Financial Data and Key Metrics - GAAP earnings of $101.3 million or $2.07 per share, with operating earnings of $105.9 million or $2.16 per share [4] - Net interest income increased by $5.7 million or 2.4% to $245.1 million, driven by loan growth and higher liquidity [9] - Net interest margin increased by 3 basis points to 2.51%, outperforming expectations due to stronger-than-expected DDA balances [9] - Average loan balances grew by 7.7% linked-quarter annualized, with top-line loan production of $926 million [4] - Average total deposits grew by $815 million or 9.7% on a linked-quarter annualized basis [6] - Non-interest income was $144.9 million, a 9% linked-quarter reduction due to non-recurring items in the prior quarter [13] - Non-interest expense of $249.1 million included $9.6 million in pre-tax acquisition expenses [13] Business Line Data and Key Metrics - Commercial real estate and construction loans led the 7.7% linked-quarter annualized increase in average loan balances [4] - Average card balances increased by 26.1%, driven by the full quarter impact of the co-brand card portfolio acquired in March [4] - Fund Services' assets under administration grew to $460 billion, a 20% increase from June 30, 2023 [13] - Private Wealth teams brought in $781 million in net new assets year-to-date, ahead of full-year 2023 levels [13] - Credit and debit card spending reached $4.7 billion in Q2, up from $4 billion a year ago [13] Market Data and Key Metrics - Non-performing loans fell to six basis points of total loans, with net charge-offs at five basis points of average loans [5] - The coverage ratio increased by three basis points to 0.99% of total loans [6] - Average client deposits, excluding brokered CDs, increased by $1.3 billion from the last quarter [7] - Since Q2 2023, deposits excluding brokered CDs have increased by $4.2 billion or 14% [7] Company Strategy and Industry Competition - The pending acquisition of Heartland Financial is expected to accelerate growth, diversify, and derisk the business model [8] - The integration team is focused on ensuring a seamless transition without disrupting business activities [7] - The company expects to benefit from interest rate cuts in year one, with neutral implications for year two [11] - The acquisition is seen as a strategic, financial, and cultural fit, with opportunities for growth in 2025 and beyond [8] Management Commentary on Operating Environment and Future Outlook - Management believes the company is at the bottom of the rotation cycle for DDA balances, with most rotation already completed [18] - The company expects net interest margin to remain relatively stable in Q3, even with a potential Fed rate cut in September [10] - Management is optimistic about the strong pipeline for Q3, with growth expected across all segments [36] - The company remains focused on revenue growth and operating leverage, with opportunities in the institutional and C&I sectors [32] Other Important Information - The company's common equity Tier 1 capital increased to 11.14%, with tangible book value per share growing by 15.3% over the past year [12] - The effective tax rate for Q2 was 20.1%, compared to 18.1% in Q2 2023, with a full-year 2024 tax rate expected between 17% and 19% [14] - The company has $1.4 billion of securities with a yield of 2.54% rolling off over the next 12 months, which will be reinvested at higher yields [11] Q&A Session Summary Question: Pending acquisition and potential restructuring - The company does not expect any asset-side restructuring on the investment portfolio, with excess liquidity likely to be reduced [16][17] Question: DDA balance trajectory - Management believes the company is at the bottom of the rotation cycle for DDA balances, with most rotation already completed [18][19] Question: Asset quality and CECL model changes - Criticized and classified loans were flat quarter-over-quarter, with no changes to baseline assumptions in the CECL model [23][24] Question: Pro forma margins post-acquisition - It is too early to provide a pro forma look at margins due to purchase accounting adjustments and deposit betas [29][30] Question: Loan growth expectations - The company expects a strong Q3 pipeline, with growth across all segments, particularly in commercial real estate [35][36] Question: Institutional fee income opportunities - The company sees strong momentum in AI Alternative Investments, Corporate Trust, and Wealth Management, with continued growth expected [40][41][42] Question: Expense savings post-acquisition - The company expects 40% of the $27.5 million cost savings in 2025, with the remainder in 2026 and beyond [45] Question: Bank card fees outlook - Bank card fees are expected to remain at the new level of $21 million to $22 million per quarter, driven by organic and inorganic growth [49][50] Question: Bond book repricing impact on margin - Late-quarter bond purchases were for collateral needs and are not expected to provide a tailwind for Q3 margins [53] Question: Heartland acquisition consolidation - The acquisition is seen as an opportunity to leverage the work Heartland has already done in consolidating systems, with minimal near-term risk [54][55]
UMB(UMBF) - 2024 Q2 - Earnings Call Transcript