UMB Financial Corp (UMBF) 2024 Q3 法說會逐字稿

Hello and welcome to the UN B Financial third quarter, 2024 financial results conference call. My name is Harry and I'll be coordinating your call today. All lines are currently in a listen-only mode and there'll 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 on your telephone keypad. If you change your mind and would like to exit the queue, please dial star followed by two. It is now my pleasure to hand over to pay Gregory investor relations to begin. Please go ahead.

Good morning and welcome to our third quarter 2024 call Mariner Kemper, Chairman and CEO and Ron Shaer CFO will share a few comments about our results and then we'll open the call for questions from our equity research analysts, Jim R CEO of UMB Bank and Tom Terry Chief Credit Officer will be available for the question-and-answer session 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 foresees forward-looking statements, and any pro forma metrics are subject to assumptions, risks and uncertainties as outlined in our SCC filing and summarized on slides, 48 to 50 of our presentation.

Actual 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.

Presentation materials are available online at investor relations dot un-B dotcom and include reconciliations of non-GAAP financial measures.

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

Thank you, Kay. Good morning, everyone. Thanks for joining us as we discuss our third quarter results announced yesterday afternoon, we had another solid quarter with strong fee business performance, a near double digit analyzed loan growth driven by record top line loan production of $1.4 billion.

Our line utilization has remained steady at 37% to 39% over the past several quarters and our loan pipeline remain strong heading into the fourth quarter overall. We're pleased with the strength of both sides of our balance sheet as well as the robust traction. We see in many of our fee income businesses. We reported GAAP earnings of $109.6 million or $2.23 per share driven by continued momentum across our various lines of business on an operating basis. We earn $2.25 per share.

The increase in interest income was driven primarily by continued loan growth and higher levels of liquidity partially offset by changes in funding mix.

The strength of our diversified financial model was evident this quarter with strong fee income growth from several areas including within our institutional business where assets under administration exceeded half a trillion dollars trading and investment. Banking volumes increased largely in municipal and mortgage-backed securities. Driving a 30% lien quarter increase in fee income in corporate trust higher off-balance sheet money market balances contributed to stronger 12b-1 fees in the quarter. And our private wealth team have brought in $1 billion in net new assets year-to-date or 33% ahead of full year 2023 levels.

We focus on operating leverage rather than specific expense growth targets. So compared to the third quarter, a year ago, we posted positive operating leverage of 4.4% on an operating basis. Ron will provide more detail on income and expense drivers shortly.

Balance sheet growth included a 9.8% lien quarter analyzed increase in average loan balances. In contrast to many of our peers' comments on anemic loan growth and slowing utilization. In fact, for banks reported so far, the median analyzed increase in average loan balances has been just 3.4%.

Loan growth was led by commercial real estate with multifamily balances posting 13% lean quarter growth and by construction draws on previously approved lines.

We also saw a solid C&I activity with some increased M&A activity among our client's credit quality in our loan portfolio remains excellent and a hallmark of our business as evidenced by just eight basis points of net charge offs on a year to day basis and non-performing loans of just eight basis points of total loans.

Over the past eight quarters, our nonperforming ratio has averaged just eight basis points compared to 39 basis points for our peer group and 35 basis points for the industry as a whole. C&I continues to perform well with just three basis points of net charge offs for the quarter and net recoveries. Three out of the last four quarters, credit card is typically the largest component of our net charge offs and that was the case again in the third quarter.

We have heard some consumer heavy lenders discuss borrowers at risk and several anecdotal comments from retail participants in the retail sector seeming to support that sentiment for UN B. However, consumer credit card represents just 1% of average total loan balances and typically make up approximately 5% to 7% of credit card purchase volume. Most of our credit card net charge offs for the quarter stem from our recent portfolio acquisition which had a different credit profile than we normally underwrite for context. These acquired balances averaged $118 million for the third quarter. On the flip side. Relative to our original expectation, the portfolio yields on these acquired balances have also outperformed excluding losses on credit cards. Our net charge operates this quarter would have been only 2 basis points.

The higher provision expense in the quarter largely reflects the impact of loan growth along with some general portfolio trends.

Our coverage ratio increased to 1% total loans. Average total deposits grew $951 million or 11.1% on a lien quarter analyzed basis including the intentional reduction of broker CD balances for comparison banks that have reported third quarter results so far had a median analyzed growth in deposits of just 4.9%.

