UMB Financial Corporation (UMBF) Q3 2026 Earnings Report, Transcript and Summary

Hello everyone. Thank you for joining us and welcome to UMB Financial's Third Quarter 26 Financial Results Conference Call. After today's prepared remarks, will host a Q&A 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 26 call. Along with our quarterly results, we announced an acquisition to acquire Eldorado Savings Bank headquartered in California. You will note that we have posted 2 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, then we will 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 Q&A 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. Actual results may differ and are subject to assumptions and risks These risks are outlined in our SEC filings and summarized our presentation on Slide 48. Now I will turn the call over to Mariner Kemper.

Thank you, Kay, and good morning, everyone. I am very excited to report both our strong third quarter results and the acquisition of Placerville, California based Eldorado Savings Bank. In recent quarters, we have 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 select 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. 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. Eldorado is ranked as the number 1 community bank in 3 markets, including the vibrant and fast growing Lake Tahoe area, and within the top 10 and 6 additional markets. Our total branch count will grow to 227 across the footprint, an increase of 18%. With the addition of Eldorado's $2.1 billion in deposits, our consumer franchise represent approximately 26% our total deposit base. At just 88 basis points, Eldorado'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, a 39% loan to value and an average loan size of $138 thousand. Both banks share our 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 2 thousand 27 subject to the approval of Eldorado shareholders and customary regulatory approvals. Ram 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 average loan balance We maintained exceptional credit quality, with just 13 basis points in net charge off and an improved non loan ratio of 28 basis points. Compared to 31 basis points in the second quarter. For comparison, the industry wide NPL ratio for banks reported so far this quarter with 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 linked quarter and nearly 18% year-to-date. Specifically, fund services contribution to trust and securities processing income grew 8.8% compared to the second quarter and more than 22% year-to-date. And Corporate Trust posted a nearly 20% year-to-date increase. Additionally, Corporate Trust recently advanced in the league tables now ranking as the number 2 municipal trustee in the country based on deal count. In fund services, we announced the continued expansion of ETF servicing capability broadening our focus on supporting a variety of asset class. 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 date results 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 15, we redeemed $150 million of our subordinated debt. Our quarter end CET1 ratio rose by 5 basis points from June to 11.50. Organic growth remains our top capital priority. Given our long uninterrupted track record of outperformance and growing loan balances. At the same time, we have also demonstrated our ability to evaluate integrate acquisitions that support our organic growth. As evidenced by our successful integration of HLS. Now I will 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 loans, and contributed 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. Noninterest 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 COLI, and the $1.8 million 1-time gain on the sale of 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 Noninterest expense was $399.5 million, virtually flat from the prior quarter. As outlined on Slide 18, the $5.9 million 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 campaign, higher occupancy costs coming from redundant service providers, along with the nonrecurring OREO loss of $1.5 million. Professional services included expenses related to our investment in AI, and digital asset offerings. We have 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 thousand 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 $404 million and $405 million largely reflecting incentive compensation accruals related to company performance, as well as technology project costs. Turning to the balance sheet. 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 repricing, as well as a mix 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 25, increased 1.1% from the linked 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 1 basis point sequentially. The primary linked 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 prefunds due to DDA seasonality and higher interest bearing deposit costs. Our cost of interest bearing deposits increased nearly 4 basis points reflecting the partial impact of the FOMC rate hike in September and to a lesser extent mix shift within deposit categories. We 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 1-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 1-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 reset date. 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 Eldorado Savings Bank acquisition. Transaction assumptions are on slide 8 of the acquisition deck. With $2.1 billion in high quality core consumer deposits, $500 million in loans, we view this acquisition as akin to a branch transaction. The purchase price consideration of approximately $500 million will be struck 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 will turn it back over to the operator to begin the Q&A session.

We will now begin the Q&A session. Please limit yourself to 1 question and 1 follow-up. You would like to ask a question, To withdraw your question, press star 1. Again. We ask that you pick up your handset when asking a to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please standby while we compile the Q and A roster. Your first question comes from the line of Casey Haire with Autonomous Research. Your line is open. Please go ahead.

Good morning. So, Ram, wanted to touch on NIM, the core NIM flat in the quarter. Just a little help on some of the drivers. Number 1, new money loan yields versus that 6.09% And then just some updated thoughts on where a cum beta can finish in this in this next up cycle versus the previous up cycle? Thanks.

