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UMB Financial Corp  (NASDAQ:UMBF)
Q3 2018 Earnings Conference Call
Oct. 24, 2018, 9:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day everyone and welcome to the UMB Financial Third Quarter 2018 Financial Results Conference Call and webcast. All participants will be in a listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please also note, today's event is being recorded.

At this time, I'd like to turn the conference call over to Ms. Kay Gregory, Investor Relations. Ma'am, please go ahead.

Kay Gregory -- Senior Vice President and Director of Investor Relations

Welcome and thank you for joining us. On the call today are 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 or aspirations may differ from those set forth in any forward-looking statement. Details about factors that may cause them to differ are 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 applicable securities laws.

Our earnings materials are available on our website at umbfinancial.com in the Investors section. Reconciliations of non-GAAP financial measures to the nearest comparable GAAP measures have been included in the release and on slides 32 and 33 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.

Mariner Kemper -- President and Chief Executive Officer

Thank you, Kay and thanks to everyone for your interest in UMB. First, as you saw in our announcement earlier this month, Jim Rine, a 24 year UMB veteran was promoted to CEO of UMB Bank. Jim's background includes sales, strategy, and credit as well as leadership, coaching his team and helping to develop other leaders within the company. I think this is a great opportunity for UMB and I'm excited to have Jim, leading all the banks segments. I'd also like to thank Mike Hagedorn for his contributions over the years and wish him well on his new endeavors.

Now looking at our third quarter results, we earned $57.8 million or $1.16 per share. Our results include strong loan growth with an 11.5% linked quarter annualized increase in end of the period balances. Average loans for the third quarter increased 2.4% or a very strong 9.6% on a linked-quarter annualized basis. This is nearly 2.5 times of Fed H8 data heading into the quarter. Top line loan production was very strong, coming in at $730 million for the quarter. C&I along with our national lending platforms, factoring and asset-based lending were the biggest contributors to our growth in the quarter. Those two platforms represent 24% of our average loan growth for the year.

For the fourth quarter, our pipeline and top line production outlook remains strong, like what we saw going into the third quarter. Total pay-offs and pay-downs this quarter represented 3.2% of loans, slightly below our average levels during the recent quarters. While we can't always predict the exact timing of payouts and pay downs, we'd expect them to reset higher. Credit quality remains solid with net charge-offs of just 0.9% of average loans compared 0.32% in the second quarter and non-performing loans of 0.42% of total loans, down from 0.48%. Given what we know today about the quality of our portfolio, we would expect credit quality to remain strong. While net interest income grew 6.8% compared to the third quarter of 2017, it remains flat on a linked quarter basis as funding costs after the initial lag continue to catch-up with levels seen in prior rate cycles. This is consistent with our comments from last quarter where many in the industry saw an inflection point in deposit pricing. As we said last quarter, with our loan growth history and pipeline, prudent deposit gathering activities to fund asset generation opportunities remains very important.

On average, linked-quarter deposits remained flat. However, during the quarter, we launched several initiatives that drove end of period balances to $17.7 billion, an increase of 8.2%. Strong growth in average healthcare, asset servicing and consumer deposits with the latter partially driven by money market campaign in September along with two CD promotions was nearly offset by the seasonal decline in public fund balances and a lower institutional deposits. While there are always other means to fund the balance sheet including higher cost borrowings, the consumer deposit campaign was designed to help improve penetration, while building our consumer brand in our under-penetrated markets. Nearly 90% of the deposit inflows from the money market campaign came from new to bank money. This campaign is part of our longer term focus to reinvigorate our retail banking business. To better focus our efforts, we've recently separated leadership of our personal banking segment, which you'll recall combined our consumer and private wealth business. Abby Wendel, who has served as Chief Strategy Officer for the past three years will lead our consumer banking efforts and build on the recent efficiency improvements and investments we continue to make in this important customer segment. The separation of these two businesses will also allow us to further deepen our private wealth strategy.

Finally, as we announced yesterday afternoon, we've entered into an accelerated stock repurchase agreement to repurchase approximately $50 million of our outstanding shares. Under the terms of this agreement, we will receive an initial delivery of shares representing approximately 85% of the expected total to be repurchased. As I've shared numerous times, our priorities for use of capital has been organic loan growth, which we've demonstrated, potentially augmented by M&A and thoughtful dividend increases like the one announced yesterday. Additionally, we've been opportunistic in the use of our regular repurchase program authorization.