While commercial DD A balances increase 11% on an annualized basis. Overall average DD A balances decline largely driven by tax payments and other activity in asset servicing and corporate trust. As we've discussed in the past, these cash distributions by our large institutional clients can be episodic in nature and there's some seasonality in the balances, especially among municipal and corporate trustee clients.

Finally, we're on track to complete our pending acquisition of Hartland Financial subject to approvals and have updated milestones and progress on the integration planning in the deck.

Our integration teams are collaborating well with ACL and we are well on our way with preparations for legal day one, still anticipated for some time in the first quarter.

Again, we believe this transaction will accelerate growth strategy, further diversifying and de risking our business model. The addition of this high-quality franchise is a great fit from a strategic financial and cultural perspective, and we look forward to serving our prospective clients and geographies as well as welcoming new associates to UN B. Now, I'll turn it over to Ram.

Thanks Mariner net interest income of $247 million represented an increase of $2.3 million or just under 1% reflecting continued loan growth and higher levels of liquidity partially offset by the higher costs related to a funding mix shift. The mix shift was driven both by a $1.6 billion increase in average interest-bearing deposit balances as well as the $601 million decrease in DDAS which impacted net interest margin by five basis points. As we've noted, our DD A balances can fluctuate based on the activity of our institutional clients which may include tax and bond payments as part of being the trustee or funds that were deployed in the market in the asset servicing business. Additionally, as Mariner noted activity from our corporate trust and specialty trust clients can be lumpy and episodic in nature. As a result, our media balances were at the lower end of the $9.5 billion $10 billion range we've seen in recent quarters and generally represent the low point of the year from a seasonality perspective.

Average interest-bearing liabilities increased 4% with increases in interest bearing deposits partially offset by a decrease of $280 million in borrowed funds. As noted on slide, 34 of the deck, we further reduce borrowing levels following quarter end paying off $800 million in BT P prior to its contractual maturity in January 2025. While the BT FP balances contributed $1.1 million in net interest income in the third quarter. It was almost four basis points diluted to net interest margin. Additionally, the $250 million in both FHLB advances and brokered C DS matured earlier in October which should also benefit margin going forward.

Net interest margin for the third quarter decreased five basis points sequentially to 2.46% largely due to the decline in average CD A balances. As you can see from our eel tables, net interest spread was unchanged from the linked quarter as the benefit of free funds declined five basis points and impacted margin.

Looking into the fourth quarter, we expect editors' margin to improve a few basis points from the third quarter driven by wholesale funding maturities. I noted earlier as well as the catch up of re pricing actions on index deposits from the mid-September rate cut. This may be partially offered by delayed loan re pricing on loans tied to Sofr and Prime as well as the impacts of continued contraction in one month. Sofa rates in advance of anticipated rate cuts in November and December. As you're aware, the one month so rate has declined 20 basis points through last week in advance of the expected 25 basis points cut on November 7th.

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 our liability and the overall pricing environment for loans and deposits.

As an additional reminder, approximately 35% of our total deposits are hard indexed to short term interest rates. As the fed funds rate changes, these deposits reprice down immediately. An additional 18% of our deposits of soft index balances negotiated at the current prevailing market rates on the soft index deposits. We will generally move rates down pretty quickly following fed cuts. Overall, we continue to expect our deposit data on the way down to be cheaper than pr banks. Similar to our experience during the tightening cycle.

We estimate that for the 50 basis points rate cut that happened in September, we were able to garner close to 90% data on our index deposits 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 eight basis points from August compared to a 10 basis points decline in loan yields.

Our interest rate simulation results on page 33 of our deck show us benefiting from interest rate cuts in year one with a more modest benefit for year two. Our projections now show us slightly liability sensitive based on a static balance sheet as of September 30th and current market assumptions for interest rates and prepayments.

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.

On the right side of page 33 we've added more detail on loan repricing including timing of rate adjustments for both sulfur and prime index levels, the timing of movements and sour rates in advance of the. So, MC action had an immaterial impact in the third quarter. Given the mid-September timing as the FO MC meets and act sooner in the quarter. It is likely that so far also moves ahead of anticipated fed actions resulting in some timing differences between when loans and index deposits reprice.

We've also added details on 533 about the hedges we have in place. Currently, we have $2.5 billion notional value in pay fixed receive flow cash flow hedges which include three floor contracts and eight floor spreads.

