UMB Financial 2nd Quarter 2026 Financial Results Conference Call

Hello, and thank you for standing by. My name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the UMB Financial Second Quarter 2026 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. I would now like to turn the call over to Kay Gregory with Investor Relations. Please go ahead.

Good morning and welcome to our second quarter 2026 call. Mariner Kemper, Chairman and CEO, and Ron Jonker, CFO, will share a few comments about our results, and then we'll open the call for questions from equity research analysts. Jim Ryan, President of the Holding Company and CEO of UMV Bank, along with Tom Carey, 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 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 48. 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.

Thank you, Kay, and good morning, everyone. Yesterday afternoon, we reported second quarter net income of $271.8 million, resulting in earnings per share of $3.56. Our strong results generated an operating return on tangible common equity of 20.3% and an operating efficiency ratio of 48.1. A few highlights from the quarter include a 12.6% link quarter annualized growth in average loan balances bolstered by a record $2.6 billion in gross production. Continued high quality credit metrics with net charge-offs of just 16 basis points, non-performing loans or 31 basis points, an improvement from 38 basis points in the first quarter, four basis points of core margin expansion through disciplined pricing on both sides of the balance sheet, and ongoing momentum in our fee businesses. Our private investment activity continued to deliver with $27.1 million in net gains from our holdings, primarily related to our investment in beacon communication, total fee income from our varied institutional banking businesses increased 6% on a late quarter basis and 19.6% from the second quarter in 2025, led by asset servicing and corporate trust. Each of those businesses saw a more than 20% year-over-year increase in fee income. In fund services, assets under administration increased nearly $57 billion from the prior quarter and stand at $622 billion. And finally, our $0.7 billion. This growth drove on fees, and as expected, deposit growth and pricing continue to be, and industry focal positive balances were flat for the quarter, as the increase in commercial and seasonal decline in public funds, along with our lower investment. Our average cost of interest to bearing deposits stayed roughly flat. While balances were flat, we are well positioned with a diverse funding liquidity levels. The third quarter is typically a seasonal, but we feel good about our deposit pipeline in the second half of the year. Although we were able to improve core margin this past quarter, as you've heard us say, we are focused on balance sheet and net interest income growth as long as it comes at a reasonable. The balance sheet remains flexible with nearly $1.5 billion of excess cash and additional $24 billion in off-balance sheet client deposits. On the capital front, levels continue to build, with June 30 common equity Tier 1 ratio of 11.45%, a 29 basis point increase from March. Our capital priorities remain the same, with supporting organic loan growth as a median link quarter annualized increase in loan balances. our continued strong financial performance and pace of capital accretion allowed us to raise the dividend this quarter. Yesterday, we also opportunistically repurchased approximately 38,000 shares.

