, this analysis does not include any interest income generated from new growth or the HTLF acquisition. At this preliminary stage, we estimate that our pro forma interest rate position will remain relatively neutral.
Ram Shankar: On the right side of page 33, we've added more detail on loan repricing, including timing of rate adjustments for both SOFR and prime index loans.
Ram Shankar: The timing of movements in Socorro race in advance of the FOMC action had an immaterial impact in the third quarter given the mid-September timing.
Ram Shankar: As the FOMC meets and acts sooner in the quarter, it is likely that SOFR also moves ahead of anticipated Fed actions, resulting in some timing differences between when loans and index deposits reprice.
Ram Shankar: We've also added details on slide 33 about the hedges we have in place. Currently, we have two and a half billion dollar notional value in payfix, receive flow, cash flow hedges, which include three floor contracts and eight floor spreads.
Ram Shankar: Details and activity in our securities portfolio are shown on slides 30 and 31 in our deck. The combined AFS and HTM portfolios averaged $12.3 billion during the quarter, relatively flat from the prior quarter levels.
Ram Shankar: Security levels fluctuate based on our collateral needs for both public funds and trust businesses.
Ram Shankar: The average purchase yield in our portfolio was 4.64% for the third quarter, while securities rolling off had a yield of 3.18%.
Ram Shankar: We expect 1.5 billion dollars of securities with an average yield of 2.62% to roll off over the next 12 months Pricing on new investments in September averaged 4.2% and are subject to change depending on what happens in the middle part of the Treasury curve
Ram Shankar: Capital levels continue to build with our Common Equity Tier 1 ratio increasing 8 basis points to 11.22%.
Ram Shankar: As announced yesterday, the Board of Directors declared a 2.6% increase in the quarterly dividend rate to $0.40 per share, payable in January 2025.
Ram Shankar: We've seen continued growth in tangible book values per share, which increased $6.28 from June 30th to $66.86.
Ram Shankar: Tangible book value per share has grown more than 28% over the past year. As a reminder, our capital levels do not include the $230 million forward equity offering agreement that we announced in April.
Ram Shankar: Turning back to the income statement
Ram Shankar: Non-interest income was $158.7 million, a link order increase of 9.5%. Aside from the impact of market-related variances, which includes security valuation changes and polling income, the largest driver of fee income was trust and securities processing, where the strong fund services and corporate trust activity Merritor mentioned is captured.
Ram Shankar: Other drivers of the link border increase were $1.7 million of additional income from both investment banking and brokerage income, and a $1.1 million gain on the sale of a building, partially offset by lower healthcare-related deposit service charges.
Ram Shankar: Non-interest expense of 252.5 million for the quarter included pre-tax acquisition expenses of 2.6 million and an additional reduction of 1.7 million in previously accrued FDIP assessment charges.
Ram Shankar: On an operating basis, non-interest expense increased $8.3 million link order and included a $1.3 million increase in variable bonus and commission expense as strong performance in several businesses resulted in higher incentive accruals.
Ram Shankar: Salary and benefits expense was also impacted by one more salary day in the third quarter.
Ram Shankar: We purchased additional laptops and computer equipment during the quarter, driving an increase of $1.6 million in supply costs. The $1.9 million increase in deferred compensation expense is the offset related to the higher wholly income.
Ram Shankar: Finally, our effective tax rate was 19.2% for the quarter compared to 19% in the third quarter of 2023.
Ram Shankar: On a year-to-date basis, the increase in tax rate was primarily related to lower income on tax-exempt securities and higher non-deductible acquisition costs in 2024. For the full year 2024, we would expect the tax rate to range between 18 and 20 percent.
Ram Shankar: Looking ahead to 2025, our preliminary estimate, including the HDLF acquisition, is an effective tax rate of 21 to 23 percent.
Ram Shankar: Now I'll turn it over to the operator for the Q&A session.
