Earnings Call Transcript - UMBF Q3 2023

Operator, Operator

Hello, and welcome to today's UMB Financial Third Quarter 2023 Financial Results Conference Call. My name is Elliot, and I'll be coordinating your call today. I would now like to hand over to Kay Gregory, Investor Relations. The floor is yours. Please go ahead.

Kay Gregory, Investor Relations

Good morning, and welcome to our third quarter 2023 call. Mariner Kemper, President and CEO; and Ram Shankar, CFO, will share a few comments about our results. Jim Rine, CEO of UMB Bank and Tom Terry, Chief Credit Officer, will also be available for the question-and-answer session. Today's presentation contains forward-looking statements, which are subject to assumptions, risks, and uncertainties. These risks are included in our SEC filings and are summarized on Slide 46 of our presentation. Actual results may differ from those set forth in forward-looking statements, which speak only as of today. We undertake no obligation to update them except to the extent required by securities laws. All earnings per share metrics discussed on this call are on a diluted share basis; our presentation materials and press release are available online at investorrelations.umb.com. Now I will turn the call over to Mariner Kemper.

Mariner Kemper, President and CEO

Thank you, Kay. Good morning. I'm happy to be here with you today to share the details of our strong third quarter performance. Our results reflect strong disciplined loan growth, stable deposits, continued momentum in many of our fee-generating businesses, expense control, stable margin, and solid asset quality. I continue to be extremely proud of the long track record and prudent underwriting that has produced these asset quality metrics. Our loan portfolio remains healthy with 8 basis points net charge-offs for the third quarter and just 6 basis points year-to-date. Nonperforming loans improved 7 basis points from 9 basis points in the prior quarter. Provision for credit losses was $5 million for the quarter compared to $13 million in the second quarter, driven largely by changes in macroeconomic variables and general improvement in the watch and classified categories. The average charge-off ratio for the five-quarter period shown in our deck is the lowest in our history, which is impressive considering the 18% increase in average loan balances during that same time period. We saw improvements in the levels of both pass-watch loans and classified loans, which fell by 13% and 6% respectively from the second quarter. Our watch list levels fluctuate from time to time as we manage the book and historically we've seen very little migration to loss. Our current and historical credit performance has been achieved through our focus on risk management and a consistent approach that comes from having the same team working together for multiple cycles and decades. We continue to closely monitor macroeconomic trends and have regular conversations with our clients across our footprints, something we do in all economic environments. Despite uncertainty from the brewing geopolitical crisis, as well as volatility in interest rates, our commercial clients remain cautiously optimistic. Now I'll cover a few highlights from the quarter, and Ram will follow up with a few details about the drivers. GAAP net income for the third quarter was $96.6 million or $1.98 per share. Operating net income was $98.4 million or $2.02 per share. Net interest income decreased 1.5% from the second quarter as loan growth improved and asset mix and yields were offset by an increase in deposit costs. While net interest income for the industry continues to be impacted by higher funding costs, our net interest margin in the third quarter was essentially flat on a linked quarter basis. The flexibility on the asset side of our balance sheet helps mitigate the continued impact of liability pricing. We have a low loan loss ratio, lower than our peers and industry medians, and a largely variable asset base with strategically planned cash flows. In fee income, we saw positive results in several lines of business. Trust and securities processing income increased 8.2% driven by growth in all business contributing to this line including fund services, corporate trust, and private wealth. In fund services, assets under administration reached $400 billion in the third quarter. Year-to-date, our team has added nearly 50 new clients, which helps drive the 9.2% increase in revenue we saw on a linked quarter basis. Our non-interest expense levels fell by 3.8% and included variances in deferred compensation expense related to the reduced COLI income. Additionally, severance expenses declined along with salary and wage expense, reflecting the ongoing efforts to control operating expenses. Ram will provide more additional color on these various drivers shortly. Turning to the balance sheet, the drivers behind our 10.1% annualized growth in average loan balances this quarter are shown on Slide 24. For comparison, the banks that have reported results through October 20th had a median linked quarter annualized increase of 5.3%. The Federal Reserve H.8 data have predicted an increase in industry-wide average loan balances of just 0.4% or 1.6% annualized. Despite some caution surrounding the current environment, our relationship banking model continues to build a pipeline of quality plans, and given what we've seen today, we expect some continued outperformance relative to the industry in loan growth metrics. Total top line loan production, as seen on Slide 25, was $649 million with payoffs and paydowns declining slightly, representing 3.2% of loans for the quarter. Credit quality is strong across our book, and the CRE portfolio remains well diversified by property classification, tenant type, and geography. As shown on the slide on pages 36 and 37, looking ahead to the fourth quarter, we see opportunities across our various lending verticals and geographic regions. We continue to evaluate the best use for capital, and we remain disciplined on pricing, further emphasizing lending opportunities accompanied by meaningful deposit relationships. On the other side of the balance sheet, average total deposits were essentially flat versus the second quarter, with declines in brokered CD balances and typical seasonal reductions in public funds offset by growth in commercial deposit balances. We expect public fund balances to begin to rebuild again in the fourth quarter. As we've noted previously, deposit balances will naturally ebb and flow as our largely commercial customer base uses funds for typical business purchases, including payroll, dividends, and other activity. Finally, we've strengthened our liquidity and capital position even further during the quarter as depicted on Slide 32. Our quarter-end CET1 and total capital ratios were at 10.77% and 12.68%, improved by 12 basis points and 9 basis points respectively from June 30. Our CET1 ratio compares favorably to the peer median. In our press release, we announced that the Board had approved a 2.6% increase in our dividend, bringing it to $0.39 per share payable in January. As shown on Slide 15 of our presentation, our quarterly dividend has increased 283% over the past 20 years, with 23 individual dividend increases during that period. To wrap it up, we're pleased with our results this quarter. The partners have varying opinions, but it seems clear that inflation levels, however you want to measure it, haven't reached the Federal Reserve's expectations. All indications are that the data-dependent Fed will pause on further interest rate hikes. The variables now are when rate cuts may begin and how quickly they may happen. However, we fully expect a 'higher for longer' scenario at least through 2024. Such a scenario would be favorable for our balance sheet as the pressure on deposit costs largely abates while asset repricing continues through that period. Additionally, earning asset yields will improve as we use cash flows from our securities portfolio to fund higher yielding loans. With the uncertainty in the macro and geopolitical environment, we feel that our business model is prepared for a wide range of outcomes. It has proven itself over time as we've adapted to a changing environment and set of circumstances. Now I'll turn it over to Ram for a more detailed look at our results.