Details and activity in our securities portfolio are shown on slide 3,031 in our deck.

The combined A FS and HCM portfolios average $12.3 billion during the quarter, relatively flat from the prior quarter. Levels.

Security levels fluctuate based on our collateral needs for both public funds and trust businesses.

The average purchase yield in our portfolio was 4.64% for the third quarter. While securities rolling off at a yield of 3.18% we expect $1.5 billion of securities with an average yield of 2.62% to roll off over the next 12 months. Pricing on new investments in September average 4.2% and are subject to change depending on what happens in the middle part of the treasury curve.

Capital levels continue to build with our common equity tier one ratio increasing eight basis points to 11.22%.

As announced yesterday, the board of directors declared a 2.6% increase in the quarterly dividend rate to 40¢ per share payable in January 2025.

We've seen continued growth in tangible book value per share which increased $6.28 from June 30th to $66.86.

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 for equity offering agreement that we announced in April.

Turning back to the income statement, non-interest income was $158.7 million a link quarter increase of 9.5%. Aside from the impact of market related variances, which includes security valuation changes and poly income. The largest driver of fee income was trust and securities processing where the strong fund services and corporate trust activity mariner mentioned is captured.

This income line has seen steady increases in recent quarters.

Other drivers of the linked quarter increase were $1.7 million of additional income from both investment banking and brokerage income and $1.1 million gain on the sale of a building partially offset by lower health care related deposit service charges noninterest expense of $252.5 million. For the quarter included pretax acquisition expenses of $2.6 million and an additional reduction of $1.7 million in previously accrued FDIC assessment charges on an operating basis. Non-interest expense increased $8.3 million in quarter and included a $1.3 million increase in variable bonus and commission expense. As strong performance in several other businesses resulted in higher incentive accruals salary and benefits expense was also impacted by one more salary day. In the third quarter, 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 holy income.

Finally, our effective tax rate was 19.2% for the quarter compared to 19% of the third quarter of 2023. On a year-to-date basis. The increase in tax rate was primarily related to lower income on tax exempt securities and higher nondeductible acquisition costs in 2024 for the full year. 2024 we would expect the tax rate to range between 18% and 20%.

Looking ahead to 2025 our preliminary estimate including the HTLF acquisition is an effective tax rate of 21% to 23%.

Now I'll turn it over to the operator for the Q&A session.

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.

And our first question today will be from the line of Ben Gerlinger with city. Please go ahead. Your line is now open.

All right, good morning, everyone.

Hey morning.

I was curious if we could talk through the pricing of deposits a little bit more. I know you gave you quite a bit of detail on negotiated versus index and all that. So with the 50 basis point cut late in three Q, we kind of roll through four Q, 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 four Q here, any pricing trends or any thoughts and then also the mix itself, any comment would be really Helpful.

Can you take that, Ram?

Yeah, sure. As I said on the prepared comments then, so about 35% of our deposits are what we call hard index, right? So those are very formulated based on what a pet effective rate might be. So those are done immediately and then there's another 18% that are negotiated rates are what we call a soft index rate. So, if you look at our total deposit, 53% between those two have prevailing market rates upwards of 4% today that we have. I said in my prepared remarks, we got totally close to 90% based on those before the first 50 basis points cut, then the remaining 30% is DD A and then there's the back book of call it 25% that are lower. So that kind of gives you a time frame or, or a framework for what you know, might happen to deposit costs. Again, these are all based on what happens to short term interest rates 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 DDA build in the fourth quarter that was not there in the third quarter.

Got you. No, that's, that's helpful. Let me ask it differently. So, when you, when you lower something, obviously there's a negotiated component to it. But are you seeing any push back on anything? Are you, are you let's say exception pricing? But if clients see their price or their yield on deposits with lower index, I totally get it. It's contractual. And there's the negotiated aspect. Are you seeing push back in anything? Even though it's 50 bits or not?

There's no push back on the index.

There's very little pushback on the soft index and, and then 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. Haven't heard anything.

Got you. Okay. That's helpful. And then if you could ask a question about fee income, it seems like everything was all systems go like all, all silos are all the horses seem to be pulling the same direction for this quarter. I know you highlighted a couple of non-core items in the prepared remarks when you think about the sustainability going into 25. Do you exclude kind of a couple of onetime items you called out wrong? Does this a fair starting off point like a base, or would you say this is a little bit, overheated to some extent on the numbers?

