UMB Financial (UMBF) Q3 2019 Earnings Call Transcript

UMB Financial (UMBF -0.05%)
Q3 2019 Earnings Call
Oct 30, 2019, 9:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the UMB Financial Corporation third-quarter 2019 financial results conference call. [Operator instructions] Please note, this event is being recorded. I would now like to turn the conference over to Kay Gregory, investor relations. Please go ahead.

Kay Gregory -- Investor Relations

Good morning and welcome to our third-quarter call. Mariner Kemper, president and CEO; and Ram Shankar, CFO, will share a few comments about our results; and Jim Rine, CEO of the bank, will also 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 is contained in our SEC filings. Forward-looking statements made speak only as of today, and we undertake no obligation to update them, except to the extent required by applicable securities laws. Our earnings materials are available online at investorrelations.umb.com. 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. Thanks, everyone, for joining us today. We earned $62.4 million or $1.27 per share in the third quarter, compared to $1.16 per share in both the second quarter of 2019 and in third quarter of 2018. We continue to see strong loan growth with average balances increasing 8.6% on a linked-quarter annualized basis and 10% year over year.

For comparison, the publicly traded banks that have reported to date have shown a medium linked-quarter annualized increase of 6% in average loan balances. Commercial real estate was the biggest contributor to our growth for the quarter, followed by residential real estate. We added $61 million in average mortgage balances to the balance sheet during the third quarter, originating both in our private banking area and in our consumer business. Our C&I book while still experiencing solid production, was impacted by some paydowns related to M&A activity as well as a few prepayments by clients who have experienced strong performance.

For the total portfolio, third-quarter top line loan production was $850 million, one of the strongest production numbers to date. Total payoffs and paydowns, which include an expected exit of certain factoring loans, were $561 million this quarter or 4.3% of total loans. We continue to see opportunities in our markets and the production pipeline remains strong as we look into the fourth quarter. Net charge-offs for the quarter were just 0.07% of average loans.

And on a September year-to-date basis, net charge-offs were 0.29% of average loans, compared to 0.26% for the same period in 2018. Looking at fee income, positive results from asset servicing, private wealth, corporate trust and investment banking were included in the mix. As Ram will detail shortly, third quarter included some noise from market-related adjustments, including COLI and equity earnings income, along with outsized gains on sale of securities. Excluding those items, we are still seeing positive trends.

Our fund services teams continue to win business, taking advantage of consolidation, both among asset managers and in the servicing space. We are seeing larger conversion deals, and existing clients are launching new products at a fast pace. And in bond trading, we experienced increased activity with some clients taking gains as the bond market rallied the end of the quarter. Net interest income grew 1.1%, compared to the second quarter, largely due to our solid loan growth and a 3% increase in average securities, along with an extra day in the quarter.

However, net interest margin compressed by 10 basis points. And so asset yields were impacted more quickly than liability side of the balance sheet, given that about 68% of our loans reprice each year, with most tied to short-term rates that moved ahead of the anticipated Fed cuts during the quarter. While we're working to adjust deposit pricing, those results naturally lag changes in loan pricing based on competitive rates as well as our liquidity needs to support our strong loan pipeline. The 2018 money market campaign hit its one-year mark and mid-September, so we'll see the full impact of that repricing next quarter.

In a declining rate environment, we'll clearly see a benefit from the index portion of our deposit base but keep in mind that a third of our deposits are in DDA with no downside potential. Economic data has relatively been positive, and our conversations with our clients cautiously optimistic. However, we expect a lot of volatility leading up to the 2020 elections. Given the murky interest rate environment, we executed a small $750 million cash flow hedge during the quarter to help reduce the downside risk, balancing the near-term earnings impact with the longer-term protection from lower rates.

With the exception of certain CRE loans, our markets haven't fully supported the institution of loan floors in term language. However, we maintain our discipline in pricing. As we've said many times over the years, our business model is built to weather all economic cycles. While the shape of the yield curve and the low interest rate environment pose challenges, our strong loan pipeline should enable us to continue to grow net interest income, counter to what we've been hearing from our peers.

