UMB Financial Corporation

Hello and welcome to today's UMB Financial Third Quarter 2023 Financial Results Conference Call. My name is Elliot and I'll be coordinating your call today. If you would like to register a question during today's event, please press star followed by one on your telephone keypad. I'd now like to hand over to Kay Gregory, Investor Relations. The floor is yours. Please go ahead.

Good morning and welcome to our Third Quarter 2023 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. Today's presentation contains forward-looking statements which are subject to assumptions, risks, and uncertainty. These risks are included in our FCC filings and are summarized on slide 46 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 security 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. Good morning. I'm happy to be here with you today to share the details of our strong third quarter performance. Our results reflect a strong, disciplined loan growth, stable deposits, continued momentum in many of our fee-generating businesses, expense control, stable margin, and solid asset quality. I continue to be extremely proud of the long track record of prudent underwriting that has produced these asset quality metrics. Our loan portfolio remains healthy with eight basis points net charge-offs for the third six basis points year-to-date. Non-performing loans improved seven basis points from nine basis points prior quarter. Provision for credit losses was $5 million for the quarter compared to $13 million in the second quarter, driven largely by changes in macroeconomic variables and general improvement in the watch and classified categories. The average charge-off ratio for the five-quarter period shown in our deck is the lowest in our history. Impressive considering the 18% increase in average loan balances during that same time period. We saw improvement in the levels of both past watch loans and classified loans, which declined 13% and 6% respectively from the second quarter. Our watch list levels fluctuate from time to time as we manage the books. And historically, we've seen very little migration to loss. Our current historical credit performance has been achieved through our focus on risk management and consistent approach that comes from having the same team working together for multiple cycles and decades. We continue to closely monitor macroeconomic trends and have regular conversations with our clients across our footprint, something we do in all economic environments. Despite uncertainty from the brewing geopolitical crisis, as well as the volatility in interest rates, our commercial clients remain cautiously optimistic. Now I'll cover a few highlights from the quarter, and Ron will follow up a few details and drivers. Gap net income for the third quarter was $96.6 million, or $1.98 per share. Operating net income was $98.4 million, or $2.02 per share. Net interest income decreased 1.5% from the second quarter as loan growth improved and asset mix and yields were offset by an increase in deposit costs. While net interest income for the industry continues to be impacted by higher funding costs, our net interest margin in the third quarter is essentially flat on a linked quarter basis. The flexibility on the asset side of our balance sheet helps mitigate the continued impact of liability pricing. We have a loan-to-deposit ratio lower than our peers and industry median and largely variable asset base and strategically planned cash flows. In fee income, we saw solid results in several lines of this Trust and securities processing income increased 8.2%, driven by growth in all business contributing to this line, fund services, corporate trust, and private wealth. In fund services, assets under administration reached $400 billion in the third quarter. Year-to-date, our team has added nearly 50 new clients, which helped drive the 9.2% increase in revenues we saw on a one-quarter basis. Our non-interest expense levels fell by 3.8% and included variances in deferred compensation expense related to the reduced COLE income. Additionally, severance expense declined along with salary and wage expense, reflecting the ongoing efforts to control operating expenses. Ron will provide more additional color on these various drivers shortly. Turning to the balance sheet, The drivers behind our 10.1% annualized growth in average loan balances this quarter are shown on slide 24. For comparison, the Bank Center reported results through October 20th at a median lean quarter annualized increase of 5.3%. The Federal Reserve H-8 data had predicted an increase in industry-wide average loan balances of just 0.4% or 1.6% annualized. Despite some caution surrounding the current environment, Our relationship banking model continues to build a pipeline of quality clients, and given what we've seen today, we expect some continued outperformance relative to the industry and loan growth metrics. Total top line loan production, as seen on slide 25, was $649 million, with payoffs and paydowns declining slightly, representing 3.2% of loans for the quarter. Credit quality is strong across our book and the CRE portfolio remains well diversified by property classification, tenant type, and geography, as shown on the slide on page 36 and 37. Looking ahead to the fourth quarter, we see opportunity across our various lending verticals and geographic regions. We have continued to evaluate the best use for capital, and we remain disciplined on pricing, further emphasizing lending opportunities accompanied by meaningful dot-posit relationships. On the other side of the balance sheet, average total deposits were essentially flat versus the second quarter. Declines in broker CD balances and typical seasonal reductions in public funds were offset by growth in commercial deposit balance. We expect public fund balances will begin to rebuild again in the fourth quarter. As we've noted previously, deposit balances will naturally ebb and flow as our largely commercial customer base uses funds for typical business purposes. including payroll, dividends, and other activities. Finally, we strengthened our liquidity and capital positions even further during the quarter, as depicted on slide 32. Our quarter end CET1 and total capital ratios were 10.77% and 12.68%, improved by 12 and 9 basis points, respectively, from June 30. Our CET1 ratio compares favorably to the peer median. And in our press release, we announced that the board had approved a 2.6% increase in our dividend, bringing it to 39 cents per share, payable in January. As we've shown on slide 15 of our presentation, our quarterly dividend has increased 283% over the past 20 years. There were 23 individual dividend increases during that period. To wrap it up, we're pleased with our results this quarter. The pundits have varying opinions. But it seems clearer than inflation levels, however you want to measure it, haven't reached the Federal Reserve's expectations. All indications are the data-dependent Fed will pause on further interest rate hikes. The variables now are when rate cuts may begin and how quickly they may happen. But we fully expect a higher for longer scenario at least through 2024. Such a scenario would be favorable for our balance sheet. as the pressure on deposit costs largely abates while asset repricing continues through that period. Additionally, earning asset yields will improve as we use cash flows from our securities portfolio to fund higher-yielding loans. With the uncertainty in the macro and geopolitical environments, we feel that our business model is prepared for a wide range of outcomes. It has proven itself over time as we've adapted to a changing environment and set of circumstances. Now I'll turn it over to Ram for a more detailed look at our results. Ram?