UMB Financial Corp (UMBF) 2019 Q2 法說會逐字稿

Good morning and welcome to the UMB Financial Second Quarter 2019 Financial Results Conference call.

(Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Kay Gregory of Investor Relations.

Please go ahead.

Welcome, and thank you for joining us.

On the call today are Mariner Kemper, President and CEO; and Ram Shankar, CFO.

Jim Rine, President and CEO of UMB Bank, will be available for the question-and-answer session.

Before we begin, let me remind you that today's presentation contains forward-looking statements, all of which are subject to assumptions, risks and uncertainties.

Actual results and other future circumstances may differ from those set forth in any forward-looking statement.

Details about factors that may cause them to differ is contained in our SEC filings.

Forward-looking statements made speak only as of today, and we undertake no obligation to update them except to the extent required by securities laws.

Our earnings materials are available online at investorrelations.umb.com.

Reconciliations of non-GAAP financial measures to the nearest comparable GAAP measures have been included in the release and on Slides 37 through 39 of the supporting materials.

All earnings per share metrics discussed on this call are on a diluted share basis.

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

Thank you, Kay, and thanks, everyone, for your interest in UMB.

For the second quarter, we earned $57 million or $1.16 per share.

On an operating basis, we earned $1.17 per share.

We had another strong quarter of balance sheet growth with average loan balances increasing 10.3% on a linked-quarter annualized basis.

C&I was the biggest contributor to our growth, followed by construction loans.

Our most active markets for construction year-to-date have been Arizona and Missouri.

Top line loan production for the second quarter was again very strong at $844 million.

Total payoffs and paydowns were $489 million this quarter and represented 3.8% of loans, in line with our longer-term quarterly averages.

We continue to see activity in all our verticals, and the production pipeline remains strong as we look into the third quarter.

Solid loan growth was the largest contributor to the increase in net interest income compared to the first quarter, while our net interest margin compressed 1 basis point.

Although recent economic data has been relatively strong, the markets are anticipating a Fed rate cut this afternoon.

While this may not be ideal for our industry, such actions may at least prevent the Fed from overextending its tightening cycle as it has in previous instances.

More than likely, it will also extend the economic recovery that we have been experiencing.

Given the outlook for lower short-term and long-term rates, we'd expect some margin pressure.

As the likelihood of rate cuts increased over the past weeks, we've continued to extend the duration in our securities portfolio as well as add some longer tenure fixed-rate term debt in our loan portfolio.

We will remain vigilant on deposit pricing to help mitigate margin pressure.

And with the growth we've experienced on our robust pipeline, we expect to be able to grow net interest income.

Ram will share more detail on the drivers and the outlook in a few minutes.

On the fee income side, we continue to see opportunity in many of our businesses.

In bond trading, both taxable and tax-free trading volumes have picked up, and in Corporate Trust, we continue to see attractive growth potential.

We continue to look for partnerships and bolt-on acquisition opportunities to grow fee income and deepen our product offering.

In June, we announced that our Investor Solutions team, which offers banking services and deposit solutions for broker-dealers, non-bank financial institutions and fintech companies, have partnered with Personal Capital to launch Personal Capital Cash, an account with FDIC insurance that covers balances up to $1.5 million.

Additionally, just after quarter end, we closed on our previously announced strategic Corporate Trust acquisition in Iowa, which immediately gives us the #1 market share in the state.

Our payment card business continues to grow.

Record originations in our consumer book last quarter, along with steady growth in our commercial card products, helped drive card spend 11.3% higher on a year-over-year basis.

The $3.1 billion in purchase volume for the second quarter is the strongest we've seen to date.

In summary, prudent balance sheet growth, which has been above peer levels, coupled with momentum in our fee generation, should help mitigate the impact of margin pressure from a lower, flatter yield curve.

Our business model is built to weather all economic cycles, driven by the diversity of our revenue sources.

After further strengthening our foundational infrastructure through investments such as a dedicated disaster recovery site, a majority of our capital investments are now focused on revenue and customer experience-enhancing projects and should help us gain further traction in each of our business lines.

