UMB Financial Corporation

Good morning, thank you for attending today's UMB Financial second quarter 2024 financial results call. My name is Jennifer and I'll be your moderator today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, press star one on your telephone keypad. I'd now like to turn the call over to Kay Gregory, UMB Investor Relations. Kay, please proceed.

Good morning, and welcome to our second quarter 2024 call. Mariner Kemper, President and CEO, and Ron Schaffner, CFO, will share a few comments about our results. Then we'll open up the call for questions. Jim Rhine, 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 perceives. Forward-looking statements and any pro forma metrics are subject to assumptions, risks, and uncertainties as outlined in our SEC filings and summarized on slides 48 to 51 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 law. Presentations and materials are available online at investorrelations.umb.com and include reconciliations of non-GAAP financial measures. Now I'll turn the call over to Mariner Kemper.

Thank you, Kay, and good morning, everyone. Thanks for joining us as we discuss our great second quarter results announced yesterday afternoon. Our strong first quarter Performance continued into the second quarter with net interest income growth driven by growing balance sheet and net interest margin expansion along with solid credit metrics. We reported gap earnings of 101.3 million or $2.07 per share driven by continued momentum across our various lines of business. On an operating basis, we earned 105.9 million or $2.16 per share. Balance sheet growth included a 7.7% linked quarter annualized increase in average loan balances led by commercial real estate and construction drops on previously approved lines. Additionally, average card balances increased 26.1% assisted by the full quarter impact of our co-brand card portfolio we acquired in March. Top line loan production was $926 million for the quarter. Payoffs and paydowns, which are difficult to predict, were 3.7% of balances, This is a slight increase from prior quarter, but in line with our historic averages. Credit quality in our loan portfolio remains excellent. Net charge-offs were, again, just five basis points of average loans for the quarter, and non-performing loans fell to a meager six basis points of total loans. Over the past eight quarters, our non-performing ratio has averaged eight basis points, compared to 39 basis points for our peer group and 35 basis points for the industry as a whole. Credit cards drove the small amount of charge-offs we saw in the quarter, while we had a net recovery in both CNI and specialty lending. In fact, CNI has posted net recoveries in four of the last five quarters. Asset quality has been very strong in our investment real estate portfolio. Since 2016, we charged up less than $1 million cumulatively, which can be attributed to just three loans. Provision of $14.1 million reflected continued loan growth, along with the impact of a recalibration of our models. Our coverage ratio increased three basis points to 0.99% of total loans. Average total deposits grew $815 million, or 9.7%, on a linked quarter annualized basis, including the intentional reduction of brokered CD balances and the expected seasonal decline in public funds. For comparison, peers have reported a median annualized increase of just 4.5% for the second quarter. Deposit growth in the quarter highlights our strong diversified funding profile, with growth coming from nearly all lines of business. On the consumer front, we've had good success from private banking and retail money market promotions with targeted marketing investments made in the first half of the year. Excluding broker CDs, average client deposits increased approximately 1.3 billion from the last quarter. In fact, since the turmoil of last spring, our deposits excluding broker CDs have increased by 4.2 billion or 14% over the second quarter of 2023. Ram will share a more detailed look at these and other quarterly drivers shortly. Finally, we remain excited about our pending acquisition of Heartland Financial and have shared a few updates in the deck. While it's early in the process, we've outlined milestones and progress in the integration planning. Our focus is to ensure a seamless transition without disrupting business as usual activities. The establishment of an integration team allows our customer facing associates to remain focused on serving the customer and generating growth. Again, we believe this transaction will accelerate UMB's 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 capitalizing on the many opportunities we see as a combined company in 2025 and beyond. Now I'll turn it over to Ram.

