UMB Financial - Earnings Call - Q2 2025
July 30, 2025
Executive Summary
- Strong quarter with operating EPS of $2.96 and GAAP EPS of $2.82, driven by 14 bps NIM expansion to 3.10%, revenue growth to $689.2M, and lower provision as Day 1 HTLF provisioning rolled off; noninterest income also benefited from $37.7M in pre-tax gains, including $29.4M from Voyager Technologies’ IPO.
- UMBF beat S&P Global consensus: Primary EPS $2.96 vs $2.37* and revenue $665.7M vs $635.9M*; beats were supported by purchase accounting accretion ($42.2M to NII, incl. $13.1M accelerated) and outsized fee gains, partially offset by higher acquisition-related amortization and charitable contributions.
- Credit improved: NCOs fell to 0.17% from 0.45% in Q1; nonaccruals declined to 0.26% of loans; management expects charge-offs to remain near or below historical averages in 2H25.
- Integration on track: Minnesota pilot conversion completed in mid-July; remaining HTLF conversions slated for October; CET1 rose to 10.39% aided by $294.1M Series B preferred issuance and redemption of $115M Series A in July.
What Went Well and What Went Wrong
- What Went Well
- NIM expansion and revenue growth: NIM (FTE) rose to 3.10% (+14 bps q/q) and total revenue increased 22% q/q to $689.2M, driven by loan/securities yield expansion, mix, and HTLF accretion.
- Fee upside from investments and fund services: $37.7M pre-tax gains (incl. $29.4M Voyager IPO); trust & securities processing +$3.5M q/q; AUA in fund services reached $543B (per CFO prepared remarks).
- Asset quality improvement: NCOs improved to 0.17% (from 0.45%) and NPL ratio declined to 0.26%; mgmt guided to near/below historical charge-offs in 2H25.
- What Went Wrong
- Expense pressure: GAAP noninterest expense rose to $393.2M (+2.2% q/q), with $13.5M acquisition-related and $8.3M charitable expenses; operating noninterest expense rose 15% q/q to $380.0M.
- Mix-driven deposit costs: Interest-bearing deposit costs stayed flat at 3.34% as robust growth skewed to higher-priced business/institutional balances, limiting cost relief despite HTLF’s core deposit benefits.
- Fee volatility risk: Voyager equity mark and other private investment gains lifted noninterest income this quarter and will be marked to market each quarter until exited, introducing potential variability (904k VOYG shares owned).
Transcript
Moderator (participant)
Good morning. Thank you for joining today's UMB Financial Second Quarter 2025 Financial Results Conference call. My name is Jayla and I'll be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to our host Kay Gregory with Investor Relations. Kay, please proceed.
Kay Gregory (Investor Relations)
Good morning and welcome to our second quarter 2025 call. Mariner Kemper, Chairman and CEO, and Ram Shankar, CFO, will share a few comments about our results. We will open the call for questions from our equity research analysts. Jim Rine, President of the holding company and CEO of UMB Bank, along with Tom Terry, Chief Credit Officer, will be available for the question and answer session.
Before we begin, let me remind you that today's presentation contains forward-looking statements including the discussion of future financial and operating results, benefits, synergies, gains and costs that the company expects to realize from the acquisition, as well as other opportunities management foresees. Forward-looking statements and any pro forma metrics are subject to assumptions, risks and uncertainties as outlined in our SEC filings and summarized in our presentation on slide 50. 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. Presentation materials are available online at investorrelations.umb.com and include reconciliations of non-GAAP financial measures. All per share metrics refer to common shares and are on a diluted share basis. Now I'll turn the call over to Mariner Kemper.
Mariner Kemper (CEO)
Thank you, Kay, and good morning, everyone. Thank you for joining us to discuss our second quarter results. We'll share some brief comments, then open up for questions. Compared to 90 days ago, the business environment and economic landscape remains positive as perceived real headwinds post-Liberation Day have largely subsided. While there are still some uncertainties and ever-brewing geopolitical tension, the sticker shock from the headlines seems to be wearing off. Borrower sentiment continues to be strong, especially as you consider the financial strength of our customer base. Regardless of uncertainties, we remain focused on what we can control, leveraging our business model, which is proven in all economic environments, which you can see in our strong performance in the quarter. Our reported net income available for common shareholders of $215.4 million included $13.5 million of acquisition expense compared to $53.2 million in the first quarter.