Lastly, we will continue to focus on the efficient use of our capital, whether it is in supporting organic growth, funding potential acquisitions or returning more to shareholder opportunistically.

Now I'll turn the call over to Ram for a more detailed discussion of our results.

Ram?

Thanks, Mariner.

For the second quarter, net interest income was $166.4 million, representing a 1.6% increase on a linked-quarter basis.

Net interest income was favorably impacted by strong loan growth and the impact of an extra day during the quarter.

These benefits were partially offset by higher interest-bearing deposit costs.

The yield on earning assets was 4.11% for the quarter, an increase of 1 basis points from the first quarter as increased yields in our AFS portfolio were offset by a 4 basis points reduction in average loan yields.

This decrease was driven equally by payoffs of higher-yielding balances, which offset the benefit from new loan volume and by lower loan fees.

We experienced some deceleration in the rate of increasing funding costs this quarter.

The cost of interest-bearing liabilities increased 5 basis points on a linked-quarter basis compared to an increase of 13 basis points in the prior quarter and slightly lower than the 7 basis points reported by our peers so far.

The total cost of funds rose just 4 basis points, aided by the increase in DDA balances.

Average total deposits remained flat on a linked-quarter basis as growth in DDA and money market balances was partially offset by decreased time deposits.

Cycle-to-date, our earning asset yield has expanded 133 basis points to 4.11% for a 59% cumulative asset beta.

During the same period, our total cost of funds rose 85 basis points from 0.13% to 0.98% for a 38% cumulative beta.

Net interest margin for the quarter was 3.19%, down 1 basis point from the prior quarter.

Margin was positively impacted by approximately 3 basis points from the deployment of excess liquidity, 2 basis points from the benefit of accretive reinvestment spreads and mix changes in the AFS portfolio and 1 basis point from the DDA growth.

Negative offsets included approximately 4 basis points from the combination of loan pricing, driven in part by a 6 basis point decrease in average 1-month LIBOR rates and higher deposit cost, along with a reduction of 1 basis point each from changes in borrowing levels, loan fees and one additional day in the quarter.

Our internal economic forecast and the outlook we contribute to Bloomberg now include one 25 basis point rate cut in July and one in January of next year.

We continued our strategy to extend duration in our securities portfolio, reinvesting cash flows into bonds with longer-dated maturities with call protection to mitigate interest rate risk.

While we're still investing our cash flows at accretive yields relative to roll-offs, buy yields have come down about 50 basis points since the fourth quarter given the shape of the curve.

Since quarter end, 1-month LIBOR has contracted an additional 13 basis points.

This impacts pricing on approximately 40% of our loan portfolio with little relief on the deposit side, which is more closely aligned to the Fed target and the Fed effective rates.

Additionally, the previously announced exit of the $70 million in higher-yielding factoring loans we identified expected in the coming weeks will put downward pressure on loan yields.

We expect these dynamics to impact third quarter net interest margin more than subsequent quarters.

However, as we ease our deposit pricing, subsequent to a July rate cut and at the anniversary date of our 2018 money market campaign in mid-September, we expect some relief on interest-bearing deposit costs that will moderate additional NIM compression.

Based on these assumptions, we expect net interest margin to be down 8 to 10 basis points through the remainder of 2019.

I will note that about 2 to 3 basis points of compression would be likely even without today's anticipated rate cut.

Approximately another 3 basis points of compression is related to the exit of the factoring balance, as I mentioned.

To be clear, we wouldn't expect this level of compression from each 25 basis points rate cut.

Of course, the ultimate outcome for NIM will depend on a variety of factors such as the pace at which LIBOR moves, loan growth, the potential variability in our aviation trust business and our overall balance sheet mix and need for funding.

Moving back to the income statement.

Mariner already discussed some of the opportunities we're seeing in fee income.

More detail on the specific drivers are shown on Slides 19 and 20.