Ram Shankar, CFO

Thanks, Mariner. I'll share a few additional drivers for our third-quarter results. Then I'll discuss some key balance sheet items. Net interest margin for the third quarter was 2.43%, a decrease of just 1 basis point from the linked quarter. The largest drivers included positive impacts of approximately 16 basis points from loan repricing and mix, and 11 basis points from the benefit of free funds. These positives were mostly offset by a reduction of 25 basis points from changes in interest-bearing deposit pricing. Cycle-to-date, our earning asset beta has been 51%, keeping pace with the total cost of funds beta of 51%. Our deposit remix showed some signs of slowing this quarter, and we ended the quarter with 32% of total average deposits in DDA. This level is in line with the low point during the 2015-2017 tightening cycle. Although it's difficult to know for certain, we expect we are approaching the bottom. The decline in DDA balances largely reflects corporate trust activity, which can be episodic. Commercial DDA balances increased approximately 1% over the linked quarter. With the current consensus that the Fed will hold rates for the time being, we continue to expect a terminal beta of approximately 50% for total deposits and 60% for loans through the end of this cycle. Looking ahead to the fourth quarter, we expect NII to trend flat to slightly up. While we'll see some additional modest margin compression driven by mix shift as rate-bearing public funds come on the balance sheet. Our reported noninterest income of $133.3 million contains some market-related variances compared to second-quarter levels, including a $3.5 million decrease in company-owned life insurance income and a $896,000 decrease in customer-related derivative income, as well as the impact of the $4 million gain on the sale of assets we discussed last quarter. These decreases were offset by a $5.1 million increase in trust and securities processing income driven largely by new client acquisition in our fund services and corporate trust businesses. The detailed drivers of our $231.4 million in non-interest expense are shown in our slides and press release. A few items of note: we recorded $133.4 million in salary and benefits expense, a decrease of $9.9 million compared to the second quarter. Included were just $425,000 in deferred compensation expense, a reduction of $2.8 million from the prior quarter. This is the offset to decreased COLI income, $2.4 million in severance expense, a reduction of $2.5 million, a $1.6 million decrease in salary and wages, and a $1.3 million reduction in various other employee benefit costs. These decreases were partially offset by a $1.3 million increase in operational losses. Considering the impact of $2.4 million of severance along with the deferred compensation expense and typical timing variances, we would put our quarterly starting point for expenses close to $228 million. Looking ahead, we expect to make a typical fourth-quarter charitable contribution of approximately $2 million. Our effective tax rate was 18.1% year-to-date compared to 18.8% in the same period in 2022. The decreased rate was driven primarily by a larger portion of income from tax-exempt securities and variations in the level of COLI income. For the full year 2023, we continue to expect a tax rate between 17% and 19%. Now turning to more detail on the balance sheet. I'll start with our investment portfolio shown on slides 28 and 29. Our average investment security balances declined 2.7% from the second quarter to $12.3 billion. The held-to-maturity book included $1.2 billion of industrial revenue bonds. During the quarter, $240 million of securities with an average yield of 1.90% rolled off. The yield on our total AFS portfolio increased to 2.74% and has a duration of just over four years. The held-to-maturity portfolio, exclusive of the IRB bonds I mentioned, had an average yield of 2.31% for the third quarter. Additionally, the portfolio is expected to generate more than $1.6 billion of cash flows in the next 12 months, providing further funding flexibility. The rollout of these securities, which have a blended rate of 2.18% will also improve our AOCI position over that period. As of September 30th, the unrealized pre-tax loss of the AFS portfolio was $918 million or 12.7% of the amortized cost. For the HTM portfolio, this loss was $876 million, including the IRB bonds. Slide 32 highlights our liquidity position along with the contingent sources of funding. As of September 30th, we had $18.1 billion in available liquidity sources. Liquidity coverage of adjusted uninsured deposits increased 127% at quarter-end. Our tangible common equity ratio was 6.13% at September 30th. When excluding the impact of AOCI, that ratio improved to 8.06%. Tangible book value was $52.06 per share, an increase of 8% compared to the same period a year ago. Since September 30th, 2018, we have experienced a 5.3% annualized growth rate in tangible book value per share. As we noted last quarter, we maintain our focus as a growth company while positioning our balance sheet to support that growth and provide the flexibility to address uncertainty in the industry. 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.

