Umb Financial Corp (UMBF) Q3 2026 Earnings Call Transcript

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 one to raise your hand. To withdraw your question, press star one 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, re-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 Senator 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 perceives. Actual results may differ and are subject to assumptions and risks. These risks are outlined in our SEC 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 El Dorado 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 deposit ratio, quality credit metrics, And a similar culture. El Dorado 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 ten in six additional markets. Our total branch count 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 Dorado'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 its highly liquid balance sheet and a loan-to-deposit 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 El Dorado 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 billion or 11.1% linked quarter annualized growth in average loan balances. We maintained exceptional credit quality with just 13 basis points of net charge-off and an improved non-performing loan ratio We have 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 contribution to trust and securities processing income grew 8.8% from the end of the year. Compared to the second quarter, and more than 22% year-to-date. And corporate trust posted a nearly 19% year-to-date 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 coordinated debt. Our quarter-end to ET1 ratio rose by five basis points from June to $1,150. Organic growth remains our top capital priority, given our long, uninterrupted track record of outperformance and 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 HDLF. 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 accretion was approximately 22 basis points. Slide 10 of our third quarter deck shows projected contractual accretion, 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 buildings, we saw a sequential increase of $8.2 million, or 3.9 percent 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 1,000 associates who collectively have used the tool to prompt over 53,000 work actions. The work has generated more than 550 use cases to date 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 cost 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 C&I balances, led by strong activity across 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 repricings, 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 flight 25, increased 1.1% from the link quarter. Average DDA balances declined 6.1% from the second quarter, reflecting expected seasonal disbursements within the institutional banking business. Reported net interest margin for the third quarter was 3.32%, in line with the prior quarter. Excluding the 22 basis points contribution from purchase accounting adjustments, core margin was 3.10%, increasing one basis point sequentially. The primary link quarter drivers of core NIM included continued benefits from asset 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-bearing deposits increased nearly four basis points, reflecting the partial impact of the FOMC rate hike in September and, 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 to 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 sulfur 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 reset 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 quarter 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 8 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 El Dorado shareholders based on a fixed exchange ratio of 13.553 times UMB shares for each share of El Dorado. 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, let's 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 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.

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 QM Beta can finish in this next up cycle versus the previous up cycle. Thanks.

Yeah, sure. As we said, 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 assets and repricing. So if you look at our deck, we have more than $3 billion of loans 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 $3.80 to, if you look at $3.60, a new money yield. So that's consistently going to happen for us. As you 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 September as well. So that was a benefit. And then on the flip side of the balance sheet, it's also driven by what's happening with our index deposits. So as I said in my prepared comments, 52% 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 repriced. 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 percent beta on the soft index. And then the rest of the deposit book should be, you know, generally priced. You know, given rates are as high as they are, there's not a lot of pressure on obviously DDAs in the back, so that's kind of the entire picture of margin drivers. And the other thing that also happened in the quarter, last couple of quarters, is just the 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 at bonds and excess cash versus loans, we had a lot more of loans Okay, great.

And just lastly, on the deposit front, was there any pulling of off-balance sheet funds onto the balance sheet this quarter? And just 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 But, you know, if these trends continue where loans, you know, significantly outpace deposits, at some point, you get, you know, you're going to bump up on that 75% loan deposit ratio. Would that force you to slow down loan growth or push up deposit pricing?

Yeah, I'll take that. If you've been listening to our call, we have experienced a low point in the third 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 for an institutional deposit growth in the first quarter. And so that's not even a thing. I guess that's 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. Good 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 remark and year in and year out is that our strategy to 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 a 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, and both those businesses, the larger banks, $100 million business for a large national bank is one they're not interested in, excited about $100 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 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. We couldn't be more jacked about our institutional and see businesses.

Appreciate that, caller. And then secondly, looking at the paydowns and payoffs, was there anything unusual in third quarter or just as you get bigger? We should think that that's sort of a good stable level offset by the strong production.

