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

Hello, everyone. Thank you for joining us and welcome to UMB Financial's third quarter 2026 Financial Results Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Kay Gregory, Investor Relations. Please go ahead. Good morning and welcome to our third quarter 2026 call. Along with our quarterly results, we announced an acquisition to acquire Eldorado Savings Bank, headquartered in California. You will note that we've posted two presentations to our website, our typical quarterly review, and an overview of the announced acquisition. Mariner Kemper, Chairman and CEO, and Ram Shankar, CFO, will provide brief comments about the transaction and our results, and then we'll open the call for questions. 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 as well as other opportunities management proceeds actual results may differ and are subject to assumptions and risks these risks are outlined in our FCC filings and summarized in our presentation on slide 48 now I'll turn the call over to Mariner Kemper Thank You Kay and good morning everyone I'm very excited to report both our strong third quarter results and the acquisition of Placerville, California-based Eldorado Savings Bank. In recent quarters, we've discussed our desire to build scale in our retail franchise by screening for well-run banks in markets where we already operate. Part of our ongoing strategy is to selectively augment our organic growth engine with tuck-in acquisitions that meet our criteria, A granular, low-cost retail deposit base, low loan-to-deposit ratio, quality credit metrics, and a similar culture. Eldorado fits that description very well, strengthening our physical and brand presence on the West Coast with 35 branches across the Sacramento metro area, the Sierra Nevada foothills, in the Lake Tahoe community, and in the Reno area. The acquisition will launch us into some of the most desirable markets in both California and Nevada and will deepen our foothold in areas adjacent to our current branch network. El Dorado is ranked as the number one community bank in three markets, including the vibrant and fast-growing Lake Tahoe area, and within the top 10 in six additional markets. Our total branch talent will grow to 227 across the footprint, an increase of 18%. And with the addition of El Dorado's $2.1 billion in deposits, our consumer franchise will represent approximately 26% of our total deposit base. At just 88 basis points, El Dorada's total cost of deposits in the third quarter ranks among the lowest nationwide. Additional attractive characteristics of this franchise include an 89% insured ratio, $60 million in average deposits per branch, and an average deposit account age of 14 years. excluding CDs. And with this highly liquid balance sheet and a loan-to-deposit ratio of just 24%, we see significant potential value as we deploy the excess liquidity. We will also be acquiring approximately $500 million in loans, predominantly made up of consumer mortgages, with a 39% loan- to-value and an average loan size of $138,000. Both banks share a culture focused on providing high-quality customer service, a strong associate experience, and support the communities we serve. We expect the transaction to close in the first quarter of 2027, subject to the approval of Eldorado shareholders and customary regulatory approvals. Ron will provide a few additional details about the transaction shortly. Now, turning to a few brief comments on the third quarter, we reported net income of $272.3 million, which resulted in earnings per share of $3.56. balance sheet and fee income growth, strong asset quality metrics, and stable net interest margin contributed to an operating return on tangible common equity of 19.5% for the quarter. A few highlights from the quarter include record top-line loan production of $3.1 billion, driving $1.1 trillion, or 11.1%, linked quarter annualized growth in average loan balances. We maintained exceptional credit quality with just 13 basis points in net charge-off and an improved non-performing loan ratio of 28 basis points compared to 31 basis points from the second quarter. For comparison, the industry-wide NPL ratio for banks reported so far this quarter was a median of 53 basis points. We had continued growth and momentum in our fee businesses. Total fee income from our institutional banking business increased 3.2% from lean quarter and nearly 18% year-to-date. Specifically, fund services contributions to trusts and securities processing income grew 8.8% compared to the second quarter and more than 22% year to date. And corporate trusts posted a nearly 19% year today increase. Additionally, Corporate Trust recently advanced in the league tables, now ranking as the number two municipal trustee in the country based on deal count. In fund services, we announced a continued expansion of ETF servicing capabilities, broadening our focus on supporting a variety of asset classes. Private wealth teams have brought in $1.2 billion in net new assets September year-to-date, already matching full-year 2025 levels. Finally, our year-to-day results have produced positive operating leverage of 11.5%. As I noted, we had extraordinary loan production in the third quarter. While we still expect a strong fourth quarter, gross production levels are likely to moderate from these record levels to be more in line with the first half of the year. On the capital front, on September 15th, we redeemed $150 million of our subordinated debt. Our quarter end to ET1 ratio rose by five basis points from June to $11.50. Organic growth remains our top capital priority, given our long, uninterrupted track record of outperformance in growing loan balances. At the same time, we've also demonstrated our ability to evaluate and integrate acquisitions that support our organic growth, as evidenced by our successful integration of HGLF. Now, I'll turn it over to Ram for more detail. Thanks, Mariner. The third quarter included $33.1 million in net interest income from purchase accounting adjustments, $9 million of which was related to accelerated accretion from early payoffs of acquired HDLF loans. The benefit to net interest margin from total accretions was approximately 22 basis points. Slide 10 of our third quarter deck shows projected contractual accretation, which is estimated at approximately $23 million for the fourth quarter, $75 million for 2027, and $62 million in 2028. Non-interest income for the quarter was $232.4 million, a decrease of $13.1 million from the second quarter. Drivers included a $16.1 million reduction in gains on investment securities following an exceptionally strong second quarter and a $7 million decline in company-owned life insurance income. Excluding the impact of investment security gains mark-to-market on Coley and the $1.8 million one-time gain on the sale of the building, we saw a sequential increase of $8.2 million, or 3.9% in fee income, largely driven by a $5.7 million increase in trust and securities processing income, along with other smaller positive variances outlined on slide 17. Adjusting for those items, our run rate fee income for the third quarter was approximately $218 million. Non-interest expense was $399.5 million, virtually flat from the prior quarter. As outlined on slide 18, the $5.9 million in dollar