Speaker Change: Thank you, we will now open the call for your questions. If you would like to ask a question, please dial star followed by one on your telephone keypad now. When preparing to ask your question, please ensure that your phone is unmuted locally. If you change your mind and would like to exit the queue, please dial star followed by two.
Speaker Change: And our first question today will be from the line of Ben Gerlinger with City. Please go ahead, your line is now open.
Speaker Change: All right, good morning, everyone.
Speaker Change: Hey, morning Ben. I was curious if we could talk through the pricing of deposits a little bit more. I know Rami gave quite a bit of detail on
Speaker Change: negotiated versus index and all that so
Speaker Change: With the 50 basis point cut late in 3Q, as we kind of roll through 4Q, I was curious if you can shed some light on any anecdotal or data in terms of pricing that you've seen as we've kind of flipped into 4Q here, any pricing trends or any thoughts, and then also the mix itself. Any comments here would be really helpful.
Speaker Change: I'm going to take that, Ram. Yeah, sure. As I said on the prepared comments, Ben, so about 35% of our deposits are what we call hard index, right? So those are very formally based on what a PED effective rate might be. So those are non-immediately. And then there's another 18% that are negotiated rates or what we call soft index rates. So if you look at our total deposit pie.
Speaker Change: 53% between those two have prevailing market rates upwards of 4% today that we, as I said in my prepared remarks, we got anecdotally close to 90% beta on those for the first 50 basis points cut.
Speaker Change: the remaining 30% is DDA and then there's a back book of call it 25% that are at lower rates. So that kind of gives you a time frame or a framework for what might happen to deposit costs. Again, these are all based on what happens to short-term interest rates.
Speaker Change: and they happen within hours, days of when the Fed might build their rates. And then I might add also, third quarter is a low point for DDAs related to seasonality for us. So there's probably, likely, a DDA build in the fourth quarter that was not there in the third quarter.
Speaker Change: Yeah, actually, no, that's helpful. Let me ask it differently.
Speaker Change: when you lower something
Speaker Change: Obviously, there's a negotiated component to it, but are you seeing any pushback on anything, or are you, let's say, exception pricing?
Speaker Change: As clients see their price or their yield on deposits move lower and that's like totally good as it's contractual.
Speaker Change: and there's the negotiated aspect. Are you seeing pushback in anything, even though it's 50 bips or not?
Speaker Change: There's no pushback on the index.
Speaker Change: There's very little pushback on the soft index, and the back book works the way it would work anywhere, but there's an expectation from the client that rates are dropping. We don't have any real sense that that's a challenge. I haven't heard anything.
Speaker Change: Okay, that's helpful. And then I figured I'd ask a question about fee income.
Speaker Change: It seems like everything was all systems go, like all silos or all the horses seem to be pulling in the same direction for this quarter. I know you highlighted a couple of non-core items in the prepared remarks.
Speaker Change: When you think about the sustainability going into 2025, do you exclude kind of the couple of one-time items you called out wrong? Is this a fair starting off point as like a base or would you say this is a little bit overheated to some extent on the numbers?
Speaker Change: I wouldn't call it overheated, Ben. As you had rightly summarized, all systems and all our fee-income businesses have been performing well. We had a lot of off-balance sheet deposit growth that gave us additional 12B1 fees. Now our off-balance sheet deposits are at $16 billion and growing.
Ram Shankar: Ram Shankar
Ram Shankar: And then the last one is mark the market on equity holdings. That happens all the quarter. So we feel pretty good about our fee income trajectory and how the businesses are doing. Card services is another one where we've seen interchange income grow. You see the purchase volume on one of our slides.
Ram Shankar: is growing pretty well too, so feeling pretty good entering the 2025 profile and pipeline are really strong across all those businesses.
Speaker Change: Thank you.
Speaker Change: Thank you, Ben.
Speaker Change: Our next question today is from the line of Jarrod Shaw with Barclays. Please go ahead, your line is now open.
Jarrod Shaw: Hey, good morning. Thanks.