Yeah, we've been trying to, you know, assess that ourselves, whether it was unusual. I think it's just, you know, I think we are a bigger company. We think, you know, the average is more likely to kind of reset to them than it is to stay. But we honestly don't know ourselves that we do have, you know, a bigger footprint with a lot of new people hitting stride. We will know, you know, maybe another four quarters down the road what our new baseline is with Heartland. But right now, we're kind of feeling our way through that.

Your next question comes from the line of John Arfstrom with RBC Capital Markets. Your line is open. Please go ahead.

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 $3 billion production number?

No, just that it was a strong quarter, and we think, you know, explanation point, I think that it probably resets a little slip and backwards, but we don't really know.

This is Jim Ryan. Much more serious loans, which is exactly how that business is supposed to be. We just have a lot, but nothing.

Thank you. Very helpful. Maybe, Mariner, Eldorado, I understand it's not a huge deal, but I think 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. 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 and got to know the cooks. And we realized very quickly our communities and our customers. And they have, you know, we're over 110 years old. They're, you know, a little over 50 years old and, you know, multiplied 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, 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 The wealth that's been made in California. We think that there's a really nice early day benefit that could have longer term really big is the what's happening around Lake Tahoe. And if you look at the math we have there, they're end up in through Reno. And there's quite a bit happening with movement from one state to another. And this bank and that, we think we can kind of double down on that and really – so I think that's going to be some of the – some really great early – this is what's happening in Nevada. And then as we take our corporate and commercial banking franchise and products from Fresno on in the Sacramento Valley, we think, well, I'm excited that we have time. We don't really need to worry about it yet. You know, I mean, we can kind of take our time to do that right, leverage our way into Sacramento 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, you know, leverage the franchise into the whole organization with those great deposits and the under-levered situation. We're very, very excited about it, and you can see that the branch footprint is various contiguous to the one we have. I love the fact that it's a dense footprint. I love the fact that it increases our overall, you know, branch network significantly, and, you know, the low cost improves. So, I mean, this deal will improve our interest-bearing deposits as a company by seven basis points, and it'll We'll take our total cost of deposits down by four basis points. It'll be accretive in 27 and beyond. And we're just, you know, it's just one brick at a time. We're just, this is a very additive, beautiful deal that just fits right into who we are like a glove.

Thank you. Thanks, Jeff.

Your next question comes from the line of Janet Leigh with TD Cowan. Your line is open. Please go ahead. Good morning.

Morning. Maybe I missed it. I appreciate all the color around the betas for your different types of deposits. Did that include the Eldorado $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 going forward?

Yeah, a couple of things, Janet. I mean, the $2 billion, 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 Eldor Isle. Again, these are very granular core deposits. The average age of the client, excluding CDs, is about 14 years. So no material changes to those beta 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. And so, it's multi-prompt.

Okay. Got it. Thanks. And staying on that topic, so, you know, it looks like you're still alluding to a slight liability sensitivity before turning as a sensitive. You've talked about core NIMH being relatively stable in the fourth quarter. So, should we expect a modest dip in core NIMH And then NIM expansion in outer quarters? 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, you know, we'll know today, unlikely that the Fed does anything today. So whenever one month SOFR starts repricing for that, we'll 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-Hardland for any FOMC moves dramatically reduced. Before Hardland, 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 remissing on the asset side.

Yeah, there's a variable, and then we have a CLO book and some other CMO floaters that we have. 58% of our earning assets are variable in nature as well. So I would, as I said in my prepared comments, I'd 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 Brasier with UBS. Your line is open. Please go ahead.

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, Alborado'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? Thank you.

Yeah, Timor, I will just repeat what I've been saying. Really, you know, our capital investing in the car. And that works really well. We can run into opportunities that we would define as tuck-in. We will certainly review those in market, you know, place, you know, more meaningful, get a more meaningful presence. So that's similar, same story. And I would say how I define tuck-in is where we retain small enough that we control the boardroom, 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 a traditional bank deal for us, 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 need somebody else's. It's really more about the deposit. It kind of, by default, translates into something more largely. It also, through more retail basis, smaller or lower cost. That's what I 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 a high quality company more valuable over time, every company.

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 Eldorado 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 UMD is?

