UMB Financial Corporation

Good morning. Thank you for attending today's UMB Financial Third Quarter 2022 Results Conference Call. My name is Forum, and I will be your moderator for today's call. All lines will remain 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 1 on your telephone keypad. It is now my pleasure to pass the call over to our host, Kay Gregory, UMB Investor Relations.

Good morning, and welcome to our third quarter call. Mariner Kemper, President and CEO, and Ram Chandra, 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. Yesterday afternoon, we reported our third quarter results reflecting positive momentum across our business lines. Highlights include robust loan growth coupled with strong asset quality and solid core revenue growth. Net income for the third quarter was $88 million, or $1.81 per share. Operating pre-tax, pre-provision income was $131.2 million, or $2.70 per share. Net interest income increased 3.9% sequentially, driven by a nearly $1 billion increase in average loans, positive asset mix, and the impact of rising rates. This was partially negated by increased profit costs, largely driven by a transition from DDAs to rate-varying accounts, which is typical in an interest rate cycle such as the one we're seeing today. the timing of deposit initiatives to attract new to bank customers in each of our business lines, the availability of attractive short-tenner investment options, and the impact of clients reacting to typical market pressures in a raising rate environment, particularly on our rate-sensitive institutional businesses. This is consistent with what we're seeing from other trusts and custody banks like ourselves. Our cycle-to-date data on interest-bearing deposits has been 46% and 27% on total deposits. As we've noted in the past, our business profile and funding mix is uniquely skewed in favor of our commercial and institutional sources. These sources experience different pace and timing than many of our peers in the repricing environment. Our fee businesses performed well, driving non-interest income growth, excluding the impact of the non-recurring gain from the sale of Visa-class fee shares in the second quarter. Additional drivers are included in our slides, and Ron will share more details shortly. Excluding contributions from PCP and the market-related impact from gains and losses on investment securities, we've generated operating leverage of 4% year-to-date. This continues to be the focus for us, and we expect to generate positive operating leverage for the full year. Pipelines and sales activity continue to be strong across the company, and I'll share a few highlights from the various businesses. In private wealth, our team has surpassed full year 2021 sales, bringing it to $874 million in new assets year-to-date. Our institutional banking teams are continuing to perform well. Year-to-date new business volumes have increased 16% in corporate trusts and escrow services and 35% in specialty trusts. And public finance has closed 110 deals so far in 2022, on track to exceed 2021 levels. Fund services and institutional custody assets under administration levels have been impacted by equity market valuations in 2022, and AUA levels now stand at 352 billion. However, the teams continue to bring in new clients, including more than 200 new custody accounts year-to-date. And the fund services contribution to our trust income has increased 6.2% year-over-year. In health care services, we rank among the top 10 HSA providers in the U.S. We expect the acquisition of the Old National Bank Corp's HSA business to close in mid-November. This acquisition will bolster our position with an additional $400 million in inexpensive deposits and approximately $100 million in investment assets. Moving to lending, the drivers behind our nearly 22% lean quarter annualized growth in average balances this quarter are are on slide 24. Total top-line loan production, as shown on slide 25, remains strong at $1.3 billion for the quarter. Payoffs and paydown represent 4.7% of loans rebounding from the low levels second quarter. Commercial real estate and construction loans posted 20% annualized growth in the third quarter, while payoffs will fluctuate from quarter to quarter. We expect we will see them eventually begin as anticipated in the raising rate environment. We saw continued outperformance at C&I, with average balances increasing 27% on a linked quarter annualized basis and making up more than half of this quarter's total growth. Industrial production continues to be strong, and we're seeing a good mix of new customer acquisition and increased borrowings from existing commercial relationships. Line increases are moving closer to pre-pandemic levels and general customers' comments indicate that the draws are largely related to depleting stimulus liquidity, higher inventories, and higher prices. Average residential mortgage balances have increased 23% over the third quarter of last year, despite the impact of raising