Excluding these and some smaller nonrecurring items, our second quarter net operating income was $225.4 million or $2.96 per share. One of the drivers for the quarter's strong results was a $37.7 million pre-tax gain on prior investments made through our various private investment entities. Included was a pre-tax gain of $29.4 million on an investment in Voyager Technologies, which went public in June. This equates to a multiple on invested capital of 5.8 times and an internal rate of return of 59%. This investment made over the past five years is another success story from our private investment team. Through this team, UMB partners with private businesses that have strong long-term growth potential by taking equity, subordinated, or mezzanine positions. We have a successful track record of financing businesses and have invested more than $200 million across more than 50 businesses to date.
Other highlights of the quarter include an 8 basis point expansion in our core net interest margin, double-digit balance sheet growth, solid credit metrics, and strong positive operating leverage. On a linked quarter basis, average loans increased 12.7% to $36.4 billion, while average deposits increased 10.7% to $55.6 billion. This reflects solid organic growth as well as the impact of the additional month of Heartland operations. In the second quarter, legacy UMB average loan balances increased 15.3% on an annualized basis from the prior quarter, once again outpacing many peer banks. Banks that have reported second quarter results so far have reported a 5.2% median annualized increase in average loan balances. Our loan balances were relatively flat quarter over quarter as top line production was offset by elevated payoff activity as we continue to align the portfolio to our standards.
Looking ahead into the third quarter, the loan pipeline remains strong both on Legacy UMB and in Parliament Markets. Quarterly top line production was a new record coming in at $1.9 billion. In the second quarter we saw strong growth in CNI and CRE as well as an 11% increase in residential mortgage balances. As we begin offering mortgage products in our new regions, we've been encouraged by the activity and production of our new Heartland Associates. Net charge-offs attributed to the Legacy UMB portfolio in the second quarter were $9 million or just 13 basis points of average UMB loans for the quarter with the largest portion being credit card. Total net charge-offs for the quarter including acquired loans were 17 basis points. Given what we know today, we continue to expect charge-off levels to remain near or below our historical averages in the second half of the year.
Total nonperforming loans to total loans improved 2 basis points from the prior quarter to 26 basis points. Nonperforming loans related to Legacy UMB were just 10 basis points for reference. Banks that have reported second quarter results so far have reported a 0.50% median NPL ratio. We continue to rebuild capital following the acquisition with a CET1 ratio of 10.39%, a 28 basis point increase from March 31. During the second quarter we completed an offering of Series B preferred stock netting $294 million of Tier 1 capital. On July 15 we redeemed $115 million in outstanding Series A preferred that was acquired in the HTLF deal. Finally, over the weekend of July 11, we successfully executed our pilot conversion of Heartland's Minnesota franchise, bringing it onto the core UMB platform. This initial conversion of a small set of locations allowed us to test our conversion plans and procedures.
The process went smoothly and positions us well for the full conversion slated for mid-October. A huge shout out to our teams, especially the Technology, Product and Operations team as well as our client-facing associates that have worked tirelessly around the clock enabling the seamless conversion. Now I'll turn it over to Ram for more detail.
Ram Shankar (CFO)
Thanks Mariner. I'll begin with the purchase accounting update included on slide 9 and 10 of our materials. On page 9 you can see that our second quarter results included $42.2 million in net accretion to net interest income, $13.1 million of which was related to an accelerated accretion from early payoffs of acquired loans. The net benefit to margin from total accretion was approximately 27 basis points. Our operating expenses included $23.4 million in acquisition-related amortization of intangibles. On slide 10 is the projected contractual accretion for the rest of 2025 as well as for full years 2026 and 2027. On slides 12 and 13 we've included some key highlights and drivers of our quarter-over-quarter variances as well as breaking out one-time costs by expense categories. I hope this is helpful especially with all the moving pieces related to the acquisition and market-related variances.
You'll see the accretion income there along with the investment security gains Mariner mentioned. Other notable items impacting fee income in the second quarter included a $3.5 million increase in trust and securities processing led by fund services which brought on several new clients. Assets under administration in fund services and custody grew to $543 billion, while AUA for all institutional banking businesses topped $600 billion in the quarter. Additionally, credit and debit card purchase volumes reached $5.6 billion with the related interchange income driving a 10.4% increase in bank card fees compared to the first quarter. On the expense side, we had $13.5 million of merger-related costs and we've included the line item breakdown for those costs. We remain on track with our announced acquisition-related expenses.