Yeah. Sure. As we said, we expect 4 quarter NIM 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 $3 billion of loans priced at 5.25%, that are going to reset about 100 basis points based on that. We also have 2.5 bit. $2.5 billion in securities that are going to reprice from 3.80% to. If you look we are getting close to 5.60% on new money yield. So that is consistent going to happen for us as you approach the rate cycle. The other drivers are just. If you look at our loan yields excluding PAA, that was up 5 basis points. that is a combination of, again, the fixed asset repricing and new money coming in. And, obviously, 1-month SOFR 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 is also driven by what is happening with our index deposits So as I said in my prepared comments, 52% of our deposits are indexed. And so far, we have 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 they reprice. So, generally, I would say same thing as the down cycle we you know, 90-ish percent beta of the heart index. Over time, maybe 65% to 70% beta on the soft index. Then the rest of the deposit book should be, you know, generally priced You know? It is. They are. You know? rates are as high as they are, there is not a lot of pressure on obviously, DDAs in the back book. So that is 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. All of it was C&I loan growth, which have a. Which has a higher yield than any other loan category. Then when you look at bonds, and excess cash versus loans, we had a lot more of loans as a relative percentage of earning assets. So. And that stuff will reprice on the way up. Yep. Exactly.

Okay. Great. And just lastly on the deposit front, was there any was there any pulling of off balance sheet funds out of 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 a 69% loan to deposit ratio. But you know, if the. If these trends continue where loans you know, significantly outpace deposits, at some point, you get. You know, you are gonna bump up on that 75% loan to deposit ratio. Would that force you to slow down loan growth? Or push up deposit pricing? Yeah. I will I will take that. I mean, I think, unfortunately, I do not if you have been listening to our calls, you know that we talk every year about the low point in the third quarter. So we are have experienced the low point in the third quarter based on seasonality, basically. We fully expect to have happen in 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 even remotely a scenario for us to encounter. So fourth quarter deposits will grow. We have a really nice line of sight and some really great corporate institutional deposit growth in the first quarter. And so that is not even a thing. I guess that is what I would tell you. Okay. Thank you. Thanks, Casey.

Your next question comes from the line of Jared David Shaw with Barclays Capital. Your line is open. Please go ahead.