Operator, Operator

First question today comes from Nathan Race with Piper Sandler. Your line is open.

Nathan Race, Analyst

Yes. Hi, everyone. Good morning, thanks for taking the questions.

Mariner Kemper, President and CEO

Good morning, Nathan.

Nathan Race, Analyst

Ram, in terms of kind of the expectations for NII to be kind of flat to slightly down the quarter, I'm curious kind of what that contemplates in terms of the size of the earning asset base into the fourth quarter. It looks like you guys were able to reduce some wholesale sources in the quarter and you also have about $1.9 billion maturing in the fourth quarter. So just trying to think how we should think about the trajectory of the earning asset base?

Ram Shankar, CFO

Yes, sure, Nate. No material change in our investment portfolio other than cash flows that will continue to rotate out into the loan portfolio. So you'll see that in one of our slide decks; we have what the expected cash flows from the portfolio is going to be. We still haven't purchased any new securities as you see in that disclosure as well. And then everything else on the earning asset side is going to be largely loan growth. So no material changes in the Fed account balances. Yes, we did bring down our liquidity balances from the second quarter to the third quarter, but don't expect it to change materially from where it was.

Mariner Kemper, President and CEO

I would just add that, as we've done in the past, we expect loan growth in the fourth quarter to be similar in strength to the quarter we just ended; that was strong.

Nathan Race, Analyst

Got it. That's helpful. Changing gears. Think about the fee income going forward. Obviously, had a nice growth in fund services revenue. Corporate and institutional asset management. Just curious how that pipeline looks in terms of new client win opportunities and if the rate of growth that we saw in 3Q versus 2Q is kind of sustainable going forward.

Mariner Kemper, President and CEO

Yes, the strength remains very good, especially in fund services. We mentioned in our deck that we've had 50 new clients year-to-date, which represents over 10% growth in the segment. The pipeline remains very strong for that business. There has been a lot of dislocation and continues to be a lot of dislocation in the space as the private equity firms have gotten into the business and acquired our competitors. This has been very good for us, and we expect that to continue to be the case. In corporate trust, the money has been unlocked, projects are getting done; both public and private projects are progressing and unlocking value for us. Everyone has seen what's happened with airline activity being up and strong again. So we expect revenue to unlock in our aviation vertical within corporate trust. Our healthcare business continues to be strong as we focus more on direct sales with our customer base. Our card spend is expected to continue to be strong, whether it's healthcare spending or commercial. Overall, we feel like there's nice profile growth across all of our non-interest income verticals and we continue to feel good about that. As you know, in the second quarter, we had that art sale of about $4 million. So if you take that out, the trajectory from quarter to quarter looking forward seems strong.