While our capital priorities have not changed, it has been 18 months since we announced the sale of Scout and we've continued to accrete capital. With the backdrop of the current industry valuations, we feel that this is an opportune time to return incremental value to our shareholders at a reasonable price. As always, we will continue to be good stewards and consider various ways to optimize capital.

Now I will turn the call over to Ram for a more detailed discussion of the drivers behind our results. Ram?

Ram Shankar -- Chief Financial Officer

Thanks, Mariner. For the third quarter, net interest income was $150.5 million, representing a 6.8% increase year-over-year and a modest increase on a linked-quarter basis. The positive impacts of our strong loan growth and an additional day of interest during the quarter were offset by increased deposit costs, driven by the cumulative effect of recent increases in short-term rates and to a lesser extent the deposit acquisition campaigns Mariner mentioned. While we still benefit from repricing in our variable rate loan book and from higher reinvestment rates in our securities portfolio, the spread between our earning asset betas and the total funding betas has narrowed as we move further into this rate cycle. However, cycle to-date, our asset mix has driven betas higher than those funding cost.

In the last 12 quarters, since the Fed started increasing rates, our earning asset yield has expanded by about 110 basis points to 3.89% for a 63% cumulative asset beta. During the same period, our total cost of funds has risen 62 basis points from 0.13% to 0.75% for a 35% cumulative beta. A more tempered move in LIBOR in the third quarter compared to prior quarters when it reacted well in advance of rate hikes constrained asset repricing that might have been anticipated. The yield on earning assets increased 10 basis points from last quarter for a beta of 48% compared to beta of 67% in the second quarter and 59% in the first quarter. As a reminder, about 38% of our total loans are tied to LIBOR.

During the quarter, our cost of interest bearing deposits and total cost of deposits increased 25 basis points and 17 basis points respectively, impacted by pricing changes in part related to the promotional campaigns as well as increased sharing arrangements with our HSA partners. Non-interest bearing deposits represented 33.6% of total average deposits for the third quarter compared to 34.4% last quarter. This mix shift was driven in part by the deposit campaigns as well as by continued lower corporate cash levels. Net interest margin for the quarter was 3.18%, down 6 basis points from the prior quarter.

Margin was impacted by the lag in LIBOR rates ahead of the September rate hike, lower loan fee income, and the impact of the deposit campaigns, as well as the carry cost of excess liquidity. In the fourth quarter we expect some additional modest margin compression reflecting the full quarter impact of the September deposit campaign and some excess liquidity, offset in part by additional asset repricing. However, looking ahead to 2019, we would expect some margin expansion as we put our excess liquidity to work.

Slide 14 shows the composition of our investment portfolio along with the roll-off and reinvestment rates. The average balance in our AFS portfolio decreased $139.3 million on a linked-quarter basis and the average yield increased 3 basis points to 2.16%. During the quarter, we reinvested approximately 87% of the roll-off, deploying the remainder into loans. This is part of our active balance sheet management positioning earning assets to help counter higher liability costs.

Moving back to the income statement, slides 18 and 19 show the composition and drivers of our non-interest income, which was $100.9 million for the third quarter, essentially flat when compared to the second quarter. Our wealth management businesses had a strong quarter and along with corporate trust and investor solutions help drive the increase in trust and securities processing income. Additionally, the other line income was positively impacted by $1 million of increased derivative fees related to back-to-back swaps. The bond markets continue to lag contributing to the reduced trading and investment banking income for the quarter.

Slide 20 contains detailed drivers of the changes in non-interest expense, which on a non-GAAP operating basis increased $3.8 million or 2.1% compared to the second quarter to $180.2 million. Salaries and benefits expense fell by $1.2 million during the quarter, largely driven by lower medical expense. Offsetting this decrease were increased consulting expenses related to our ongoing investments in digital channel, integrated platform solutions in our asset servicing business to support growth and other initiatives. These expenses can be lumpy and there might be timing related variances quarter-to-quarter.

Finally, our effective tax rate was 11.3% for the quarter and 14.2% year-to-date. During the quarter, we recognized a discrete tax benefit of $3 million related to a 2017 provision to return adjustment. For the full year 2018, we expect our tax rate to be between 14% and 16%. Our segment results are included in the press release and additional details on each of them begin on Slide 21. In the interest of time, I won't cover this here, but we'll be happy to take your questions.

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.

