UMB Financial Corporation

Good morning, and thank you for attending today's UBM Financial second quarter 2022 conference call. My name is Donyell, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I would now like to pass the conference over to our host, Kay Gregory, UMB Investor Relations. You may now proceed.

Good morning, and welcome to our second quarter call. Mariner Kemper, President and CEO, and Ram Shankar, CFO, will share a few comments about our results. Jim Rhine, CEO of UMB Bank, and Tom Terry, Chief Credit Officer, will also be available for the question and answer session. Before we begin, let me remind you that today's presentation contains forward-looking statements, which are subject to assumptions, risks, and uncertainties. These risks are included in our SEC filings and are summarized on slide 43 of our presentation. 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. All earnings per share metrics discussed on this call are on a diluted share basis. Our presentation materials and press release are available online at investorrelations.umb.com. Now I'll turn the call over to Mariner Kemper.

Thank you, Kay, and thanks everyone for joining us today. Our second quarter results included a 23% lean quarter annualized increase in average loans, solid net interest margin expansion, and continued momentum in our fee businesses. Income from bond trading activities and 12b-1 fees were strong, while we saw some market-related pressure in trust and security processing and in the valuation of our equity positions. Additional drivers are included in our slides, and Ron will share more details shortly. Net income for the quarter was $137.6 million, or $2.83 per share. Operating pre-tax, pre-provision income was $187.1 million, or $3.84 per share. Financials for the second quarter included a pre-tax gain of $66.2 million, from the sale of our Visa Class B ownership included in fee income. In conjunction with the gain, we made a one-time contribution of $5 million to our charitable foundation included in other expenses. Pipeline and sales activity continue to be strong across the company. In private wealth, we brought in nearly $750 million in new assets year-to-date on track to significantly outpace 2021 full-year sales of $836 million. Our institutional banking teams are continuing to perform well. Year-to-date, new business volume has increased 15% in corporate trusts and escrow services and 68% in specialty trusts. And public finance has closed 68 deals so far in 2022, compared to 52 for the same period last year. The team recently closed its largest bond issue to date, a $146 million general obligation bond. As you may have seen in June, we announced the agreement to acquire Old National Bancorp's HSA business. As healthcare services continues to focus on direct-to-employer space, this acquisition provides an extremely strong team, along with more than $400 million in deposits that will complement our organic growth efforts. Moving to lending, you'll see the drivers behind the growth this quarter on slide 24. Top-line loan production, as shown on slide 25, again was very strong. coming in at $1.3 billion for the quarter. Payoffs and paydowns moderated some and were 3.1% of loans. Given the opportunities we see across the footprint, we expect continued strong growth in the third quarter. We saw phenomenal growth in CNI, with balances increasing nearly 30% on a linked quarter annualized basis. While line utilization ticked up slightly in the second quarter, much of the growth is due to consistent sales efforts paying off in new customers, as well as our relationships with strong companies needing capital to continue to grow. Average residential mortgage balances have increased 27% over the second quarter of last year. As we've discussed previously, we don't rely heavily on mortgage gain on sale revenue. However, we continue to grow our own portfolio and have seen strong activity through our down payment assistance program of late. The program launched in December of 2021 and is geared towards underserved markets, and it had more than 500 new applications year-to-date. On the other side of the balance sheet, average total deposits for the quarter decreased 3% or 12.2% on an annualized basis compared to the first quarter, while average DDA balances increased slightly and comprised 45% of average deposits. While we've seen cycle-to-date beta on interest-bearing deposits of approximately 34%, I think this metric alone gives an incomplete view, as it ignores the benefit of DDA balances, which have zero beta, and the impact of borrowing levels, which have this 100% beta. I'd encourage you to look at our total cost of funds instead, which had a beta of 22% thus far. Additionally, we benefit on the earning asset side. with cycle-to-date betas of nearly 54% and a linked quarter beta of 61%. This compares favorably to others we've seen report so far. Our net interest margin expanded 25 basis points from prior quarter, driven by asset repricing and favorable mixed shift in earning assets. I'll note that the deposit pricing we're seeing is so far outperforming our internal expectations. We'll continue to manage these costs as we can while opportunistically funding organic loan growth. As you know, we have a larger commercial and institutional customer base relative to many peers. As such, we have some index deposits that tend to move more quickly with interest rate changes. But we look to the entire relationship and overall profitability of these relationships. For example, many public fund customers bring treasury management, lockbox, card programs, and bond issuances opportunities. And in addition to lending relationships, our commercial clients may also have corporate card or healthcare service products. Similarly, many of our institutional clients have asset servicing or suite product relationships in addition to the lending relationships. Moving to asset quality, our net charge-offs were elevated in the quarter, driven entirely by a $27.7 million write-down related to one single commercial credit. While this quarter's charge-offs were elevated, We expect that our full-year loss rate will be consistent with our long-term historical averages of approximately 30 basis points or less. Non-performing loans declined 84% from the prior quarter to 10 basis points of total loans as the overall portfolio continues to perform well. Our reserve coverage ratio is now 0.87% of total loans in line with post-CISL day one implementation levels. I'll close by thanking our associates across the country for their hard work and dedication to our customers and communities. I'm excited to execute on the opportunities we see in the second half of the year and beyond. Now I'll turn it over to Ram for some additional comments. Ram?