Thanks, Mariner. Net interest income of $245.1 million represented an increase of $5.7 million, or 2.4%, reflecting continued loan growth and higher levels of liquidity. Net interest margin increased three basis points on a late quarter basis to 2.51%, outbasing the expectations I shared previously, in large part due to stronger than expected DDA balances. The increase was driven by the positive impact of seven basis points, from loan repricing and mix, two basis points from the securities portfolio, one basis points from the level of three funds, and two basis points related to various smaller items. These were partially offset by a nine basis point reduction from higher deposit pricing driven by mixed changes. Cycles of the day betas on total deposits and on loan yields are 53% and 63%, respectively, and continue to track closely to our expectations for terminal betas. Looking into the third quarter, with the prospect of a Fed rate cut in September, we would expect our net interest margin to be relatively stable to second quarter levels. Approximately 31% 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 17% of our total deposits are what we call soft index, or balances negotiated at current prevailing market rates. On these soft index deposits, we would expect to move deposit rates down pretty quickly following any rate cuts. Overall, we expect our deposit betas on the way down to be immediate and steeper than peer banks, similar to our experience during this past tightening cycle. Coupled with favorable reinvestment of cash flows from the securities books and repricing of some loans at accretive yields, Our interest rate simulation results, shown on page 33 of our deck, shows us as benefiting from interest rate cuts in year one with fairly neutral implications for year two. As a reminder, this analysis does not include any interest income generated from new growth or the Heartland acquisition. At this preliminary stage, we estimate that our pro forma interest rate position will remain relatively neutral. Details and activity in our securities portfolio are shown on slide 30 and 31 in our deck. The combined AFS and HCM portfolios averaged $12.2 billion during the quarter, a decrease of 2.3%. We continue to purchase mortgage-backed securities and agencies. While as noted, security levels fluctuate based on our collateral needs for both public funds and trust deposits. The average purchase yield in our portfolio was 4.99% for the quarter, while securities rolling off had a yield of 2.67%. We expect $1.4 billion of securities with a yield of 2.54% to roll off over the next 12 months. Capital levels continued to build with our common equity Tier 1 capital increasing to 11.14% and continued growth in tangible book value which increased by $1.57 from March 31st to $60.58. Tangible book value for share has grown 15.3% over the past year. As previously described in our forward purchase agreement, our regulatory capital ratios do not include the $230 million forward equity offering agreement that we announced in April. Turning back to the income statement, Non-interest income was $144.9 million, a link quarter reduction of 9%, largely due to a few non-recurring items in the prior quarter. These first quarter benefits included $8.6 million in net gains on equity position, a $4 million legal settlement, and a $1.8 million in gains on the sale of land. Momentum in our fee business has continued, with fund services assets under administration growing to $460 billion, an increase of 20% from June 30, 2023. In private wealth, our teams have brought in $781 million in net new assets year to date, ahead of full year 2023 levels. And credit and debit card spending, including from our newly acquired retail co-brand portfolio, reached $4.7 billion in the second quarter up from $4 billion a year ago. Non-interest expense of $249.1 million for the quarter included pre-tax acquisition expenses of $9.6 million and a reduction of $3.8 million in previously approved FDIC special assessment charges. On an operating basis, non-interest expense increased $2 million link order and included higher processing fees related to higher software subscription costs and various software projects along with increased bank card expense. Within salaries and benefits expense, typical seasonal reductions in FICA and 401k costs, along with the decrease in deferred compensation expense, was partially offset by increased bonus and salary expense related to the timing of merit increases and higher bonus accruals for 2024 year-to-date performance. Excluding the one-time items and seasonal variances, our core expense run rate in the second quarter was approximately 240 million. Finally, our effective tax rate was 20.1% for the quarter compared to 18.1% in the second quarter of 2023. The year-over-year increase was primarily related to lower income on tax exempt securities and a decrease in tax benefits from stock compensation. For the full year 2024, we would expect a tax rate between 17 and 19%. Now I'll turn it over to the operator for the Q&A portion of the call.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If your question has been answered or you wish to remove your question, please press star followed by 2. Again, to ask a question, press star 1. As a reminder, if you were using a speakerphone, please pick up your handset before asking your question. We will pause here briefly as questions are registered. Our first question comes from the line of Jared Shaw with Barclays. Jared, your line is now open.

Hey, good morning.

Morning, Jared.

Morning. Morning. So maybe just to start on... the pending acquisition and, you know, any potential restructuring or changes we should expect heading into closing. I'm sort of thinking around, you know, level of brokered deposits, given your good loan-to-deposit ratio, any securities restructurings that you anticipate either UMBF or Heartland doing, you know, just as we go into closing, any change that we should be thinking about.

I'll let Rom take that. I mean, obviously, we can't give you much in the way of guidance there, but Rom can give some color.

Yeah, I'll point out to what we did in the most recent quarter, our broker CDs and flub advances. On one of our pages in our investor deck, we have the rolling maturities on page 34. of remaining flubs brokered and the BTFB program. So other than carefully evaluating them when they come up for renewal, our immediate bias based on our loan to deposit ratio and our liquidity levels is probably let them run off. So that's on our side. We don't expect any asset side restructuring on the investment portfolio in our book. So no specific guidance on what Heartland might do, but for us,

complaining here okay and then as we as we look at that potential runoff there should we just assume that you know what the cash drift slower that securities you know maybe you just use the the cash flow from that to to reduce yeah generally we expect the portfolio the bond portfolio to be relatively stable and

But yeah, the excess cash might come down just because, again, given our lower deposit ratio in the mid-60s, we can let these deposits go. And obviously, as you see on page 34, these are some of our higher-cost deposits or borrowings as well.