Without the impact of $3.4 million in lower market valuations on our COLI investments discussed in the slides and press release, and the swing in the gains or losses on securities sold in both quarters, fee income increased from the linked quarter.

Slide 21 contains detailed drivers of the quarterly changes in noninterest expense, which was $193.4 million for the second quarter, a 1.4% increase on a linked-quarter basis.

We had increases of $2.4 million in business development expense and $1.9 million in legal and consulting expense related to multiple technology and product initiatives.

Expenses for these projects can be lumpy and move around a bit each quarter.

Salary and benefits expense decreased $1.6 million from the first quarter, driven largely by lower payroll taxes and a reduction in deferred compensation expense, the offset for the additional COLI income I mentioned.

These items were partially offset by increased bonus and commission expense related to performance-based compensation, particularly in our bond trading and Corporate Trust businesses.

Several of our expense categories including bonus and commissions, processing fees and Bankcard expenses are variable in nature and tend to correlate with volume or revenue-based activities.

Finally, our effective tax rate was 15.5% for the second quarter.

For the full year 2019, we expect our tax rate to be between 15% and 16%.

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.

(Operator Instructions) Our first question today will come from Jared Shaw with Wells Fargo Securities.

Maybe if I could start with -- on the securities portfolio, it looks like -- still seeing a little bit of growth there.

Should we assume that, that continues to uptick here?

And on the muni side, are you still focusing purchases on munis to continue to extend duration at this point?

Or was that really more of a clean-up in the quarter and in terms of repositioning?

Jared.

No, I think the size of the portfolio will be pretty close to where it is right now.

Obviously, a lot of it will depend on what happens with excess liquidity.

As you know, we get a little inflow of public funds in the third and fourth quarters that'll determine what the size of the portfolio would be.

But as we said in the prepared remarks, we are looking more in the long-dated duration on the muni side, Fannie Mae DUS bonds.

Those are kind of the investments we're making.

So you would see the percentage of muni securities creep up relative to the rest of the book.

And that's somewhat dependent on supply.

We like munis when there's tight supply.

So that has something to do with what that will look like.

Okay.

And then on the other income, can you just walk us through some of the components there?

So there we saw the COLI come down this quarter.

Is this a stable level for that?

And in terms of the offsetting expense level, should we assume that we're pretty stable at this level if we exclude that $1.9 million of specific items you called out?

No.

I would -- I think it just jumps around.

It's a catch-all category, as you know, right?

So there's usually market valuations on different equity investments that we have in our Prairie Capital business and other businesses as well.

There's always derivative fees.

Our capital markets income flows through that.

So it's a lot -- depends on volume-related stuff.

So I would say, it's probably a higher mark this quarter because of all the movements.

And then there was the offsetting $3.4 million swing on the COLI that also rolls into other income.

But from each quarter, though, the COLI deal is pretty much a wash with the income expense, regardless of how big it gets with market activity.

It usually is pretty close to a wash.

Okay.

And then finally for me, just loan growth continues to be pretty strong here.

Can you talk about the pipeline and what you're seeing I guess in the market to keep driving good levels of loan growth here?

Yes.

This is Jim.

We have seen great C&I growth coming from not only Kansas City, but the outlying markets, Dallas, Colorado, Phoenix, our growth markets and even in our -- what would be the traditional secondary markets as far as population.

But it's coming from not only manufacturing, construction.

The economy, backlogs, it's been strong.

We're seeing steady loan demand, pipeline looks similar to what it's looked in the previous quarters.

There is some caution out there mainly not due to economic concerns as much as political, just not necessarily knowing what's going to happen next year.

The backlogs, which is typical with what you would see out another 18 months of some caution.

But as far as our pipeline, it looks very strong.

Our next question will come from Chris McGratty of KBW.

Ram, maybe a question on deposit pricing.

It's come down.

The rate of increase is decelerating drastically the last 6 months.

Can you remind us -- I believe, a portion of the book is indexed.

So you'll get some relief when the Fed cuts.

Can you just remind us what those numbers are?