Questions and Answers:

Operator

Ladies and gentlemen, at this time we will begin the question-and-answer session. (Operator Instructions) Our first question today comes from Chris McGratty from KBW. Please go ahead with your question.

Christopher McGratty -- Keefe, Bruyette & Woods, Inc. -- Analyst

Hi good morning. Thanks for the question. Ram, on capital the ASR that was announced last night, I'm interested in kind of the logistics of that, I think you said 85% of the shares will be delivered, but is there a period given the weakness in your stock this morning and recently that you guys can be more aggressive with the buyback in the coming months?

Ram Shankar -- Chief Financial Officer

Hey Chris, thanks for the question. This is Ram. So we've entered into an agreement with the broker dealer and they executed the transaction for us. So once we signed the agreement on October 29th when we come out of our blackout, if they are called really on how they go to market, obviously I'm sure they'll look at the opportunities in the market today to be more opportunistic there, but we have very little control over what price it gets executed on.

Christopher McGratty -- Keefe, Bruyette & Woods, Inc. -- Analyst

Okay. And maybe, kind of broad --

Ram Shankar -- Chief Financial Officer

And the window is over at three month period as well from that agreement standpoint.

Christopher McGratty -- Keefe, Bruyette & Woods, Inc. -- Analyst

Okay. So (inaudible). Given the capital ratios continue to build that you talked about Scout and tax reform, how should we be thinking about targeted capital levels for the company and kind of, I'm wondering if you can kind of reconcile the capital priorities. I think in the past you've talked about M&A, but I'm wondering if Mike leaving and the stock where it is, does that prohibit, you're looking at deals right now or is that still something you might consider?

Mariner Kemper -- President and Chief Executive Officer

Well, so this is Mariner. I try to take that at a high level. You kind of mixed some things up and thereby including Mike. But I think the message would be the same related to what we've been saying about use of capital, I mean what we're doing with the ASR that would be included in that. We continue to look for opportunities. I think on the banking front the way the market dynamics and valuations are can be a challenge to find and do a deal on the banking industry right now. However, we do continue to look and we're also looking in the other areas of focus in our fee-based businesses. And so I guess it would be the same story about how we want to use our capital as it has been in the past, but to work in loans through acquisitions, look at opportune times to take actions in other stock, et cetera.

Christopher McGratty -- Keefe, Bruyette & Woods, Inc. -- Analyst

Okay. Just the comfort on the tangible ratio maybe Ram, what's the range you guys are thinking that you need to operate in?

Ram Shankar -- Chief Financial Officer

We haven't disclosed specific, but let me go back to your earlier question, right. So the ASR is executed in full will have a 35 basis point impact on our capital ratios. And if you look at our capital ratios a year back before the sale of Scout, it used to be 100 basis points, below that and we still have a lot of potential on the organic growth side. So no specific targets disclosed. The tangible capital ratio is a little bit more difficult to manage because of the AFS portfolio we have in the mark-to-market adjustments that go with it, but it's a secondary metric that we focus on. We focus on total risk there and the regulatory capital ratios.

Mariner Kemper -- President and Chief Executive Officer

And you know the ASR does give us immediate EPS impact to correct them.

Christopher McGratty -- Keefe, Bruyette & Woods, Inc. -- Analyst

Sure. Thanks for the color. If I could add one more, Mariner, in the past you've talked about operating leverage being a focus, I guess maybe going through the moving pieces of the P&L and kind of factoring into the impact of Scout, is positive operating leverage still the goal for the near term. And I think in the past you've talked about the efficiency ratio at or around 70%, I'm just wondering for any updates there? Thanks.

Mariner Kemper -- President and Chief Executive Officer

Yes. So absolutely operating leverage is something that we focus on, we laser in on. From one quarter to the next, there is a lot of noise from time to time, but over the longer haul and over we absolutely are focused on operating leverage and you should expect to see that from us in future periods. I can't remember the other, if there was another question there.

Christopher McGratty -- Keefe, Bruyette & Woods, Inc. -- Analyst

Just as it relates to the efficiency ratio.

Mariner Kemper -- President and Chief Executive Officer

The efficiency ratio, yeah, so again, I mean obviously there's a relationship there, so we think there is room that continue to improve on our efficiency ratio as well.

Christopher McGratty -- Keefe, Bruyette & Woods, Inc. -- Analyst

Great. Thanks for the question.

Operator

Our next question comes from Nathan Race from Piper Jaffray. Please go ahead with your question.