Yep, yep. Okay. And then on the DDAs, I know obviously each quarter you have some fluctuations with end-of-period balances. Any... Any color you can give on trajectory or expectation on DDA, whether it's end of period or average as we go through the rest of the year?

It's probably not much different than the comments we've made in the past, which is that we feel like we're at the bottom of the rotation cycle. We can't predict that really more than give you backward-looking feelings. At the end of the day, the way that we come up with feeling that we're close to the bottom of that rotation cycle is the fact that it's pretty clear that rates aren't going up from here. And we feel like with our book, most of the rotation took place and took place early in the cycle, as we talked about from the beginning of the cycle, that we would go through it first. So on a relative basis against our peers, we believe we're probably through with most of that rotation as long as rates look to be going where we all believe them to be going.

And I would ignore the end of period, the PDA balances, like I always say, right? It's a lot of volatility at quarter end, month end, depending on client and their client activity. So I would not index yourself too much to end of period balances.

So it does help us make more money, right? I mean, that's a mushroom at the end of the quarter. We make money on that as it happens typically at the end of almost every month, it seems.

Okay. So you think we could be at a point where we start seeing growth in average growth? or continue to see growth from this quarter in average TDAs?

I mean, it's hard to predict. I would say that that's just hard to predict whether it's going to grow or not. That's based on sales activities and our ability to bring in new business, which we don't forecast publicly.

Okay. All right, thanks. And then just finally for me on asset quality, asset quality is great. I was wondering what happened within... criticized and classified in the quarter, and then you referenced a model change for CECL. Is that just using a different Moody's baseline, or I guess, what drove the model change there?

Tom will take the first question. We'll turn the second part of that over to Ron.

Yeah. Our criticized and classified loans are basically flat quarter over quarter. You always have a little bit of movement between You know, our low pass watch, which actually was down, and that's a pass part of our watch list. But the criticize was flat.

Yeah. On the second question about CECL, we did not change our baseline assumptions. We're still 100% indexed to Moody's baseline. You know, from time to time, we look at our CECL models for performance, for effectiveness, and change, and swap out macroeconomic variables, drivers, correlations. So as part of that, we tweaked a couple of our models just to, you know, get a higher provision, get to a 99 basis points coverage ratio.

I mean, all in all, on that front, we just take a conservative approach. We feel like it's right. It's the kind of organization we are, and we believe in a, you know, conservative, strong, healthy reserve.

And the important part of both your questions, underlying questions, is that the provision, excess provision, was not because of underlying portfolio trends.

It was all quantitatively driven based on changes to CECL models that we have and loan growth. And I would just say, just to echo what Tom said related to those things, our books really never looked better. You know, we talk about criticized being flat. It's also meager, you know, six basis points. I mean, it hardly exists. And then the charge-offs are what they are. We feel very good about how we manage the company. It's the same team doing the same thing for a long time. We take it very seriously, and we're real proud of it.

Great. Thanks for all that color. Thanks, Jared.

Thank you. Our next question comes from the line of Chris McGrady with KBW. Chris, your line is now open.

Oh, good morning. Ron, maybe coming back to the margin. How are you? Just come back to the margin for a second. You guys are, you know, two and a half. Heartland's margin looks roughly, as of last quarter, about 100 basis points higher. With the bond restructuring from them and the accretion, I mean, you should be – I'm trying to get a sense of, like, pro forma margins. So any comment there would be helpful given, you know, you've talked about, you know, relative neutrality on the NIMH.

Yeah, that's a tough question for me to answer just sitting here. I mean, as you know, right, it really depends on what the portfolio marks on acquisition date, whenever that is, happens, right? So there's going to be a lot of noise related to how that accretes into income. So, I mean, you can do a simple math based on taking their, whatever, 373 margin and our 252 margin on our earning assets and get to a number, but there's going to be a lot more noise because of purchase accounting adjustments. So it's really hard for us to sit here Obviously, you know, they're still running their book and, you know, it really depends on what happens to deposit betas and how we manage it after close. So I feel like it's too early to kind of give you a pro forma look at margin other than the comments that I said that relatively we should be neutral from an interest rate position on a pro forma basis.

