UMB Financial Corporation

Hello, everyone, and welcome to the UMB Financial Fourth Quarter 2022 Financial Results Call. My name is Daisy, and I'll be coordinating your call today. If you would like to register a question, please press star followed by one on your telephone keypad. I would now like to hand the call over to your host, Kay Gregory, with Investor Relations to begin. So, Kay, please go ahead.

Good morning, and welcome to our fourth quarter and year-end 2022 call. Mariner Kemper, President and CEO, and Ron Chalker, 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 42 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 Happy New Year, everyone. Thanks for joining us today. I'll make some brief comments about our quarter in 2022, and then turn the call over to Ram for a review of our results in more detail before we take your questions. Our fourth quarter results closed out another record year of earnings, driven by strong balance sheet growth, solid credit metrics, from our differentiated fee income sources. Net income for the fourth quarter was $100.2 million, or $2.06 per share. For the full year of 2022, net income was $431.7 million, or $8.86 per share, an increase of 22.3% compared to 2021. Operating pre-tax, pre-provisioned EPS for the year was $11.73 per share, compared to $9.26 per share for the prior year. Net interest income for the fourth quarter increased 5% sequentially. This was driven largely by an over $1 billion increase in average loans, which is a 21% increase on an annualized basis, the impact of rising rates, positive asset mix shift, and loan fees. This was partially negated by an increase in deposit costs, largely driven by deposit initiatives to attract new-to-bank customers, particularly in our commercial business. Additionally, we saw some continued market pressures in our rate-sensitive institutional business. As we've noted in the past, our business profile and funding mix is uniquely skewed in favor of commercial and institutional customers. These sources experience different pace and timing than some of our more retail-heavy peers in the repricing environment we are in today. Cycle to date, we've had a beta of 54% on interest-bearing deposits and 33% on total deposits. during this cycle is generally in line with our internal expectations and consistent with what we've been talking about publicly. We tend to focus more on total funding costs, which considers the benefit of DDA balances and the impact of borrowing levels. That beta is 36% cycle-to-date. And we benefit on the asset side as well, with a cycle-to-date beta of 53% on loan yields. 60% of our loans repriced within the next quarter and 70% in the next 12 months. We expect this repricing, combined with our outlook for loan growth, will continue to drive good growth in net interest income. Pipelines and sales activity in our fee businesses continue to be strong across the company, driving year-over-year non-interest income growth, notwithstanding some market-related variances. I'm excited for the opportunities we see in 2023 and beyond. Updates on our various lines of business are included in our slides, and Ron will share a few details shortly. We've long focused on our goal of positive operating leverage rather than specific revenue and expense levels. For the full year of 2022, we generated leverage of 6.7%. This continues to be a focus for us, and we expect to generate positive operating leverage again in 2023. Moving to lending, the drivers behind our 21% linked quarter annualized growth in average balances this quarter are on slide 23. Total top line loan production, as shown on slide 24, remains strong at 1.3 billion for the quarter, bringing full year 2022 originations to a record 5 billion. Payoffs and paydowns represent 3.4% of loans for the fourth quarter. While we and fear banks have seen some slowdown in the sale and refi markets, payoffs are hard to predict from quarter to quarter. The average for the year was just over 4%, in line with our longer-term trends. CNI lending provided nearly half of our $1 billion of average loan growth for the quarter, with balances increasing 21% on a linked quarter annualized basis. Commercial demand continues to be strong, and we're seeing robust activity within our existing customer base. Line utilization has ticked up from last year and was at 37% for the fourth quarter. Commercial real estate and construction loans posted 25% annualized growth in the fourth quarter, predominantly in multifamily and industrial properties. Construction represented a large portion of new commitments in 2022, so we'll see the additional impact and balances as those loans begin to fund. Average residential mortgage balances have increased 21% over the fourth quarter of last year, despite the impact of a rising rate environment. Our down payment assistance program for first-time homebuyers had more than 1,600 new applications, resulting in $2.9 million in assistance in 2022. Looking ahead to the first quarter, we see opportunity in our various verticals across the footprint, and we expect continued strong growth to kick off. 2023. Credit quality remains excellent. Net charge-offs were just four basis points of average loans for the fourth quarter and 21 basis points for the full year. Non-performing assets comprise a modest five basis points of total assets. Provision for the quarter of $9 million was driven by our continued strong loan growth, portfolio metrics, and changes in the macroeconomic environment. Our reserve coverage is now at 0.91% of total loans. Back to the balance sheet. Average total deposits of the quarter increased 5.3% or 21% on an annualized basis compared to the third quarter. Our deposit initiatives and commercial banking brought in more than $1 billion during the quarter. DDA balances remained steady from the last quarter and represent 40% of average deposits compared to 42% in the third quarter and 41% in the fourth quarter of last year. The economic data continues to be a paradox, with the labor market signaling a soft landing, but other indicators like the LEI index are signaling a more prolonged recession. We have ongoing dialogue with our clients about their business and outlooks, and borrowers are generally seeing good pipelines, and many are reporting that supply chain issues have mitigated somewhat. However, caution remains as finding talent to support growth may be a head end. As I mentioned, we see good growth opportunities in the first quarter, and although we continue to closely monitor early warning indicators, we're not seeing any broad concerns. Overall, 2022 was a very strong year. While the unpredictability of the current rate environment is challenging, our time-tested business model and relationship-based culture continues to perform well, and we're off and running as we start the 2023 year, with the goal to maintain positive operating leverage regardless of the health and direction of the economy. Now I'll turn it over to Ram with some additional comments. Ram?