Our results from purchase accounting adjustments was related to accelerated accretion from the benefit to net interest margin from total accretion was approximately 23 basis points. On slide 10 is the projected contractual accretion, which is estimated at approximately 46 million for the remainder of 2026 and 77 million for 2027 slides 12 and 13 include some key highlights and drivers of our quarter-over-quarter variances non-interest income for the quarter was 245.5 million an increase of 40.7 million or nearly 20 percent from the first quarter drivers included the investment security gains that mariner noted along with increased 12b1 and money market income and strong performance in fund services and corporate trust. Within the other income category, we had some market valuation-related variances, including $8.7 million in company-owned life insurance income, an increase of $11.2 million, which has a similar offset in increased deferred compensation expense. Derivative income related to customer swap activity was $4.1 million, an increase of $1.3 million in link order. Activity from former hard-won locations brought in just over half of that income. Adjusting for investment gains and mark-to-market on Coley, our fee income for the second quarter was approximately $210 million. On the expense side, we had just $1.7 million in merger-related costs. Operating non-interest expense was $398 million, an increase of 6% compared to the first quarter. The largest drivers included an increase of $7.5 million in total salaries and benefits expense related to the impact of second quarter merit increases and a $12.6 million increase in deferred compensation expense, offset by $12.5 million in expected seasonal decreases in payroll taxes, insurance, and 401k expense. Additionally, we recorded $4.1 million in operational losses and a timing-related increase of $3.6 million in legal and consulting expenses. Compared to the guidance I provided last quarter, the increase in expenses was driven largely by deferred compensation expense, which varies with market activity and the operational losses that I mentioned. Looking ahead, we would expect third quarter operating expense to be in line with the current consensus expectations of approximately 390 million turning to the balance sheet driving the 12.6 percent annualized loan growth that bariner mentioned was once again nearly 22 percent annualized growth in average c and i balances led by strong activity across the footprint including st louis utah texas and arizona our pipeline remains strong heading into the third quarter. Average deposits, as shown on slide 25, remain flat from the prior quarter as the increase in interest-bearing demand and savings was nearly offset by decreases in DDA and time deposits. Reported managers' margin for the second quarter was 3.32 percent, excluding the 23 basis points contribution from purchase accounting adjustments. Core margin was 3.09 percent, increasing four basis points sequentially. The primary drivers of the link quarter increase in our core NIM included benefits of a favorable earning asset mix shift in favor of loans and the impact of changes in liquidity levels. Relative to the second quarter adjusted margin of 3.09% that excludes accretion, we expect third quarter margin to be relatively flat. As usual, actual margin in NII will depend on levels of DDA growth and excess liquidity, any SOFR movements, and mixed shifts within the lending and funding portfolios. Finally, our effective tax rate was 20.8% for the second quarter compared to 21.1% for the first quarter. Looking ahead, our tax rate is expected to remain between 20% and 22% for 2026. Now I'll turn it back over to the operator to begin the Q&A session.

At this time, I would like to remind everyone, in order to ask a question, Simply press star, then the number one on your telephone keypad. For our first questions from the line of John Armstrong with RBC, please go ahead.

Okay, thanks. Good morning, John. Mariner and Jim, I think we asked this every quarter, and I think we probably know the answer, but it's a good way to start the call. Just give us a little bit more on the gross loan production trends that you're seeing. It was another strong number. Or, you know, you call out some markets, but is it the overall economy supporting this pace of production? Anything you would, you know, call out that was maybe a little bit unusual and just curious how you feel the pipelines look?

I wish I had something exciting and different to tell you, John, but it's business as usual. We see growth across all regions, all verticals, very, very solid. But, you know, there's some interesting trends, I think, just in the space in general. There's more private equity and family office purchasing taking place, ESOPs taking place in the marketplace. But that's not new. It's really just kind of business as usual. And, you know, the next 90 days, as we've been able to tell you for some time, looks very similar to the last 90 days.

I would only add that, you know, obviously we've highlighted some markets in the past, but it's coming from across the footprint. It's all markets, and it's led by CNI. It's laid out in the deck. And pipeline's good, just like...

Yeah, as we've said many times, it's market share gains, really. It's really market share gains.

We'll open up the line of Chris McGrady to continue with his questions. Chris, your line is open.

Great, thanks. I guess the following would be... I heard you on the balance sheet. Could you help on the comments on the on-off balance sheet deposits? I know there's like a relationship between deposits, fee income. I guess the question would be really normalizing the fee income adjustments in the quarter. What's the jumping off point for the back half?

So it won't really relate to the ongoing growth of our fees. We were able to kind of keep that going independent of what's on and off balance sheet. that's kind of a you know the numbers uh up a little bit as we said in the call they're like 3.4 percent or so but they they stay stay pretty steady and um and we're able to grow the rest of business kind of independently of that if that helps um and then the comment was we can pull some portion large portion willing to pay market rates so it shouldn't your question is we pull it on does it affect our fee income the answer is no thank you your next question is from the line of

casey hair with autonomous please go ahead morning crazy great thanks good morning guys how you doing so uh i wanted to drill into the i don't know the the uh coordinate guide a little bit more just from a loan yield and deposit rate perspective is um just what's backstopping that that flattish outlook. Are loan yields trending up and deposit costs trending up as well or both flat? Just a little bit more color. Maybe if you can spot rates on both. Thanks.