I mean, longer term, it's one of the reasons we're doing the transaction, right? I mean, they do have a better margin tied to having a smaller business book of loans, which carries a higher yield. they have a more granular deposit base. So the combination of the way they run their business, longer term, taking the accounting noise of the marks and all that, is part of the reason we're doing the transaction. So longer term, we expect that.

Okay. In terms of just broader efficiency, I mean, the objective, and you've accomplished it over the years, is operating leverage. If I think about the bank, you know, you've been running kind of low, low 60s. it would feel, given that momentum, mid-50s would seem, once you get everything accreted and integrated, that would be reasonable. But is there anything we're missing in terms of investments now that you're through? I think last quarter you talked about the investments you're making to go through 50. But any other guidance as we look out over the next couple of years?

You know, I mean, I think we remain – I'm probably not going to give you what you're looking for here, but where we remain is focused on being efficient. As we have been, there's always more work to do. I think the combination of our two companies will make us that much stronger. I would say, again, just, you know, overall, it is more operating leverage than efficiency. So I think the room for us, the opportunity for us is to focus more on revenue than it is expense reduction. You know, we've done a lot of that efficiency work to make our systems modernized. We've said in comments before that we've pushed a big bowling ball through at the front end of the pandemic. We pushed a big bowling ball through the Python to get our systems up and ready and modernized. And we are more focused today on spend that's focused on customer experience. So more than 50% of our spend is focused there. That should benefit both revenue and retention of client and all of that. But in general, I would say I think our opportunities on the revenue front, and we're good at that. And I think the exciting thing about the Heartland transaction is we'll be able to take their great small business platform and layer our institutional and our CNI on top of their branch network and their footprint. And as you're aware, the way we've modeled all that, there are no representative synergies in what we produce publicly. that's all upside and gravy and yet to be seen. So we're very excited about that. And again, I just re-echo that if you're thinking about operating leverage, our opportunity is more on the revenue side than its expense.

Great. And then if I could, just one more round on the deposit costs, quarter on quarter change. Any particular, I heard your prepared remarks about the index deposits, but any particular product that drove the increase? I know There's been some questions from some of the larger banks about sweep deposits, but any impact from that or any one category call out on the driving the cost?

No, the increase in cost on a quarter-by-quarter basis is the pipeline of institutional deposits that we've talked about for the last couple of quarters. So the timing of those coming on board was the driver of the deposit cost. And I'll let Jim answer on the sweep side, but yeah.

Well, on the suite side, I assume you're referring on the healthcare portion. For us, we don't anticipate that being an issue. We're not a fiduciary. As you know, those deposit transaction accounts for healthcare-related expenses, we don't anticipate that being anything material for us going forward.

Perfect. Thank you.

And he wants to describe it as a second quarter either. So no future impact, no current impact.

Got it. Thank you.

Thank you. Our next question comes from the line of Nathan Race with Piper Sandler. Nathan, your line is now open.

Yeah. Hi, guys. Good morning. Thanks for taking the questions. Morning, Nathan. Hey. Sure. I was curious just to get an update in terms of what you're seeing across the loan pipeline and just overall loan growth expectations over the next couple of quarters. And just curious, based on the pipeline mix, do you expect that to be largely driven by commercial real estate as we saw here in 2Q?

I'll take that. Thanks. If you look back, the comments we made in the first quarter are the same we would make in the second quarter. So where that CRE balances were coming from. Largely, they were from existing commitments that were being drawn on. We do continue to book business in CRE, multifamily and industrial. So there remain lots of opportunities there. So as we talked before, it's less than it was because we're more focused on great current relationships that we can broaden our relationships with and deposits and other business with. That's the case kind of transitionally coming out of the pandemic where there was all that excess liquidity in the system. But as far as the pipeline goes, we actually see a very strong third quarter. And as you know, we usually only give a look into the next 90 days. As we do that, it's a very strong third quarter. And it's coming from across the board, all of our segments.

Okay, great. Very helpful. And then just going back to Ram's margin guidance, I think for the backup, they're just kind of stable. Even if we get a cut at the end of September, just trying to understand maybe how conservative that guidance is, just given that you can pretty well matched up in terms of your hard and soft index deposits relative to your true floating rate loans in terms of those percentages. And just as you kind of continue to grow loans, that's pretty strong clips and use some of the excess equity coming off the bond portfolio to support that growth.