Excluding the impact of merger and other one-time costs, salaries and benefits expense increased by $21.3 million, largely driven by a full quarter of expenses for the new associates from Heartland. Also, as noted, we made charitable contributions of $8.3 million in the quarter compared to $524,000 in the first quarter. Looking ahead, we would expect third quarter operating expense to be slightly higher in the $380 to $385 million range and driven primarily by the full impact of the mid-second quarter merit increases and increased incentive accruals for strong company performance as well as an additional day count. Our third quarter fee income will be impacted by changes in market value through every quarter end of our 904,000 share ownership in Voyager Technologies stock relative to the June 30 closing price of $39.25. This will continue in subsequent periods until we choose to exit our position.
Turning to the balance sheet, we had strong deposit growth, both organic and related to the full quarter of HTLF balances. Interest bearing and DDA balances increased 11.9% and 7.3% respectively from the first quarter. The cost of interest bearing deposits remained flat at 3.34%, while total deposit costs increased 2 basis points, reflecting the mix shift relative to the core margin of 2.83% in the second quarter that excludes all accretion. We expect third quarter margin to be essentially flat. The positive impact from fixed asset repricing on bonds and fixed rate loans will likely be offset by increased interest expense from the strong interest bearing deposit growth I just mentioned, combined with a typical third quarter low point for DDA balances. Finally, our preferred dividend in the second quarter was $2 million.
Dividends on the newly issued Series B preferred stock will commence in the third quarter with a payment of $7.9 million, including a portion for the stub period that spans the issue date of June 12 through the interest payment date of July 15. Subsequent quarter preferred dividends will be $5.8 million, and our effective tax rate for the full year 2025 is expected to be between 19% and 21%. Now we'll turn it back over to the operator to begin the Q&A session.
Moderator (participant)
We will now begin our Q and A session. At this time, if you would like to ask a question, it is star followed by one on your telephone keypad. If for any reason you would like to remove that question, it is star followed by two. Again, to ask a question, it is star one. As a reminder, if you are using a speakerphone, please remember to pick up your headset before asking a question. All questions are limited to one question and one follow up. I'll pause briefly here as questions are registered. Our first question comes from Jon Arfstrom with RBC Capital Markets. Jon, your line is now open.
Ram Shankar (CFO)
Morning, Jon.
Jon Arfstrom (Managing Director and Senior Equity Research Analyst)
Thank you.
Mariner Kemper (CEO)
Good morning.
Jon Arfstrom (Managing Director and Senior Equity Research Analyst)
Good morning, everyone.
This all looks good.
Wanted to talk a little bit about loan growth, maybe Mariner. Jim, that gross loan production number jumped quite a bit. Can you just deconstruct that a little bit for us? How much of it is Heartland, how much of it is a rebound from 90 days ago, and how you expect that to trend generally going forward?
Mariner Kemper (CEO)
I think what I say about it is it's kind of in line with our expectations. The next quarter looks very similar on a combined basis. We're seeing strong production out of Heartland and just as strong as we ever have been with our own team. It was a nearly $2 billion quarter on top line, and we expect a similar number in the second quarter coming across all categories, all verticals, all regions, just the solid same story we've been telling for 20 years.
Ram Shankar (CFO)
We have seen nice activity from the Heartland team as well,
Mariner Kemper (CEO)
Yeah,
Ram Shankar (CFO)
Not just legacy UMB.
Mariner Kemper (CEO)
Their activity is very solid coming through across the board. We're really excited about what we're seeing from their team. I think there was some pent up demand and obviously also you have the higher hold limits, etc. It opened the door for them quite a bit.
Jon Arfstrom (Managing Director and Senior Equity Research Analyst)
Okay, very good. Just to follow up, Mariner, you made a comment about continuing to.
Align the two portfolios.
Curious how much of that is left to do. If you could comment a little bit on payoffs and pay downs, if you feel like they're still a little bit elevated. Thank you.