And have those already started to reprice lower, contributing to the past 6 months?

Or is that just going to come with the Fed?

It mostly comes with the Fed.

It's -- a lot of them are indexed, hard indexed sometimes.

So 16% of our total deposits are hard indexed to the Fed effective and the Fed target rates.

So that won't happen until later today or in August, right?

So nothing has really come down from that perspective.

And then if you look at our total funding, about 35% of the total funding is what I would call indexed, and that includes hard and soft indexed.

But as we said on the prepared comments, we'll be really vigilant on how we react to both competitive pressures and what happens today and as we look out into the future.

Great.

And if I could ask on the securities.

I just want to make sure I got your comments right.

Were you suggesting that the muni portion of the book was going to be flat or the overall deposits -- or overall securities?

Overall, the overall securities portfolio.

Okay.

Given where the drop in reinvestment rates have been, given the upper, any updated thoughts on whether -- because you have such a great balance sheet flexibility to shrink the investment portfolio to generate a little bit more capital and protect NIMs even further?

And along those lines, any updates on the buyback?

I think the main answer to your question, the first question is, we obviously like to put more of those investments into loans.

And so with the loan growth that we're having, that's probably the biggest contributor to it either staying the size it is or shrinking would be our ability to put the investments to work in loans.

So that's our ultimate goal.

I think that answers your first question.

The second one was about buybacks.

And we don't -- it's similar comments to the ones we always make.

Our primary focus of use of capital is invest in the business, and that would be our primary goal.

And I suppose in the absence of that, there are several things we can think about, dividend increases, buybacks, et cetera, but those would be secondary to continue to invest in the business.

Understood.

Maybe one last one on the factoring portfolio, the $70 million that you expect to run off.

Of the $12 million charge-offs in the quarter, was any of that related to a clean-up in that portfolio?

Maybe the $12 million commercial charge-offs, how much of that was factoring?

Well, what I -- I guess, what I'd say, in its most basic form is there's nothing really unusual in the quarter's charge-offs, so it get kind of business as usual across the whole business.

So nothing we're concerned with, nothing that hasn't already been identified.

And on the credits that we told you about that we identified to move out, 2 of them have already commitment dates and the other 2 are in negotiation, and we expect to see them move out.

Before year-end.

Before year-end.

It looks like the other 2, they don't have commitment dates.

Could be in September.

So nothing unusual, business as usual, and we continue to expect to return to our historic averages in coming quarters.

Our next question will come from Matt Olney with Stephens.

I appreciate all the color around the margin.

You've answered all my questions.

I guess the only thing I'm looking for is loan floors.

At what point do loan floors come more into play for your balance sheet?

This is Jim.

We -- in the past, when we saw rates bottom out, we did have floors.

Right now, we anticipate if we get back to that situation, we could implement floors again.

But right now, it's more of a wait and see.

On the floating rates, we have the ability to do that.

Some have them built in, some don't, but right now, we'll be following the market and be taking a close look at what our competition will be doing, too.

Yes.

It's what the top 3 big -- 4 banks do, it's what we'll be able to do, so we're going to have to follow that.

And 60% of our loans, as you know, repriced within 12 months.

So we would have that kind of flexibility in the event that the market takes us there.

Okay.

Got it.

And then switching over to fees and within the trust and securities processing line item, a nicer rebound again this quarter.

How much confidence do you have that, that will continue to move higher?

Is that something that you expect?

Or will there be still plenty of volatility within that line over the next year or so?

So that's been -- a fee income, as you know, Matt, is a big focus for us.

So 3 different businesses, lines of businesses contributed to [PSNP] line item.

Obviously, there's Personal Banking and then Institutional.

Within Institutional, you have Corporate Trust as well.

So considering the push into the Institutional and now Personal and Private wealth, we expect some steady growth in the PSNP . But quarter-to-quarter, there's always some volatility in there.

Our asset serving our fund services business also contributes to that line item, and we've been seeing some really nice wins in the last 9 months or so.

Yes.