decrease in salary and benefits expense was largely offset by increases related to timing of laptop purchases within supplies and services, timing of marketing spend related to deposit campaigns higher occupancy costs coming from redundant service providers along with a non-recurring oreo loss of 1.5 million professional services included expenses related to our investment in ai and digital asset offerings we've selected glean as the tool to help our business teams with day-to-day workflows and processes glean has been rolled out to nearly 1 thousand associates who collectively have used the tool to prompt over 53 000 work actions the work has generated more than 550 use cases today from both customer facing and back office departments these range from training credit administration and portfolio management board and management reporting and others business cases are being prioritized to achieve hard dollar top savings process improvements and overall improved productivity looking ahead we would expect fourth quarter operating expense to range between 400 and 405 million largely reflecting incentive compensation accruals related to company performance as well as technology project costs turning to the balance sheet the 11.1 annualized loan growth mariner mentioned was driven once again by nearly 22 annualized growth in average cni balances led by strong activity across the the footprint, led by St. Louis, Texas, and Utah. As Mariner mentioned, we posted extraordinary loan production of $3.1 billion in the third quarter. Loan yields continue to benefit from higher short-term interest rates and fixed asset repricing, as well as a mixed shift towards C&I categories. Customer sentiment remains strong, and our pipeline for the fourth quarter remains healthy. I will add the typical caveat that payoff levels remain hard to predict with certainty and will impact net growth levels. Average deposits, as shown on slide 45, increased 1.1% from the link quarter. Averaged DDA balances declined 6.1 percent from the second quarter, reflecting expected seasonal disbursements within the institutional banking business. Reported net interest margin for the third quarter was 3.32 percent, in line with the prior quarter. Excluding the 22 basis points contribution from purchase accounting adjustments, core margin was 3.10 percent increasing one basis point sequentially the primary link quarter drivers of corn included continued benefits from acid repricing and higher reinvestment rates within the lending and bond portfolios and the impact of changes in liquidity levels resulting in a favorable mix shift offset by a lower benefit from free funds due to dda seasonality and higher interest-bearing deposit costs. Our cost of interest-baring deposits increased nearly four basis points, reflecting the partial impact of the FOMC rate hike in September and a, to a lesser extent, mixed shift within deposit categories. Our balance sheet remains generally interest rate neutral, with approximately 55% of our $66 billion of earning assets considered to be variable and generally indexed to one-month SOFR rates, while approximately 52% of our $58 billion deposit book is indexed for short-term interest rates. The trajectory of margin in any particular quarter may be impacted by the timing of both FOMC rate hikes and how one- month SOFR prices in anticipation of those actions and the mix of new loans and deposits. As shown on slide 26, the index deposits will reprice immediately in response to FOMC action, while loan yields reset with a slight lag on the contractual recut dates. Relative to the third quarter core margin of 3.10%, we expect fourth quarter margin to be relatively flat. Finally, our effective tax rate for the third corner was 18.7% compared to 20.8% in the second quarter. The decrease was primarily driven by a discrete tax benefit from the release of valuation allowances related to certain state deferred tax assets. For the fourth quarter, our tax rate is expected to be between 21% and 22%. Turning to the financial metrics of the El Dorado Savings Bank acquisition, transaction assumptions are on slide eight of the acquisition deck. With $2.1 billion in high quality core consumer deposits and $500 million in loans, we view this acquisition as akin to a branch transaction. The purchase price consideration of approximately $500 million will be structured as a cash stock transaction. UMB will issue 1.8 million shares to Eldorado shareholders based on a fixed exchange ratio of 13.553 times UMB shares for each share of Eldorado. This transaction will provide an opportunity for customary cost synergies coupled with additional liquidity to continue funding our extraordinary loan growth. We expect the transaction to be modestly accretive to earnings in 2027. Now I'll turn it back over to the operator to begin the Q&A session. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 2 to raise the hand. Please press star 3 to raise hand 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Casey Hare with Autonomous Research. Your line is open. Please go ahead. Casey Hare, Autonomious Research, Your line is open, please go ahead Casey Hare. Good morning, everyone. Good morning. So, Ron, I wanted to touch on the NIM, the core NIM flat in the quarter. Just a little help on some of the drivers, number one, the new money loan yields versus that 609 and then just some updated thoughts on where cum uh cum beta can finish in this in this next up cycle versus the previous up cycle thanks yeah sure uh as we said you know we expect fourth quarter name to be consistent with where we were on a core basis so some of the drivers are the usual ones right fixed asset repricing so if you look at our deck we have more than three billion dollars of loans uh priced at five and a quarter that are going to reset about 100 basis points based on that. We also have $2.5 billion of securities that are going to reprice from $380 to, if you look at the report, we're getting close to $560 on new money yields. So that's consistently going to happen for us as we approach the rate cycle. The other drivers are just looking at loan yields, excluding PAA. That was up five basis points. That's a combination of, again, the fixed asset repricing and new money coming in. And obviously, one month so far, started moving well ahead of what the fed did in in september as well so that was a benefit and then on the flip side of the balance sheet uh it's also driven by what's happening with our index deposits so as i said in my prepared comments 52 percent of our deposits are indexed and so far we've done a pretty good job early on with the soft index in terms of how we negotiate those rates obviously as you know the hard index deposits are very formulaic and they reprice so generally i would say same thing as the down cycle we expect you know 90-ish percent beta on the hard index over time maybe 65 70 beta on the soft index and then the rest of the deposit book should be you know generally priced you know they're you know given rates are as high as they are there's not a lot of pressure on obviously ddas and the backbone so that's kind of the entire picture of margin drivers and the other thing that also happened the quarter last couple of orders is just a mix that I talked about. If you look at our loan growth, a lot of it was, almost all of