Nathan Race -- Piper Jaffray Companies -- Analyst

Hi guys, good morning.

Ram Shankar -- Chief Financial Officer

Hi Nat.

Nathan Race -- Piper Jaffray Companies -- Analyst

Ram, I appreciate details on the margin for the fourth quarter and just curious, you know, to what extent do you guys expect to continue some of deposit gathering promotions that you guys enacted during the quarter and to what extend do you expect that to kind of impact the margin as we move into 2019 as well and I'm just curious if your 2019 guidance for the margin to extend assumes any additional debt increases?

Mariner Kemper -- President and Chief Executive Officer

Yes , this is Mariner, I'll take the first half of that. And the other two gentlemen can jump in if they want to add something. But I think it's important to recognize that from our comments, obviously the campaign was designed for a couple reasons. One, to make sure that we continue to be out in front with funding for our expected loan growth. Second, we are investing in our retail business and I expect to see that business to expand, grow households, cross-sells et cetera in '19 and beyond with our investment now in window and technology investments we're making et cetera. This campaign was on the forefront of that to return some of our muscle memory as we rebuild that business, it was a very successful campaign. We actually end-up raising more money than we expected. We raised approximately $1 billion and it was more than we expected, so we think that's a good thing given our expectations for loan growth as we look into '19. We do not have any other campaigns currently planned. We will take that in stride as it relates to loan growth and other dynamics in the economy.

I also might add I think it is important as I read some of the notes from last night. I think there's in my mind a little bit of misunderstanding as it relates to the analyst community and what takes place with deposit betas. Our deposit beta is actually better this cycle than it was in 2004 and 2004 through third quarter of '07 we got to 59% beta and the Fed went from 1% to 5.25%. In this current cycle we're actually running behind that 43% beta. And if you were to include DDA, which we do, so when we think about it, it's actually a 29% beta. So we believe this is natural part of the cycle, natural to the business, we're a little confused by everybody so focused on it, so we're actually pleased with the way that's going. We also are a little bit more commercial and a lot of our peers are, we have a larger retail deposit base. So our retail bank is going to lag in their deposit beta increases over a commercial bank. We're going to be out front a little bit. So as we go into the fourth quarter, the deposit beta impact from the campaign, we're going to still see a little bit of that but as Ram said, as we look into '19 with the additional raises from the Fed, we should see margin expansion again and through both what's happened on the asset beta side, which we also don't seem to get that across when we talk about the successes we have with our asset beta and how short our repricing is in our loan book. So we're pleased with the way the deposit beta is going. We think it's natural and it's actually better than the last cycle and that's how we look at it.

Nathan Race -- Piper Jaffray Companies -- Analyst

Okay, that's great color. I appreciate that. And just kind of changing gears a little bit and thinking about the trading and public finance line, obviously, that business has been going through some structural challenges in the wake of tax reform and so forth. So just curious how you guys are seeing that business trend in the fourth quarter and as kind of the step down in fees we saw this quarter is probably good run rate to assume going forward.

Mariner Kemper -- President and Chief Executive Officer

Well, at high level I would say that we're certainly suffering there along with all of our peers that are in the business. We see that as a positive looking forward to those kind of latent earnings power for us on a year-to-date basis. Ram, what do we have? $6 million year-over-year and so we've been investing in that business. We've invested in people, we've invested in technology, we've opened several offices. We expect that when the interest rate environment is more conducive to hire into a different trading environment, we will capitalize and be a leader in that space when that comes. So we look at that as positive future earnings, latent earnings power, but our numbers as we look at our peers are just right in line with the rest of the group that has as a trading desk.

Nathan Race -- Piper Jaffray Companies -- Analyst

Understood. I appreciate the color, guys. Thank you.

Mariner Kemper -- President and Chief Executive Officer

Thanks Nat.

Operator

Our next question comes from Matt Olney from Stephens. Please go ahead with your question.

Matt Olney -- Stephens Inc. -- Analyst

Hi, thanks, good morning guys.

Mariner Kemper -- President and Chief Executive Officer

Hey Matt.

Matt Olney -- Stephens Inc. -- Analyst

Ram, you mentioned the LIBOR headwinds in the third quarter and UMBF with that respect as far as LIBOR headwinds, have you looked to see how much of that drove your margin compression into the third quarter. I'm trying to figure out how much of the margin compression was from LIBOR versus liquidity bill? Thanks.