We are not expecting any, you know, change at all in that traditional market pressures that may exist already today. And so, no, I think we may mix into that footprint some small business, middle market, and commercial deposits over time, which I suppose over time, you know, 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.

Great. Thanks for the questions.

Your next question comes from the line of Brian Wilsinski 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 non-interest-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 fourth quarter?

So, you know, we've talked about we have a lot of episodic ups and downs. Averages are more important than, you know, end of period. You know, the second, third quarter is traditionally a low point for us in general. I was looking at the other day, I was looking at our previous year, second to third quarter, and actually this year is better than the previous year as far as the DDA decline. So there's nothing under the chip related to higher. These are operating dollars, you know, so that's an important point is the DDAs that are really on our balance sheet are operating dollars. 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 sheet is 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 the third quarter. We expect it 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 you and be 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 22 years of double-digit loan growth every quarter, quarter in and out. And without giving you all the level competitive detail as 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 penetration in both a geographic market as well as a – and that – the runway for that for us by ring fencing 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, you know, 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 say that we don't see any reason why we can't keep doing it. And do you want to add to that, Jim?

Brian, while we're not giving away our secret sauce, 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. That's the ingredient, if you will, that has remained true in the company. Our process allows us to be more responsive the way we go to markets in each market. So we're able to turn things around more quickly. And by having experienced banks with our people and calling, when we do have success, it shows up in a meaningful way. And that's been repeatable, again, for the last 20 years. How we continue to do it is not by being the cheapest or giving the house away.

And given that El Dorado is based in California, I mean, California only makes up about 3% of your loans. Fair to say that's sort of where the new incremental opportunity is. Does that open up a lot for you, MB?

I mean, California, we have a litany of opportunities for significant expansion. California is one of them. The president out there, what he brings to the table. And so California is one of the opportunities.

Number one is market share. So market penetration is the core to how we plan on continuing to grow. And what that means is it's just not dependent upon a growing economy or GDP. Market penetration, and that continues to be the number one focus, lending.

Got it. Really appreciate all that detail, and thank you for taking my question.

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 CET1?

It'll be about 15 to 20 basis points diluted to CET1 and close, but given the pace of our capital generation between now and close, we'll be right back where we are. I mean, we're at 11.5% CET1, 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 Nosal with Hubvee Group. Your line is open. Please go ahead.

Hey, good morning, folks. Just one from me. I wanted to approach the earlier loans and 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, less cash, a more utilized loans and deposit ratio. I'm 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-to-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 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, 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% right now. You know, if you look at the highest point, we've been at 74 or 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.

Yeah, I guess I would, so now that I thought that's what you were asking, so if you were to look at page 40 in our deck, that's 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. 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-to-deposit ratio, no matter what has happened through there, it's bumped around between 68 and 65. You know, any one quarter, maybe it bumps up a little over 70, maybe. And we are happy to be at a higher level, but happy to fund our business with our deposits. So the real value of a banking franchise is in their deposits. 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. 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 pace.

Yes, perfect. Thanks for taking my question. Thanks, Brandon.

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. 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, you know, revenues in that line, you know, 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 we'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 pipeline. It's very robust. The client sizes are bigger. The opportunities are larger, deeper, broader. I think the business is 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 of looking backwards as part of that nice growth, 22% growth. I'd say it's broad. We talked a little bit about a few things that are driving I.e., the 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 the ETF business, it's early days, we're just launching that, but we already have line of sight into the clients that are going to come into that, that's why we launched it, and that also ties into my comments about Some of the visibility of deposit growth in the first quarter. So, yeah, I mean, we've just got a great team, a great product set, and they're just hitting stride. I would also add that the custody side of the business doesn't totally depend on just the fund services business. Fully selling that across all verticals, you know, insurance, government, corporate, and having a lot of success.

