UMB Financial (NASDAQ:UMBF) released first-quarter financial results and hosted an earnings call on Wednesday. Read the complete transcript below.
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View the webcast at https://events.q4inc.com/attendee/387352285
Summary
UMB Financial reported a strong quarter with results surpassing expectations, including a 10.8% annualized loan growth and a 9 basis point core margin expansion.
The company emphasized its minimal exposure to the private credit industry, with less than 1% of loans to private credit funds and additional disclosures provided for clarity.
Fee income showed strong performance, particularly in corporate trusts, investment banking, and fund services, contributing to positive operating leverage.
Capital levels improved with a common equity tier 1 ratio increase to 11.1%, and the company executed share repurchases while maintaining a focus on organic growth.
Management expressed confidence in maintaining positive operating leverage throughout 2026 and highlighted strong momentum in newer markets and robust loan pipelines.
Full Transcript
Kay Gregory (Investor Relations)
Please go ahead Good morning and welcome to our first quarter 2026 call. Mariner Kemper, chairman and CEO and Ram Shankar, CFO will share a few comments about our results. Then we’ll open the call for questions from Equity Research analysts. Jim Ryan, 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 foresees. Forward looking statements and any pro forma metrics are subject to assumptions, risks and uncertainties as outlined in our SEC filings and summarized in our presentation on slide 50. Actual results may differ from those set forth in forward looking statements which speak only as of today. We undertake no obligation to update them except to the extent required by securities laws. Presentation materials are available online at investorrelations.umb.com and include reconciliations of non GAAP financial measures. All per share metrics refer to common shares and are on a diluted share basis. Now I’ll turn the call over to Mariner Kemper.
Mariner Kemper (Chairman and CEO)
Thank you Kay and good morning. Everyone will share some brief comments, then open it up for questions. We reported another strong quarter with results well ahead of expectations. We had 10.8% linked quarter annualized loan growth boosted by 2.3 billion in gross production, 9 basis points of core margin expansion driven by a 24 basis point decrease in the cost of interest bearing deposits, High quality credit metrics including 19 basis points of net charge off provision of 27 million driven mostly by the 1.4 billion increase in period end loan balances and finally continued momentum in our fee businesses with strong contributions from corporate trusts, investment banking and fund services where assets under administration increased nearly 20 billion from the prior quarter and stands at 565 billion. I’ll let Ram get into more detail around our results in a moment, but First, I’d like to address some of the headlines around the private credit industry which appear to exaggerate exposures and risks at regional banks. Private credit has been around for years and has been and will continue to be an important part of capital formation on a global basis. We have heard some concern that due to our varied lines of business we may have some outsized exposures and could impact our performance. The fact is that we have negligible exposure to the private credit industry and what exposure we do have is to high quality and experienced operators that have diversified holdings, strong credit structures and low leverage at the fund level, all underwritten to low loan to value metrics. We are proud to partner with a few of the strongest players by providing asset servicing solutions to their funds. This quarter we’ve added additional disclosures to our IR deck to explain what private credit means to us and more importantly, what it doesn’t. First on slide 31 we have outlined our total NDFI lending exposure, providing additional color to the standard call report categories. As you can see, our total NDFI exposure is 2.6 billion, or just 6.6% of total loans. Within that total, approximately 300 million or less than 1% of the loans are to private credit funds. Further, a third of those loans are subscription lines which carry an even lower level of risk. As I noted earlier, these private credit funds are primarily secured by diversified holdings of senior secured loans, have strong borrowing bases, minimal exposure to at risk industries, low leverage, and they have continued to see strong gross inflows. Just under 1 billion of our NDFI loans are to private equity funds with the largest portion of these being subscription lines, also known as capital call lines. As you can see from the definition Included on page 31, subscription lines inherently carry even lower risk to lenders as they are short term lines that are repaid with funds received from on capital calls made to investors who are contractually obligated to contribute the capital to the fund upon request. The slide gives other detail and characteristics of our high quality portfolio, including the fact that over 98% of NDFI balances are pass rated. As you have heard us say before, lending to NDFIs is not a new phenomenon and has long been a part of our CNI portfolio with minimal historic losses. Turning to our fee income exposure to private credit funds, we’ve added some additional detail on asset servicing and custody. Slide on page 36 approximately 43 billion of our more than 565 billion in assets under administration is related to private credit, representing just 7.6% of the total. More significantly, the AUA High private credit fund increased nearly 5% from the end of the prior quarter. The related annual fee income totaled approximately 13 million, or just 1.6% of annualized first quarter fee income and similarly, any deposit impact from these funds is immaterial. Moving on, our capital levels continue to build with March 31st common equity tier 1 ratio of 11.1, a 20 basis point improvement from December. While our capital priorities remain the same with organic growth at the top of our list, our board approved an increased share repurchase authorization and as you can see in our earnings release, we opportunistically repurchased approximately 178,000 shares in March. We will continue to remain opportunistic in the second quarter. Finally, our results this quarter drove positive operating leverage of 6.4% on a linked quarter basis, a 155 basis point improvement in operating rotce, and an operating efficiency ratio of 47.6%. We continue to expect positive operating leverage for the full year of 2026, even with the impact of lower expected contractual accretion benefits. I’m extremely pleased with the performance of our newer markets and I’m excited to continue the momentum throughout the remainder of this year. And now I’ll turn it over to RAM for some additional detail on the drivers of our first quarter results.