From an operating basis, that stuff, if you take out the little bits of noise that have been in there, they have the -- so each of those businesses, new business generation is up.

So the sales activity and the revenue activity across all 3 of those areas is up and the momentum looks good.

In fund services, in particular, we have so much business in the pipeline that anything that comes on, anything new that comes on at this point has to be converted in 2020.

So we have -- it's the trajectory and the momentum is very good across all 3 lines.

Okay.

Great.

And then lastly for me, going back to credit quality and the previous question around charge-offs.

I think you said, Mariner, that the 2Q level was somewhat business as usual.

So would you be disappointed to see a similar run rate at net charge-offs over the next few quarters?

Or is this is where we are in the economic cycle?

Or do you think that could decline to more historical levels going forward?

Well, I would be disappointed.

We're in the risk-taking business and don't really control -- there's some variability of what we can control there, but the signs are that we should -- with the current performance and the things that we can see today, that we should be returning in future quarters to our historic averages, and I definitely would be disappointed otherwise.

Our next question comes from Nathan Race with Piper Jaffray.

Just want to go back to the discussion on the NIM.

Just curious maybe kind of what expectations are for core deposit growth at this point, and maybe how you guys are pricing deposits outside the deposit portfolio that you have indexes joining the curve.

And just within that context, curious if we should expect deposits to grow commensurately with loans at this point.

Well, as you know, industry averages on bank deposit growth, 1% to 2% organic, would be very strong, right in the wheelhouse.

We certainly anticipate industry average growth on deposits.

But without them being significant interest-bearing deposits, it would be hard for our deposits to keep pace with the loan growth.

However, we have significant deposit-gathering campaigns and sales efforts underway, and we are seeing traction in several markets with those primarily in the commercial space and institutional space.

The retail deposits for all banks are harder to attract and to move in a core basis in a -- with low rate, not having high rates attached to them, obviously, but that's not unique to UMB in any event.

I would say that, over time, we've been able to bring the yields on our loans up through the mix and some of the different things we've done over time.

If you've looked at our trends over time, they've gone up, which gives us some room to rely more on our commercial and institutional deposits to fund our loan growth.

So that's one of the benefits we have.

That's one of the strengths we have.

And that should continue to alleviate the sort of competitive deposit pressure issues in the system.

And Jim was talking about our new -- our renewed efforts around retail, and we're -- so we expect to see the sort of flatness of that reverse and see a little bit of growth in the coming quarters.

And then lastly, we've talked about M&A.

We certainly would like in -- somewhere in the near future, we'd like to find an opportunity.

We think that, that's another way that we can continue to build deposit franchises through acquisition.

And so that's part of our strategy is to look for those opportunities as well.

Okay.

Great.

That's helpful.

And if I could just ask one more.

The NIM guidance of I think 8 to 9 basis points of pressure through the back half of this year, I guess, given those challenges, are you guys looking at anything on the expense side of things as a potential offset to those challenges?

Or is it kind of business as usual in terms of some of the reinvestments that are ongoing into the franchise?

Well, just high level, I mean, we're ever vigilant, looking for every opportunity to control expenses.

You couple that with the fact that we are a growth company and investing in our company.

So we're, again, more interested in growing earnings and investing in the company than we are necessarily.

There's more opportunity for us to grow the business than there is to reduce expenses.

That's where, I think, where that sort of the leverage will come from, is growing the business.

But we're ever vigilant, always looking for those opportunities, and we'll look to execute wherever we can to control expenses.

(Operator Instructions) Our next question will come from David Long with Raymond James.

The C&I growth was pretty good.

It sounds like the pipeline remains pretty good as well.

Just curious as to at this point in the cycle where that growth is coming from?

Any particularly -- particular industries or geographies that may be driving that?

It's really not much different than we've been saying quarter after quarter.

And the reason we're able to produce outsized loan growth, as we've discussed in past quarters, is we have -- we're still under penetrated, geographically.

And so by executing, having the right people on the ground, there's a long runway there.

