UMB Financial Corporation (UMBF) Earnings Call Transcript & Summary

I guess follow [indiscernible] I heard you on the balance sheet. Could you help on the comments on the on off-balance sheet deposits? I know there's like a relationship between deposit fee income. I guess the question would be really normalizing the fee income adjustments in the quarter? And what's the jumping off point in the back half.

That's -- so it won't really relates to the ongoing growth of our fees. We were able to kind of keep that going independent of what's on and off balance sheet. That's kind of a -- the numbers up a little bit, as we said in the call, like 3.4% or so. But they stay pretty steady, and we're able to grow the rest of the business kind of independently as that. if that helps. And then the comment was that we can pull some portion -- a large portion of that on balance sheet if we need it or desire it if we're willing to pay market rates. So I shouldn't -- your question is that we pull it on does it affect our fee income. The answer is no.

Your next question is from the line of Casey Haire with Autonomous.

So I wanted to drill into the core in guide a little bit more. Just from a loan yield and deposit rate perspective, just what's backstopping that flattish outlook? Is it loan yields trending up and deposit costs trending up as well or both flat? Just a little bit more color and maybe if you can stop rates on both.

Yes. I'll answer the second question. First, the spot rates for us don't make a whole lot of sense because of the volatility of our deposit mix. So that's probably not what I would disclose. But you're exactly right on the first question is if you look at even this quarter, our loan yields, excluding PAA, went from $599 million to $601 million, and our cost of interest-bearing deposits went up 2 basis points. So we'll expect that to growing up or down based on what's happening. And then the impact to margin will entirely be ready data on what happens with DDAs and what type of deposits come in at what time. So that's kind of driving our flattish outlook for NIM going forward. And then just on the future, if there weren't to be any rate hikes, you can see it on our IRR page, our sensitivity to higher rates or lower rates or very modest 0.7%, impact on NII for 100 basis points move. So any quarter, that should be a very negligible impact both on NII and then expectations we outpaced the growth anyway, correct.

Got you. Okay. And then just from a loan-to-deposit perspective, I know you guys are in great shape at under 70%. I think you guys have talked about a ceiling of $75 million, just what do you expect to get there? I know this is a seasonally challenging quarter for deposits, but -- just trying to -- the loan growth momentum is very strong. I know you guys feel comfortable with your deposit outlook longer term. But just trying to get a sense of when -- where you expect the loan-to-deposit ratio to land and when -- at what level would we step up the urgency in terms of deposit pricing?

So I think we don't that level of urgency has been in place. It's been in place. I've been CEO over 22 years. We have the same level of urgency about core deposits as we have ever had. and banks should never ignore core deposit growth, and they do periodically to improve their ratio. So that has never been something we played around with. I think deposits are the essence of the value of our balance sheet and the value of our company altogether. So if you look at Page 40 in our debt, I would say that's really the way to think about our business is not to think about it from quarter-to-quarter or really to think about what we're able to do year-over-year over year over year. And there is no expectation that we can't continue to do what you see on Page 40, which is nice, steady deposit growth. And so we're not -- 1 of the reasons we don't talk about or think about where we aim that loan-to-deposit ratio because if you look at what we're able to do on Page 40 over a long period of time with the exact same management team, we have no expectation that we can't keep delivering.

Your next question is from the line of Janet Lee with TD Cowen.

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

We expect in that -- in trust and serious processing to be able to continue to have the same general growth rate with possible upside. So we have a very strong pipeline. We continue to gain share. Well, 1 of the things I'd say overall about -- 1 of the main pieces that would then trust and securities processing is our fund servicing business. If you were to go back, say, 10 years in that business, we depended on start-up fund business. which we were chasing profitability and growth by focusing on that part of the business. You fast forward to where we are today, and we are doing very little start-up business and average size has come up a lot. And we're competing for any piece of business in that space at this point. up and down the spectrum and complexity spectrum. And so the pipelines are very, very strong. And I think we talked before to 1 of the -- we've been able to benefit from backing some of the platforms that are democratizing alternative investing for the larger population. And so that has really benefited us as well as those platforms continue to grow. with us being the piping behind that. So the profile for all those businesses and corporate trust and really the rest of them, the 2 anchors are Fund Services and Corporate Trust. but the growth is coming across all of our fee businesses and no expectation that we can't keep the same growth rate or better.

Got it. And on deposit growth, are you pointing to public fund the overall deposits being down in the third quarter, given further public fund outflows and then rebound in the fourth quarter? And is there any seasonality to Investor Solutions segment within the deposits category, which have been down a couple of quarters?

Yes. I mean I think the way to think about it is 2 pieces to our deposit story on an annual basis, and we use 2 terms. You got the seasonality part, which is both the bounds and then you have episodic and because of our institutional businesses, on an average basis versus actual basis, you can have a lot of noise because there's a lot of episodic transaction-based activity at the client level throughout our whole institutional base. That's why we always point to longer terms, annual terms or averages over time instead of point in time type numbers. So that's -- so the point about seasonal low point in the third quarter is we do start to build public funds and there are some other trust type relationships that start to build back up in the back half of the year. So that's why we say that. In addition to that, there's episodic stuff that can drive up significantly or drag us down 1 month or the next or something. So we -- but it's really -- I really like to try to have the investor group focus on Page 40, which is what are we able to do as a company with fees and loan-to-deposit ratio over the long period of time, not quarter-to-quarter or month-to-month.