I wouldn't call it overheated. Then 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 12b-1 fees. Now, our off-balance sheet deposits are at $16 billion and growing our fund services. As I said in my prepared remarks has been on all cylinders for the last few quarters, alternative investments, brokerage income or trading investment, banking income was another strong quarter because we're seeing a lot of demand for municipal and mortgage-backed securities, both on the bank and non-bank qualified side. So, the only non for quote unquote the $1.01million on the gain on sale of building and then periodically we have cooling which has an equal offset on the deferred comp side. And then the last one is mark to market on equity holdings that happens all the quarter. So, I we feel pretty good about our fee income trajectory and all the businesses are, are doing card services is another one where we've seen interchange income growing. You see the purchase volume on one of our slides is growing pretty well too. So feel pretty good. Entering into 2025.

That pro profile and line are really strong across all those businesses.

Got you. OKay. Thank you.

Thanks, Ben.

Jared Shaw with Barclays.

Hey, good morning. Thanks. Maybe first, I'm just looking at the.

Hey, good morning. I'm just looking at the, the pay down and some of the, the wholesale borrowings that you talked about was that do you just use cash for that or should we, should we expect the cash balances trending down here?

Yeah, we did use cash for that. We were in an excess liquidity position, and we did, you should expect some diminution in, in cash balances of the fed account.

Yes.

Okay.

Yeah.

Yeah okay. And then when we look at the, the DDA accounts, you know, average versus end of period, you know, there's, there's obviously a lot of lot of variability there, but how should we be thinking about sort of the trending of, of that average, DDA balance over the over the next few quarters?

Yeah, I would, I would focus only on the average just as we always say, our period end balances can be higher. $3 billion, $4 billion, $5 billion, name it. DDAs I can go back to what I said in my prepared comments in the recent quarters. We've seen the range between $9.5 billion and $10 billion and as I just said, third quarter tends to be our seasonally lowest quarter, and it was closer to the $9.5 billion between just organic build up between our institutional and commercial clients. And then in the not on the interest-bearing side, we also see late in the fourth quarter inflow of public funds, that's about $800 million typically on a typical season that we get in weighted towards December. So, we feel pretty good about our deposit pipeline for the fourth quarter, both on the DD A side and the, and the public fund side.

Okay, thanks. And then, you know, looking on loan growth, you, you've talked about, you called out the sort of record production levels, and the lower utilization rates. You know, could we see double digit organic growth on, on lending and in 25 if we, if we get sort of a normalization at all of, of utilization rates.

Well, we typically just give a 90 day look forward on, on loan growth. And so, we did that in the prepared remarks, which is that fourth quarter looks strong, like, like the third quarter and the previous quarters before that, whether, I would say that we, we remain bullish on our prospects. There's the same way that we've been growing business is the same way we see growing business in 25 which is market share gains and production activity based on individual officer cap capability capacity, same ways we've always projected and, and, and seen long growth. So 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, but we, we expect to continue to perform.

Okay, great, thanks. And just finally, for me, you know, just any update you can give us on expected accretion as part of ni I for 25 for loans and securities. Any, any sort of update or sharpening of the pencil that is as you've gone through the quarter?

Hey Jared, I don't have an update. We don't typically run rate more aggression. I mean, we obviously did it at due diligence and then the next opportunity will, it's pretty onerous process. So, the next opportunity for us will be at close. But generally, I mean, it really depends on the direction of rates on what happens to interest rate marks. And, and we've seen some volatility in recent days. Really. Right. But when, when you look back to the announcement date rates have come down since then. So, all of the equal, that's a positive for, you know what it means up front in terms of interest rate, market and capital So, but I don't have exact numbers for you and, and we don't typically refresh that analysis until close.

Got it. Thank you.

Timur Braziler with Wells Fargo.

Morning, Timur.

Hi, good morning, good morning, guys. Maybe starting on the loan growth side 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 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 loan growth you've been getting?

I, I would say that 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 you know, in a space, you know, best of quality. So, it's always competitive and so nothing new, it's always competitive and we're just really good at winning it.

Okay. And then maybe just going back to some of the, the balance sheet moves this quarter. Just looking at the deposit side is a weaker quarter for BDA. It looks like the institutional client acquisition drove up some of the higher cost this quarter, I guess.