We also have developed, over the last 5 years, vertical expansion in the sense of creating expertise and putting people out into the field to chase particular verticals.

As we've discussed, agriculture is one of those, where historically, we're very good at agriculture, but it was really kind of drawing a circle around the branch.

Now we're putting people into the field where the [Rich Turd] is and where the opportunities are.

So between geographic expansion and vertical expansion into our current footprint and our current opportunity set, we believe that we'll continue to have outsized opportunity really across all verticals and all geographies.

And I think that's -- we don't see that ending anytime soon for us.

We're just have -- we have pretty significant penetration opportunities.

And have you been hiring?

Have you been adding people?

And if you have, maybe where have you been adding them?

We have added significant talent in Colorado, specifically in Denver.

We've added to the team in Phoenix and also have had several hires in Dallas to the commercial team.

I would be remiss if I didn't point out the great growth that we've had in St.

Louis.

We've been in St.

Louis for 40-plus years, and that team is -- hit its stride, to say the least.

A lot of the growth, though, as Mariner said, is the market penetration, which isn't necessarily due to new growth in those markets.

It's just our -- us taking market share from others.

And hiring the right talent certainly increases our opportunities for them.

Our next question will come from Ebrahim Poonawala from Bank of America Merrill Lynch.

Sorry if I missed this, but I was just wondering if you've talked about just expense or investment outlook relative to, I guess, core expenses of about $193 million this quarter, just in terms of how you're thinking about that and operating leverage going forward.

Yes.

I'd point to a few things, Ebrahim.

This is Mariner.

One, a large part of our change in expense load from quarter-to-quarter has been selling expense.

So we've had a lot of success in our Institutional businesses, and we've been paying out commissions on that.

So that's one of the significant deltas that you see there.

So we see that as a positive change to the expense load.

Secondly, I would say, I think we said this on the last call that it's worth reiterating, that we are now at the point with our technology and operation spending that we're past kind of doing the -- a lot of our upgrades and maintenance and sort of infrastructure spending, and a majority, more than half of our spending now for the first time and some time is focused on customer experience, product development, revenue generation.

So we expect to see the spending that we do have and the investment that we are making to see lift on customer experience and revenue from here on out.

So that's a good positive related to the expense load.

So hopefully, that's helpful.

That's helpful.

And just going back to your comments around M&A, Mariner.

It sounded to me recently, given where the stock's trading at, you've expressed interest in Texas from a bank M&A perspective.

And it seems like there's a fair amount of a valuation mismatch in terms of what the buyer expectations are.

Is that still the case?

Or are you looking beyond Texas when you think about M&A?

And like at current valuations, do you see bank M&A as being a realistic use of capital?

Well, I think we looked across all of our growth markets, our whole footprint, really looking for good opportunities.

And you have to couple that with what's actually available, what the opportunity set is and who's ready to sell and all that.

So there are a lot of variables, right, as to what we might be able to accomplish.

And so we have to deal with all that as we're pursuing opportunities.

But as far as valuation goes, we -- I spoke about this on the last call, our belief is that in the current environment with taxes behind us, interest rates coming down, margin pressure at the industry level, that the expectations that Boards have had is loosening up a little bit.

Conversations are changing.

We haven't really -- as you've seen all the same public data, we haven't even seen real movement in that yet -- significant movement in that yet, though on larger transactions, premiums seem to be coming down, but we expect that to happen.

So we're waiting for that.

And I think that -- I think there will be some change in expectations given the current operating environment.

Got it.

Then on the fee income side, Mariner, any 1 or 2 areas where you're really focused in terms of doing a fee income-driven acquisition?

I wouldn't -- no, I think we are constantly looking at all the businesses to make sure we're -- they're all set up for the future.

Currently, everything we're in, we are pretty excited about and looking for ways to enhance performance, and we love -- our fund services business is on fire.

One of the things I would say about our fund services business, which is a relatively new development is if you've been following that business, there's been an enormous amount of consolidation.