Nathan Race, Analyst

Okay, great. And then just lastly, turning to credit quality. It's great to see improvement across the board in 3Q. I think one thing that we've seen from some of your peers thus far in earnings season is some greater scrutiny on shared national credits. So just curious if you could remind us how large that portfolio is and to what degree you guys agent any club deals or shared national credits within the portfolio.

Tom Terry, Chief Credit Officer

Yes, this is Tom. The shared national credits that we have are about $2.5 billion, maybe closer to $3 billion. Almost all of those are related to other businesses. For example, in our fund services business, we have large health insurance companies as clients, and we will participate in their shared national credits to support the fee income that we get in fund services. So we're not interested in shared national credits for the sake of being in them. The lion's share are ones that support other business and they're high quality. As for agenting, we agent very few of those. So does that answer your question?

Nathan Race, Analyst

Yes, that was helpful.

Mariner Kemper, President and CEO

I think that was commitments outstanding by how much. Outstanding should be much, much lower.

Tom Terry, Chief Credit Officer

Yes, the $3 billion of commitment now.

Mariner Kemper, President and CEO

A lot of those fund service-related lines are primarily really backup lines and doomsday lines, etc. They don't really get used for the most part.

Nathan Race, Analyst

So utilization on that $3 billion is like 50% in terms of funded.

Mariner Kemper, President and CEO

So the balance is about $930 million; we're just under $500 million. So yes, the utilization tends to be pretty low. As Tom said, these are other clients that we have outstanding lines to but don’t get tapped. Just to make sure commitments are larger, balances are under $500 million.

Nathan Race, Analyst

Got it. And you really haven't seen any negative credit migration within that portfolio recently?

Mariner Kemper, President and CEO

Not at all.

Tom Terry, Chief Credit Officer

None of them are on the watch list.

Mariner Kemper, President and CEO

Correct.

Nathan Race, Analyst

Okay, great. I'll step back; thanks for the color.

Mariner Kemper, President and CEO

Thanks, Nate.

Operator, Operator

Our next question comes from Chris McGratty with KBW. Your line is open.

Chris McGratty, Analyst

Oh, great. Good morning.

Mariner Kemper, President and CEO

Good morning, Chris.

Chris McGratty, Analyst

Good morning, everybody. Mariner, maybe a question for you. You've talked and done a really good job historically on operating leverage; expenses were really well controlled this quarter. How should we be thinking about operating leverage in this increasingly tough environment for revenue?

Mariner Kemper, President and CEO

Well, I think you kind of hit the nail on the head there. The environment with really pretty much what's happened with interest costs, right. It's a storyline there. It's more challenging in this environment to accomplish really what any of us want to accomplish. We are still laser focused on it, and obviously we don't give guidance, but it would be hard for us to point you in any one direction. It's kind of early in the year to think about the budget for next year to really be able to talk intelligently about where that might head. But we are focusing on operating leverage and as opposed to efficiency ratios, that's definitely where we put our emphasis and we'll continue to be focused on it.

Chris McGratty, Analyst

Okay. And then I think - I want to make sure I heard you; the fourth quarter loan growth was the expectation of moderation from this quarter, or I may have missed that.

Mariner Kemper, President and CEO

Similar in strength.

Chris McGratty, Analyst

Okay, got it. And then finally, in terms of the balance sheet, some of your peers are thinking about retooling some of the investment portfolio. Given the move in rates, any appetite to move things around in the bond portfolio? Obviously, you're not reinvesting, but any kind of restructuring that might be contemplated.

Ram Shankar, CFO

Hi, Chris. As you know, we routinely evaluate these kinds of opportunities. But at this time, there's very little appetite, desire, or need really to do any of that.

Chris McGratty, Analyst

Okay. Thanks for taking the questions.

Mariner Kemper, President and CEO

Thanks, Chris.

Operator, Operator

We now turn to Timur Braziler with Wells Fargo Securities. Your line is open.

Timur Braziler, Analyst

Hi, good morning.

Ram Shankar, CFO

Hi, Timur.

Timur Braziler, Analyst

Hi, just following up on that last line of questioning. With the seasonal inflow expected on the public funds, what's the expectation for the bond book inside next quarter? Are you going to be reinvesting some of those proceeds that are rolling off, or is the bond book going to remain a source of funds for the loan growth you're seeing?