Ram Shankar -- Chief Financial Officer

I would say that the couple of basis points around the lag LIBOR, couple of basis points from the excess liquidity. So if you look at our period end balance sheet, on a Fed fund sold position, we are close to $500 million of excess liquidity. So the carrying cost of that relative to where our margin, Fed fund sold on an average yield about 2.20% versus our margin of 3.20%. So it's 2 basis points each on the liquidity and LIBOR rate.

Mariner Kemper -- President and Chief Executive Officer

I'd also add on the margin compression that our loan growth was back-end loaded also in the quarter. So we didn't really benefit in the third quarter from the loan growth.

Matt Olney -- Stephens Inc. -- Analyst

Got it. Okay, that's helpful. And then I guess for Mariner. It seems like UMBF has a long history of being a growth financial institution and I'm just curious, longer term in the next several years. I'm curious which businesses you're mostly investing in today and which businesses that you're most optimistic about at UMBF?

Mariner Kemper -- President and Chief Executive Officer

Well, we're optimistic about all of them and we're investing in all the businesses that we're in right now. I would say that as far as being a growth company, we did have industry-leading loan growth, we have for sometime and expect to in the future. So being a commercial bank with industry leading loan growth that's certainly obviously a centerpiece to our growth story. We are very excited about our fund services business, about the prospects there and we are on a revenue basis over last year we're up there, we're investing systems there right now. So we just signed a contract to upgrade our sort of operating in our go-to-market platforms and our fund services business, so to give us competitive edge in that business over the next couple and full years and so we're excited about that. We've invested in sales force and on the corporate trust side, we are industry leader there and continue to look for consolidation opportunities as it relates to previous questions about M&A. We'd love to continue to find those consolidation opportunities. I mentioned our consumer business and the investments we're making there both in leadership and in technology. So through our technology road map, we expect by summer of this coming year to have a really upgraded platform for our retail customers, our card business, we're investing in our card business, which we're very excited about.

Jim Rine is on the phone. He might add some of that.

Jim Rine -- , President & CEO of UMB Bank

I would just say we are recognized by (inaudible) one of the fastest growing commercial car companies in the country and we're continuing to add salespeople as well as investing in upgrading our platforms and we're seeing the results in that space as well.

Matt Olney -- Stephens Inc. -- Analyst

Okay. That's great commentary.

Jim Rine -- , President & CEO of UMB Bank

I may have missed a few, I mean we're doing a lot of things here, but we're pretty bullish on everything we're doing.

Matt Olney -- Stephens Inc. -- Analyst

Just taking a step back Mariner, you've got the momentum in loan growth. I think fees now represent around 39% of revenue. Is it fair to say that fees as a percent of revenue may continue to decline given the near term headwinds of next year or so?

Mariner Kemper -- President and Chief Executive Officer

There's couple of things, I think to know there. You got to make sure you recognize that the percentage coming down has a lot to do with the interest rate environment changing and the improvement in net interest income is really the biggest driver in drawing down our non-interest income to total income as a percentage. So that's the biggest driver and then of course selling Scout had an impact on a short-term basis. We fully expect through the investments in our institutional banking, through bolt-on acquisitions into our fee businesses, through investing in our card business, through investing in our consumer business, we fully expect to continue to grow in future periods our non-interest income and accelerate it from where it is today and it will always be -- we believe and are focused on making sure it is a differentiator to our investment thesis for you, as well as investors.

Matt Olney -- Stephens Inc. -- Analyst

Great, thank you.

Operator

(Operator Instructions) Our next question comes from Ebrahim Poonawala from Bank of America Merrill Lynch. Please go ahead with your question.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Good morning guys.

Mariner Kemper -- President and Chief Executive Officer

Good morning Ebrahim.

Ram Shankar -- Chief Financial Officer

Good morning.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

So I guess Ram, if you can maybe quantify for us like the level of margin compression given the liquidity bill lag LIBOR this quarter, did you expect in 4Q and going forward like if there's a rule of thumb in terms of how you think about margin expansion relative to additional Fed rate hikes, that would be helpful.

Ram Shankar -- Chief Financial Officer

I'm not going to get into that Ebrahim. And as I said, I'll just keep it at the top of the -- it's hard to predict what the LIBOR rate move will do much less what the Fed might do, right? So what I expect is for some additional compression, because of the excess liquidity and it also depends on the pace of us investing that excess liquidity that we have, lot of the bonds that we're buying tend to be more municipal, they have a longer date to settle or buying TBA bonds on the mortgage backed securities, they also take a little bit. So predicting quarter-to-quarter margin movement is going to be a tough exercise. To an earlier question, we do have 75 basis points of additional rate increase modeled in our published estimates out there. We do contribute to Bloomberg on that one. So our internal models are consistent with that thinking that we would have another 75 basis points.