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, you know, 6%, 7%, you know, absent the HLF acquisition from last year. But just curious, just give us some opportunities to maybe become more efficient with AI and back office areas. Are you guys maybe thinking that operating leverage can accelerate into next year and perhaps 28, you know, notwithstanding the acquisition impact? And just if you can comment on kind of what opportunities you're seeing to 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 comments and his remarks about that. You know, I think you should hear more from all of us about that over time. And we absolutely think as a company, we will become more efficient as we deploy AI into things like credit and all those kinds of things across the organization, which we are currently deploying. I don't have – it's too early to give you the actual impact, but all those projects are underway across the whole company. Yeah, it's just the latest iteration of, you know, the technology evolution. And companies sure as heck better be, you know, 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 to make sure we're doing it judiciously and carefully while we're making ourselves better or 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 of this, is allow our people to do more as opposed to focusing on reducing staffing levels. This is allowing our great people to do more. So, I'm very excited. 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. There are lots of small wins.

Okay, great. I appreciate all the color. Thanks, everyone. Great. Thanks.

Your next question comes from the line of Terry McAvoy with Wells Fargo. Your line is open. Please go ahead.

Thanks. Good morning. Just one question for me. The NDFI loans represented about, call it, 35% of the net loan growth last quarter, and I'm just comparing the presentations Q2, Q3. So my question is, what NDFI verticals were behind the $400 million increase, and how sustainable is that growth?

Yeah, thanks for that question. You know, there's nothing really to – we looked at that and thought, you know, it's just 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 and 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 better vantage point into how banks, in general, were lending to other companies who did similar things to us, and so it wasn't a new trend. It was really more of a reclassification. So I just want to remind you of that. So there really is no NDFI growth on our balance sheet. It's just a lot of things we've been doing forever. So nothing really to know customers using their lines and expanding their businesses and such.

Thanks for the edit caller.

Your next question comes from the line of David Feaster with Raymond James. Your line is open. Please go ahead.

Hi. Good morning, everybody. I wanted to start just following up 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 you dig into the portfolio, is there anything, you know, 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're maybe watching a bit more closely?

I have a question, David. Tom and Jim and myself, who are all in this room together, have been doing business together and improving loans together for 30-plus years together. 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. We believe in gravity as a company, and we believe what goes up comes down. We're always worried. And I would just say that the way we underwrite every credit we underwrite is if it's going to go bad and how we're going to get our money back. So 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 economy. 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 of 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. One of the things we do really well is we identify challenges and potential challenges on our watch list. So the top category of our watch list, 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. You know, so we have next to zero charge-offs because we're quick to take action, quick to identify problems, and quick to manage things. So, I guess, you know, 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, 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 think about using that excess liquidity and maybe as you think about managing, you know, your rate sensitivity?

The 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 excited to do that. And I mean, as far as the, 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'll have to market. So they'll come to current yields, current market 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.

Your next question comes from the line of Ben Gerlinger with Citi. Your line is open. Please go ahead.

Hi, Rom. 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. Just kind of thinking, like, when you look at over the past year, what does outperform when you kind of give that forward NIM to being better than flat?

So the one basis point score and 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. Cash makes 388 today. If I take the same funds and make a new loan at six and a quarter, 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, with the amount of deposit moves and lending that we do, it's always hard to predict margin. But I feel pretty good that we got to within a basis point of where it was last quarter. And if I outperform in the fourth quarter, it's because we have more deposit growth coming in. The other, it could be off plus or minus a couple of basis points. So I feel pretty good about So, 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, 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 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 the 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?

$100 billion, and we need to make sure we would not. And then, so that was what it is typically when you're given a percentage of your company of any meaningful.

Yeah, absolutely. Yeah, I appreciate it. Thank you.

The last question comes from the line of Anthony Alion with J.P. 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 4Q, also in light of the macro headwinds you call out in the press release?

What we try to do is give a kind of a look at the next, then the third. Okay.

And I guess the comments I was referring to is where you mentioned persistent inflation, the Middle East conflict, higher rates, etc. But I hear your message. 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 really yelling at me because it's a long story long. No, it shouldn't keep us from doing more M&A if the right.

That's clear. Thank you.

Yep. Thank you.

We have reached the end of the Q&A session. I will now turn the call back to the management for closing remarks.

I guess I jumped again. Thanks, everybody. We're really thrilled about our family in California and all the great things we're going to do. 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.