Coupled with our focus on diversified fee income sources, this should help us mitigate some of these headwinds. Now, I'll turn the call back over to Ram for a more detailed discussion of our results. Ram?

Ram Shankar -- Chief Financial Officer

Thanks, Mariner. For the third quarter, net interest income was $168.3 million, representing a 1.1% increase on a linked-quarter basis. The benefits from our strong loan and securities growth and the impact of an extra day during the quarter were partially offset by lower short-term rates and by mix changes, including the payoff of some factoring and other higher-yielding balances. Earning asset yields declined 12 basis points to 3.99% from the length of the quarter, while interest-bearing deposit cost declined two basis points, contributing to a five basis points reduction in the cost of interest-bearing liabilities.

Net interest margin for the quarter was 3.09%, down 10 basis points from the prior quarter. Margin was negatively impacted by approximately six basis points from loan repricing and mix changes; four basis points on changes in our funding mix, including higher money market balances related to our institutional businesses and less benefit from free funds; one basis point related to market value changes in our AFS portfolio; and one basis point due to the extra day in the quarter. Positive repricing and the AFS book added approximately two basis points as roll off cash flow was invested at 2.99% in the third quarter. Additionally, NIM was slightly impacted by the cash flow hedge Mariner mentioned.

In late August, we entered into a 1.25% interest rate floor with a notional value of $750 million to hedge the risk of declining rates on floating commercial loans. Hedges indexed to one-month LIBOR and has a five-year term. The one-month impact of the hedge was about 0.5 basis point to margin. Considering recent market dynamics and the expectation that the Fed will announce an additional cut this afternoon, we would expect approximately four to five basis points of net interest margin compression for the fourth quarter.

Of course, the actual outcome for NIM will depend on a variety of factors such as the pace at which LIBOR moves, loan growth, the potential variability in our aviation trust business and our overall balance sheet mix and need for funding. Average total deposits increased 2.8% on a linked-quarter basis, largely in institutional and commercial money market balances. Our overall deposit composition by source, is shown on Slide 13. Now moving to the income statement, Mariner already discussed some of the opportunities we're seeing in fee income and the detail on the specific drivers are shown on Slides 19 and 20.

Total reported noninterest income was $103.6 million for the quarter, a decrease of $1.8 million compared to the second quarter. Included in the decrease were several market-related reductions, all reported in the other income line: $3.7 million of lower equity earnings on alternative investments; $2.3 million in lower COLI income, which has a proportional offset in deferred comp expense; and $1.5 million in lower derivative income. The positives include trust and securities processing income, which improved $2.3 million or 5.4% over the second quarter, driven by fund services, corporate trust and private wealth revenue. Brokerage fees increased $1 million or 14.5% linked quarter related to 12b-1 and money market revenue, driven by our growing institutional businesses.

Noninterest expense for the quarter was $191.4 million, a decrease of $2 million or 1% from second quarter. Bonus in commissions expense decreased $3 million, and deferred comp expense, the offset for the lower COLI income I mentioned, decreased $1.6 million. Marketing and business development expense related to travel and advertising decreased $1.6 million due to timing of ongoing product initiatives, and these items were partially offset by increased expense of $1.3 million related to a fee paid to terminate a portion of a building lease. Slide 21 contains additional drivers of expense changes.

As a reminder, several of our expense categories, including bonuses and commissions, processing fees and bank card expense, are variable in nature and tend to correlate with volume or revenue-based activities. Finally, our effective tax rate was 14.5% for the third quarter and 15.1% year-to-date. For the full year 2019, we continue to expect our tax rate to be between 15% and 16%. That concludes our prepared remarks, and I'll now turn it back over to the operator to begin the Q&A session of the call.

Questions & Answers:

Operator

[Operator instructions] The first question is from Chris McGratty with KBW. Please go ahead.