it, was CNI loan growth which has a higher yield than any other loan category. And then when you look bonds and excess cash versus loans, we had a lot more of loans as a relative percentage of earning assets. And that stuff will reprice on the way up. Yeah, exactly. Okay, great. And just lastly on the deposit front, was there any Was there any pulling of off-balance sheet funds onto the balance sheet this quarter? And just, you know, thinking longer term, the loan growth is great. The deposits have lagged it. I know you guys are in a good position at 69% loan-to-deposit ratio. But, you Know, if these trends continue where loans, you know, significantly outpace deposits, at some point you get, you Are you going to bump up on that 75% loan-deposit ratio? Would that force you to slow down loan growth or push up deposit pricing? I'll take that. I think, unfortunately, if you've been listening to our calls, you know that we talk every year about a low point in the third quarter. So we have experienced a low part in the first quarter based on seasonality, basically. We fully expect to have happen in the fourth quarter, what always happens in the fourth quarter. And fully expect, if you look at our deck, over time, the way loan growth and deposit growth worked year over year for that to continue to happen. So we have zero expectation that what you just described is even remotely a scenario for us to encounter. So fourth quarter deposits will grow. both, we have a really nice line of sight and some really great corporate institutional deposit growth in the first quarter. And so that's not even a thing, I guess is what I'd tell you. Okay, thank you. Thanks, Casey. Your next question comes from the line of Jared Shaw with Barclays Capital. Your line is open. Please go ahead. Hey, everybody. Good morning. Morning. Thanks for the color on the trends going into the fourth quarter. Anything on fee income? You know, you've had really good success there. I mean, how should we think about the rate of growth coming off of core fees with some of those newer initiatives? Yeah, what I love about our remarks every quarter and year in and year out is that our strategy is working. So, the good news is what you have seen, you should continue to see. Our fund services team is on fire. The pipeline is very strong. With the addition of our ETF business, we expect the coming year to be very strong just in the ETF side alone. We've talked about how that business has changed over the last five or six years from, you know, having to rely on smaller, younger businesses to really being able to win large mandates from large existing clients and prospects. So there's not a piece of business we can't win, and we're talking to everybody, and we have a really deep, awesome pipeline. So we're very excited about that business. And as you heard in the prepared remark, our corporate trust business, we've just gone up to number two in the lead tables. And, you know, with offices on both coasts and throughout the country, we're picking up bigger mandates. You know, we talked about this before where now that we're on the coast, if you have a sewer and water deal in Illinois or Iowa, it could be a $300 million deal. If you have sewer and Water District in New Jersey, it can be a billion-dollar deal. So it's really changed the dynamic of the business over time. We also have been able to attract a lot of talent in that business, in both those businesses, but particularly in the corporate trust business as the larger banks take their eye off the ball and really aren't focused on smaller businesses. So a $100 million business for a large national bank is one they're not interested in. For us, we're pretty excited about a $200 million business. So we find ourselves picking up people who feel forgotten from some of these larger institutions. And so that's been really great. And then it's just kind of across the board from just there's nice, solid strength through the other businesses. And we talked about having a billion and a half in new asset growth in our wealth business, which is better than where we were full year last year. So just hitting on all strides. Teams are really doing well. The technology is leverageable. The teams are leverageable, but we couldn't be more jacked about our institutional and fee businesses. than we are right now great appreciate that color and then uh secondly you know looking at the the paydowns and payoffs um anything was there anything unusual uh in third quarter or just as you get bigger you know we think you know that's sort of a uh a good stable level um offset by the strong production yeah we've been trying to you know assess that ourselves whether it was unusual I think it just was a large quarter. You know, I think we are a bigger company, and just over time, the base should grow. We think that the third quarter was slightly larger than what the average should be going forward. But we do have a bigger base, so we're not totally sure ourselves. uh but um it's more likely to kind of reset to the last couple quarters uh then then it is to stay at 3.1 billion but but we we honestly don't know ourselves but we do have you know a bigger footprint with a lot of new people uh hitting stride uh we will know you know couple maybe another four quarters down the road what our new baseline is with heartland but right now we're kind of feel on our way through that. Great. Thanks. Thanks, Jared. Your next question comes from the line of John Arfstrom with RBC Capital Markets. Your line is open. Please go ahead. Hey, thanks. Good morning. Just following up on Jared's question on the loan production numbers. Obviously, very strong, better than the prior quarters. I understand you expect some moderation but anything that you would call out on that you know over three billion dollar production number no just just that you have just said it was a strong quarter and we think you know i explanation point i think that it's probably a little larger than uh what we should expect um you know probably resets a little bit more to a three-quarter average looking backwards uh but we don't really know this is jim ron much more cni driven uh it just is a takeaway we saw additional payoffs in real estate that we've expected and that it wasn't like we lost clients it just rolled to the secondary market on construction loans which is exactly how that business is supposed to work for us but uh we just we just had a lot of things book whether that was uh delayed from second quarter or pulled through uh from fourth quarter but uh we feel like our previous run rate is also very strong too so we think that will normalize back in as mayor said the first half of the year but nothing that stands out as a certain uh industry or segment that was leading the charge was very diversified across the board okay thank you very helpful um maybe mariner um eldorado i understand it's not a huge deal but i think it it makes sense and it's a good fit can you maybe talk about the medium term plans you might have in those markets other than taking the loan to deposit ratio up and then touch on just overall m a appetite that you might have sure yeah i'd love to take a moment on el dorado and i've i spent a lot of my time getting to know other bank CEOs that think about the customer and the associate the way we do across our footprint