Good morning. Hey, everybody. Good morning. Morning. Thanks for the thanks for the color on the trends going into the fourth quarter. Anything on fee income? You have 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 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 have talked about how that business has changed over the last 5 or 6 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 is not a piece of business we cannot win, and we are talking to everybody, and we have a really deep, awesome pipeline. So we are very excited about that business. And as you heard in the prepared remark, our corporate trust business yeah, we have just gone up to number 2 in the league tables. And, you know, with offices on both coasts, throughout the country, we are picking up bigger mandates. You know, we talked about this before where now that we are on the coast, if you have a sewer and water deal in Illinois or Iowa it could be a $3 million or $300 million deal. You have a sewer and water district in New Jersey. It can be a $1 billion deal. So it is really the dynamic of the business over time. We also have been able to attract a lot of talent in that business in both those business, but they are particularly in the corporate trust business as the larger banks take their eye off the ball and really are not focused on smaller businesses. So, like, a $100 million business for a large national bank is 1 they are not interested in. For us, it is we are pretty excited about a $100 million business. So we find ourselves picking up people who feel forgotten from some of these larger institutions. And so that is been really great. And then it is just kind of across the board from. It just. there is nice solid strength through the other businesses, and we talked about having a $1.5 billion 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 could not be more jacked about our institutional and see this as just as we are right now. Great. Appreciate that color. And then secondly, looking at the paydowns and payoffs, anything was there anything unusual in third quarter? Or just as you get bigger, we think we should think that is sort of a good stable level offset by the strong production. Yeah. We have been trying to, you know, assess that ourselves, whether it was unusual. I think I it just was a large order. Know, I think we are a bigger company, and just over time, the base should grow. We think we think that the third quarter was slightly larger than what the average should be going forward. But we do have a bigger pace, so we are not fully know, totally sure ourselves. But it is more likely to kinda reset to the last couple quarters than it is to stay at $3.1 billion. But we do honestly do not know ourselves. We do have you know, a bigger footprint with a lot of new people hitting stride. We will know, you know, couple maybe another 4 quarters down the road what our new baseline is with Heartland. But right now, we are kinda feeling 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. Hey, good morning. Just following up on James'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 a just that it was a strong quarter, and we think you know, exclamation point, I think, that it is probably a little larger than what we should expect The probably resets a little bit more to a 3 quarter average looking backwards. But we do not really know. This is Jim Rine. Much more C&I driven. It just is a takeaway. We saw additional payoffs in real estate that we have expected, and that was not like we lost clients. it is just rolled to the secondary market on construction loans, which is exactly how that business is supposed to work for us. But we just we just had a lot of things booked, whether that was delayed second quarter or pulled through from fourth quarter. But we feel like our previous run rate is also very strong. Too. So we think that will normalize back end, as Mariner said, the first half of the year, but nothing that is stands out as a certain industry or segment that was leading the charge. it is very diversified across the board. Yep. Okay. Okay. Very helpful. Maybe, Mariner, Eldorado, I understand it is not a huge deal, but I think it makes sense and it is 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? Then touch on just overall M&A appetite that you might have? Sure. Yeah. I would love to take a moment on Eldorado. You know, spend 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. We really care about our associates really care about our communities and our customers and they have. You know, they are we are we are over a 110 years old. They are you know, a little over 50 years old and, you know, multi generations just like us. It really 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 these Sacramento and surrounding areas. We will and then, you know, the other thing that is really neat is the Nevada part of that is newer. And what is happening with the flight from California into Nevada with a lot of the tech money that is been made and a lot of the wealth that is been made in California. We think that there is a really nice early day benefit could have longer term, really big upside surprise is the what is happening around Lake Tahoe. And if you see. Look at the map we have there, they are quite a presence right around the lake there and up into Reno. And there is quite a bit happening with movement from 1 state to another into better tax environments. And this bank has already benefited a lot from that. We think we can kinda double down on that and really. So I think that is gonna be in some of the some really great early and long term upside surprises what is happening in Nevada. And then as we take our corporate and commercial banking franchise and products that up from Fresno onto the Sacramento Valley we think. Well, I am excited that we have time. We really need to worry about it yet. You know? I mean, we can kinda 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 are very excited about that. But early on, it is just to leverage you know, leverage the franchise in. Into the whole organization with those great deposits. And the under levered situation. We are very, very excited about it. And you can see that the branch footprint is very. Is contiguous to the 1 we have. I love the fact that it is 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 by. As a company by 7 basis points. And it will take our total cost of funds deposit down by 4 basis points. It will be accretive in 2027 and beyond, and we are just. You know, it is just 1 brick at a time. We are just a very additive, beautiful deal that just fits right into who we are like a glove. Thank you. Thanks, John.

Your next question comes from the line of James Lee with TD Cowen. Your line is open. Please go ahead.

Morning, Jenna. Good morning. Morning. Maybe I missed it. Appreciate all the color around the betas for your different types of deposits. Did that include did that include the Eldorado's $2 billion of low cost deposits? Could you maybe just put the pieces together and give you a 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 slide 26 going forward?

Yeah. Couple of things, Jeff. I mean, the $2 billion while it is, you know, significant, it is not gonna materially change the numbers I gave you. The numbers I gave you are just core UMB. 1 of the things I would say, Mariner said it, and it is in our deck. This quarter, their cost of deposits was 88 basis points. Last quarter was 93 basis points. So that is kinda bucking the trend of what is going on with. Including off the rest industry with their deposit cost. So I 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 14 years, so no material changes those big numbers.

And then on the mix of future growth, Mariner said, you know, we have a strong pipeline of commercial and institutional deposits.

Obviously, we are running deposit campaigns as well as to can see from our marketing spend. So it is it is multi pronged. Okay. Got it. Thanks. And staying on that topic, so it looks like you are still alluding to a slight liability sensitivity before turning as a sensitive You have talked about Chordan being relatively stable in the fourth quarter. So are we should we expect a modest step in core NIM 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 is more the latter, more of stable because 1-month obviously, you know, we will know today, unlikely that the Fed does anything today. So whenever 1-month SOFR starts repricing 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 is just what will happen to deposits, hard and soft index when the Fed does move it does move in December. So I would say it is more expected to be stable. The sensitivity post Heartland for any FOMC move is dramatically reduced before heartland where we got a lot 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 C and I.

Yep. So we are. I think, what are we, 68% variable now? 77%. Yeah. 2-thirds of. Yeah. Variable. And then we have a small field in the rest of the base. Yeah.