Chris McGratty -- KBW -- Analyst

Hey. Good morning, everybody.

Mariner Kemper -- President and Chief Executive Officer

Good morning, Chris.

Chris McGratty -- KBW -- Analyst

Maybe, Ram, starting with you, or Mariner. In your prepared remarks, I think you talked about growing top line in light of NIM pressures that the industry is facing. Again, I'm looking for a little bit more color. Does that assume if we get a cut today and potentially one more that we could see kind of flat to growth in NII next year? Is that kind of the message you're trying to send?

Mariner Kemper -- President and Chief Executive Officer

Well, I think, actually what we were saying is that loan growth continues to be strong. And as we have historically only given you a look into the next quarter on that, the pipeline looks good for the fourth quarter and would expect that net interest income growth would outpace margin pressure.

Chris McGratty -- KBW -- Analyst

OK. So growth in NII next quarter. Got it.

Mariner Kemper -- President and Chief Executive Officer

Yes.

Chris McGratty -- KBW -- Analyst

Thanks for that. In terms of deposit rates, can you elaborate maybe where the spot rate deposits have been in interest-bearing deposits in September? And then can you put some context around the index, how much is left? And how is that going to reprice in the next few quarters?

Ram Shankar -- Chief Financial Officer

I'll take that, Chris. So just if you look at the money market campaign that we talked about, we repriced that down by about 50 basis points from 2.3%. Obviously, the first cut will be the deepest one because we raised those deposits in a different expectation for interest rates. So the money market, if you look at the rates around us, it's closer to 170 to 180.

Obviously, with the rate cut today, we'll reevaluate that. And then on your last question, approximately 23% of our deposits, I would say, is what we call hard indexed to some kind of debt funds or set a target rate.

Chris McGratty -- KBW -- Analyst

OK. Great. Maybe just one more on the margin, if I could. The spread between new securities purchases, I think, it was around 3%, and your cost of Fed funds repos is around 2%, it's about 100 basis points spread net.

Is that -- is the expectation to keep that kind of carry trade on, if you will, given the positive spread or is there any contemplation that you might shrink that in the buyback stock?

Ram Shankar -- Chief Financial Officer

A lot of it will depend on just loan growth. Like Mariner talked about, we have a strong pipeline, so there's definitely an opportunity to rotate out of those AFS securities. It definitely won't be for the reason to buy back stock, so I wouldn't quite call it a leverage trade. This is much needed collateral to support all our businesses.

So I would expect our portfolio to stay closer to where it is. But if funding shortfalls happen, or if loan growth exceeds, we might look to the portfolio to fund our balance sheet that way.

Chris McGratty -- KBW -- Analyst

OK. Thank you very much.

Mariner Kemper -- President and Chief Executive Officer

Thanks, Chris.

Operator

The next question is from Ebrahim Poonawala with Bank of America Merrill Lynch. Please go ahead.

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

Good morning, guys.

Mariner Kemper -- President and Chief Executive Officer

Good morning.

Ram Shankar -- Chief Financial Officer

Hey, Ebrahim.

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

So I was just wondering if you could speak to in terms of the expense. When you look at the third-quarter expenses, Ram, if you can remind us, one, if there's any seasonal impacts that we should bake into as we think about fourth quarter? And just more sort of longer term, and I appreciate you don't want -- you don't give 2020 guidance, but just talk in terms of cost savings. What you are doing at the bank? And on the other side, what kind of investment spend do you expect over the next few quarters?

Ram Shankar -- Chief Financial Officer

So just in terms of third-quarter impact, we talked about $1.3 million or so because we terminated a particular lease in one of our buildings. So that's consistent with what we're doing to look at our expense base overall. And so there's no real seasonal other than some timing impact from software expenses. And we're shifting to more of a purchased EDP model with some of our investments.

So those spiked up a little bit in the third quarter, but we'll continue to remain at those elevated levels because we are investing in our franchise.