and got to know the cooks you know over the summer and late last year and we realized very quickly that we thought about the world the same way really care about our associates really care about communities and our customers and they have you know they're we're We're over 110 years old. They're a little over 50 years old, and, you know, multi-generations just like us, we really hit it off. And the near-term goals are to do no harm, right, like let them continue to do what they do so well in Sacramento and surrounding areas. And then, you Know, the other thing that's really neat is the Nevada part of that is newer. And what's happening with the flight from California into Nevada with a lot of the tech money that's been made and a lot of the wealth that's being made in California. We think that there's a really nice early day benefit that could have longer term really big upside surprise is the what's happened around Lake Tahoe. And if you look at the map we have there, They're quite a presence right around the lake there and up in through Reno. And there's quite a bit happening with movement from one state to another into better tax environments. And this bank has already benefited a lot from that. We think we can kind of double down on that. So I think that's going to be some really great early and long-term upside surprises what's happening in Nevada. And then as we take our corporate and commercial banking franchise and product set up from Fresno on into Sacramento Valley, we think, well, I'm excited that we have time. We don't really need to worry about it yet. I mean, we can kind of take our time to do that right, leverage our way into Sacramento with some hiring and that kind of thing, and maybe positioning of branches around the greater metro area. So we're very excited about that. But early on, it's just to leverage the franchise into the whole organization with those great deposits and the underlevered situation. We're very, very excited about it um and you can see that the branch footprint is very contiguous to the one we have i love the fact that it's a dense footprint i love the fact it increases our our overall you know branch network significantly and um you know uh the the low cost improves so i mean this deal will improve our interest bearing deposits by as a company by seven basis points and it'll uh take our total cost upon uh deposits down by uh four basis points it'll be uh accretive in in 27 and beyond and uh we're just uh you know it's just one brick at a time we're just uh this is a very additive beautiful deal that just fits right into who we are like a glove thank you thanks joe Your next question comes from the line of Janet Lee with TD Cowan. Your line is open. Please go ahead. Morning, Janet. Good morning. Morning. Maybe I missed it. Appreciate all the color around the betas for your different types of deposits. Did that include the Eldorado So $2 billion of low-cost deposits, could you maybe just put the pieces together and give your rough estimate around what the combined beta on your interest-bearing deposits could be this cycle? Maybe the mix or the growth of the deposits by category could shift versus what you have on your side 20 years going forward? Yeah. A couple of things, Janet. I mean, the $2 million, while it's significant, it's not going to materially change the numbers I gave you. The numbers I gave you are just core UMB. And one of the things I would say, Mariner said it, and it's in our deck, this quarter, their cost of deposits was 88 basis points. Last quarter was 93 basis points. So that's kind of bucking the trend of what's going on with, including us, the rest of the industry with their deposit costs. So I don't expect a whole lot of changes to the beta numbers that I gave earlier from El Dorado. Again, these are very granular core deposits. The average age of the client, excluding CDs, is about about 14 years. So, no material changes to those made-out numbers. And on the mix of future growth, Mariner said, you know, we have a strong pipeline of commercial and institutional deposits. Obviously, we're running deposit campaigns as well as, as you can see from our marketing spend. So it's multi-pronged. Okay. Got it. Thanks. And staying on that topic, so, you looks like you're still alluding to a slight liability sensitivity before turning as a sensitive. You've talked about core NIM being relatively stable in the fourth quarter. Should we expect a modest dip in core NIN and then NIM expansion in outer quarters or Or because of the fixed rate asset repricing, and you still have over 50% of your earning assets floating rate, could it be more of a stable to upward pattern? It's more of the latter, more of stable, because one month, obviously, we'll know today, unlikely that the Fed does anything today. So whenever one month SOFR starts repriced for that, we will see that benefit on a lag basis on the lending book. But as I said earlier, the fixed asset loans and bonds are happening on a daily basis organically. And then it's just what will happen to deposits, hard and soft index when the Fed does move, assuming that it does move in December. So I would say it's more expected to be stable. The sensitivity post-Hartland for any FOMC moves dramatically reduced. before Ardalan where we got a lot of consumer deposits our sensitivity was initially the first couple of quarters because of the deposits repricing faster than loans you would see a small dip in margin that sensitivity has been greatly reduced since then along with the remixing on the asset side more CNI yep so we're I think what are we 68 percent Yeah, we have a CLO book and some other CMO floaters that we have. So that's kind of the 58% of our earning assets are variable in nature as well. So I would, as I said in my prepared comments, I would say we are pretty interest rate neutral from a balance sheet perspective, and slide 26 demonstrates that. Great. Makes sense. Thank you. Thanks, Yana. Thank you. The next question comes from the line of Timur Brazier with UBS. Your line is open. Please go ahead. Morning, Timur. Hi, good morning. Morning, guys. Back on the M&A conversation, you guys have been very clear in the past just in regards to tailoring that you wouldn't do anything in advance of that $100 billion threshold getting lifted. I'm wondering with some momentum gaining there, how we should think about future deals. Obviously, the last two have been very retail focused, Eldorado's smaller. Is that still the primary focus, retail and then size becomes a little bit more fluid or just given the economics on the smaller transaction is the likelihood that we're going to continue seeing smaller tuck-in deals versus maybe something larger? Yeah, Timur, I will just repeat what I've been saying. really which is um you know our capital priorities are investing in the company through organic growth first and that works really well we've got it dialed in to the extent that we can through uh networking and staying in touch with the the overall banking community run into opportunities that we would define as tuck in uh we will certainly review those and see if they're the the right strategic and financial fit for us, particularly as they relate to in-market places where we want to be more meaningful, get a more meaningful presence wherever we already are. So that's