UMB Financial 3rd Quarter 2026 Financial Results Conference Call - UMB FINANCIAL CORP

Explicit Guidance:

• Q4 2026 Expense: Expected to range between $400 million and $405 million, driven by incentive compensation accruals and technology project costs.
• Q4 2026 Tax Rate: Expected to be between 21% and 22%, up from Q3's 18.7%.
• Q4 2026 Net Interest Margin (NIM): Expected to remain relatively flat compared to Q3's 3.10% core margin, with an overall expectation of stability (within +/- 1-2 basis points) rather than expansion.
• Purchase Accounting Accretion: Projected at approximately $23 million for Q4 2026, $75 million for FY2027, and $62 million for FY2028.
• FY2027 Earnings Impact: The Eldorado Savings Bank acquisition is expected to be modestly accretive to earnings in 2027.
• FY2027 Loan Growth: Gross production levels in Q4 2026 are expected to moderate from record Q3 levels ($3.1 billion) to align with H1 2026 averages, with net loan growth expected to reflect Q1-Q2 2026 trends rather than Q3's exceptional pace.

Business-Segment Outlook:

• Retail/CNA Growth: Expect continued 10-12% annualized loan growth driven by Commercial & Industrial (C&I) and CNI loans, which carry higher yields than other categories.
• Fee Income (Fund Services): Projected strong growth in the coming year, specifically in ETF servicing capabilities and large-mandate wins; pipeline described as "very strong" and "robust."
• Fee Income (Corporate Trust): Maintains #2 ranking for municipal trustees (deal count) in the U.S.; expects to capture larger mandates ($200M+) as large banks de-prioritize mid-market deals.
• Private Wealth: Net new assets totaled $1.2 billion YTD as of Sept 2026, matching full-year 2025 levels; expects continued momentum.
• Eldorado Integration: Transaction expected to close Q1 2027; will add 35 branches (total network ~227) and $2.1 billion in deposits (reducing total cost of deposits by ~4 bps); no immediate plan to alter loan-to-deposit ratio to limit organic growth.
• AI Implementation: Glean AI tool rolled out to ~1,000 associates; currently generating 550 use cases; expected to drive "hard dollar top savings" and productivity improvements over time, though specific dollar impact timing is not yet quantified.

Market and Competitive Outlook:

• Deposit Pricing Dynamics: Expect ~90% beta on hard-index deposits and 65-70% beta on soft-index deposits during the rate cycle; DDAs and "backbone" deposits remain stable due to low pressure.
• Loan Yields: Driven by $3B+ of loans repricing at 5.25% and $2.5B of securities repricing; new money yields approaching 5.60%.
• Market Share: Primary growth strategy in existing markets is organic penetration (taking share from competitors) rather than new market creation; plans to leverage California entry (post-Eldorado) for significant expansion in a top-5 economy market.
• Credit Quality: Maintaining exceptional standards; no expected change in underwriting discipline despite higher rates; "pessimistic" mindset applied to all credit reviews.

Macro / Industry Outlook:

• Interest Rate Cycle: Balance sheet is interest rate neutral (~55% variable earning assets, ~52% indexed deposits); NIM trajectory sensitive to timing of FOMC moves (Oct vs. Dec).
• Economic Environment: Acknowledges backdrop of persistent inflation, Middle East conflict, and higher rates as general conversation topics but does not expect these to materially alter near-term loan growth or credit quality.
• Seasonality: Q3 historically the low point for non-interest-bearing deposits (DDAs); expects Q4 DDA growth to follow historical seasonal patterns.
• Regulatory: Loan-to-deposit ratio currently 69%; no expectation of breaching the 75% threshold to force deposit pricing hikes or loan growth slowdowns; comfortably manages fluctuations between 65-74%.

Strategic Initiatives:

• Eldorado Savings Bank Acquisition: Closing Q1 2027; structured as cash/stock; provides liquidity for loan growth and cost synergies; deepens footprint in Sacramento, Sierra Nevada, Lake Tahoe, and Reno.
• California Expansion: Leveraging Eldorado to extend corporate and commercial banking into the Sacramento Valley and Fresno; view California as a nascent market with significant runway.
• M&A Strategy: Continuing to seek "tuck-in" acquisitions that are retail-focused with high-quality, low-cost deposits; no intention to acquire institutions that would require giving up board seats or diluting capital significantly.
• Capital Deployment: Prioritizing organic growth first; expecting 15-20 bps dilution to CET1 upon Eldorado close (Q1 2027), but capital levels to recover to pre-deal levels shortly thereafter via organic generation.
• Technology: Aggressive deployment of AI across credit administration, fraud detection, and back-office; focused on augmenting staff rather than headcount reduction.

Risks and Headwinds to Outlook:

• Payoff Uncertainty: Prepayment and payoff levels remain difficult to predict and will impact net loan growth calculations.
• Rate Timing Sensitivity: Q4 NIM could fluctuate slightly based on the timing of FOMC decisions and the lag in loan yield repricing versus immediate deposit repricing.
• Regulatory Approvals: Eldorado transaction subject to shareholder and regulatory approval.
• Economic Uncertainty: Management acknowledges "gravity" (what goes up comes down) and remains cautious about the broader economy, though customer sentiment is currently described as "cautiously optimistic."

Management Tone on the Future:

• Confidence: High confidence in the organic growth engine ("uninterrupted track record"), credit quality, and fee business momentum.
• Strategic Focus: Emphasizes "control" in M&A (retaining boardroom/culture control); views current deal flow as "additive" and "beautiful."
• Tone: Optimistic but disciplined; explicitly states "zero expectation" of loan-to-deposit ratio constraints hindering growth; confident in the "mix" of the balance sheet improving yields over the cycle.
• Hedges: Notes that run-rate loan production may "reset" from record Q3 levels; acknowledges the "ish" nature of NIM guidance (variance possible).

Miscellaneous:

• CET1 Ratio: Currently 11.50% (up 5 bps QoQ); expected to remain north of this level post-Eldorado deal via organic generation.
• NDFI Clarification: Net Derivative Financial Intermediaries (NDFI) activity is largely a reclassification of existing client activity rather than new trend-driven growth.
• Cost of Deposits: Eldorado's cost of deposits (88 bps) is significantly below the industry average and expected to remain low despite integration.