Mariner Kemper (CEO)
Yeah, we do expect, without being able to identify any particular number or credit for you, to continue to align being sort of. There are some credits that aren't done the way ours are, and that may be a few that may or may not be here at the end of the year, but the payoffs on a combined basis should be immaterial to the balance sheet on whatever happens. I guess that's really the key. I would tell you whatever does come from that realignment will not materially change our payoff levels on a combined basis.
Moderator (participant)
Our next question comes from Jared David Wesley Shaw with Barclays Bank PLC. Jared, your line is now open.
Ram Shankar (CFO)
Morning, Jared.
Jared David Wesley Shaw (Managing Director)
Thanks.
Good morning.
Maybe first question, just have you given any thought to the impact of the HSA regulatory changes under the new budget bill and what that could potentially do for a longer term growth rate in deposits and fees? Jim, why don't you take that?
Jim Rine (President and CEO)
Yeah. Hi, Jared. We've been monitoring it closely. As you know, originally it was going to be much more sweeping and would open it up to roughly 20 million folks that had not previously been eligible. Right now we anticipate that number to be around 7 million. While we do view it as an opportunity, it would be more marginal. There'll be a lot of education that will go along with the folks that are newly eligible, but we don't anticipate.
It being a huge windfall for HSA business.
We feel it'll be more on the margin. We do have the sales teams and folks who would be able to provide.
That education as needed, but we do feel like it'd be just more marginal.
Jared David Wesley Shaw (Managing Director)
Thanks. As my follow-up, just on expenses, if we look at expenses excluding merger costs as we go into 2026 after the integration, how should we think about sort of a longer-term expense growth rate, getting the cost saves from the deal but then offsetting that with some of the investments as you build out commercial, how should we think about sort of a longer-term expense?
Ram Shankar (CFO)
Without giving specific guidance, Jared, I would say, you know, we'll get the second slug of cost saves from the transaction in the fourth and first quarters as we consolidate vendors and we complete our conversion process. I know we don't specifically give guidance on expense growth rate because of our business model. It's all about positive operating leverage, and we want to keep improving operating leverage based on what the revenue environment is. Without giving specific numbers, I would just say, you know, we're going to achieve all the cost saves that we targeted generally from the Heartland transaction. In terms of investments, I mean, we have a pretty robust process in terms of how we intake projects, so there's not a big pipeline of investments. If there are investments, they always have a revenue component or an ROI associated with it.
There's not a lot of pent up demand in that fashion for us to be spending and investing.
Jared David Wesley Shaw (Managing Director)
Okay, maybe the way to think of it is continued positive operating leverage from the combined operations as we—absolutely,
Jim Rine (President and CEO)
yes,
Mariner Kemper (CEO)
yeah.
Jared David Wesley Shaw (Managing Director)
Ultimately, improved operating leverage. Right.
Mariner Kemper (CEO)
Yeah.
Moderator (participant)
Our next question comes from Christopher McGratty with Keefe, Bruyette & Woods, Inc. Chris, your line is now open.
Ram Shankar (CFO)
Morning, Chris.
Christopher McGratty (Analyst)
Good morning.
Ram.
On the $124 million projected cost saves that you identified at the time of the announcement, where, I guess, how much have you realized so far? To Jared's question or your answer, Q1, you'll be through most of it.
I'm just trying to get a sense.
Of where that expense level before you start.
Ram Shankar (CFO)
Yeah. Last quarter I noted that on a run rate basis we got $17 million on a quarterly basis out of the run rate, which was higher than what we had planned when we announced the transaction. As I said last quarter, also in the second and third quarters, there was not a lot of opportunity of additional cost synergies just because, you know, the next big slog, as I said earlier, comes from conversion and consolidation of vendors. The big slug of projected cost saves will be more in the fourth quarter. There was some cost saves in the second and some in the third, but not material, I would say. The $124 million we got on a quarterly basis, $17 million of that so far. We'll get the rest of it in the fourth and first quarters.
In 2026 we will have some nominal growth in both the legacy UMB and Heartland franchises. Again, without giving any specific numbers, we're.
Going to shoot for improved operating leverage.
Mariner Kemper (CEO)
We do expect to get the full save that we projected at announcement.
Jim Rine (President and CEO)
Yeah, absolutely.