Ram
Ram thank you mariner the first quarter included $51 million in net interest income from purchase accounting adjustments, 15.1 million of which was related to accelerated accretion from early payoffs of acquired loans. The benefit to net interest margin from total accretion was approximately 33 basis points. On slide 10 is the projected contractual accretion, which is estimated at approximately 71 million for the remainder of 2026 and 79 million for 2027. These totals do not include any estimates for accelerated payoffs. Slides 12 and 13 include some key highlights and drivers of our quarter over quarter variances. Non interest income for the quarter was 204.8 million, an increase of 6.4 million or 3.2%. Drivers included strong performance from both fund services and corporate trusts, increased deposit service charges and investment banking revenue where municipal trading income increased by 39% from fourth quarter levels. Within the other income category, we had 5.9 million in non recurring gains on previously charged off HTLF loans, a variance of 5.4 million from the fourth quarter. And we had a $3.8 million decline in coli income, which has a similar offset in reduced deferred compensation expense adjusting for investment gains, the non recurring items I noted and mark to market on coli. Our fee income for the first quarter was approximately 198 million. On the expense side we had just 4.4 million in merger related costs compared to elevated levels in the prior quarter when the largest portion of contract termination and conversion expenses were recognized. Excluding the impact of one time costs, operating non interest expense was 375.4 million, a reduction of 4.2% compared to the fourth quarter. Largest drivers included a reduction of 5.9 million in salaries and benefits, expense related to lower bonus and commissions accruals following strong fourth quarter performance and a 3.9 million reduction in deferred compensation expense partially offset by seasonal increases in payroll taxes, insurance and 401k expense. Compared to the guidance I provided last quarter, the favorability in expenses was driven by timing of marketing and other spend sooner than expected synergies realized on contract terminations and deferred compensation expense. Looking ahead, we would expect second quarter operating expense to be in line with the current consensus expectations of 383 million doll. The increase from first quarter primarily reflects one additional salary day as well as the impact of our merit cycle that went into effect in April. Turning to the balance sheet, driving the 10.8% annualized growth that Mariner mentioned was 22% annualized growth in average C and I balances led by strong activity in Texas. Other regions including California, St. Louis, Colorado and Utah posted double digit quarterly growth. It’s great to see the momentum building in several of our acquired regions along with Utah where we opened our first fiscal bank location in December. Our pipeline remains strong heading into the second quarter. Average deposits as shown on slide 25 were essentially flat in the first quarter as the 10.4% linked quarter annualized increase in DDAs was largely offset by lower interest bearing deposit balances. We added a metric this quarter that adds customer repurchase agreement balances which are deposit surrogates. Average customer funding increased 702 million or 1.2% from the prior quarter and 4.8% on a linked quarter annualized basis. This balance remix coupled with the residual impact of the rate cuts in the fourth quarter drove our cost of total deposits down by 19 basis points to 2.06% while cost of interest bearing deposits declined by 24 basis points to 2.79%. We realized a blended beta of 70% on total deposits for the quarter driven by favorable mix shift as well as continued outperformance for pricing on our soft index deposits. Reported net interest margin for the first quarter was 3.38% excluding the 33 basis points contribution from purchase accounting adjustments. Core margin was 3.05% increasing 9 basis points sequentially. The primary drivers of the linked quarter increase in core net interest margin included benefits of a favorable deposit mix shift and repricing of deposits following the reduction in short term interest rates and the positive impact of day count in the quarter, partially offset by loan repricing and lower loan fees and the impact of liquidity balances and a lower benefit from free funds relative to the first quarter adjusted margin of 3.05% that excludes accretion. We expect second quarter margin to be relatively flat as the benefits from fixed asset repricing are offset by day effect and stable deposit costs and mix shift. I will add my typical caveat that actual margin and net interest income will depend on the levels of DDA growth and excess liquidity, any SOFR movements and mix shift within the lending and funding portfolios. Finally, our effective tax rate was 21.1% for the first quarter compared to 20.3 for the fourth quarter. Looking ahead, our tax rate is expected to be between 20 and 22% for 2026. Now I’ll turn it back over to the operator to begin the question and answer session.
Rebecca (Conference Operator)
At this time I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We’ll pause for just a moment to compile the Q and A roster. Your first question comes from the line of John Ostrom, with RBC Capital Markets. Your line is open.
John Ostrom (Equity Analyst)
Good morning everyone. Hey, good morning. Maybe Mariner or Jim for you guys on the pipelines. Good number, the 2.3 billion. Maybe it’s a little seasonality in there, but do you expect that to continue to grow from here? And you flagged this in the release, but have you seen any impact on pipelines from some of the geopolitical risks or higher energy costs?
Mariner Kemper (Chairman and CEO)
I’ll take that first, Jim, feel free to add anything. You know, I think this, this is a good news story that I don’t really have anything new to tell you. You know, from being in this seat for 22 years. It’s the same thing every quarter for 22 years, which is, you know, the next quarter looks pretty good and it’s not seasonal at all. And we continue to book loans based on our strategy, bottoms up capability, capacity of the officer, market share opportunity in the markets that we’re in and in the verticals we’re in and there is a very long Runway for us across our entire footprint, including some new very big markets like California, anything.
Jim
The only thing I would add is it’s continues to be strong and it’s from cross section from all markets.
John Ostrom (Equity Analyst)
Yeah. Okay. And then anything on the payoffs and pay downs slowing? I know that that number jumps around, but it was a pretty big step down in the quarter and I guess. Is there anything you would flag on that?
Mariner Kemper (Chairman and CEO)
No, actually I would say that the anticipated payoffs and pay downs in the first quarter actually materialized. So we expected to happen happen and it can kind of bump around the reality of it as we look forward. If you know we’re going to be higher for longer instead of seeing rates come down, we’re not likely to see as much payoff pay down for the rest of the year. If that’s going to …
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