Ram Shankar, CFO

It will remain a source of funds through the end of the year and maybe early into next year. Then we'll have to evaluate based on loan production and deposit goals and whatnot. But at this point, we're still going to let it fund our balance sheet growth, or loan growth, I should say.

Timur Braziler, Analyst

Okay. And then looking at the loan growth, the CRE construction growth remains pretty impressive. I'm just wondering how much of that is contractual, some of these loans start to fund up on schedule, and what that pipeline looks like over the next couple of quarters?

Mariner Kemper, President and CEO

It's a mix. A lot of the funding we've seen certainly are deals that we approved over the last 6 and 12 months that are now hitting the construction phase. There's still activity; we're still seeing loan demand for multifamily and for industrial, albeit it's probably slowed a little bit, but there's still demand and activity. So to answer your question specifically in terms of funding, it's a mix of what we've approved over the last 6 to 12 months and new stuff coming in.

Timur Braziler, Analyst

Okay, and then just on the construction component, specifically any ill effects from the broader environment? Are you hearing that borrowers are taking more of a wait-and-see approach, whether it's rates or just economic uncertainty? Any kind of color you can provide on some of the early-stage building conversations you're having?

Ram Shankar, CFO

I think I would echo the comments from Mariner and Tom, which is that there's plenty of opportunity. The mix is changing. Multifamily and industrial remain very strong, while obviously office and other categories are lagging significantly. With a higher interest rate environment and low housing supply in the marketplace, there's still very strong interest and demand for multifamily. There are pockets in the country where that isn't the case—places where there is over-investment, or where people are building Class A when they need Class B, etc. So we pay attention to those kinds of issues to stay away from problems, but there is strong demand that we understand for multifamily. Industrial continues to be strong because there's a real need for last-mile distribution and tilt-up buildings to support the evolution of delivery in America. So there's a pretty significant build-out underway that we believe and understand continues to support how consumers receive delivery of goods in America. We think these two segments continue to present strong, high-quality opportunities for us. The real shift in our book going forward, in the environment we're in with excess liquidity gone from the system, is that we're more focused on making sure we reserve our capital for customers who are willing to deepen their relationships with us.

Timur Braziler, Analyst

Great, thanks for that. And then just last from me, on the expense side. Appreciate the guide for fourth quarter. Maybe as we look into '24 and again parlaying on Chris's question, how much leverage is there on the expense base in order to drive positive operating leverage? Should we expect expenses to grind higher through '24, or is there confidence that those can be fairly well maintained and be a positive source of operating leverage?

Ram Shankar, CFO

We certainly think we can continue to maintain, at a minimum, the accomplishments we've had. It's too early to tell what else, and we don't give guidance. But there's always room to improve and to be better at any company, and we continue to look for those opportunities to do business smarter. I think we will always be uncovering those.

Timur Braziler, Analyst

Great, thanks for the questions.

Mariner Kemper, President and CEO

Thank you, Timur.

Operator, Operator

We have a follow-up question from Nathan Race at Piper Sandler. Your line is open.

Nathan Race, Analyst

Yes, thanks for taking the follow-up. Just kind of curious about how you guys are thinking about the margin trajectory next year in a higher-for-longer rate environment. Obviously, you're seeing less pressure on the index deposits under that scenario, and you have some lagging repricing in terms of the duration of the portfolio in and of itself on the loan side of things. So any kind of preliminary thoughts on how you guys are thinking about the margin and NII trajectory next year under those frameworks?

Mariner Kemper, President and CEO

We appreciate the opportunity to make our case for our investment thesis. Yes, we do believe that under a higher-for-longer scenario, if the Fed stops, which that would be the scenario we would anticipate, the pressure on deposits would alleviate. New and repricing credit would continue to add value along with the rollout of the investment portfolio into higher-yielding assets. So that is the expectation if the Fed does stop.

Nathan Race, Analyst

Okay, great. And I know it's difficult to predict future provisioning impacts under CECL, but just kind of any thoughts on how you guys are thinking about providing for growth, assuming you're not seeing any material credit issues on the horizon?

Ram Shankar, CFO

Yes, that's the million dollar question, Nate. As you've seen the last few quarters, given our credit quality, most of our provisioning really came from macroeconomic variables changing. In this past quarter, Moody's moved towards more of a soft landing. Our provision was low compared to past quarters, and charge-offs are low as well. So it really depends on the level of loan growth that we have and what happens to the macroeconomic variables. As Mariner said, we had a 13% decline in quarter-over-quarter on our pass-watch loans and 6% in our classified loans. So from a portfolio health perspective, there's not a lot of pressure. But as we said, the magic math we have to worry about is trying to get our coverage ratio at or close to 1%. That's what we would like entering any cycle, whether it's good or bad.