What is the end of period kind of transitory component that you would call out. Do these two maybe balance each other out or DD A grows some of the institutional money maybe rolls off. I guess. What, what would you classify as being transitory in the third quarter? Deposit growth?

I would, I mean, these are same clients that have excess balances at each month end and quarter end. Very predictably. So, I wouldn't call it, anything non quarter, they just have, we have an inflated balance sheet at month end and quarter end because of our clients and what they're doing their businesses.

It just the activity of our larger clients is, their transactions are very large and they're very episodic. So, they, you just never know when they're going to happen. So, it's not transitory, it's just episodic.

I would say that, you know, the like what we said earlier, third quarter, go ahead.

No no finish your part.

Go ahead.

Okay, I guess, I mean, the other way I was going to ask the question is period end assets increase $3 billion. Some wholesale activity kind of what's the starting point for an asset base in 4Q?

Assets or develop, you have assets liabilities?

On the assets.

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, we might have $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. 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 year balances, but I would focus on what average balances do, but that's more representative of, you know, what their operating account with us is without some volatility or episodic nature.

Great. Thank you.

Thank you, Tim.

Nathan Race with Piper Sandler.

Yeah, hi everyone. Good morning. Just taking the questions morning nature. I know you guys don't typically give guidance on NI I but I'm just going back to the balance sheet comments and just the expectations for the margin if you have a few basis points and just given what you have re pricing in terms of index deposits. Is it fair to assume that N I release the pace of growth in NI I should increase in four Q relative to 3Q.

A short answer. Yes.

The, 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 re pricing side on the index deposits. If you recall the last rate cut happened mid-September and, you know, we only have 15 days of activity on the repricing of index deposits reflected on our third quarter numbers. 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, I would I answer in the affirmative and then, as I said, the BP P was paid down, there might be lower liquidity balances, but those are all had very minimal impact on an I I. So yeah, I would say fourth quarter growth in an I I at least should be more than what you saw in the third quarter.

And, and the third quarter is a low point for deposit balances too. So.

Got it makes sense. And you know, just curious as your kind of 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 save target and getting 40% that phase in next year? Are you guys seeing maybe additional cost synergy opportunities as that process has unfolded?

We, we are not really refreshing our, our modeling at this point.

Okay, great.

I feel comfortable what we Yeah, yeah. The first question, we feel comfortable about the 27.5%, so.

Okay, great. And then just one clarifying question around on the to be one piece to remind us in terms of the magnitude of rate cuts that we would need to see for those to be impacted materially.

Yeah, they take another 300 base points, 350 base points of rate cut before those money market waivers kick in. So, we got some ways to go if at all.

Plus, there's the growth. So those businesses continue to grow, all of our institutional business continue to grow. So, the balances continue to grow. So, you've got that working against whatever that would happen when it ever happens.

Got you. And I believe you guys touched on this earlier, but just specifically on the fund services and corporate trust and institutional asset growth. 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.

Yeah, I'll take that quickly and if Jim has anything to add, he certainly can. I mean, the story continues to be the same pipelines are very good across all those businesses. We have a whole position in all the businesses. So, on corporate trust, we're number two in the country, fund Services, we're probably the primary alternative services company in the country. When there's a lot of M&A activity in that space led by private equity themselves and that puts the board that puts the other service providers that are involved in M&A penalty box with the boardrooms. So, puts us kind of out front with the ability to book business. And the pipeline just looks, continues to look the same in that business. And we're really excited about the way that looks and institutional custody. It is also a fast-growing part of our business. So, we broaden that business beyond just fund servicing, we have a big strong institutional custody business. It's broken business outside of fund services.

And so that's it's really just coming across the board and, and on top of the new business, we have some very successful big platform clients that as they are successful, we are successful. So, our client base itself continues to grow and have great success in fund services. So, I don't see that in general, but it's really great front story.

It's a great story. And the only thing I would add is you probably saw the notes that we launched our COO trustee services. And that at the end of the day that really rounds out our offering as far as the full-service corporate trust shop. We've upgraded we added additional software investments, additional upgrades to a services platform. So, you know, Mariner has said it in the past that the business is really on fire and it, and that holds true.

The only, the only thing I would add is we didn't we within our comments, we heard comments, we didn't talk about it pretty excited. Our wealth business is on fire. So, we put on a billion dollars in new assets in the last quarter or year to today rather this year, we're up a billion dollars, which is more than we've done. Year-to-date last year. And so we're that, that business is really positioned well, all of the work that our team's been doing there to really start getting share. It is really paying off, so we're really excited about our wealth business kind of going to the next level also.