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

Got it. And do you expect -- given some of the outlook in terms of the margin and interest rates, do you expect to sort of keep your efficiency ratio flat or do you see that kind of trending back higher next year given where we're from a rate standpoint?

Mariner Kemper -- President and Chief Executive Officer

This is Mariner. How are you this morning?

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

Great. How are you?

Mariner Kemper -- President and Chief Executive Officer

Good. I would say it's not we -- as you mentioned earlier, we don't give guidance on that. I think that you should expect us to manage expenses as tightly as possible without mortgaging the future as we look into next year. This mix -- I think, the positive and important thing about the mix on our spending is that it's shifting to more than 50% of it more toward customer experience and profit generation versus keeping the lights on and sort of upgrading in updating systems.

That's probably the most important thing. So I would say the way we look at it, right, is we want to see earnings growth and sort of the stuff that we talk about being important long-term and less so focus on the absolute amount spent, more focused on a bigger company on the expense load that we have.

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

Got it. And just one last one, and sorry if you already talked about this, but as we think about the margin relative to the Fed interest rate cuts, how quickly do you anticipate that the margin could stabilize once the Fed stops? Would it happen like a quarter or so immediately after or do you -- would you need like a steepening in the curve for the margin to get some relief?

Ram Shankar -- Chief Financial Officer

Let me just -- theoretically, it will take a little bit more time just because loans are being replaced at lower yields, right? There is always a churn, just like on the way out there was positive churn. Clearly, as you see in our AFS portfolio, we're still seeing positive churn between what's rolling off and what's rolling on. But if the 10-year stays pretty low where it is, at some point, that could reach equilibrium. So we might have a longer tail than just one or two quarters, Ebrahim.

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

Got it. Thanks for taking my questions.

Ram Shankar -- Chief Financial Officer

Thanks.

Operator

The next question is from Gordon McGuire with Stephens. Please go ahead.

Gordon McGuire -- Stephens Inc. -- Analyst

Good morning. Thanks for taking my questions.

Mariner Kemper -- President and Chief Executive Officer

Good morning, Gordon.

Ram Shankar -- Chief Financial Officer

Good morning.

Gordon McGuire -- Stephens Inc. -- Analyst

So the average deposit growth was pretty good this quarter. I'm just wondering if you can remind us what the usual seasonal swing in deposits is for the fourth quarter and whether you did just anticipate this quarter being pretty consistent with what you've seen in the past? Just trying to science the balance sheet here.

Ram Shankar -- Chief Financial Officer

Yes, the biggest volatility in deposits this quarter was primarily from our institutional businesses, corporate trust, aviation and asset servicing. They tend to be volatile because of deal flow and it depends on what's going on in the market too. So it's hard to predict that. But usually, there's a slight pickup in deposit growth in the fourth quarter.

In public funds, usually come mid-December and then peak in the first and second quarters, and so you'll see benefit from that. And then what remains to be seen on the other side is with the money market campaign, with the rate cuts that we talked about, what happens to those balances.

Mariner Kemper -- President and Chief Executive Officer

And what happens with our Aviation trust business.

Ram Shankar -- Chief Financial Officer

Correct.

Mariner Kemper -- President and Chief Executive Officer

It continues to grow, and so we'll see how that plays out.

Gordon McGuire -- Stephens Inc. -- Analyst

And you talked about the money market campaigns repricing lower and the hard index, but maybe more the softer indexed deposits that you talked about last quarter. I'm just wondering what kind of sets you've had in lowering prices on those and how much beta you've been able to capture there from the last few cuts.

Mariner Kemper -- President and Chief Executive Officer

We'll see a few -- three areas there. You've got the traditional consumer space, which will continue to price down as we watch the competition. We usually wait a week or two to make sure that we don't get out in front of our competition. So that's the retail piece that couples with the private banking.

And then we have kind of corporate bid and account business, and that we do kind of on a negotiated basis. I would say that all of it will come down, and we'll just manage that to make sure that we are diligent about keeping it while we're bringing it down so that we don't get out ahead of the competition and to something stupid.