We have a CLL book and some other CMO floaters that we have. So that is kind of the 58% of our earning assets that are variable in nature as well. So I would 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, Janet.

The next question comes from the line of Timur Braziler with UBS. Your line is open. Please go ahead.

Morning, Seymour. Hi. Good morning. Morning, guys. Back on the M and A conversation, you guys have been very clear in the past just in regards to tailoring that you would not do anything in advance of that $100 billion threshold getting lifted. I am wondering with some momentum gaining there, how we should think about future deals? Obviously, the last 2 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 the likelihood that we are gonna continue seeing smaller tuck in deals versus maybe something larger? Thank you.

Yeah. Timur, I would just repeat what I have, you know, been saying. Really, which is know, our capital priorities are investing in the company through organic growth first. And that works really well. We have got it dialed in. To the extent that we can through networking and staying in touch with the overall banking community. run into opportunities that we would define as tuck in we will certainly review those. And see if they are the right strategic and financial fit for us particularly as they relate to end market, you know, places where we wanna be you know, more meaningful, get a more meaningful presence. Where we already are. So that is similar, same story. We use. We. I used the definition of tuck in and I would say the. How I define tuck in is where they are 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 is really more about making sure that we are adding value and a bank. Traditional bank deal for us is about a quality core deposit franchise. it is under. You know, that is not fully levered up. We do not need somebody else's lend. Lending prowess We have got a lending juggernaut as a machine. We know how to do that on our own. We do not need somebody else's We do not need to pick up somebody else's problems. So it is really more about the deposits and not kinda by debt by default. Translates into something more largely retail based. It also. 3 more retail based is more granular. You know? So smaller, lower cost average deposit size, which is also attractive. So that is that is what I would say about all that. And, you know, again, it is 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 things. 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 those deposits being lent out. Is there a level of confidence that the incremental cost of deposits at Eldorado is going 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 gonna be of greater equivalence to kind of where legacy UMB is. We are we are not expecting any you know, change at all in that other than just 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, but it. what is there today expanding and building on the retail base there, building a few more branches, etcetera, I think all that should stay just right in line with what we see today. Great. Thanks for the questions.

Thanks, 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 hey, morning. Thanks for taking my questions. I wanted to ask about the non interest bearing deposits. You have 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?

I. So you know, we have talked about we have a lot of episodic, you know, ups and downs. The averages are more important than, you know, end of period. Third, 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 previous year as far as the DDA decline. So there is nothing under the chip related to a higher rate environment that is causing that. These are operating dollars, you know, so that is the important point is the DDAs that are really on our balance sheet are operating dollars. They are not hot money for the most part. And so to the extent that businesses are operating as they normally would, they are gonna 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 are gonna be. So what you see from a DDA perspective is general operating money. And it is just seasonally low point for us in 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 am wondering what some of the key factors are. Is it speed to close? Are you being more flexible on pricing? what is 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 would say is for us what I would do is I would just point you to you know, 22 years of double digit loan growth every quarter, quarter in and out. And I. What 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 a vertical as well as the vertical markets across our footprint. And that the runway for that for us by ring fencing and keeping our talent is kinda unending. We cannot 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 I. there is nothing real special to it other. And I guess, you know, we have we hail from Show Me State And I would say that the proof's in the pudding. You can kinda see it in our results. We do it quarter in and quarter out, and I would say that we do not see any reason why we cannot keep doing it. And, Jeff, you wanna add to that, Jeff? I would just add to that, Brian, that while we are not giving away our secret sauce, as Mariner said, which I love, It 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 is the underlying ingredient, if you will, that is remained true for the history of the company. We are gonna. Our process allows us to be more responsive the way we go to market and the way we 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 are 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 in are awarded the business, that it shows up in a meaningful way and we have. And that is been repeatable again for the last 20 plus years. So if you are wondering how we continue to do it, it is not by being the cheapest or giving the house away on various covenants. Credit quality remains at the core.

And given that Eldorado is based in California, I mean, California only makes up about 3% of your loans. Today. Is it fair to say that is sort of where the new incremental opportunity is? Does that open up a lot for you, MB?