Yeah, I mean, it's a complicated question. A lot of moving parts, right? The first thing, obviously, is the level of DDA, like we answered before. I mean, we've said, you know, it could be $10 billion, it could be $9.5 billion, or it could be $10.5 billion. So the overall mix of deposits and timing of some institutional deposits coming in can impact our deposit costs. But, you know, all said, as I said in my prepared comments, we have you know, close to 48% of our book that are priced at market rates that will move immediately or pretty quickly after the Fed cuts rates, right? And we still have about a billion ADA fixed rate loans that will continue to reprice higher in the next 12 months because they're at, you know, call it 200 basis points below where current market rates are. So that's a positive as well. And then the third positive, obviously, is what's happening in our securities book with about $1.4 billion of cash flows coming due at 254. and getting priced 200, 250 basis points higher. So a lot of positive momentum on one side. And then the other side is just, you know, we have 69% or 66% of our loans are variable in nature. 69% of them are tied to SOFR or prime rate. So when that happens, SOFR moves in advance of what the Fed might do. So that might impact loan yields. on the other side. So, a lot of moving parts, as I'm saying, and obviously this is true for the next two or three quarters before we layer on the Heartland acquisition. So, I would say given, you know, I'd stick to my original comments that we expect it to be stable. Again, it'll be dictated by what happens to mix of deposits, including DDAs. And loan growth. And loan growth, yeah. Yeah, new loans will be accreted to your point here, yeah.

Okay, great. And then you just continue to see kind of good momentum on the institutional fee income. You know, just curious to get an update in terms of the opportunities you're seeing across those lines and just kind of any thoughts on just kind of activity levels and if you can kind of continue to sustain the growth rate that we've seen in the last year or so across institutional.

That's another one of my favorite questions. I love our credit quality questions and I love our institutional growth questions. It's I'll say a couple of things and let Jim add on if I missed anything since this is a slant report to him. But we continue to be positioned very well across the board, but in particular, a couple of things. In AI, alternatives, investment within our asset servicing business is very, very strong. The profile is very strong. There's a lot of fund creation, a lot of fundraising going on. a lot of growth within some major clients that we have. We continue to see a really strong pipeline there and then a lot of growth within the customer base. So that is the profile there continues to be very strong. And I think the disruption in the space with our competitors being bought and sold also has continued to be very helpful. So that's a really strong business with strong profile and a great tailwind. corporate trust continues to be fantastically strong. Uh, and I think the, um, the strength and travel and all that has really pushed a lot of activity in the airline business, which is coming on our CLO business and, and such that we're, we are building in that space is, uh, again, have real great tailwinds, really good time hiring people in the space. Uh, and, um, and, and again, just, consolidation and hiring has been really great for us in that space. So we continue to feel good about that. The rest of them are all strong. Those are some with real momentum and outside profiles. Our wealth business, interestingly, also has a really great profile right now. The sales activity and new generation of assets under management there have been very strong. And so that's nicely up there. quarter over quarter, year over year. Anything you might add, Jim?

No, the only thing I would add is just, as you know, the corporate trust business is also a great contributor to our deposit base, and we have the ability to move. If they balloon, we can move it off balance sheet. We have the ability to keep on balance sheet. We've really built that out nicely, and we're continuing to invest. So outlook for those businesses continues to remain very strong.

And healthcare continues. Like I said, all the businesses are strong. Profiles for all of them are strong. But there's some real momentum in corporate trust and AI within the whole set.

Okay. Very helpful. Thank you for that. If I could just ask one more just in terms of thinking about expenses next year. It looks like you guys aren't planning to convert the systems until the fourth quarter of next year. So just curious, to what extent are what degree of cost saves you guys think you can realize assuming you close the deal early next year ahead of the conversion later in the year?

Well, I mean, as they come in and we execute against them, we'll report on them. It's probably premature to tell you how, when. It's too early, really, to report on that. But we intend, obviously, to segregate and report on those synergies and savings as they come through every quarter.

Yeah, and nothing's changed from our announcement. If you go back, we expected, you know, based on first quarter close and a fourth quarter conversion, that we would get 40% of that 27.5% cost saved in the first, in the 2025 timeframe, and then everything else in 2026 and beyond. So no change from that perspective as of now.

And you'll see, as I said, that's the projection for it all hasn't changed, but you'll see it come through as it comes through.

Okay, great. I appreciate all the color. Thanks, guys. Thanks, Nathan.

Thank you. Our next question comes from the line of John Radice with Jannie. John, your line is now open.