Gordon McGuire -- Stephens Inc. -- Analyst

Got it. And then the charge-offs came down quite a bit this quarter, but you can -- can you go into the increases in substandard in nonaccruals? And it looks like you built the reserve a little bit. So maybe how we should be thinking about charge-offs going forward off these levels?

Jim Rine -- Chief Executive Officer

Yes, this is Jim. We had a large credit that we knew we were headed for paying off. But based on the timing on when we knew the information, we went ahead and put it on nonaccrual before quarter end, and subsequently, it did pay off after quarter end. So those came back down right after quarter end in 10 business days.

So really, it was just knowing what we knew when based on accounting rules, we did go ahead and put it on nonaccrual. So you did see that tick up, but it certainly came right back down after quarter end. We had mentioned that we felt like our charge-offs would be more normalized to historical levels going into this quarter, and we feel like the portfolio, not to give guidance, but we feel like we have things that'll be back more to historic levels to what you'll see going forward.

Gordon McGuire -- Stephens Inc. -- Analyst

All right. Thank you.

Operator

The next question is from Nathan Race with Piper Jaffray. Please go ahead.

Nathan Race -- Piper Jaffray -- Analyst

Hi, guys. Good morning.

Mariner Kemper -- President and Chief Executive Officer

Good morning, Nate.

Nathan Race -- Piper Jaffray -- Analyst

Going back to the margin discussion, just curious if you had the weighted average rate on new loan production in the quarter?

Mariner Kemper -- President and Chief Executive Officer

Sorry. Can you do that again?

Nathan Race -- Piper Jaffray -- Analyst

The weighted average rate on new loan production in the quarter?

Mariner Kemper -- President and Chief Executive Officer

We haven't really gotten into that, I guess, from -- I guess, a competitive standpoint, that's not really something we get into. I'd say from an environmental perspective, I'd say we've been able to hold the same kind of spreads that we've been seeing, but we don't really get into that otherwise for competitive reasons.

Nathan Race -- Piper Jaffray -- Analyst

Got it. I guess, I'm just trying to get a sense for looking out to 2020 if new loans are coming on the books below the portfolio yield or at the portfolio yield. I assume that's around 5% flat during the third quarter?

Mariner Kemper -- President and Chief Executive Officer

Well, I mean, I guess, back to rates coming down, right? I mean, there's going to be -- it's dynamic because of what we're going to be able to do with -- so if you're just talking about yields by themselves on the loans that are likely to come down, obviously, just because the rates are coming down. But as it relates to spread and margin, there's many things at play related to how successful we are with deposit pricing and other things. So -- but the yield on loans will come down on the new generated loans for sure.

Nathan Race -- Piper Jaffray -- Analyst

Right. Got it. Understood. And then just in terms of payoffs, I understand -- it just seems like they're a little elevated late in the quarters given the average growth that you had here in 3Q.

So just curious if you have any visibility in terms of how payoffs are trending thus far in 4Q?

Mariner Kemper -- President and Chief Executive Officer

The -- as you noticed in the quarter of 4.3% between the two payoffs and paydowns, don't see that changing. It's hard to predict, but we've been able to keep that pretty consistent. I don't see anything that would stand out one way or the other just regular activity.

Nathan Race -- Piper Jaffray -- Analyst

OK. Understood. And if I could just ask one more, changing gears. The corporate trust revenue was up pretty nicely quarter over quarter and year over year.

And I know you guys have been investing in that business and have added some folks as well in that line. So just curious how we should think about growth in that line in 4Q and perhaps into 2020 as well?

Jim Rine -- Chief Executive Officer

Well, as you know -- this is Jim. As you know, we've continued to invest, and we've expanded the team in our aviation, corporate trust, but we've seen continued activity in our traditional corporate trust business throughout our footprint, and we continue to expand with that team. And then with the closing of the acquisition that we made with the Iowa team, and so we look for that to continue, quite frankly.