similar, same story. I use the definition of tuck-in, and I would say how I define tuck-ins is where we retain small enough that we retain control in every way you could define that. Control the boardroom, control the culture, control the staff, the team, the leadership. So control in every way that you can define it is how I would define what a tuck-in looks like. And then as it relates to retail or otherwise, it's really more about making sure that we're adding value. And a bank, traditional bank deal for us is about a quality core deposit franchise that's under you know that's not fully levered up we don't need somebody else's lending prowess we've got a lending juggernaut as a machine we know how to do that on our own we don't needs somebody else is we don t pick up somebody else s problems so it's really more about the deposits and that kind of by debt by default translates into something more largely retail based it also three more retail basis worth granular so smaller lower cost average deposit size which is also attractive so that's that's what I would would say about all that and you know again it's not something we have to do but strategically I think any bank should be looking at all their options and if you find high quality institutions that can make your company more valuable over time every company should look at those place. Makes sense. Thanks for that. And then maybe just on the sustainability of the cost of deposits from Eldorado, clearly very low, but also very little in terms of loan to deposit, you know, those deposits being lent out. Is there a level of confidence that the incremental cost of deposits at Eldorada is going to stay well below the broader base? Or once you start maybe leaning on some of those deposits to actually fund growth in some of those markets, the cost there is going to be of greater equivalence to kind of where legacy UNB is. We are not expecting any change at all in that other than just traditional market pressures that may exist already today. So no. I think we may mix into to that footprint, some small business, middle market, and commercial deposits over time, which I suppose over time would bring up the average cost of the deposits in the market area. But what's there today and expanding and building on the retail base there, and building a few more branches, et cetera, I think all that should stay just right in line with what we see today. Your next question comes from the line of Brian Wilczynski with Morgan Stanley. Your line is open. Please go ahead. Hi, good morning. Thank you for taking my questions. I wanted to ask about the noninterest-bearing deposits. You've highlighted that 3Q is typically the seasonal low for UMB. You typically see some nice growth in the average balance in the fourth quarter. To what degree does higher rates weigh on non-interest-bearing growth, and should we be expecting a smaller increase in NIB in the 4th quarter? We've talked about we have a lot of episodic ups and downs. averages are more important than you know end of period uh third you know the second third quarter is is traditionally a low point for us in general i was looking at the other day i was looking at our uh previous year second to third quarter and actually this year is better uh than the previous year as far as the dda decline so there's nothing under under the chip related to a higher rate environment is causing that these are operating dollars you know so that's the important point is um the ddas that are really on our balance sheet are operating dollars they're not hot money for the most part and so to the extent that businesses are operating as they normally would they're going to need operating dollars so the stuff that we have off balance sheets already off balance sheet you know what i mean excess dollars are already wherever they're going to be so what you see from a dda perspective is general operating money and it's just a seasonally low point for for uh for us in the third quarter we expected to build as it always does again looking back historically for us we expect similar trends to build back up dda balances in the fourth quarter got it appreciate that and then going back to the loan production that you saw in the third quarter. Can you talk a little bit more about where specifically UMB is gaining incremental market share right now and also how? I'm wondering what some of the key factors are. Is it speed to close? Are you being more flexible on pricing? What's driving that incremental market share for UMB right now? Thanks. Brian, are you asking us to give our secret sauce on this call to everybody and all our competitors. Just kidding. But I guess the thing I'd say is for us, what I would do is I'd just point you to, you know, 22 years of double-digit loan growth every quarter, quarter in and out. And without giving you all the level competitive details to how we win, I would just say that we do a bottoms-up budgeting process that is not dependent on some multiple GDP. And so we look at the officer capability, capacity, tenure, and pipeline, and couple that with what is our penetration in both a geographic market as well as the vertical markets across our footprint. And the runway for that for us by ring-sensing and keeping our talent is kind of unending. We can't see the end of the runway for us to continue to outperform just by keeping our people and executing in the market share gains and making sure that we build over time capacity by bringing people up under our team members so that they can be released to do more work. So there's nothing real special to it. And I guess we hail from the show-me state, and I would say that the proof's in the pudding. You can kind of see it in our results. We do it quarter in and quarter out, and I would says that we don't see any reason why we can't keep doing it. And you want to add to that, Jim? I would just add to that, Brian, that while we're not giving away our secret sauce, as Mariner said, which I love, we talk about being flexible, nimble, and responsive in commercial banking. The flexibility is we might be flexible on terms or a covenant or what have you, but we are not flexible on credit quality. That's the underlying ingredient, if you will, that has remained true for the history of the company. Our process allows us to be more responsive the way we go to market and the way мы have regional credit officers in each market along with local leadership. So we were able to turn things around more quickly. And by having experienced bankers, you add more value when you're sitting in front of a client. But at the end of the day, it all starts with our people and calling on the right types of companies that when we do have success or awarded the business, that it shows up in a meaningful way. And that's been repeatable, again, for the last 20 plus years. So if you're wondering how we continue to do it, it's not by being the cheapest or giving the house away on various covenants. Credit quality remains at the core. And given that El Dorado is based in California, I mean, California only makes up about 3% of your loans today. Is it fair to say that's sort of where the new incremental opportunity is? Does that open up a lot for UMB? I mean, California for us, you know, after Heartland, we've got a whole – we have a litany of opportunities for significant