It is. I mean, California for us, you know, after Heartland, we have got a whole. We have a litany of opportunities for significant expansion. California is 1 of them, but they. You know, what fourth or fifth largest economy. Depending on how you measure it, You know, we have 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 got Alice Laney as our new president out there, and we are very excited about it. What he brings to the table. And so California is 1 of the opportunities, and. But it is 1 of many. Brian, it is really appreciated. Yep.

Great. Mariner mentioned it. But in our existing markets, there is runway and the major. We have 2 major metros of were number 1 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 is not dependent upon a growing economy or GDP. it is taking its market penetration. And that continues to be the number 1 focus on how we grow the company. Lending wise, Got it. Really appreciate all that and thank you for taking my questions.

Thanks, Brian.

Your next question comes from the line of Brendan Nosal with Stephens. Your line is open. Please go ahead.

Morning. Thanks for taking my question. So most of mine have been answered. If I could just maybe ask 1 more modeling question. Can you give us some guidelines or guideposts for the capital impact of Eldorado, whether it is TBV dilution or CT1?

It will be about 15 to 20 basis points dilutive to CET1 and close, but given the pace of our capital generation between now and close, we will be right back where we are mean, we are at 11 and a half percent CET1, for instance, at 39 and we will be north of that post deal as well. So it is not material from that standpoint.

Okay. Perfect. Thank you for taking my question. Thanks, Brendan.

Your next question comes from the line of Brendan Nosal with Hovde Group. Your line is open. Please go ahead.

Hey, good morning, folks. Just 1 for me. Approach the earlier loan to deposit question for more of the opportunity size of opposed to the risk side. So if I look back over the test year or 2, what is your balance sheet? Right? More loans plus cash. A more utilized loan to deposit ratio. Just wondering how much further you are either able to or willing to push balance sheet capacity given that you clearly still have more headroom versus your typical bank?

Okay. I. You know, Brendan, I think if you are if you are asked. If you are if you are implying you think that our loan to deposit ratio is creeping on us, to, like, to a point where that ends up starting to look different. Is that. that is a that what you are alluding to?

I am more coming from the angle of you have a richer, more profitable balance sheet than you had a year or 2 ago, just given the richer mix And how much more willing are you able to let that run to drive continued richer mix, more of an opportunity as opposed to a risk?

I am not sure I understand the question. Yeah. If you are talking about cash, I mean, we had excess cash because of the buildup during COVID and all that. Right? So we are comfortable where cash is from current standpoint. And as we have said, you know, our loan is 69% right now. You know, if you look at the highest point, we have been at 74 or 75 and so that is. You know, we are not doing that intentionally in the sense that we are not taking our loan deposit ratio higher. As Meredith 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 is what you were asking. So if you if you 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 have been doing by having the deposits continue to keep pace with loan growth. Through all the different activities. But 1 of the beauties of our company is all the different sources of deposit growth that we have. And the strength of our institutional biz 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, you know, it is it is bumped around between, you know, 68 and 65. You know, any 1 quarter, maybe it bumps up a little over 70%, maybe in we are happy to be at a higher level if that happens, but we fully expect to fund our business with our deposits. So the real 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 footing. And so we are very focused on being able to, over time, keep deposit. Growth pace with our loan growth. And we think we can do that. We have 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 would not be able to continue to do that on a go forward basis. Yep. Perfect. Thanks for taking my question. 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 for taking my questions. Good morning. Mariner, you alluded to a bit earlier on the fund services growth in the quarter, but it seems like it is 1 of the strongest sequential growth we have seen within fund services over the past several quarters. And, you know, revenues in that line up 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 this is kind of the rate of growth that we have seen year to date and over the second quarter kind of sustainable within that line going forward?

Yeah. I. 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. Think I think the business is kinda 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 is no particular account I would I would point to that is that is looking backwards. That is part of that nice growth, 22% growth, I would say it is just. it is broad. You know, we talked a little bit about a few things that are driving it, I e the platforms for democratizing, you know, investing with 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 is early days. We are just launching that, but we already have we already have line of sight into clients that are gonna come into that. that is 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, it is we are just got a great team, a great product set, and they are just hitting stride. Oh, and I would also add that the custody side of the business does not totally. Custody side of the business does not totally depend on just the fund services business anymore. We are fully selling that across all verticals. You know, insurance, government, corporate. Having a lot of success there as well.

Got it. that is helpful. Just 1 more for me on operating leverage. And kind of the expectations there around expense growth. Historically, your expenses have been growing, you know, 6% to 7%, you know, absent the HCL acquisition from last year. 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 2028, notwithstanding the acquisition impact and just if you can comment kind of what opportunities you are seeing to just streamline operations with some of the technology out there these days.