Mariner Kemper -- President and Chief Executive Officer

And without doing another campaign which we now expect to at this point, we would get the lift in '19 against that money we raised.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Got it. And the loan to deposit ratio, any thoughts around whether that can drift higher where maybe you don't need to run as many campaigns looking out into next year or given your muni deposit exposure led security requirement et cetera, you need to be around the 70% mark?

Ram Shankar -- Chief Financial Officer

We don't have a magic number. We're comfortable going higher and that's probably about all I would tell you and we have been rotating investments into loans. We've been doing that. Our investment portfolio is smaller. We will continue to do that. We don't see any need to do any large deposit campaigns or anything at this point, but that's all based on projections and projected loan growth and making sure that we're building and growing this company for the long-term and managing it from one quarter to next. Deposits are very important long-term, it's the raw material of our industry and we don't ignore it and we are building it for the long haul. Of that money we raised 90% of it is new money to the bank. So we're very pleased with that raise and we're not afraid to do it if the loan growth was there to support it.

Mariner Kemper -- President and Chief Executive Officer

Thank you for lumping the HTM bonds in the loan to deposit ratio. right. So it's 78% when you include the HTM bonds in that ratio as well. And those tend to look like loans or they behave like loans more so than just bonds.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Fair enough, noted. And taking a step back Mariner, so I get it means you like looking out longer term in terms of how you're managing the bank. I'm trying to reconcile your bullishness around the bank with the fact that the stock is where it was five years ago and from a metrics on ROA, ROE, we are below peers, like how would you articulate sort of the outlook for UMB both in terms of like return improvement, which would drive stock performance from a longer-term perspective, like, should we expect any material change in the return profile of the bank or is it that the bank should hopefully hold up better during this downturn and that's where the out-performance comes from?

Mariner Kemper -- President and Chief Executive Officer

Well, I guess I'm not going to try to make sense of why our stocks trading where it is for you, because I don't understand it myself, but I guess what I would say about our expectations for actual returns, not stock performance returns, trying to understand it now, I would say that we still plan to do all the same things from the standpoint of return on equity, efficiency ratio, operating leverage. We expect to be a leading or a strong performer I guess in using those metrics against our peer group. We expect that from ourselves and whatever you'd have to tell me what's driving our stock price. There's a whole lot of talk about the positive beta when you read to analysts reports and such, which I've tried to alleviate in my comments, which I don't really understand those comments or that misunderstanding of how our industry works. So I don't really have anything else to add. I think we're actually very pleased with the results, we very pleased pleased with our results in the quarter.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

My question was more driven by when you look at the ROA, we had about 20 to 30 basis points below the group and as you just mentioned, we want to be in line or better than that group and I was wondering not from a stock but from an ROE, ROA perspective, is there a line of sight of when we can get in line or probably even better than the peer group?

Mariner Kemper -- President and Chief Executive Officer

The peer group is going to be moving around, I mean, you tell me where everybody is supposed to be, but we have ROA that's north of 1 and ROE, that's north of 10, I mean, I guess we're pretty pleased with our results and we're going to keep improving against them. That's all I guess for you.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Got it. And I didn't mean to put you on the spot. Thank you very much.

Operator

Our next question comes from David Long from Raymond James. Please go ahead with your question.

David Long -- Raymond James -- Analyst

Good morning, everyone.

Mariner Kemper -- President and Chief Executive Officer

Good morning David.

David Long -- Raymond James -- Analyst

You guys seem pretty optimistic on your loan growth opportunities and maybe just if you can provide a little bit of color on two aspects there. One, what are you specifically hearing from customers and do you feel like they're incrementally more positive or willing to invest in their business and then secondly, how are our non-bank institutions competing with you guys and is that a risk?

Jim Rine -- , President & CEO of UMB Bank

This is Jim Rine. Our customer base is quite positive actually throughout our footprint. We've had, our contractors have strong backlog, that leaves out another 18 months. We've seen growth in most of our various industries in which we lend money.

As far as the second part of your question regarding the fintech, the non-bank competitors, in the CRE space, we've seen the life companies become more aggressive again, but outside of that, as far as the fintech lenders in the spaces in which we deal, we have not seen that become a real issue other than in the smaller consumer space.