expansion. California is one of them with a, you Know, fourth or fifth largest economy, depending on how you measure it. You know, we got Twin Cities. We have Utah. We have Texas. All these are nascent, young markets for us with great people on the ground in California. You know, we've got Alice Leany is our new president out there, and we're very excited about what he brings to the table. And so California is one of the opportunities, but it's one of many. Brian, I really appreciate it. Great. Mariner mentioned it, but in our existing markets, there's runway. and the major we have two major metros that were number one in market share so market penetration is the core to how we plan on continuing to grow and what that means is we take we take other banks clients in those markets it's not dependent upon a growing economy or gdp it's taking its market penetration and that continues to be the number one focus on how we grow the company lending wise Got it. Really appreciate all that detail, and thank you for taking my questions. Thanks, Brad. Your next question comes from the line of Brandon Rudd with Stevens. Your line is open. Please go ahead. Good morning. Thanks for taking my question. So most of them have been answered. If I could just maybe ask one more modeling question. Can you give us some guidelines or guideposts for the capital impact of El Dorado, whether it's TBV dilution or CT1? It'll be about 15 to 20 basis points diluted to CT1 and close, but given the pace of our capital generation between now and close will be right back where we are. I mean, we're at 11.5% CT1, for instance, at 9.30 and we'll be north of that post deal as well. So it's not material from that standpoint. Okay. Perfect. Thanks for taking my question. Thanks, Brendan. Your next question comes from the line of Brendan Nossal with HubV Group. Your line is open. Please go ahead. Hey, good morning, folks. Just one for me. I wanted to approach the earlier long-term deposit question from more of the opportunity side as opposed to the risk side. So if I look back over the past year or two, richer balance sheet, right? More loans plus cash, a more utilized loan-to-deposit ratio. Just wondering how much further you're either able to or willing to push balance sheet capacity, given that you clearly still have more headroom versus your typical bank. You know, Brent, I think if you're implying you think that our loan and deposit ratio is creeping on us to a point where that ends up starting to look different, is that what you're alluding to? I'm more coming from the angle of you have a richer, more profitable balance sheet than you've had a year or two ago, just given the richer mix, and how much more willing are you able to let that run to drive a continued richer mix and more of an opportunity as opposed to a risk? I'm not sure I understand the question. Yeah, you're talking about cash. I mean, we had excess cash because of the buildup during COVID and all that, right? So we're comfortable where cash is from the current standpoint. And as we've said, you know, our loan deposit ratio is 69 percent right now. You know, if you look at the highest point, we've been at 74 of 75. And so, you know, that's, you know—we're not doing that intentionally in the sense that we're not taking our loan-to-deposit ratio higher. As Mariner said, both sides of the balance sheet, we see a lot of opportunities from the pipeline perspective. Yeah, I guess I would—so, now that I thought that's what you were asking. So, if we were to look at page 40 in our deck, that is the way to think about the business and we fully expect to keep doing what we've been doing by having the deposits continue to keep pace with loan growth through all the different activities but one of the beauties of our company is all the different sources of deposit growth that we have and the strength of our institutional businesses and our wealth business our private banking business and our small business operation if you look at the middle bar there our loan and deposit ratio uh no matter what has happened through there you know it's it's bumped around between you know 68 to 65. uh you know any one quarter maybe it bumps up a little over 70 maybe and uh we uh are happy to be at a higher level if that happens but we fully expect to fund our business with our deposits uh so the real the real um value of a banking franchise is in their And if we ever felt like we were having to buy money to fund our loan growth, we would feel like we lost our strategic footing. And so we're very focused on being able to, over time, keep deposit growth pace with our loan growth. And we think we can do that. We've done it. If you look at, again, page 40, you can see what we do year in and year out. No reason I can see that we wouldn't be able to continue to do that on a go-forward basis. Yes, perfect. Thanks for taking my question. Thanks, Brendan. Your next question comes from the line of Nathan Race with Piper Sandler. Your line is open. Please go ahead. Yeah. Hi, guys. Good morning. Thanks for taking the questions. Morning. Mariner, you alluded to a bit earlier on the fund services growth in the quarter, But it seems like it's one of the strongest sequential growth that we've seen within fund services over the past several quarters and revenues in that line of 22% year-to-date over last year. So just curious if you can just kind of unpack if there were any kind of unique client wins and just generally is kind of the rate of growth that you've seen year- to-date and over the second quarter kind of sustainable within that line going forward? Yeah, you know, the business is really just hitting its stride. I think it just gets better from here. The pipeline is very robust. The client sizes are bigger. The opportunities are larger, deeper, broader. I think the business just kind of hitting its maturity and its ability to really compete across all the asset classes and the asset types. And I just think it gets better from here. And there's no particular account I would point to that's looking backwards that is part of that nice growth, 22% growth. I'd say it's broad. You know, we talked a little bit about a few things that are driving it, i.e. the platforms platforms for democratizing, you know, investing, the guys that are making available alternative investments to a broader base of clientele, those platforms that we were partnering with at the very beginning of that, you Know, we just benefit from their growth. The ETF business, it's early days. We're just launching that, but we already have, we already had line of sight into the clients that are going to come into that. why we launched it and that also ties into my comments about some of the visibility of deposit growth in the first quarter uh so yeah i mean it's um we're just got a great team a great product set and uh they're just uh hitting stride oh and i would also add that the custody side of the business doesn't totally custody side the business business doesn t totally depend on on just the fund services business anymore. We're fully selling that across all verticals, you know, insurance, government, corporate, and having a lot of success there as well. Got it. That's helpful. Just one more for me on operating leverage and kind of the expectations there around expense growth. You know, historically, you know