Mariner Kemper -- President and Chief Executive Officer

Yes, that's -- our business, we're very excited about, the lead tables in the recent quarter, we're actually have come up one spot in deal size. So we've been No. 3 on number of issues from standpoint of paying agent, but we went up one level as it relates to the size of the deals we're doing. So that's -- as we move into markets like New York and up and down the east seaboard and places like that, we're starting to do larger deals.

That's pretty exciting. The Aviation Trust business is just getting under way. We have nearly 40 people now within just one year in Salt Lake City, and we are building a commanding presence in that space, and so we're very excited. We continue to look for ways to consolidate the Corporate Trust business as many of our peers and larger players realize that they are barely in the business, and we are a go-to for consolidating that business.

We expect to be a -- continue to be a major player on a national basis in that business.

Nathan Race -- Piper Jaffray -- Analyst

Got it. That's great to hear. Appreciate all the color. Thank you.

Mariner Kemper -- President and Chief Executive Officer

Thanks.

Operator

The next question is from David Long with Raymond James. Please go ahead.

David Long -- Raymond James -- Analyst

Good morning, everyone.

Ram Shankar -- Chief Financial Officer

Hey. Good morning, David.

Mariner Kemper -- President and Chief Executive Officer

Good morning.

David Long -- Raymond James -- Analyst

In recent conversations, you guys have talked about increasing your investment on the retail side of the business. Just curious what progress has been made there? And any improvements that we should be looking for in 2020 on the retail side of the business?

Jim Rine -- Chief Executive Officer

Hi, David. This is Jim. So we have our new teller platform in beta, and that will be rolled out systemwide within the next 90 to 180 days. Our new online banking platform will go live in December, but due to the holidays, we won't be able to roll that out to everyone until most likely after the 1st of the year, which is fantastic.

And we are able to do online account opening in pockets, but we'll have that, in a broad-based fashion, within the next 180 days. So we should have -- well, not to say, caught up because I feel like we do well, but we will have most of our upgrades in place in 2020, in the first half of 2020. So we continue to invest and will be most -- for most of the technology upgrades before the end of the year without a doubt.

Mariner Kemper -- President and Chief Executive Officer

The effort is largely just to make us competitive, close gaps. We're very excited about where we'll be with that. Everything from online account openings are updated and upgraded.

Jim Rine -- Chief Executive Officer

Yes. And then from there, we have branch refresh and remodels. And then, I don't know -- I guess, retooling some of the space that we have to make a better experience for our customers.

David Long -- Raymond James -- Analyst

Got it. And is there anything in the operating environment with the economy, whether it's a slowdown or change in rates that would put a pause in some of these investments?

Mariner Kemper -- President and Chief Executive Officer

Well, I mean, I think that question would be more broad-based across all of our spending in all of our activities. And as I said earlier, we remain very diligent about controlling pour expenses at that -- at the most extreme level we can without mortgaging our future. And I would look -- that would cut across our entire business.

Jim Rine -- Chief Executive Officer

But on the consumer space though these have already been implemented and were through. And we are a bank and the consumer franchise is vital to what we do. And so we're going to complete this. If there was something else, we might look at that, but certainly not any of these projects.

Mariner Kemper -- President and Chief Executive Officer

To be clear -- clearing that up, I mean, we can slow down the pace of the branch refresh or something if we needed to. It wouldn't be like whether or not we do it or not, but there are things we can slow the pace of, if necessary. We don't currently see that being necessary, but those are all -- the pace at which we do things can evolve if necessary.

David Long -- Raymond James -- Analyst

Got it. And then one final one for you, Ram. As it relates to some of the other noninterest income, and I appreciate in the slides, the color on the decreases in the market-related metrics. But are these market-related metrics, are we at a low level for them at this point? Or is this the level we should look at going forward or is this an unusually low quarter?