Yeah. I'll answer the second question. First, the spot rates for us don't make a whole lot of sense because of the volatility of our deposit mix. So that's probably not what I would disclose. But you're exactly right on the first question. If you look at even this quarter, our loan yields excluding PAA went from 599 to 601 and our cost of interest bearing deposits went up to basis points so we'll expect that to grind up or down based on what's happening and then the impact margin will entirely be predicated on what happens with DDAs and what type of deposits come in at what time so that's kind of driving our flattish outlook for NIM going forward and then And just on the future, if there were to be any rate hikes, you can see it on our IRR page. Our sensitivity to higher rates or lower rates are very modest, 0.7% impact on NII for 100 basis points move. So any quarter, that should be very negligible impact, both on NII and them.

And expectations, we outpace it with growth anyway.

Okay. And then just from a loan to deposit perspective, I know you guys are in great shape at under 70%. I think you guys have talked about a ceiling of 75. Just what do you expect to get there? I know this is a seasonally challenging quarter for deposits, but just trying to, the loan growth momentum is very strong.

I know you guys feel comfortable with deposit outlook longer term but just trying to get a sense of of when you know where you expect the loan to deposit ratio to land and when you know at what level would you step up the urgency in terms of deposit pricing so i i think we don't that level of urgency has been in place it's been in place i've been ceo for 22 years and the same level of urgency about core deposits as we have ever had and banks should never ignore core deposit growth and they do periodically to improve their ratios so that has never been something we played around with i think deposits are the company altogether so if you look at page 40 in our deck i would say that's really the way to think about our business is not to think about it from quarter to quarter or really to think about what we're able to do year over year over year over year. And there is no expectation that we can't continue to do what you see on page 40, which is – and so we're not – that's one of the reasons we don't talk about the ratio, because if you look at the period of time of the exact – we have no expectation that we can't continue.

Gotcha. Thank you. Your next question is from the line of Janet Lee with TD Cowan. Please go ahead. Morning, Janet.

Good morning. Good morning. So your core fee income in the second quarter, excluding the market-related income, looks to be around the $210 million range. You've been growing trust and securities processing fees at around mid-teens plus range in the past few quarters. Is there any reason why that growth trajectory should derail from where you've been in the past few quarters? or are there any new product launches or anything that could further support that kind of growth trajectory or should it moderate? How should we think about that?

We expect in that interest in series processing to be able to continue to have the same general growth rate with possible upside. So we have a very strong pipeline. We continue to gain share. Well, one of the things I'd say overall about, you know, one of the main pieces that would then, if you were to go back, say, 10 years in that business, we depended on startup fund business, which we were chasing focusing on that part of the business, doing very little startup for any up and down the supply. And so the pipelines are able to benefit from the piping behind that.

Got it. Thanks for all the color. Sure. And on deposit growth, are you pointing to public fund, the overall deposits being down in the third quarter, given the further public fund outflows and then rebound in the fourth quarter? And is there any seasonality to investor solutions segment within the deposit category, which has been down a couple of quarters?

Yeah, I mean, I think the way to think about it is two pieces to our deposit. story on an annual basis and we use two terms you have the seasonality part which is mostly public funds and then you have episodic and because of our institutional businesses on an average basis transaction based activity at the client level that's why we always point about is we do start to build public funds and there are some that's why we say that in addition of that there's episodic stuff so we uh but what are we able to do got it thanks for taking my

questions thank you your next question is from the line of nathan race with piper sandler please go ahead morning hey this is this is adam kroll on for nate race good morning and thanks for taking my questions morning um so maybe just starting is there any update to the potential impact from the new capital rules and just how that could impact your long-term CET1 target and appetite for buybacks just given with your profitability you'll be building capital at pretty strong clips.