expenses have been growing, know six seven percent you know absent the uh hlf acquisition from last year um but just curious just give us some opportunities to maybe become more efficient with ai and uh back office areas you guys may be thinking that operating leverage can accelerate into next year and perhaps 28 you know notwithstanding the acquisition impact and just if you can comment kind of what um opportunities you're seeing is just streamline operations with some of the technology out there these days? Yeah, I mean, I don't want to go down a rabbit hole here on that. Rom had some comments in his prepared remarks about that. I think you should hear more from all of us about that over time. We absolutely think as a company, we will become more efficient as we deploy AI into things like credit administration, fraud detection, all those kinds of things across the organization, which we are currently deploying. It's too early to give you the actual impact, but all those projects are underway across the whole company. It's just the latest iteration of the technology evolution. Companies sure as heck better be deploying all this everywhere they can. One of the things we want to do, being a financial institution where large companies depend on us day in and day out, is we want make sure we're doing it judiciously and carefully so that we're not, while we're making ourselves better, we don't, you know, increase risk at the same time. So we're taking our time to do it right and put all the governance in place along the way on the front end. We have over 1,000 associates now using Glean, and we're seeing all sorts of benefit on a daily basis as we measure how that's being used. So, again, part of that is, like, let's make sure we measure how that's being used, how people are using it, how the tokens are being used. Do it very judiciously. But I would tell you we're using it everywhere. Plan to deploy it everywhere and in every way to make ourselves more efficient. Take tasks, repeatable tasks out of human hands. Take friction out. Take human error, you know, reduce human error. and, to me, more importantly than all this, is allow our people to do more as opposed to focusing on reducing staffing levels. It's allowing our great people to be able to do better. It's helping our people do more. So I'm very excited about the way we're using AI. I think it's a great benefit, and it's just kind of next-gen tech in my mind, the way I think about it. Do you guys want to add anything to that? I think you covered it. I think he covered it well. There are lots of small wins. there are some there have been some bigger wins especially in the fraud area and uh look forward to that continuing it's okay great i appreciate the color thanks everyone thanks your next question comes from the line of terry mcavoy with wells fargo your line is open please go ahead thanks um good morning just just one question for me the um ndfi loans represented about call it 35 of the net loan growth last quarter and i'm just comparing the presentations q2 q3 um so my question is what what ndfe verticals were behind the 400 million dollar increase and how sustainable is that is that growth um yeah thanks for that question i you You know, there's nothing really to – we looked at that and thought, you know, is there something that stands out here? And I would say that nothing really stands out in there. It's kind of broad-based. You know? We have this big fund services business, so there's some subscription lines in there. Most of it would be – we studied it – is just current customers using their lines and borrowing money. So that's really kind of what happened in the quarter for the most part. It wasn't actually growth in client level for the most part. It was more using the debt, the existing debt with existing clients. I would just say, you know, while it does show up as part of our loan growth in the quarter, I would remind you that from my vantage point, NDFI really is just a reclass. Most of these clients have been doing business with us for 20-plus years. just as a general reminder for everybody, NDFI was just a reclass done by the government so they could have a better vantage point into how banks in general were lending to other companies who did similar things to us and so it wasn't supposed to capture a new trend, it was really more of a reclassification so I just want to remind you of that so for us that's all it was There really is no NDFA growth on our balance sheet. It's just a classification of things we've been doing forever. So nothing really to note. Customers using their lines and expanding their businesses and such. Great. Thanks for the edit, caller. Yep. your next question comes from the line of david feaster with raymond james your line is open please go ahead hi good morning everybody um i wanted to start just following up on on the credit side obviously you know you guys are very disciplined on credit you got a strong track record you know your credit metrics are really good but as as you dig into the the portfolio Julio, as you talk to your clients, is there anything that you're watching a bit more closely or proactively maybe managing out or throttling back on? And just as you stress the book from higher rates, is there anything that you are maybe watching a bit more closely? Great question, David. I guess how I'd answer that is we're all trained pessimists. So, yeah, Tom, Jim, and myself, who are all in this room together, have been doing business together and approving loans together for you know 30 plus years together and you know we've seen just about everything and we like to think we're getting smarter as we go through all the things we've been through and um you know, we believe in gravity as a company and we believe what goes up comes down. Uh we're always worried uh so um and and I would just say that uh the way we we we underwrite every credit we underwrite is if it's going to go bad and how we're going to get our honey back. So, you know, we don't worry unusually about our own portfolio. I mean, if you're asking comments about the economy, I could spend the next 30 minutes talking to you about how I'm worried about the academy. But that's why we take such good care of our own credit portfolio. So you know we've gone from 2004 2 billion in loans and 22 basis points to charge off to $42 billion in loans today and 13 basis of charge off. So, you know, we like to think we get the bumps and the bruises make us smarter and keep us out of trouble. You know, one of the things we do really well is we identify challenges and potential challenges on our watch list. And so the top category of our watchlist, the fives can look like an EKG or the Rocky Mountains because we're quick to put stuff on there. But what you'll notice is the very bottom line, the charge-off line on our chart that we would produce is zero. So we have next to zero charge-offs because we are quick to take action, quick to identify problems, and quick to manage things. So I guess this is something I'm most proud of and care about the most. And, you know, we worry a lot about credit, and that's why we have such a clean book. Okay, that's awesome. And then maybe just going up on El Dorado. Your bigger question, I'll just say your bigger question about the client base. They're basically all talking about the