Yeah. I mean, I do not wanna go down a rabbit hole here on that. We. Ram had some comments in his prepared remarks about that. You know, I think you should hear more from all of us about that over time. We are 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. I do not have. it is too early it is too early to give you the actual impact but the. All those projects are underway across the whole company. Yeah. it is just the latest iteration of, you know, the technology evolution and companies sure as heck better be deploying all this everywhere they can. 1 of the things we wanna do being a financial institution where large companies depend on us day in and day out. Just wanna make sure we are doing it judiciously and carefully so that we are not while we are making ourselves better, we do not you know, increase risk at the same time. So we are taking our time to do it right. and put all the governance in place along the way on the on the front end. We have over 1 thousand associates now using Glean. And we are seeing all sorts of benefits. On a daily basis as we measure how that is being used. So, again, part of that is, like, let's make sure we measure how that is being used, how people are using it, how the tokens are being used. Do it very judiciously. But I would tell you we are using it everywhere plan to deploy it everywhere and in every way and 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. This is allowing our great people to do more. So very excited about the way we are using AI. I think it is a great benefit, and it is just kinda next gen tech in my in my mind the way I think about it. You guys wanna add anything to that? I think you covered it. I think you covered it well. We are there are lots of small wins. There are some. There have been some bigger wins. Especially in the fraud area. Look forward to that continue. Okay. Great. I appreciate the color. Thanks, everyone. Great. Great. Thanks.

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

Thanks. Good morning. Just 1 question for me. The 35% of the net loan growth last quarter, and I am just comparing the presentations Q2, Q3, my question is what NDFI verticals were behind the $400 million increase, and how sustainable is that growth?

Yeah. Thanks for that question. I really. We were. We have looked at that and thought, you know, it is just something that stands out here, and I would say that nothing really stands out in there. it is kinda broad based. You know, we have this big fund services business, so there is some subscription lines in there. Most of it would be. We studied it. it is just current customers using their lines and borrowing money. So that is really kinda what happened in the quarter for the most part. It was not actually growth in clients. 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, you know, show up as part of our loan growth in the quarter, I would. 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, you know, just as a general reminder for everybody, the NDFI was just a reclass done by the government so they can have better advantage point into how banks in general were lending to other companies who did similar things to us. And so it was not supposed to capture a new trend. It was really more of a reclassification. So I just wanna remind you of that. So for us, that is all it was. There really is no NDFI growth on our balance sheet. it is just a. it is a classification of things we have been doing forever. So not. Nothing really to note. Customers using their lines. And expanding their businesses and such. Great. Thanks for the added color. 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. 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 are 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 would answer that is we are all trained pessimists. So, yeah, Tom and Jim and myself are all in this room together have been doing business together approving loans together for you know, 30 plus years together. And, you know, we have seen just about everything. And we like to think we are getting smarter as we go through all the things we have been through. And you know, we believe in gravity as a company, and we believe what goes up comes down. We are always worried. So and I would just say that the way we underwrite every credit we underwrite is if it is gonna go bad, and how we are gonna get our money back. So you know, we do not worry unusually about our own portfolio. I mean, if you are asking comments about the economy, I could spend the next 30 minutes talking to you about how I am worried about the economy. But that is why we take such good care of our own credit portfolio. So you know, we have gone from $24 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. You know, 1 of the things we do really well is we identify challenges and potential challenges on our watch list, you know, so the top category of our watch list. The fives can look like an EKG or a Rocky Mountains because we are quick to put stuff on there. But what you will notice is the very bottom line, the charge-off line on our chart that we would produce is zero. Yes. We have we have next to zero charge offs because we are quick to take action, quick to identify problems, quick. And quick to manage things. So I guess, you know, this is something I am most proud of and care about the most, and you know, we worry a lot about credit, and that is and that is why we have such a clean book. Okay. that is awesome. And then maybe just following up on El Dorado. To your bigger question. I will just say your bigger question about the client base. They are they are they are basically all talking about the economy. They are about it. They are they are still cautiously optimistic. We are not hearing a lot of deep concern from our customer base. that is encouraging.

And maybe just following up on Eldorado. I mean, look. Obviously, you are getting a ton of excess liquidity, great core deposit base. How do you think about you know, as you as you close, I mean, there is gonna 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?