Speaker Change: He's been working on the the the the the the the the the the the the the the
Jarrod Shaw: I'm just looking at the pay down in some of the wholesale bargains you talked about. Was that, did you just use cash for that or should we?
Speaker Change: Should be expecting the cash balances trending down here.
Speaker Change: Yeah, we did use cash for that. We were in an excess liquidity position and you should expect some diminution in cash balances in the Fed account. Yes.
Speaker Change: okay
Speaker Change: Yeah, yeah, yeah, okay, and then when we look at the
Speaker Change: the DDA accounts, you know, average versus end of period, you know, there's obviously a lot of variability there, but how should we be thinking about sort of the trending of that average DDA balance over the next few quarters?
Speaker Change: Yeah, I would I would focus only on the average just as we always say our period end balances can be higher three four or five Billion name it BDA's I go back to what I said in my prepared comments in the recent quarters We've seen the range between nine and a half and ten billion
Speaker Change: And as Margaret just said, third quarter tends to be our seasonally lowest quarter and was closer to the $9.5 billion.
Speaker Change: between just organic build-up between our institutional and commercial clients and then in the non-on the interest bearing side we also see late in the fourth quarter inflow of public funds that's about eight hundred million dollars typically on an
Ram Shankar: Ram Shankar
Ram Shankar: Okay, thanks. Then, you know, looking on loan growth...
Ram Shankar: you talked about, you called out the sort of record production levels and the lower utilization rates. Could we see double-digit organic growth on lending in 2025 if we get sort of a normalization at all of utilization rates?
Speaker Change: Well, we typically just give a 90-day look forward on loan growth and so we did that in the prepared remarks, which is
Speaker Change: I would say that we remain bullish on our prospects. The same way that we've been growing business is the same way we see growing business in 2025, which is market share gains.
Speaker Change: and production activity based on individual officer capability capacity. Same way as we've always projected and seen long growth.
Speaker Change: What I would say to answer your question about 25 is there are no impediments to growth that we see in front of us to keep us from doing what we've been able to do historically. That doesn't mean that impediments can't come along the way.
Speaker Change: We expect to continue to perform.
Speaker Change: Okay, great. Thanks. And just finally for me, you know, just any update you can give us on expected accretion as part of NII for 25, for loans and securities, any sort of update or sharpening of the pencil of that as you've gone through the quarter?
Speaker Change: And Jared, I don't have an update. We don't typically run rate market accretion. I mean, we obviously did it at due diligence, and then the next opportunity will, it's a pretty onerous process, so the next opportunity for us will be at close.
Speaker Change: But generally, I mean, it really depends on the direction of rates, on what happens to interest rate marks.
Speaker Change: and we've seen some volatility in recent days, really, right? But when you look back to the announcement day...
Ram Shankar: Ram Shankar
Jared: Got it, thank you.
Speaker Change: Our next question today will be from the line of Timur Brazilek with Wells Fargo. Please go ahead, your line is now open.
Speaker Change: Thank you.
Speaker Change: Morning, Tim Horton.
Speaker Change: Hi, good morning.
Timur Brazilek: Good morning, guys. Maybe starting on the loan growth side.
Timur Brazilek: And speaking to some of your competitors in the market, it seems like the competition growth has been intensifying. I'm just wondering what you guys are seeing in terms of competition around
Timur Brazilek: structure around rates. We heard that there's maybe some looser terms around recourse, maybe what you're seeing from a competitive side and your ability to drive the type of well growth you've been getting.
Speaker Change: nothing is new and nothing has ever been new and from our vantage point it's always very competitive and we we play in a
Speaker Change: in the aid space, you know, Best of Quality, so it's always competitive. And so, nothing new. It's always competitive. We're just really good at winning it.
Speaker Change: Okay, and then maybe just going back to some of the balance sheet moves this quarter, just looking at the deposit side, it's going to be a weaker quarter for BDAs. It looks like the institutional client acquisition drove up some of the higher costs this quarter. I guess
Speaker Change: What is the end of period?