Yeah we've done some preliminary assessment on that Adam and in our early expectations it could be depending on the RWA changes could be 50 to 60 basis points net benefit after inclusion of a oci um you know we'll wait for any guidance on how we deploy that in capital but you heard us all say number one priority for capital is always going to be organic loan growth as you've heard from the team uh our pipeline remains strong for the next you know foreseeable future and so that will always be the primary uh source of uh deployment of capital but you know our ct1 is at 11 and a half percent as manner said in his prepared remarks we're well ahead of where we thought we would be opposed to hardwind, and it continues to build. You saw what we did this quarter and last quarter with repurchases last quarter, a big dividend increase this quarter, strong continued organic growth. So those will be the options in front of us.

Try to take a balanced approach to it. We certainly want to focus on building long-term value through focusing on organic growth, but there's a balance to that and have done some buybacks. So we like to kind of take a balance.

Got it. I appreciate the color there. And then one other one for me is I'd be curious if you could provide some color on how competition has evolved across your footprint from a loan pricing perspective and just generally what are new loans coming on the portfolio at?

Well, if you look at our peer group, you can see that we have the best, if not one of the best loan yields in the group. So So we're able to maintain quarter basis. It's very steady there. So I would say that it's – and, you know, we like to manage mixing in at the right time, mixing in on interest rates, you know, leading loan yields.

I appreciate the color, and thanks for taking my questions. Thanks, Adam.

Once again, if you would like to ask a question, please press star 1 on your telephone keypad. And your next question is from the line of Brian Wilski with Morgan Stanley. Please go ahead.

Hi, good morning. Thanks for taking my questions. I wanted to go back to fee income. For the institutional businesses like fund services and trust, can you talk about the impact that capital markets activity has on those businesses? I was wondering what matters the most for them. Is it The level of asset prices, M&A activity, debt capital markets, what would you say matters the most for growth in those areas from a market's perspective?

So the capital markets part of our business, which would be public debt issuance and escrow work and all that, it's a little complicated because we have our underwriting business, which is pretty small, but it is a nice contributor. Then we have our corporate trust business where we do the agent work with debt. And to the extent, I would say, of recovery in the market and there is more debt being issued, we will play a bigger role as an administrator as that public and public-private debt takes place, which it has to be the leading indicator for corporate trust would be activity, right? We have seen a nice uptick on that across the board. and so you know then there's again there's a lot here on those funds so we benefit from that so today again to the extent that that issue went and then we have our you have seen an uptick

we've benefited from that looks like jim jim wants to add no no i was just going to add if you think of it in terms of like similar to our commercial business it's market penetration and uh taking market share from other providers that's also going to be part of the growth regardless.

Maybe going back to loan growth for a moment, it does look like the paydowns increased a bit Q on Q and were maybe a little bit higher than expected in the second quarter. Can you just talk about what drove that and how you're thinking about the cadence of paydowns from here? Thanks.

Yeah, so two things I'd say. One, if you look at a three-quarter linked basis there. You'll see that really Q1 is kind of a low point, three quarters. That's the comment I would make about this particular budget. Generally, the anticipation for higher payoffs would be not indicative of some rate increases. We don't have...

Got it. Really appreciate all of the detail and thank you for taking my...

Thanks, Brian. All right. Well, that seems to be the last question. We appreciate everybody's questions And really sorry about the technical difficulties, but it looks like we had a good recovery. Again, I always appreciate the questions, and we are thrilled about our quarter and your interests. We'll see you next quarter.

Yeah, and thank you, Mariner. If you have any follow-ups, you can always reach us at 816-860-7106. Thanks for joining us today, and have a good day.

Ladies and gentlemen, this has included the UNB Financial Second Quarter 2026 Financial Results Conference call. Thank you for joining. You may now disconnect.