Okay, great. I appreciate all the color. Thank you.

David Long with Raymond James. .

Thank you. Good morning.

Everyone on the deposit side of things getting away from your index deposits, maybe looking at new, new deposit rates. What are you, what are you looking at for pricing on new rates? And is the market ration? Would you call your competitors rational and deposit pricing following the 50 basis points cut?

David you were on mute, but you know, should we sorry can you hear me?

Oh there you go.

Okay, sorry about that.

I don't know if it was my E or not, but looking at deposit pricing, wanted to ask about new deposits and what type of yields you're seeing or are, you know, rights you're offering on new deposits and, and how are competitors reacting? Are they being rational with the, after the 50 basis points? Because that the fed made?

Yeah, I mean, we're, I think, 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. And, but as we do campaigns, you do, you know, reach a little bit of campaigns. So, we've had some success on the retail front with campaigns and, you know, we hope to benefit from those over time as they mature in season. But anything we're bringing on; we're bringing on less than we were bringing on before. So, there's a marginal improvement along the way.

And then I'll add on the institutional side. It's always a calculus for us between what we can potentially borrow up, you know. So, you know, when we price this, we're always, 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 see we do periodic checks on the market for retail promotions. And then same thing with commercial.

On the commercial 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, you know, 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 and on the retail side, we're just playing the, you know, the same game everybody else is with, just being out there and, and, and trying to build new relationships and there's a marketing cost to that.

Got it. Thank you know that some, some very good color. I appreciate it. And then on the lending side, when your kind of 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 increases your client's appetite to borrow and could maybe add another layer of loan growth for UMB?

I think that's yet to be seen, right? I mean, like we continue to say, for us, we budget and forecast 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. As far as economic activity, if that gets stronger, I will say for us, certainly there could be some upside to that. I think really the way to think about us when you think about the peer group is we have for 20 years, we've done approximately two x our peer group and loan growth regardless of what the economy is. So I think the real way to think about it is how we perform on a relative basis as, as not on an absolute basis. So if things get better, I would suggest that whatever we were going to do would be marginally better.

But we, well, we still expect to outperform on a relative basis the way we have for 20 years.

Got it. Thanks guys. Appreciate it.

Thanks, Dave.

Chris Mcgratty with KBW.

Morning, morning. A question on the balance sheet. I mean, if I look at your earning assets and I&I add in Heartland, you're, you're just under 60. I guess as you go into to close, is there anything I guess on either balance sheet? That's kind of primed for, you know, restructuring exit, you know, optimization. I guess I'm getting that like, what's the right earning asset base to be to be looking at as you close this deal early next year? Thanks.

Yeah, no plans to restructure. Anything other than what we said at announcement, we're just going to swap out some of their bonds for what we would hold our balance sheet. So, other than that, I think, the ballpark that you quoted are $40 billion in earning assets and they're 18 or so. So, we're talking about, you know, yeah, $60 billion of earning assets. That should be, that should be in the ballpark before any growth.

Nothing, nothing, nothing new to really, nothing new to report that we didn't already, you know, disclose when we did the deal early.

Yeah got It. And then Ron getting back to just the deposit data for a minute, the away from the index which is, I think pretty you've been pretty transparent about the index pieces. What's the, I guess what's the data you're assuming either on the rest of the book or the whole book maybe this quarter and then into next year just, just trying to fine tune a little bit of the assumptions.

Yeah. So just to revisit, right, we're talking about 25% of our deposit book that's does index or DD A. So, on this book, you know, the prevailing rates on our balance sheet are about 2%. So, you know, that's, you know, we'll assume a 30% data on those. Our data 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.

Okay. Okay.

All great. I think I'm good. Thank you.

Thanks Chris.

Nathan race with Piper Sandler.

Yeah, I just had a quick follow up. One question I've been getting from investors as it relates to the Harland acquisition. You know, there's been a recent FDIC proposal around having to have a public hearing when a bank exceeds $50 billion assets. 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.

We don't expect anything to get in 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.

Great. I appreciate you clarifying. Thanks, Mariner.

With no further questions in the queue at this time, I will now turn the call back over to management for any closing comments.

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.

Thanks.

This concludes today's conference call. Thank you all for joining. You may now disconnect your lines.