Speaker Change: kind of transitory component that you would call out. Do these two maybe balance each other out where DDA grows some of the institutional money maybe rolls off? I guess, what would you classify as being transitory in the third quarter deposit growth?
Speaker Change: anything non-core, they just have, we have an inflated balance sheet at month-end and quarter-end because of our clients and what they're doing in their businesses. Yeah, there's just, the activity of our larger clients are, their transactions are very large and they're very episodic. So they, you just never know when they're gonna happen.
Speaker Change: So it's not transitory, it's just episodic.
Speaker Change: I would say that, you know, like we said earlier, third quarter. Go ahead.
Speaker Change: . . . . . . .
Speaker Change: No, I finished with that. Go ahead.
Speaker Change: Thank you.
Speaker Change: Okay, I guess the other way I was going to ask that question is period end assets increased three billion dollars, some wholesale activity, kind of what's the starting point for an asset base in 4Q?
Speaker Change: You have assets or liabilities?
Speaker Change: Are we transitioning to assets?
Speaker Change: Okay yeah the assets are proven by what's happening on the deposit side so as I said earlier you know in a normal month and quarter and we might have
Speaker Change: $3 billion at quarter end that you see in the period end balance sheet that you know leaves within the first week following the end of the quarter.
Speaker Change: But then it happens every quarter at clockwork. It's very predictable, It's the same clients, we have great visibility into into those. So again You know, we can talk all day about end of period balances, but I will focus on what average balances do. That's more representative of
Speaker Change: you know, what their operating account with us is without some volatility or episodic nature.
Speaker Change: Thank you. Thank you.
Speaker Change: Great, thank you.
Speaker Change: Thanks, Timur.
Speaker Change: Our next question today is from the line of Nathan Race with Piper Sandler. Please go ahead, your line is now open.
Nathan Race: Yeah. Hi, everyone. Good morning. Thank you for taking the questions. Morning, Nathan. I know you guys don't typically give guidance on NII, but Ram, just going back to the balance sheet comments and just the expectations for the margin to be up a few basis points, and just given what you have repricing in terms of index deposits, is it fair to assume that NII, or at least the pace of growth in NII, should increase in 4Q relative to 3Q?
Nathan Race: Thank you.
Speaker Change: Short answer, yes.
Ram Shankar: The balance sheet growth that we saw in third quarter and the anticipated pipeline that Mariner talked about for fourth quarter, coupled with what's going to happen on the repricing side of the index deposits. If you recall, the last rate cut happened mid-September and we only have 15 days of activity on the repricing of index deposits reflected in our third quarter numbers.
Ram Shankar: So, that's why I gave you the September versus August, that was only eight basis points out of the 50. So, yeah, I would...
Ram Shankar: answer in the affirmative and then they said the BTFP was paid down, there might be lower liquidity balances but those are all have very minimal impact on NII so yeah I would say fourth quarter growth in NII at least should be
Ram Shankar: more than what you saw in the third quarter. And the third quarter is a low point for deposit balances too.
Speaker Change: Got it, makes sense. And, you know, just curious as you're kind of.
Speaker Change: budgeting for expenses next year. As you guys have gotten more familiar with the team at HTLF, are you still feeling comfortable with the 27.5% cost-safe target and getting 40% of that phase in next year? Are you guys seeing maybe additional cost synergy opportunities as that process is unfolded?
Speaker Change: We are not really refreshing our modeling at this point.
Speaker Change: Okay, great. I feel comfortable. Yeah. Yeah. First question, we feel comfortable about this. Please have it in the house. So.
Speaker Change: Okay, great. And then just one clarifying question, Ram, on the 12B1 fees, can you remind us in terms of the magnitude of rate cuts that we would need to see for those to be impacted materially? Ram Shankar
Ram Shankar: Yeah, this is taking another 300-350 base points of rate cut before those money market waivers kick in So we got some ways to go if at all
Ram Shankar: plus there's the growth. So those businesses continue to grow, all of our institutional businesses.
Ram Shankar: Ram Shankar
Speaker Change: Thank you.