rates. Our down payment assistance program designed to support first-time homebuyers in underserved markets has had more than 1,000 new applications resulting and 1.6 million in assistance here today. Looking ahead to the fourth quarter, we see opportunity in our various verticals across the footprint, and we expect continued strong growth to round out the year. On the other side of the balance sheet, average total deposits for the quarter decreased 5.7% compared to the second quarter, driven primarily by DDA outflows from elevated second quarter levels, primarily in our institutional businesses. Compared to the third quarter of 2021, our DDA balances increased 8.7%, led by corporate trust, commercial, and investor solution verticals. Because of the often project-based orientation of our corporate trust businesses, we can just as easily see spikes in DDA as we have seen a decline this past quarter. DDA balances represent 42% of average deposits, compared to 45% in the second quarter and 39% in the third quarter of last year. We continue to focus on deposit gathering, including the deposit initiatives I mentioned, as well as engaging with our current customers. One area of growth we're excited about is our business banking and practice finance vertical, which has seen exceptional deposit growth over the past few years. We continue to invest in this business to drive future growth on both sides of the balance sheet. While we've seen cycle-to-date data on our interest-bearing deposits of approximately 46%, I think the metric alone gives an incomplete view, as it ignores the benefit of DDA balances, which have a zero beta, and the impact of our borrowing levels, which have been at 100% beta. I'd encourage you to look at our total cost of funds instead, which have had a beta of 32% thus far this year. Additionally, we benefit on the earning asset side, with cycle-to-date beta of nearly 50%, In this environment, we expect loan growth and improving asset yields will continue to drive above-peer growth in net interest income. Moving to asset quality, net charge-offs in the third quarter were just 0.02% of average loans, while non-accrual loans remained steady at 10 basis points of loans. We continue to expect that our full-year loss rate will be consistent with our long-term historical averages of approximately 25 to 30 basis points or less. Provisions for the quarter of 22 million was driven by our continued strong loan growth, portfolio metrics, and changes in the macroeconomic outlook. Our reserve coverage is now at 0.93% of total loans. In September, we were successful in raising 110 million in capital through our subordinated note offering that will help us facilitate our expected balance sheet growth for the remainder of this year and on into 2023. Our own UMB capital markets team participated as co-manager, bringing in clients that made up about a third of the total offering. The capital raise favorably impacted our ratios. September 30 total capital and leverage ratios were 13.13 and 8.66% respectively. And in our press release, we announced that the board had approved a 2.7% increase in our dividends bringing it to $0.38 per share payable in January. Finally, we've seen many changes in the outlook for markets and the economy in the last few months. We've got unprecedented Fed tightening and record inflation, along with uncharacteristically tight labor markets. And geopolitical conflicts, along with contagion effects from across the Atlantic, have increased economic uncertainties. We have active dialogues with our own clients about their businesses and outlooks. Borrowers are generally optimistic about the rest of 2022 and remain cautiously so looking forward, although most are concerned about rising costs. While our customers are in good shape, we, like many others, expect that we may experience a short recessionary environment. Historically, the leading economic index, or the LEI, has become a good indicator. In more than 40 years of history, a drop In the six-month rate of the LEI, below negative 3% has preceded periods of recession. As of last week, the index was at negative 5.6%, further decreasing from a negative 5% at the end of August. Unlike the previous cycle, banks came into this cycle with stronger capital positions, and the consumers came in more liquid and less leveraged. Therefore, we don't expect it to be as destructive, but more of a recess of the economy. As I mentioned, we see good growth opportunities in the fourth quarter, although we'll continue to watch closely for early warning signs for deterioration, which at this point seem to be contained in specific areas such as consumer discretionary. This is where we differentiate ourselves by rolling close to shore, which is part of our risk management philosophy that keeps us prepared for all environments. In closing, I'm proud of our teams, as always, as they continue to work together work hard for our customers and communities. Now I'll turn it over to Ram for additional comments. Ram?