And that puts the companies that have gone through a consolidation in the penalty box as it relates to generating new business, and we have been a big recipient of that in the last 6, 9 months, and our pipeline is very strong.

So we're really excited about what's going on in fund services, there may be some opportunities there.

But that business is very strong.

The Corporate Trust business, we talked a lot about.

We talked about the aviation piece of business there that we're very excited about and seeing -- we're consolidating that business and seeing all the traction there.

And our traditional Corporate Trust business is same.

As soon as infrastructure spending on a national basis kicks off, which it got to kick off at some point, we'll benefit from that.

Our Investor Solutions business, which we've talked in the past about, we now have a new vertical driving a lot of success with.

We have 4 companies now that have signed up with us which are fintech companies.

So that business had reached some maturity with the broker-dealer business, and we are now seeing a new vertical and some growth opportunity in the fintech space.

And already in a very short period of time, we have 4 new clients there.

And then our wealth management business, we also are very excited about the future there.

We have new leadership there, and we plan to launch a family office business in coming quarters to address the sort of ultra-high net worth segment.

And we're really excited about some of the things we're doing with talent in that group.

And so I would just say, really, across the board, it's always been a strength of ours, fee income, and we want to make sure that we don't lose that outsized performance as well as our interest and knowledge in the space.

So we continue to invest there.

And in institutional custody, which is -- this is actually pretty exciting, this is new.

We've always been in the custody business, but it's really been historically as a service and a bolt-on to the other offerings we have.

We recently hired a senior executive from DST to build an independent institutional custody business.

And that is already off to a great start, pretty significant improvement year-over-year in a very short period of time in just 6 months, and we're really excited about the prospects of that business as well.

So really quite pumped about all the things going on in fee income for UMB.

Our next question is a follow-up from Chris McGratty with KBW.

Ram, I just want to make sure I got the margin guide right.

The -- I think you said the factoring book was about 3 basis points.

So does this suggest that each cut by the Fed is 4 to 5 on the NIM?

I think you said there was some downward pressure regardless because of the environment, but I just want to make sure I got the impact for each cut.

Yes.

There's never a real linear relationship between what happens on the Fed side to what happens to our net interest margin because of the moving pieces, right?

From quarter-to-quarter, there's different ins and outs of our deposit side.

The timing of LIBOR moves matters.

So it's hard to peg a relationship between what margin might compress by versus what happens to the Fed.

But, yes, I did say 8 to 10, but the deposit beta will still start to creep up a little bit.

I mean it was 5 basis points, totally decelerated.

We have close to $1 billion of CDs.

Those will reprice slightly higher as to current market rates.

But what we do on the other side with the money market campaign and what we do with the rest of the deposit book will mitigate some of those margin pressures.

Okay.

Great.

And then just I could on M&A, Mariner, there was a deal I think announced in Texas that's kind of overlapping some of your footprint this morning.

I think it was around $3 billion in assets.

Is that a -- just a deal that in terms of product size, geography, that would have fit the criteria for UMB for acquisitions and maybe it came down to price?

Or maybe update us on your preferences on those metrics.

Yes.

We don't have any real specific targeted range.

What we've said in the past, the bigger the company, the better it needs to look.

So we want to take less risk the bigger it is.

And then the smaller it is, the same amount effort you put into it.

So I guess we lean towards larger -- the last deal we did was a couple of billion, a couple -- $2.5 billion in size, and that was a very easy deal for us to do as it relates to integration and risks that we're taking.

So there are no real specific guidelines around that.

I think we lean a little bigger than small just so that we can get scale and efficiencies and synergies and all that.

This concludes our question-and-answer session.

I would like to turn the conference back over to Kay Gregory for any closing remarks.

Thank you, and thanks for joining us today.

The call can be accessed via replay on our website.

And as always, you can contact UMB Investor Relations at (816) 860-7106 with any follow-up questions.

Again, we appreciate your interest and time.

Thank you, have a good day.

The conference has now concluded.

Thank you for attending today's presentation, and you may now disconnect.