Speaker Change: and I believe you guys touched on this earlier, but just specifically on the fund services and corporate trust and institutional assets.
Speaker Change: I'm sorry, revenue growth. You know, both of those lines are up, you know, low double digits year over year. Just curious if you think that pace of growth in those lines in particular is sustainable as you look into 2025?
Speaker Change: across all those businesses.
Speaker Change: fund services were probably the primary.
Speaker Change: alternative services company in the country when there's a lot of M&A activity in that space led by private equity themselves.
Speaker Change: And that puts the other service providers that are involved in M&A in a penalty box with the boardrooms. So it puts us kind of out front with the ability to book business.
Speaker Change: The pipeline just continues to look the same in that business, and we're really excited about the way that looks. And institutional custody...
Speaker Change: It is also a fast-growing part of our business, and we've broadened that business beyond just fund servicing. We have a big, strong institutional custody business that's broking business outside of fund services.
Speaker Change: And so that's
Speaker Change: It's really just coming across the board and on top of the new business. We have some very successful big platform clients
Speaker Change: Thank you for your time. Thank you. It's been a great conversation
Speaker Change: So, you know, Mariner has said it in the past that the business is really on fire and that holds true. The only thing I would add is we didn't, within our comments, we heard comments, we didn't talk about it. We're pretty excited.
Speaker Change: Our wealth business is on fire, so we put on a billion dollars in new assets.
Speaker Change: in the last quarter.
Speaker Change: More than we've done year-to-date last year and so We're that business is really positioned Well, all the work that our team's been doing there to really start gaining share Is really paying off. So we're really excited about
Speaker Change: also
Speaker Change: Okay, great. I appreciate all the color. Thank you.
Speaker Change: Our next question today is from the line of David Long with Raymond James. Please go ahead, your line is now open.
David Long: Thank you, good morning everyone.
David Long: On the deposit side of things, getting away from your index deposits, maybe looking at new deposit rates.
David Long: What are you looking at for pricing on new rates? And is the market ration, would you call your competitors rational on deposit pricing following the 50 basis point cut?
David Long: Part 1 Part 2 Part 3 Part 4 Part 5 Part 6 Part 7 Part 8 Part 9 Part 10 Part 12 Part 13 Part 14 Part 15
Speaker Change: Abraham, mute.
Speaker Change: Sorry, can you hear me?
Speaker Change: Oh, yeah, there you go.
Speaker Change: Okay, sorry about that. Don't know if it was my error or not, but looking at deposit pricing, wanted to ask about new deposits and what type of yields you're seeing or rates you're offering on new deposits and how are competitors reacting? Are they being rational after the 50 basis point cuts at the Fed Mint?
Speaker Change: I think it's a rational market. I mean, it's nice because anything we're seeing is better than what we were seeing. So we're kind of gaining on the way down regardless. But if you do campaigns, you do reach a little bit of campaigns.
Speaker Change: We've had some success on the retail front with campaigns, and we hope to benefit from those over time as they mature and season. But anything we're bringing on, we're bringing on less than we were bringing on before.
Speaker Change: Got marginal improvement along the way
Speaker Change: Yeah, and then I'll add on the institutional side. It's always a calculus for us between what we can potentially borrow out
Speaker Change: So when we price this, we're always competing with money market funds, so our rates tend to be FED-effective plus or minus, which is why we have the index deposit book that we have. So I would say it's been rational across all our lines of businesses and we do periodic checks on the market for retail promotions and then...
Speaker Change: Same thing with commercial and institutional. On the commercial and institutional side, there's so much volume and opportunity for us. It's really just being disciplined about whether we can do better at the window than we can with what we're bringing on. So there's so much opportunity. We're able to be disciplined about what we're bringing on on the commercial and institutional side.
Speaker Change: And on the retail side, we're just playing the same game everybody else is with.
Speaker Change: Just being out there and trying to build new relationships, and there's some marketing costs to that.