Christopher McGratty (Analyst)
Okay, on the balance sheet, you talked about the DDA hitting the trough in the third quarter, I think. Can you just remind us the pro forma seasonality with your deposit base, and then also what you plan to do with the investment portfolio, growing the portfolio, funding organic growth? Just trying to put a finer point on that. Thanks.
Ram Shankar (CFO)
Yeah, if you look at the last couple of years, that's a good barometer for what might happen with DDAs. We've had mid single digit contraction in DDA balances in the third quarter, so that's probably something that happens very seasonally. With DDAs, there's a lot of interest in bond payments that go out, so that's why it's very predictable from that standpoint. There's no other big seasonal items in the third quarter. Public funds really start building up in the fourth and first quarter. There's not a lot of other things. As you saw in our third quarter results and as you guys rightly recap, we saw some strong interest bearing deposit growth in the second quarter.
Mariner Kemper (CEO)
Right.
Ram Shankar (CFO)
Most of that is business related and will stick on, and then on the bond portfolio side on a combined basis, at the quarter end we had about $10 billion of cash sitting on our balance sheet earning 4.40%. We've since deployed a lot of that and today it's around $5 billion. We have continued our overbuy and pre buy activities as part of our bond portfolio purchases. We'd expect our bond portfolio to be about $17 billion, and then the excess liquidity could be another $6 billion, $7 billion. That kind of rounds out what our earning asset base might look like in the third quarter.
Moderator (participant)
Our next question comes from Benjamin Tyson Gerlinger with Citigroup Inc. Ben, your line is now open.
Benjamin Tyson Gerlinger (VP and Equity Research Analyst)
Just one of the first, the last answer you gave on security book is really helpful. I was kind of curious if we could switch to just the front and back book of deposit pricing itself given that Heartland was added in kind of what's called the middle of 1Q and 2Q. It's kind of apples and oranges when you look at the core margin. Ram, I know you said it was going to be flat length quarter, but I was just kind of curious what was like the June core margin. Just trying to get a sense of the overall kind of run rate throughout the quarter.
Ram Shankar (CFO)
I don't know if I have it handy or I don't know if that's material. Ben, in terms of what June was, there's a lot of things that happened in terms of accrual. Obviously, purchase accounting adjustments can happen. I know you asked for core margin. You know my guidance for flat NIM, as I explained in my prepared comments, is pretty good in a lot of tailwinds and a couple of headwinds including the DDA seasonality that I talked about. I'm not sure what else I can add there.
Benjamin Tyson Gerlinger (VP and Equity Research Analyst)
Gotcha. Okay. I know you've had some larger, call it unscheduled purchase accounting or early payoffs I should say. Is there something that's causing that because we haven't seen much rate movement? I know it's usual with deals. Just kind of curious, is there an underlying driver?
Mariner Kemper (CEO)
Yeah, we just talked about the alignment on the Heartland portfolio, so just moving out a couple credits earlier in the year than predicted.
Moderator (participant)
Our next question comes from Nathan James Race with the company Piper Sandler & Co. Nathan, your line is now open.
Nathan James Race (Managing Director and Senior Research Analyst)
Hey everyone, good morning, thanks for taking.
Jared David Wesley Shaw (Managing Director)
Good morning.
Nathan James Race (Managing Director and Senior Research Analyst)
Thanks. Of course. Just going back to the discussion, I appreciate the flat guide for the third quarter, but just given that it seemed like both loan and deposit growth is somewhat margin accretive.
I know you had the benefit from.
Heartland as well in the quarter, but assuming the Fed remains on pause, do you think there is an upward bias to the margin the fourth quarter and maybe thereafter? Again, assuming the Fed remains on pause, but even if we got some cuts, I imagine the margin could still expand just given what you have repricing on the deposit side.
Ram Shankar (CFO)
Yeah, potentially Nate. As you know, we have 45% of our deposits indexed in the short term. The Fed actually cutting is a positive to margin because these index deposits repriced down. Right now, and it might be subject to change, we have two more rate cuts, one in September and one in December. It sounds like there's more reasons for pausing that. I would say at the margin not having rate cuts can be neutral to slightly down for margin expectations because deposit costs won't move. As we said in the call before, our deposit pricing doesn't change unless the Fed starts cutting rates. In terms of the other positive tailwinds, if you will, for the margin, we've talked about fixed asset repricing.