Ram Shankar -- Chief Financial Officer

Well, it's tough to quantify whether it's low, right? It depends on the market. Some of these, especially the COLI investments that we have are tied specific to the S&P 500 index. So if the S&P can go down, so we might have some negative mark-to-market valuations, and that can take the fee income and even lower. So as I said on the prepared comments, right? And if you look at the other line item, of the $10 million, $6 million of that swing was because of our COLI investments and equity earnings and some of the alternative investments that we have.

So another $2 million was because of just the lower capital markets and derivative income. So it's really tough to give you a run rate on that one because of so much of it is driven by markets.

Mariner Kemper -- President and Chief Executive Officer

But the reality is, as it relates to business lines, the revenue growth for noninterest income is there, and we're demonstrating that, and these are really refrained in the noise. You can see in the -- you can back into the fact that we actually had noninterest income growth from a sort of trajectory perspective, if you look at the reconciliation on your own, which I'm not allowed to do for you. So -- but you can do -- you can back into that yourself in the reconciliation page.

David Long -- Raymond James -- Analyst

Got it. Thanks for all the color, guys. Appreciate it.

Ram Shankar -- Chief Financial Officer

Thanks, David.

Operator

The next question is from Jared Shaw with Wells Fargo. Please go ahead.

Jared Shaw -- Wells Fargo Securities -- Analyst

Hi, good morning.

Ram Shankar -- Chief Financial Officer

Good morning, Jared.

Jared Shaw -- Wells Fargo Securities -- Analyst

I guess, just a couple of bigger picture questions. One, when you look at the middle market commercial lending environment and the strength there, are you seeing any impact from the tariffs or from maybe a broader concern over thinking capex investments or just business expansion investments at this point that's not really flowing through to the customer level?

Mariner Kemper -- President and Chief Executive Officer

I would say -- we've set earlier, kind of a cautious optimism. Generally speaking, as we go around and talk to our customers and have regional board meetings and such, the general sentiment is pretty good. There are some fluctuations from one industry to another and some timing issues around being able to pass on tariff costs and stuff. But I would say, generally speaking, ultimately, it seems as though either those costs over on one period to the next or they're able to pass those on or the impact is nominal, growth is there, investments are being made, borrowing levels that remain stable, utilization levels remain stable.

So I think the general sentiment is pretty good. There are swings. And obviously, for example, construction is very strong pipelines there. Backlogs all across construction are very strong and deep and beyond the backlog.

The pipeline sounds like they're strong even past the backlog. Then if you take you were to juxtapose that against transportation, which is a leading indicator, some of our transportation related clients would tell you they're starting to see some softness. So generally speaking, what I'd say, it's a mixed bag. Some of our leading indicators, like I said, transportation, would lead you to believe that there's going to be some softness, but even those guys are cautiously optimistic about 2020.

So from my vantage point, 2020 looks pretty solid. Whether or not there's some kind of slowdown in 2021 or not remains to be seen.

Jared Shaw -- Wells Fargo Securities -- Analyst

That's great color. And then on the HSA side, as we go into the end of the year here, and we're starting to enter the enrollment cycle. Are you seeing any changes sort of an employer sentiment around the high deductible healthcare plans and trying to promote those, given the political backdrop and the potential down the road for changes in healthcare or is that not really flowing through to the HSA pickup at this point?

Jim Rine -- Chief Executive Officer

Yes. Hi. This is Jim. We have not seen that yet.

Through six months, our balance has trended the industry to a bit. But in the third quarter, we caught back up to mirror industry growth. Through the rest of the year when the enrollment period comes, we aren't hearing anything that leads us to believe that yet.

Jared Shaw -- Wells Fargo Securities -- Analyst

OK. Thank you.

Ram Shankar -- Chief Financial Officer

Thanks, Jared.

Operator

[Operator instructions] The next question comes from John Rodis with Janney. Please go ahead.

John Rodis -- Janney Montgomery Scott LLC -- Analyst

Good morning, everybody.

Ram Shankar -- Chief Financial Officer

Good morning, John.

John Rodis -- Janney Montgomery Scott LLC -- Analyst

Ram, Maybe just a quick question on CECIL. Do you have any sort of update you can provide at this time?