Speaker Change: Got it, thank you. That's some very good color, I appreciate it. And then on the lending side, when you're having conversations with your commercial customers, is there a level of rates, another 50 or 100 basis points of cuts that you feel like
Speaker Change: increases your clients appetite to borrow and could maybe add another layer of loan growth for UMB?
Speaker Change: I think that's yet to be seen, right? I mean, like we continue to say for us, we budget.
Speaker Change: and forecasts our loan growth based on market share gains tied to how penetrated we are in any one market and what our officers' capabilities and capacities are, and what our long-term customers are doing and what their pipelines look like.
Speaker Change: As far as economic activity, if that gets stronger, I would say for us, certainly there can be some upside to that. I think really the way to think about us.
Speaker Change: When you think about the peer group is we have for 20 years, we've done approximately 2x our peer group in loan growth, regardless of what the economy is.
Speaker Change: So I think the real way to think about it is how we perform on a relative basis, not on an absolute basis. So if things get better, I would suggest that whatever we were going to do would be marginally better.
Speaker Change: But we still expect to outperform on a relative basis the way we have for 20 years.
Speaker Change: Got it. Thanks guys, appreciate it.
Speaker Change: Thank you, Dave.
Speaker Change: Thank you.
Speaker Change: As a reminder for any further questions please dial star followed by 1 on your telephone keypad now and our next question is from the line of Chris McGrady with KPW please go ahead your line is open
Chris McGrady: Ram, a question on the balance sheet. I mean, if I look at your earning assets and I add in Heartland, you're just under 60. I guess as you go into to close, is there anything I guess on either balance sheet?
Chris McGrady: that's kind of prime for restructuring, exit, you know, optimization. I guess I'm getting at like what's the right earning asset base to be looking at as you close this deal early next year.
Chris McGrady: Thanks.
Speaker Change: That should be the ballpark.
Speaker Change: Before growth. Nothing new to report that we didn't already, you know, expose when we did the deal, really.
Speaker Change: And then, Ron, getting back to just the deposit data for a minute, away from the index, which is, I think, pretty
Speaker Change: You've been pretty transparent about the index pieces. What's the, I guess, what's the beta you're assuming either on the rest of the book or the whole book, maybe this quarter and then into next year? Just trying to fine tune a little bit of the assumptions.
Speaker Change: Thank you.
Speaker Change: So just to revisit, right, we're talking about 25% of our deposit book that's not indexed or DDA. So on this book, you know, the prevailing rates on our balance sheet are about 2%. So, you know, that's...
Speaker Change: We'll assume a 30% beta on those. Our beta trajectory on the way down is going to be largely influenced by what's happening on the hard and soft index. That's where the opportunity is, just like it was on the way up.
Speaker Change: Okay, okay.
Speaker Change: All right, great. I think I'm good. Thank you.
Speaker Change: Thanks Chris
Speaker Change: Our next question is from the line of Nathan Race with Piper Sandler. Please go ahead, your line is now opened.
Nathan Race: Yeah, I just had a quick follow-up. One question I've been getting from investors as it relates to the Harlan acquisition. You know, there's been a recent FDIC proposal around having to have public hearings when a bank exceeds $50 billion in assets.
Nathan Race: So, I was wondering if you could just comment on if that would potentially delay or hinder the timing in terms of closing the deal in the first quarter?
Speaker Change: We don't expect anything to get in the way of the current trajectory. All conversations have been positive and we still expect to close in the same time frame we have been sharing.
Mariner Kemper: Great, I appreciate you clarifying. Thanks, Mariner.
Danny: Thanks, Danny.
Danny: Thank you.
Speaker Change #100: With no further questions in the queue at this time, I will now turn the call back over to management for any closing comments.
Speaker Change #101: All right, thank you and thank you everyone for joining us today. As always, if you have further questions, you can reach us at 816-860-7106. Thank you and have a great day.
Speaker Change #101: Thank you.
Speaker Change #102: This concludes today's conference call. Thank you all for joining. You may now disconnect your lines.
Speaker Change #102: [music]