Good morning, everybody. Good morning. Just a follow-up, Rob, maybe on fees. I guess the brokerage line item, if we start to see some Fed cuts, can you hold that level or does that start to decline a little bit?

No, it takes a lot of Fed cuts for that to be impacted on the negative side. It has to be 300 plus 400 basis points of cuts before it impacts the 12B1 money market revenue share, so there's no risk of that. To Jim's earlier point, we're still seeing opportunities to add off balance sheet and maybe even generate some, but fairly dramatically.

And quite frankly, I think the way we see it is the more rates come down, activity will go up. So there'll be more activity. So on the margin anyway, as that would hit over time, we'd see more volume also.

Okay. Okay. Makes sense, Mariner. Thank you. And then just one other on fees, the bank card fees, you're 21 to 22 million now in just talking your previous comments about strong trends and stuff. And so you, you feel, you know, that's up from, you know, 18 to 19 million a quarter last year. So this sort of new level of 21 to 22 million seems appropriate going forward.

Yeah. One of the biggest drivers. So obviously, uh, purchase volumes even organically have grown up nicely, right? We used to be at three and a half billion dollars of purchase volumes every quarter. A lot of it is driven by health care. We have a lot of momentum, as you heard from our fee income lines on commercial, where purchase volume is growing strongly. And the biggest catalyst in the second quarter is the $115 million of co-branded car balances that we acquired. So that new business generated about gross $70 million of purchase volumes. fees of net interchange fees of about half a million dollars. So that's part of the organic and inorganic growth drivers for us, but we feel pretty good at the higher level. It can go up and down from quarter to quarter based on timing of incentives from the network or other things, but generally we feel like the momentum is positive.

We also had a couple of large new relationships on the institutional side. starting to drive some big volume there. So I would say it's up from here, not neutral. You know what I mean? The trends are upward, sloping.

Okay. Thanks, guys.

Thanks, John.

Thank you. Before our next question, reminder, if you would like to ask a question, press star 1 on your telephone keypad. Our next question comes from the line of Timur Brasile with Wells Fargo. Timur, your line is now open.

Hey, Timur. Hey, good morning. Morning. I wanted to follow up just on the margin outlook for 3Q as it pertains to the bond book. It seems at least like much of the bond growth occurred later in the quarter. And the amount of repricing was elevated in 2Q compared to what's coming online over the next four quarters. I'm just wondering how much of that repricing took place in the back end of the quarter and if that's not more of a tailwind as we go into 3Q for margin.

No, the back end balance increase that you're seeing as we footnoted in one of our pages uh time to time especially at month end as we described uh earlier there's a lot of collateral needs for trust deposits and uh institutional type deposits so we end up buying those so those may be inflating what you're looking at but generally across the three months and a quarter we're always looking at every quarter to uh whether we want to reinvest based on our longer deposit ratio pipeline and all that so i would not expect a tailwind because of the late quarter purchases i mean again this is just to satisfy collateral needs or the last two days of the quarter and the first two days of the following or last two days of the month and the following two days. So there's no tailwind to be expected in the third quarter from that.

Okay, great. And then maybe a follow up on the Heartland deal. I'm just wondering, you know, the fact that you're essentially acquiring 10 smaller institutions versus one larger one, is that an opportunity? as those are kind of consolidated together and brought under one general operating model, or is that a near-term risk as that consolidation kind of maybe offsets some of the planned benefits, at least in the near term of the deal closing?

That's a great question, and it's really one of the exciting things about executing this transaction, really one of the things that excited us is that They started a journey two years ago basically to set themselves up to look like us over the next five and 10 years. And this acquisition just accelerates all that work. So they've done, I said I think early on in one of our calls, they planted the seeds and tilled the soil and we get to harvest. So they've done all the hard work. They've consolidated the systems. And, you know, we get to come in and sort of layer in all the things that we do. And so I guess I would say not a lot of risk to that, really more opportunity to leverage the work that they've already done. So we're pretty excited about it. We get to just kind of come in and, you know, like I said, leverage the work they've done. So don't see any risk there, really all opportunity.

Great. Thanks for that call, Emeritus. Thank you.

There are no questions registered at this time, so I will pass the call back over to the management team for any closing remarks.

Thank you, and thanks, everyone, for joining us today. Again, you can always follow up with Investor Relations at 816-860-7106. Thanks for your interest in UMB, and have a great day.

That concludes today's call. Thank you for your participation. You may now disconnect your line.