Nathan Race, Analyst

Got it. So it sounds like, absent material macro deterioration, the expectation for you guys is to build the reserve close to 1% over the next few quarters, just in support of loan growth?

Ram Shankar, CFO

Yes. We're within spitting distance; we're at 97 basis points coverage. I would say plus or minus a few basis points here and there on what our coverage ratio ends up being.

Mariner Kemper, President and CEO

Yes.

Nathan Race, Analyst

Got it. And then just one last one. I know you guys don't pay a ton of attention to end-of-period balances, but I was a little surprised to see non-interest-bearing attrition accelerate versus last quarter. Any thoughts on kind of when that could bottom based on what you're seeing in terms of client spending and so forth?

Ram Shankar, CFO

So if you look at what happened, as I said in the script, our commercial DDA balances, which you're alluding to about cash usage, actually went up 1% on an average basis. The decline in the third quarter DDA balances was more episodic because of some of our corporate trust deals. There's always a seasonal buildup and tax payments go out. So we know, and it's predictable from that standpoint. So I would say on the commercial side, things are fairly stabilized. Again, it's really—we think we're approaching the bottom in terms of our 32% DDA to total deposits, which is the cycle low from last time. But that's the biggest X-factor on what can change our margin or net interest income curve from here.

Mariner Kemper, President and CEO

I mean, I would just—none of us know, right. But I would just suggest that if the Fed is done, the way our income statement has worked and our customer base works—we've said this all summer long—we would go through this first because our customers were largely commercial. We've seen that; we think it's largely done. We predicted that because the last cycle being at 32%, that's done; we are 32% today. So from here, your guess is as good as ours; using the history and the behavioral pattern, it seems as though we're somewhere near the bottom on that shift.

Nathan Race, Analyst

Okay, great. And then just in terms of overall deposit expectations, average deposits were flat in the quarter. Just curious, based on what you guys see in terms of your pipeline, how you're thinking about overall deposit growth expectations over the next several quarters?

Mariner Kemper, President and CEO

We continue to have a strong pipeline. This all comes down to cost, at the end of the day. We have a very strong ability, I think in a way that most banks our size don’t, to tap deposits. It's really about paying market rates for them and managing liabilities. It's about our disciplined approach to pricing assets—not just the deposits. So we don't concern ourselves too much with the ability to grow our deposits. We just have to make sure that we're disciplined in the way we manage our assets and liabilities and making sure that we've been able to do to date. As we bring on loans, we feel very comfortable about our ability to price them appropriately to maintain respectable margins and spread.

Nathan Race, Analyst

Okay, great. I appreciate you guys taking the follow-ups. Thanks again.

Mariner Kemper, President and CEO

Thanks. Yes, I might just remind everybody before we're done that just because it has been—it started in April with the way the world looked, to get to where we are now, we feel pretty good about where we sit. I want to remind you of a couple of things I said a moment ago: UMB said early on in the summer and spring that we would likely get to 32% on non-interest bearing total deposits; that's about where we sit here now. We communicated that we would go through the margin trouble early. While others were seeing declines, we flattened out on a linked-quarter basis. You've observed us flatten out margin on a linked-quarter basis. We continue to tell you we're going to have outsized loan growth, and we continue to have outsized loan growth. We continue to tell the street about our ability over time to manage asset quality. While everybody's asset quality looks good right now, ours looked good in the last cycle, and we continue to have excellent asset quality. We've had the best five quarters linked together we've had in our history from an asset quality standpoint. The same management team managing credit is still on top of the credit cycle, and we expect that we'll continue to manage our company the way we always have. Lastly, we're one of the few banks this quarter on a linked-quarter basis to show a reduction in expenses of 3.4% in our case. Really, across the board, everything that we can control, we've controlled and have performed. In any business, every once in a while for geopolitical reasons or otherwise, their input costs go up. It’s this business's job to manage how to pass on those costs or become more efficient, and we’re doing our job. We’re pleased with the results, and we hope you are as well.

Kay Gregory, Investor Relations

Thanks, Mariner. Thanks everyone for joining us today, and if you have any follow-up questions, you can always reach us at 816-860-7106. Thank you and have a great day. I’ll turn it back to the operator to close the call.

Operator, Operator

Ladies and gentlemen, today's call has now concluded. We would like to thank you for your participation; you may now disconnect your lines.