If you look at our treasury waterfall that we say on page 20, we have $1.8 billion of cash flows coming from our bond portfolio that are being reinvested 120 basis points higher. We have a similar phenomenon going on with the fixed rate loans that can also go up 200 basis points. As you look at third quarter, the only tailwind besides the day effect, the other day effect on an average can impact our margins by 2 to 3 basis points because we have a lot of 33, 60 products. The only thing that can act negatively or positively is the level.
Of DDAs, which I talked about, could.
Be down mid single digits.
Nathan James Race (Managing Director and Senior Research Analyst)
Right. That's very helpful. Maybe switching to fee income and specifically fund services. That revenue line has grown at least at a high single-digit pace over the last handful of years. Just curious, with the law of large numbers maybe catching up with you guys, if you think that rate of growth is still sustainable going forward within fund services?
Mariner Kemper (CEO)
Yeah, I think absolutely. There are really great tailwinds for that business. We have exceptional service ratings from our client base and the industry, and the technology stack is great. There's a lot of disruption stuff that I've been saying in the calls for some time continues to persist. The environment for our team on the alternative side, there's a lot of product being built and a lot of our current. We're bringing on a lot of business.
We're also benefiting from a lot of platforms that are doing very, very well. It's a combination of the client base doing very well as well as bringing on a lot of new business. The pipeline remains very, very strong. We are kind of the dominant player in the private space. We win almost everything that we bid on, and the tailwinds are excellent.
Nathan James Race (Managing Director and Senior Research Analyst)
Very helpful. I appreciate all the color.
Thanks guys.
Mariner Kemper (CEO)
Thanks, Nate.
Moderator (participant)
Our next question comes from Brian Wilczynski with Morgan Stanley. Brian, your line is now open.
Mariner Kemper (CEO)
Hi, good morning.
Brian Wilczynski (Analyst)
I was wondering if we could circle back to credit quality at Heartland. It is good to see nonperforming loans down Q on Q. I was wondering if you could just elaborate on what you're seeing in that portfolio and how you're thinking about the path for MCOs as you work through that.
Thanks.
Mariner Kemper (CEO)
Yeah, so.
You hit NPLs and charge-offs. I'll start with NPLs. You'll see on a linked quarter basis they've already started coming down. We expect month over month, quarter over quarter for that number to continue to come down as we work the portfolio charge-offs. I would just point you back to the overall statement I said about the company on a combined basis as we've gotten our arms around their portfolio and ours continues to perform. We expect the second half of the year to perform at or near our historic averages with what we know. We feel very good about getting our arms around their portfolio and are pleased with the path we're on and the team that they have is fantastic. We're really excited about the production that we're getting out of the team. Across the board, really good.
The direction, we feel pretty good about the direction and just kind of month over month, quarter over quarter improvement from where we are on the NPL side. That's really helpful, thank you. I was wondering if you could comment on what you're seeing in terms of deposit competition across your markets as the macro environment gets better, maybe industry-wide loan growth picks up. Just wondering what you're seeing and what you're expecting from a deposit pricing perspective. You know, you've got our, there's, put it in two buckets really. You've got our commercial and our institutional and then you've got our consumer business. The commercial and institutional for us, very easy for us to build but it comes with pretty much straight down the middle of fairway competitive pricing.
We can bring on as much of that as we want as long as we pay basically institutional money market-like rates. That's kind of what corporate and institutional looks like. We can have that grow at whatever rate we want that to grow at. On the small business and consumer, we've seen kind of 1% to 2% growth rate there. We can control that a bit better. Now that we've doubled our branch network and we picked up all the Heartland team and we're doing a complete refresh of the branches, we're in the market now on a regular basis with campaigns. We think we can get our share of the consumer deposits in the markets that we're in now. Now that we've increased, we're in six new states with double the branch network. We're excited about what we're able to do.
It's a little early to tell you what those results would look like, but being in the market doing campaigns with double the branch network, we feel pretty good about getting some lift out of our consumer business.
Moderator (participant)
Our next question comes from David Joseph Long with Raymond James & Associates Inc. David, your line is now open.
Ram Shankar (CFO)
Morning David.
Mariner Kemper (CEO)
Thank you.
Good morning, everyone.
Ram Shankar (CFO)
Good morning.