Well, I mean, how we plan is not liquidity is, you know, we wanna help our customers build their lives and borrow money from us, to do so. And, we are excited to be able to deploy that with our customers. Both in California and elsewhere. We would love to put it to work right there in those communities. But we are, you know, we are excited to do that. And, I mean, as far as the I guess, the investment book, I said, you were asking about that wrong 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 will mark to market. So they will come to current yields, current market yields, call it 5.25% or even higher than that. So that is a pretty good book in mind with what we would buy from a pre purchase analysis and everything. by treasury here. So that is a pretty quality book. And then we will use the existing cash flow quote 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 Benjamin Gerlinger with Citi. Your line is open. Please go ahead.

Hi. Ram, over the past think, 4 quarters, we have given a guide of NIM being flattish and it is been in the ish, but it is always at an upward bias. Just kinda 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?

Yeah. So the 1 basis point scoring end, I would say 5 to 1, it was probably the mix of assets within loan book in favor of C&I and then less cash. You know, cash makes $3.88 today. It I take the same funds and make a new loan at 6.25%, that it helps at the margin what the loan yields are doing. that is why we have a 5-basis increase in our core loan yields. I think that is 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 all. I mean, with the amount of deposit moves and lending that we do, it is always hard to predict margin. But, you know, I feel pretty good that we got to within a basis point of where it was last quarter, and know, if I outperform in the fourth quarter, it is because we have more deposit growth coming in. The other. It could be off plus or minus a couple of basis points. So pretty. Feel pretty good about you know, margin guidance overall. So other than that, I cannot think of anything. Obviously, the timing of. As I said in my prepared comments, timing of when the FOMC might do something October versus December would impact that as well. Gotcha.

No. that is helpful. And then, Mariner, you sounded open to doing some deals, and you kinda 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 are looking at just boardroom itself, like, you could, in theory, do something $25 billion. And I wanna put words in your mouth, but it seems like you are open to doing deals with a bias towards a smaller end. But you are agnostic on size. That a fair way to frame it?

No. I would not say we are agnostic on size. Couple things are of node. We are approaching $100 billion in we need to make sure we are ready for that And we would not because we are not ready today while we have a plan, we are not ready today. We would not do a deal that would put us on top of that number So that is important for you to know when you think of those numbers you are throwing around. And then the other part about board composition, the idea of what I was trying to get at there was that I like my board, and it is. And I do not need somebody else's board. So to the extent that I have to do a deal with those size where I am giving up board seats, we do not need to do that. So that was what I. That was what was intended to help you with sizing. Is typically when you are given up a percentage of your company of any meaningful size, you are giving up board seats. So that was what I was where I was trying to take that. Does that help. If that is helpful? Yeah. Absolutely. Yeah. I appreciate it. Thank you. Yeah. Thanks, Ben.

The last question comes from the line of Anthony Elian with JPMorgan. 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?

Did not intend to call out any macro headwinds. Press release. 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 is about as much as we normally do. And 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 sorry, the second quarter and the first quarter than the third Does that make sense? Okay. And I guess the comment I was referring to is where you mentioned persistent inflation in the Mideast conflict, higher rates, etcetera, but I hear your message. My follow-up on Eldorado, you are looking up ahead, Marina. Oh, I. Yeah. I think those are just backdrop conversation. They are not. They were not intended to guide you towards loan growth. So for a sec, that is clear. My follow-up on Eldorado, they are picking up over $2 billion you are 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 is a great question. Absolutely not. it is a small enough deal. Our team has got really good muscle memory. The government is in a place where they are very helpful in kind of moving things along. This is a. We are looking at this more like a branch deal. Not a heavy lift. I know my all my people are looking at me thinking they are gonna get. Yelling at me because they are they are gonna be they are gonna be doing the work. But it is it is it is a it is short try. A long story long, no. It should not keep us from doing more M&A if the right deal came along. that is clear. Thank you. Yep. Thank you.

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

I guess I jumped the gun. Thanks, everybody. We are really thrilled about our quarter and about joining up with the Cook family in California and all the great things we are gonna do. So thanks for the time and the support. We will talk to you soon. Thanks, everyone.

And if you have questions, you can always reach us at (816) 860-7.11 thousand. Thanks, and have a great day.

This concludes today's call. Thank you for attending. You may now