How institutional banking helps build one regional bank’s strategy

Making sure that you're consistently building the business to have all the right controls and processes in place is really, really important and something that can never be too far from your mind.

And I'm really delighted to hear a learn a little bit more from Phil today about how institutional banking fits into the overall growth strategy at UMB and, and, and the evolution of that line of business within the bank. So, Phil, welcome to the show.

He, through this idea, passed me to come to UMB and be a part of a leadership program that they had for folks that were right outta school. The idea being that you could get broad exposure to the banking industry and then eventually kind of find a career path that worked well for you. Sounded interesting. Kansas City sounded interesting. Had never been to Kansas City a day in my life prior to interviewing here. And that was exactly 20 years ago.

And here we sit and if you can try and count different ways, it's six or seven or eight different stops at UMB along the way to get to the president of institutional banking job. But really just a testament to how cool the story has been at UMB and how it's just intersected with mine, as well as how awesome Kansas City has been as a place to build a career in banking.

We have offices in New York, offices in California, but UMB stays kind of in that more, you know, Midwestern Southwestern category. The interesting thing about UMB is if you look at a lot of our peers, our business mix is a little different, right? So we obviously have a, a great commercial lending group a consumer presence as well, a private wealth presence as well.

But the institutional banking group, which I'm a part of, is definitely kind of a different business mix than the rest of our peers really giving us a chance to do different things and generate more fees and deposits is the idea. When you kind of look across our peer group and, you know, we almost kind of look like a somewhat bigger bank in that regard, if that makes sense.

And when you're a bank, that matters, right? Number two. Is that we drive a portion of our revenue from fees in an outsized way compared to peers, right? So peers wind up looking more like in the 20% of revenue is, you know, kind of related to fees. We're in the, we're in the mid thirties, a lot of times. Probably a little bit lower now to the Heartland acquisition as a board. And that is and that is in many cases due to the institutional banking group.

Related, similar, but different on the deposit side of life with the institutional banking businesses and other things that B'S involved in. We have more diverse ways to generate deposits than a lot of our peers do. You know, a lot of our peers, if they're looking to generate deposits, it's pretty simple and straightforward, right? It's the commercial banking group generating deposits from. Those clients and treasury clients, and it's the branches doing deposit campaigns, et cetera.

You know, we have businesses like corporate trust and institutional custody among others. The healthcare one is another one where we can drive deposits for the bank that again, are just more diverse than many of our peers are.

Right. So they are, we're not talking equities, we're not talking m and a advisory. We're really talking bonds and related sorts of instruments. We sell a lot of those to downstream banks that are smaller than us, as well as. Tier two and tier three asset managers, those sorts of clients. There's some other business that's contained within the capital market space as well as it relates to more technical stuff like repo, foreign exchange, et cetera. But we have that business.

Secondarily of the corporate trust business and corporate trust has, has been a very much a growth area for us. I'll talk about that in a second, but the corporate trust business, if you're trying to sum it up, is a little difficult because again, it's pretty technical and specific, but think of a really complex document or transaction out there that requires some sort of intermediary third party. Between two other parties and that intermediary is ensuring the flow of fund is, is good.

People get paid on time, all these sorts of things. You know, and it may be lots of parties involved in those transactions. Broadly, that's what corporate Trust is doing, and that's from everything as simple as a. Municipal bond that you might vote on at your next upcoming election to issue bonds for a school and as complex as trusts that contain, you know, documents around airplanes for the large airlines in the US that pulled those airplanes within trust and everything in between.

So lots going on there. Another business we have is called investor Solutions. Simply think of this as backend banking services for large broker dealers, right? So if you're a Fidelity or Morgan Stanley of the world, your value proposition is what you're doing on the investment side. You don't wanna be involved in the ACHs check writing capabilities, et cetera. We do that for those folks. So we have big relationships with them.

Another one that you mentioned briefly is the healthcare services business. This is largely getting HSA accounts in the hands of end consumers. Mm-hmm. Now, the interesting point is, and you're thinking, why would that belong in an institutional banking sort of construct? Right? The sale is very much a business to business sale. You're selling to that employer, or you're selling through a broker or a third party administrator that is helping those businesses get.