economy. They're concerned about it, but they're still cautiously optimistic. We're not hearing a lot of deep concern from our customer base. That's encouraging. And maybe just following up on Eldorado, I mean, look, obviously you're getting a ton of excess liquidity, a great core deposit base. How do you think about, you know, as you close, I mean, there's going to be some opportunities to maybe reinvest those or reposition the book, or how do you thinking about using that excess liquidity and maybe as you think about managing, you now, your rate sensitivity? Well, I mean, how we plan on using that liquidity is, you know, we want to help our customers build their lives and borrow money from us to do so. And we're excited to be able to deploy that with our customers, both in California and elsewhere. We'd love to put it to work right there in those communities. But we're, you Know, we're exciting to do that. And I mean, as far as, I guess, the investment book, if you were asking about that, Ron can take that. Yeah, so they have $1.4 billion of high-quality mortgage-backed securities primarily. So as part of the acquisition, as you know, David, we left the market. So they'll come to current yields, current mortgage yields, call it five and a quarter or even higher than that. So that's a pretty good book in line with what we would buy from a pre-purchase analysis and everything my treasury team does here. So that'S a pretty quality book. and then we'll use the existing cash flows both from our existing bond portfolio and new deposit growth to continue to fund our organic growth strategy. Terrific. Thanks, everybody. Thanks, David. Your next question comes from the line of Ben Gerlinger with Citi. Your line is open. Please go ahead. Hi, Rob. Over the past four quarters, You've given a guide of NIM being flat-ish, and it's been in the ish, but it's always had an upward bias. I was kind of thinking, like, when you look at over the past year, what has outperformed when you kind of give that forward NIM to being better than flat? So the one basis point score NIMS, I would say if I had to pick one, it was probably the mix of assets within the loan book in favor of CNI and then less cash, you know, cash makes $3.88 today. If I take the same funds and make a new loan at $6.25, that helps at the margin what the loan yields are doing. That's why we have a five basis points increase in our core loan yields. I think that's a big part of the remixing and then everything else, right, remixing within the fixed asset repricing that we talked about within the bond portfolio and loan portfolio again they asked me with the amount of deposit moves and lending that we do it's always hard to predict margin but you know i feel pretty good that we got to within a basis point of what it was last quarter and uh you know if i outperform in the fourth quarter it's because we have more deposit growth coming in uh the other it could be off plus or minus a couple of basis points so pretty pretty good about you know margin guidance overall so other than that i can't think of anything obviously the timing of as i said in my prepared comments the timing of when the fomc might do something uh october versus december would impact that as well gotcha no that's helpful and then mariner you sounded open to doing some deals and you kind of gave some some guide of like boardroom composition and culture and things like that but in theory like you could have a pretty wide range in terms of assets is there a ceiling i mean considering if you're looking at just boardroom itself like you could in theory do something like 25 billion i don't want to put words in your mouth but it seems like you're open to doing deals with a bias towards the smaller end but you're agnostic on size is that a fair way to frame it uh no i wouldn't say we're agnotic on size um uh a couple things that are of note um we're approaching 100 billion and we need to make sure we're ready for that and um we would not because we're not ready today while we have a plan we're not ready to date we would now do a deal that would put us on top of that number um so that's important for you to know when you think of those numbers you're throwing around and then um the other part about board competition the idea of what i was trying to get out there was that i like my board and and it's and i don't need somebody else's board so to the extent that i have to do a deal that's of a size where i'm giving up board seats we don't need to do that so that that was what i that was was intended to help you with sizing is typically um when you're giving up a percentage of your company of any meaningful size you're giving up board seats so that that was what i was uh where i'm trying to take that is that yeah absolutely yeah i appreciate it thank you yeah thanks man the last question comes from the line of anthony a lion with jp morgan your line is open please go ahead great thank you on loans you saw another quarter of really strong net growth i know you mentioned in the prepared remarks that production is likely to moderate here in 4Q, but how should we think about net loan growth in 4 Q also in light of the macro headwinds you call out in the press release? Oh, we didn't intend to call out any macro head winds in the first place we did. I think the loan growth, what we try to do is give a kind of a look at the next 90 days. That's about as much as we normally do. what I was trying to guide toward for fourth quarter was a loan growth rate that looks more like the last, the third quarter and the second quarter, or sorry, the second quarter and first quarter than the third. Does that make sense? Okay. And I guess the comments I was referring to is where you mentioned persistent inflation, the Middle East conflict, higher rates, et cetera. But I hear your message. My follow-up on Eldorado. Go ahead, Mariner. Oh, yeah. I think those were just backdrop conversations. They were not intended to guide you towards loan growth. So, we're clear. That's clear. My follow-up on Eldorado, you're picking up over $2 billion of low-cost deposits, and it looks like a small enough deal for UMB. Over the near term, is additional M&A off the table as you work to close and integrate Eldorado? Thank you. No, that's a great question. Absolutely not. It's a small enough deal. Our team has got really good muscle memory. The government is in a place where they're very helpful in kind of moving things along. We're looking at this more like a branch deal, not a heavy lift. I know all my people are looking at me thinking they're going to get yelling at me because they're not going to be doing the work, But it's a short, a long story long, no, it shouldn't keep us from doing more M&As if the right deal came along. That's clear. Thank you. Yeah, thank you. We have reached the end of the Q&A session. I will now turn the call back to Monique for closing remarks. I guess I jumped the gun. Thanks, everybody. We're really thrilled about our quarter and about joining up with the Cook family in California and all the great things we're going to do. So thanks for the time and the support. We'll talk to you soon. Thanks, Merrick. And if you have questions, you can always reach us at 816-860-7106. Thanks and have a great day. This concludes today's call. Thank you for attending. You may now disconnect.