Mariner Kemper -- President and Chief Executive Officer

Yeah. Most of those players are consumer oriented and they get a lot of trust, but have very, very little impact on the industry at this point. We do pay attention to them, but we are not losing any business to them.

David Long -- Raymond James -- Analyst

Okay. And second question as it relates to your HSA deposits, it looks like growth there again was pretty good. What are the cost of those deposits relative to the rest of your deposit base and what has been the deposit beta if you can disclose what it is and just that part of the deposit base?

Mariner Kemper -- President and Chief Executive Officer

So we don't disclose that because of obvious reasons, it's a competitive space and competitive business out there. We don't disclose that. To-date haven't seen much movement there. What we've said on previous calls and we'll say again today is, we do expect movement there over time, because our business is wholesale and we've got larger relationships and we expect that there will be some upward deposit beta pressure at some point, which we haven't really seen to-date and the business is strong.

Jim Rine -- , President & CEO of UMB Bank

I know what you would say (inaudible) remainder of our model being wholesale, used to grow in those accounts in the latter, in the end of the year and the fourth quarter, based on when the enrollment season starts.

David Long -- Raymond James -- Analyst

Got it. Thank you, guys.

Mariner Kemper -- President and Chief Executive Officer

Thanks, Dave.

Operator

And our final question today comes from John Rodis from FIG Partners. Please go ahead with your question.

John Rodis -- FIG Partners -- Analyst

Good morning, guys.

Mariner Kemper -- President and Chief Executive Officer

Good morning John.

John Rodis -- FIG Partners -- Analyst

Most of my questions asked and answered, but. Ram, just back to the ASR, you said you signed the agreement on October 29th, is that correct?

Ram Shankar -- Chief Financial Officer

Well, the agreement goes into effect when our blackout end, which is October 29th and the broker that we've engaged has a 90-day window. They grabbed up earlier if the opportunity persists, but that's the earliest they can go to market to buy this. The strike price to us is based on relap over the 90-day period or earlier if it terminates earlier.

John Rodis -- FIG Partners -- Analyst

But they initially deliver 85% of the shares, right? So does that mean you get roughly 85% of the shares on October 29th?

Ram Shankar -- Chief Financial Officer

Correct, that's correct.

John Rodis -- FIG Partners -- Analyst

Okay. And then Mariner. Just one follow-up question for you on loans, I think you sort of said that maybe pay off activity you expected to be a little bit higher in the fourth quarter, is that correct?

Mariner Kemper -- President and Chief Executive Officer

Well, I would just, I guess, so you've mentioned what the history has been 3.4%, 3.2% to 3.4% and the third quarter was slightly lower than that. So we were, I guess it's really hard to predict what payoffs and pay downs are going to be. But given the way the third quarter was that we would expect it to be slightly higher. Don't have any knowledge to that effect, but just based on our history, it would be slightly higher given where third quarter was.

John Rodis -- FIG Partners -- Analyst

Okay. So you haven't seen any elevated levels of pay-offs in the first couple of weeks of October I guess is what I'm getting that?

Mariner Kemper -- President and Chief Executive Officer

No.

John Rodis -- FIG Partners -- Analyst

Okay, fair enough. Thanks guys.

Ram Shankar -- Chief Financial Officer

Thanks John.

Operator

And ladies and gentlemen at this time, I am showing no additional questions, we'll conclude today's question-and-answer session. I'd like to turn the conference call back over to Kay Gregory for any closing remarks.

Kay Gregory -- Senior Vice President and Director of Investor Relations

Thank you for joining us today. This call can be accessed via replay at 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 and have a good day.

Operator

Ladies and gentlemen, that does conclude today's conference call. Thank you for attending today's presentation. You may now disconnect your lines.

Duration: 41 minutes

Call participants:

Kay Gregory -- Senior Vice President and Director of Investor Relations

Mariner Kemper -- President and Chief Executive Officer

Ram Shankar -- Chief Financial Officer

Christopher McGratty -- Keefe, Bruyette & Woods, Inc. -- Analyst

Nathan Race -- Piper Jaffray Companies -- Analyst

Matt Olney -- Stephens Inc. -- Analyst

Jim Rine -- , President & CEO of UMB Bank

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

David Long -- Raymond James -- Analyst

John Rodis -- FIG Partners -- Analyst

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