Benefit accounts of one variety or another. So there's the HSA business. And then lastly, there's kind of what I would encompass as the fund services business. So this is backend work for mutual funds, private equity, real estate funds, kind of all manner of investment funds. We're doing accounting.

Transfer agency operational work of making sure navs get struck at the end of the day, taxes get done, audits get done, those sorts of things again, so that the investment managers can focus on what they're doing. And kind of attached to that is the institutional custody businesses. So we hold all those assets for, for those funds that we. We work on, and we also hold assets for a lot of clients that aren't related to the fund services business within the custody space as well.

Typically insurance companies, municipalities, et cetera. You know, custody business with banks, safekeeping, it all kind of makes sense. So those, that's kind of a quick flyover of the businesses that are contained within ib broadly. A couple things and I guess we can start with the challenges. So when you have a mix of businesses that's that diverse. Technology is always a challenge, right? Because every one of these spaces is deep, right?

So people build their careers, build their businesses within just one of these spaces within institutional banking, and then there's private equity companies involved and other competitors. So technology, keeping up with it, keeping abreast of it is, is always a challenge. As well as many of these businesses are operationally intense, right? There's a lot of transactions, there's a lot of movement, et cetera.

Making sure that you're consistently building the business to have all the right controls and processes in place is really, really important and something that can never be too far from your mind. The upside for us has been, and this I would say is really across the businesses, but it's been particularly true in the corporate trust and fund services space. Where we've landed as it relates to kind of our size and the services that we offered has really sold well over the last five to 10 years.

And to be more specific, we've had a lot of competitors that you know, and for one reason or another, no fault of their own. You know, they've gone to kind of bigger, more standard service models and we've kept single point of contact service models and that's been really important for our clients when they have. An issue, a question about UMB or about their deal.

They have a single person to call that's going to, within the organization, run all the traps for them and get them the answers that they need. And so, you know, thematically, that's worked really well. And then the other thing that's been a tailwind for us too is as the bank, as UMB has gotten bigger and more well known across, and I mentioned earlier across the nation, that's helped us because a lot of our clients are on the coast. In New York, in California.

And so when I'm having less conversations that start with who's UMB, that's a good thing for me. And so as, as the bank grows, we certainly benefit from that too.

So they're sitting on the same deposit system that the rest of the bank is. Those sorts of things. However, as we have grown, our clients have grown with us. So we've invested specifically over the past couple of years in some more sophisticated accounting systems on both the fund services and corporate trust side. And really continue to build out, you know, systems and services that are specific to our clients.

While the core of it's always gonna sit on the bank rails and align with the bank, we've made some specific investments in those spaces to make sure that we keep up.

What are some of the opportunities that you see to grow the HSA business? If the policy environment were to kind of improve and eligibility HSA spending eligibility were to be expanded.

And it's one of those really interesting, you sit in a room with all your competitors and then you go off the hill and, you know, argue for the same things, but the, the sum of it at the end of the day, right? And even these, even the things that are in the bill as it stands today is just trying to chip away at getting more Americans access to HSAs and then kind of secondarily. Expanding things that HSAs can be used for.

So, you know, you think about it, what we all want, you know, and what I certainly want from a business perspective is more people to find it easy to open an HSA, and then more people to go, well gosh, I have no problem making a contribution to an HSA because I can use it for not just X and Y, but now Z. You know, and, and 'cause those are the things that stop people, right? That's, yeah. One of the crazy things about HSAs is. You think, gosh, if you're in a high deductible plan, you're there.

'cause you want an HSA. The fact of the matter is, you know, while there are 50% ish enrolled in HSAs who have high deductible plans, there's still a lot of people that have a high deductible plan that don't even have an account open. And it's just kind of crazy. So, I heard someone speaking on this years ago, and they talked about the education around the 401k and how that had to happen over literally decades. Right? And if you think about it, we're just over two decades into HSAs.

And so I. To be honest with you, things like this are helpful for us because not only could it expand usage but it could give us an opportunity to educate people all over again with something new. You know, for the banks who are still involved in the HSA industry, it's probably not one big bang right? Where all of a sudden I'm gonna see, you know, 20 million new accounts open tomorrow.