Ram Shankar -- Chief Financial Officer

Not at this time, John. The team is working really, really hard, as you would imagine. We're doing parallel runs at different balance sheet dates in different economic assumptions. So you'll hear more from us as part of our year-end call.

Know that it's -- we don't think it's going to be a material headline for us.

John Rodis -- Janney Montgomery Scott LLC -- Analyst

OK. And then, Ram, just a small item, but on the balance sheet, other intangibles were up $4 million or $5 million linked quarter. What drove that interest?

Ram Shankar -- Chief Financial Officer

That's the Iowa Trust -- Iowa Corporate Trust acquisition that Jim just referenced, John. So I just want -- we had a press release about that. That was a small purchase price on that, and that's just the increase on customer intangibles.

John Rodis -- Janney Montgomery Scott LLC -- Analyst

Yes, OK. I just wanted to make sure. OK. Thank you.

Ram Shankar -- Chief Financial Officer

Sure. Thanks, John.

Operator

The next question is a follow-up from Chris McGratty with KBW. Please go ahead.

Chris McGratty -- KBW -- Analyst

Great. Thanks. This is a question on capital. You guys are building capital pretty quickly.

Part of it is the declining rates and OCI. But I'm interested in updated thoughts on inorganic growth, I think, last quarter, you talked about bank and non-bank and wonder if there's any change or update there?

Mariner Kemper -- President and Chief Executive Officer

So, I mean, you could look at that two different ways. One, we're probably coming through the peak of the best times for our country, and it wouldn't hurt to have solid capital levels anyway. Putting that aside, we are also making sure that we are prepared for acquisition opportunities, which is our real primary reason for that. We do -- sorry, some noise on the line there.

We do very much want to be successful in our search for good, solid franchise building acquisition opportunities. So that's the main reason that -- you see that the way it is. There are, obviously, other reasons to have it. We continue to feel good about loan growth and other uses of our capital.

So we think it's good, solid practice to have a capital base right now for multiple reasons.

Ram Shankar -- Chief Financial Officer

Chris, this is Ram. I would just urge you to look at regulatory risk-based capital. I know TC -- you're talking about TCE, and that had a $250 million swing from a year ago because of what you said, AOCI and stuff. So I would just keep focusing on regulatory capital ratios, which don't have the noise.

And yes, we're sitting on capital and we're having meaningful conversations, like Mariner said, both on fee income streams and bank M&A.

Chris McGratty -- KBW -- Analyst

If I can just slip one in on bank M&A. I mean, I think last quarter, you talked about the efficiency of a little bit larger deal versus the Marquette, which was in the $1.5 billion range. Are there meaningful conversations to be had in terms of sizable bank deals in your markets?

Mariner Kemper -- President and Chief Executive Officer

Well, yes, I can't give you real -- obviously, any guidance on that. I mean, I would just say that we are -- we remain interested. We have a team of individuals. We certainly are keeping relationships with investment banks.

We have outbound calling efforts. We're just -- we're active.

Chris McGratty -- KBW -- Analyst

Got it. Thank you.

Operator

This concludes the question-and-answer session. I would like to turn the conference back over to Kay Gregory for any closing remarks.

Kay Gregory -- Investor Relations

Thank you, and thanks 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, thanks for your interest and your time.

Operator

[Operator signoff]

Duration: 39 minutes

Call participants:

Kay Gregory -- Investor Relations

Mariner Kemper -- President and Chief Executive Officer

Ram Shankar -- Chief Financial Officer

Chris McGratty -- KBW -- Analyst

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

Gordon McGuire -- Stephens Inc. -- Analyst

Jim Rine -- Chief Executive Officer

Nathan Race -- Piper Jaffray -- Analyst

David Long -- Raymond James -- Analyst

Jared Shaw -- Wells Fargo Securities -- Analyst

John Rodis -- Janney Montgomery Scott LLC -- Analyst

More UMBF analysis

All earnings call transcripts