Your next question is from the line of Nathan Race with Piper Sandler.

This is Adam Kroll on for Nathan Race. So maybe just starting, is there any update to the potential impact from the new capital rules and just how that could impact your long-term CET1 target and appetite for buybacks, just given with your profitability, you'll be building capital at a pretty strong plant.

Yes. We've done some proven reassessment on that, Adam. And in our early expectations, it could be depending on the RWA changes could be 50 to 60 basis points net benefit after inclusion of AOCI. We'll wait for any guidance on how we deploy that in capital, but you heard us all say #1 priority for capital is always going to be organic loan growth. As you've heard from the team, our pipeline remains strong for the next foreseeable future. And so that will always be the primary source of deployment of capital. But our CET1 is at 11.5%, as Mendo said in his prepared remarks, we're well ahead of where we thought we would be opposed hard won. and it continues to build. You saw what we did this quarter and last quarter with repurchases last quarter, a big dividend increase this quarter, strong continued organic growth. So those will be the options in front of us.

Try to take a balanced approach to it. And we certainly want to focus on building long-term value through focusing on organic growth is the first priority. But there's a balance to that, and that's why we increased the dividend and have done some buybacks. So we like to kind of take a balanced approach and look at everything and with just the priority being investing in the business.

Got it. I appreciate the color there. And then 1 other 1 for me is I'd be curious if you could provide some color on how competition has evolved across your footprint from a loan pricing perspective? And just generally, what are new loans coming on the portfolio.

Well, if you look at our peer group, you can see that we have the best is not 1 of the best loan yields in the group. So we're able to maintain our strong loan yields. And you can see on a linked quarter basis, it's very steady there. So I would say that it's always competitive. Some of it really has to do with mix. and how much variable rate loans are putting on versus fix -- and we like to manage that, think about that as we're worried about where interest rates are headed and mixing in at the right time, mixing in more fixed-rate debt and vice versa depending on kind of the way the prevailing wins are going on interest rates. But we are very neutral on that front. We managed to be neutral. And we're very confident that we can keep leading loan yields based on value proposition and mix and real relationships. So everybody probably says that, but you can see it in our numbers.

[Operator Instructions] And your next question is from the line of Brian Wilczynski with Morgan Stanley.

I wanted to go back to fee income for the institutional businesses like Fund Services and Trust. Can you talk about the impact that capital markets activity has on those businesses. I was wondering what matters the most for them is that the level of asset prices, M&A activity, debt capital markets, what would you say matters the most for growth in those areas from a market perspective?

The capital markets part of our business, which would be public debt issuance and escrow work and all that, that -- it's a little complicated we have our underwriting business, which is pretty small, but it is a nice contributor. Then we have our Corporate Trust business where we do the [indiscernible] work with that. And to the extent, I would say that to the extent that we have recovery in the market, and there is more debt being issued, we will play a bigger role on a national basis as an administrator as a public and private debt takes place, which it has been. So the leading indicator for Corporate Trust would be activity, right, debt issuance, both private and public. We have seen a nice uptick on that across the board. And so -- and then there's -- again, there's a lot here. So then on the fund services side, you've got like CLOs and ABL, ABS work and then we'll do the administration of the fund servicing on those funds. So we benefit from that. So again, to the extent that, that issuance is on the upswing, we benefit from that, both as an issuer. On the municipal side, we have a great bank, bank qualified and nonbank qualified issuance and sales business, sales and trading business. And then we have our Corporate Trust business that plays more broadly into public and private debt across the spectrum of asset classes. And that's -- so you have seen an uptick across the country, and that's what we benefited from that. like Jim wants to add.

No, I was just going to add, if you think of it in terms of like similar to our commercial business, it's market penetration, and taking market share from other providers. That's also going to be part of the growth regardless for us. So we continue to see the fruits of our labor in those efforts.

The 2 biggest drivers, as I mentioned earlier, in institutional for us, our Fund Services and Corporate Trust. And while we were talking about debt issuance on Corporate Trust side, there's also aviation and there's administering CLOs and all that. So it's more complex. It's not an easy question to answer, but the trends across all the verticals is very strong. I guess what I'd leave you with.

Got it. Really appreciate all of that color. And then maybe going back to loan growth for a moment. It does look like the paydowns increased a bit Q-on-Q. and were maybe a little bit higher than expected in the second quarter. Can you just talk about what drove that and how you're thinking about the cadence of pay downs from here?

Yes. So 2 things I'd say. One, if you look at a 3-quarter linked basis there. You'll see that really Q1 is kind of a low point, and Q2 is really more normalized with the previous 3 quarters. And so I would say the last quarter is probably an anomaly low quarter. So that's the comment I would make about this particular quarter compared to last quarter. But just generally speaking, the anticipation for higher payoffs would be around rates. So the current environment is not indicative of increased payoffs and we're likely -- most likely to see rate increases by the end of the year. So we don't have much expectation really for accelerated payoffs in the near term. All right. Well, that seems to be the last question. We appreciate everybody's questions and really sorry about the technical difficulties that we had a good recovery. Again, I always appreciate the questions and we are thrilled about our quarter and your interest. We'll see you -- see you next quarter.

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

Ladies and gentlemen, this does conclude the UMB Financial Second Quarter 2026 Financial Results Conference Call. Thank you for joining. You may now disconnect.