David Joseph Long (Managing Director and Senior Research Analyst)
With the HTLF acquisition, you talked about some of the credit and the loan demand and what have you. What's going on the fee revenue side? Are you realizing any synergies there from the HTLF franchise? At this point we're starting to see the energy. It's going to be a while before we really realize that, but we are. We have started selling credit cards. Do you have that committed to your memory? Credit cards?
Ram Shankar (CFO)
We've had an additional 270 in mortgage loan applications throughout the HTLF network.
We also feel like it's going to be a great opportunity for corporate trust referrals.
As Mariner said, more to come, but we're already seeing nice activity.
Mariner Kemper (CEO)
Yeah, the energy level and the pipelines are building. Conversations are taking place. Not a lot to report on, on the results yet, but feeling good about the activity levels and the direction.
David Joseph Long (Managing Director and Senior Research Analyst)
Great. Appreciate the color. That's all that I have. Thanks.
Mariner Kemper (CEO)
Thanks, Dave.
Moderator (participant)
Our next question comes from Timur Felixovich Braziler with Wells Fargo Securities LLC, Timur, your line is now open.
Ram Shankar (CFO)
What's up Timur?
Mariner Kemper (CEO)
How are you?
Hi, good morning.
Timur Felixovich Braziler (Analyst)
Good, good morning. Keeping on the Heartland theme, just the contribution to balance sheet growth this quarter was a little surprising as to how fast it came online. I'm just wondering are they at capacity here? Is there additional ramp in terms of that growth rate and ultimately when it is at full capacity, how much more contribution are you expecting for the balance sheet growth rate from Heartland relative to the T2 levels?
Mariner Kemper (CEO)
I think there's probably a bit of a miss on maybe how we've talked about that or what that looks like. I think we're at the very beginning of what that can look like. We're just beginning to see what can come out of those guys, to be honest. We're barely seeing what's possible there. They had a good quarter but we're just at the beginning.
There is a huge potential out of the whole franchise. Great team and I guess that's what I say is I think that's a bit of a miss on kind of where we are with what they're able to contribute. They're on the front end of what they're going to be able to contribute.
Timur Felixovich Braziler (Analyst)
Okay, got it. I guess going back to the deposit pricing competition, just looking at the link quarter change in interest bearing deposit costs, I would have thought the added contribution or the full contribution from Heartland would have brought that down maybe a little bit more. Can you just talk to what core kind of IB deposit costs increased in 2Q and as we head into the third quarter, what that expectation is for deposit costs going higher given the seasonality in DDA plus the competition on the commercial deposit side.
Ram Shankar (CFO)
Yeah, Timur. The cost didn't go up or they were stable, right? 334 quarter over quarter. You're right, with the addition of Heartland it should have maybe gone down a couple of basis points. As I noted in my prepared comments, we had some really robust interest-bearing deposit growth both in the middle market and institutional space. Those tend to come slightly priced higher than where our current portfolio yield of 334 is versus, you know, the new money rates are more like 4. It's not like the costs are increasing, it's just a mix of getting more of these deposits coming in that change the trajectory of our interest-bearing deposit.
Costs,
Mariner Kemper (CEO)
more growth the balance sheet than it is competition.
Ram Shankar (CFO)
Yeah, it's not driven by competition.
Mariner Kemper (CEO)
Right. Yeah, we're not. Those rates are not up because we're defending our book. It's just pure growth.
Moderator (participant)
Again, if you would like to ask a question, it is star followed by one on your telephone keypad. Again, that is star followed by one to ask a question. At this time, there are no more questions registered in the queue. I'd like to pass the conference over to our management team for closing remarks.
Mariner Kemper (CEO)
Thanks everybody for getting on the call with us. We're really excited about the quarter, and results from our perspective were strong across the board, really on every level. The acquisition, we're very excited about the team, the results. We didn't end up really talking about capital markets. I want to make sure everybody understands that the Voyager gain is, while we can't predict when these things are going to come, we do have a very strong private investments team, and we're excited about continuing to report on things that will come out of that group for you and otherwise. Thanks for listening, and we're real excited about how things are coming together with Heartland.
Kay Gregory (Investor Relations)
Thanks Mariner and thanks everyone for joining us today. If you have follow up questions, you can always reach us at 8607106. Thank you and have a great day. That will conclude today's conference call.
Moderator (participant)
Thank you for your participation and enjoy the rest of your day.