What it is, is just broadening the channels for usage over time, which is exactly what we want because HSAs, for us, are just an amazing fit with the bank because again, they sit on bank rails and systems and they're a source of fee income and deposits for us that are sticky over time. And you know, I couldn't, if you named that in a vacuum, you'd say, gosh, what count is that? I want as many as possible. And that's why we like HSAs.

And so I, so I like calculated all this and then I kind of recalculated what it would've been spending it outta the out, you know, with on the high deductible plan and everything. And I was like, oh. I actually, we actually save money, you know, except in the year when we had like a, had a kid. And that year, except for that one, you know, it's like in every other year we save money being on a, on an HSA.

And so we so we switched to that and i've become a real evangelist for the product ever since because I, I really love the flexibility of being able to, you know, pay for things out out of pocket and then, and then get reimbursed for that. And, you know, it's and it does make me a little bit more sensitive in circumstances where, where I can shop for shop around for medical care.

It does make me more sensitive to trying to find the best price and so that's, I feel like it's been overall been a really good consumer experience and I have saved money using it so.

Grow that money on a tax free basis, a la it being in an IRA and then withdraw when you're in retirement, right? I mean that, that starts making you make all sorts of sense, especially if you're able to, you know, as time goes on, you got less kid expenses, et cetera, et cetera. I've been through that recently too, so I totally with you there. You, you can start saving some money and maybe you have a nest egg for retirement from a medical perspective. Right?

Yeah. Because that's becoming increasingly important these days. As, as you said, costs are not going down. But broadly, what you just talked about is like what the HSA industry at the end of the day. If you're more consumeristic behavior in medical spending versus just, oh, I don't know, I only pay my deductible. I have no idea how it's costing. That's hugely important.

In addition to being on the HSA side of the world, I, I am the chair of our retirement and benefits committee here, and UMB, like many large organizations, you know, self-insured, right? So we look at this and look at behavior change a lot, and you can do a zillion things to try and change behavior, whether that's character sticks, right? But until you start making it about the money coming outta your own wallet yourself, it just doesn't hit the same. So you're totally right.

I am a pack rat, but I'm still, I'm a little skeptical about trusting myself to do all those records that long. So I'm like, if I can just get myself reimbursed within the same calendar year, that helps me feel like I'm not, you know, I, I'm sure I'm leaving some money on the table, but it also, I've got a factor in the cost of me, you know, keeping 20 years worth of medical records. So.

Right. And because if I can do anything to help combat inflation, you know, and inflation and medical costs certainly outpaces inflation from a broad eco economy perspective. That could help over time, but yeah.

That has been the recipe for success for us. We certainly have cases where outside hires have made lots of sense to come into leadership roles, but I, and I'm, I'm biased, right, because I've grown up at UMB and I'm in this space, so I'll just, I'll, I will give my bias away.

People who are able to grow up in these businesses within the constructs of UMB are perfect for us because not only do they understand the business itself, right, which is baseline level of importance, but they understand how the overall business fits into UMB broadly, and I view that as tremendously important. The last thing I want people on my team feeling like is that, oh gosh. There's UMB, the bank, and then there's the island that I live on. No, we're all together.

And that's why I was so specifically descriptive earlier about how kind of we add to UMB' overall value proposition because people need to understand that amidst, gosh, whatever they may be doing that day, whether that's fund accounting or corporate trustee work, or selling a bond to a downstream bank or a host of other things, we're trying to grow people with those expertises within UMB.

The other thing I would add here too, that's again been a tailwind for us is the service model I mentioned earlier about how we still have single point of contact. We have lots of folks with a lot of passion around that. And so as other providers have went away from that, it's made it an easier recruitment for us to say, come over here. We'll have the single, you know, the single point of contact model.

And even if it's helped us sell past, gosh, it may not be the newest, shiniest piece of technology. But that way that we do business is really appealing to our folks and they're really bought in. So we tend to, people have people come and, and stay. You know, turnover tends to be pretty low, which is the continuity is really important. I.

You know, for many years prior to that, here at a BA and I continue to learn something new every day about this in the banking industry in the United States, which I love. It's such a diverse and fascinating space, and you know, UMB and the Institutional Banking Group, there is no exception. So thanks for your time today.