UMB Financial Corporation Stock

Hello, everyone. Thank you for joining us, and welcome to UMB Financial's Third Quarter 2026 Financial Results Conference Call. [Operator Instructions] I will now hand the conference over to Kay Gregory, Investor Relations. Please go ahead.

Good morning, and welcome to our third quarter 2026 call. Along with our quarterly results, we announced an acquisition to acquire El Dorado Savings Bank headquartered in California. You will note that we've posted 2 presentations to our website, our typical quarterly review and an overview of the announced acquisition. Mariner Kemper, Chairman and CEO; and Ram Shankar, CFO, will provide brief comments about the transaction and our results, and then we'll open the call for questions. Jim Rine, President of the holding company and CEO of UMB Bank, along with Tom Terry, Chief Credit Officer, will be available for the question-and-answer session.

Before we begin, let me remind you that today's presentation contains forward-looking statements, including the discussion of future financial and operating results as well as other opportunities management perceives. Actual results may differ and are subject to assumptions and risks. These risks are outlined in our SEC filings and summarized in our presentation on Slide 48.

Now I'll turn the call over to Mariner Kemper.

Thank you, Kay, and good morning, everyone. I'm very excited to report both our strong third quarter results and the acquisition of Placerville, California-based El Dorado Savings Bank. In recent quarters, we've discussed our desire to build scale in our retail franchise by screening for well-run banks in markets where we already operate. Part of our ongoing strategy is to selectively augment our organic growth engine with tuck-in acquisitions that meet our criteria, a granular low-cost retail deposit base, low loan-to-deposit ratio, quality credit metrics and a similar culture.

El Dorado fits that description very well, strengthening our physical and brand presence on the West Coast with 35 branches across the Sacramento metro area, the Sierra Nevada foothills in the Lake Tahoe community, and in the Reno area. The acquisition will launch us into some of the most desirable markets in both California and Nevada and will deepen our foothold in areas adjacent to our current branch network. El Dorado is ranked as the #1 community bank in 3 markets, including the vibrant and fast-growing Lake Tahoe area and within the top 10 in 6 additional markets. Our total branch count will grow to 227 across the footprint, an increase of 18%.

And with the addition of El Dorado's $2.1 billion in deposits, our consumer franchise will represent approximately 26% of our total deposit base. At just 88 basis points, El Dorado's total cost of deposits in the third quarter ranks among the lowest nationwide. Additional attractive characteristics of this franchise include an 89% insured ratio, $60 million in average deposits per branch and an average deposit account age of 14 years, excluding CDs. And with this highly liquid balance sheet and a loan-to-deposit ratio of just 24%, we see significant potential value as we deploy the excess liquidity.

We will also be acquiring approximately $500 million of loans predominantly made up of consumer mortgages, with a 39% loan-to-value and an average loan size of $138,000. Both banks share a culture focused on providing high-quality customer service, a strong associate experience and support the communities we serve. We expect the transaction to close in the first quarter of 2027, subject to the approval of El Dorado shareholders and customary regulatory approvals. Ram will provide a few additional details about the transaction shortly. Now turning to a few brief comments on the third quarter.

We reported net income of $272.3 million, which resulted in earnings per share of $3.56. Balance sheet and fee income growth, strong asset quality metrics, and stable net interest margin contributed to an operating return on tangible common equity of 19.5% for the quarter. A few highlights from the quarter include record top line loan production of $3.1 billion, driving $1.1 billion or 11.1% linked quarter annualized growth in average loan balances. We maintained exceptional credit quality with just 13 basis points of net charge-offs and an improved nonperforming loan ratio of 28 basis points compared to 31 basis points in the second quarter.

For comparison, the industry-wide NPL ratio for banks reported so far this quarter was a median of 53 basis points. We had continued growth and momentum in our fee businesses. Total fee income from our institutional banking business increased 3.2% from linked quarter and nearly 18% year-to-date. Specifically, Fund Services' contribution to trust and securities processing income grew 8.8% compared to the second quarter and more than 22% year-to-date. And Corporate Trust posted a nearly 19% year-to-date increase. Additionally, Corporate Trust recently advanced in the league tables, now ranking as the #2 municipal trustee in the country based on deal count.

In Fund Services, we announced the continued expansion of ETF servicing capabilities, broadening our focus on supporting a variety of asset classes. Private wealth teams have brought in $1.2 billion in net new assets in September year-to-date, already matching full year 2025 levels. Finally, our year-to-date results have produced positive operating leverage of 11.5% -- as I noted, we had extraordinary loan production in the third quarter. While we still expect a strong fourth quarter, gross production levels are likely to moderate from these record levels to be more in line with the first half of the year.

On the capital front, on September 15, we redeemed $150 million of our subordinated debt. Our quarter end CET1 ratio rose by 5 basis points from June to 11.50%. Organic growth remains our top capital priority given our long uninterrupted track record of outperformance and growing loan balances. At the same time, we've also demonstrated our ability to evaluate and integrate acquisitions that support our organic growth, as evidenced by our successful integration of HTLF.

Now I'll turn it over to Ram for more detail.

Thanks, Mariner. The third quarter included $33.1 million in net interest income from purchase accounting adjustments, $9 million of which was related to accelerated accretion from early payoffs of acquired HTLF loans. The benefit to net interest margin from total accretion was approximately 22 basis points. Slide 10 of our third quarter deck shows projected contractual accretion, which is estimated at approximately $23 million for the fourth quarter, $75 million for 2027 and $62 million in 2028. Noninterest income for the quarter was $232.4 million, a decrease of $13.1 million from the second quarter.

Drivers included a $16.1 million reduction in gains on investment securities following an exceptionally strong second quarter and a $7 million decline in company-owned life insurance income. Excluding the impact of investment security gains, mark-to-market on COLI and the $1.8 million onetime gain on the sale of building, we saw a sequential increase of $8.2 million or 3.9% in fee income, largely driven by a $5.7 million increase in trust and securities processing income, along with other smaller positive variances outlined on Slide 17. Adjusting for those items, our run-rate fee income for the third quarter was approximately $218 million. Non-interest expense was $399.5 million, virtually flat from the prior quarter.

As outlined on Slide 18, the $5.9 million decrease in salary and benefits expense was largely offset by increases related to timing of laptop purchases within supplies and services, timing of marketing spend related to deposit campaigns, higher occupancy costs stemming from redundant service providers, along with a non-recurring OREO loss of $1.5 million. Professional services included expenses related to our investment in AI and digital asset offerings. We've selected Glean as a tool to help our business teams with day-to-day workflows and processes. Glean has been rolled out to nearly 1,000 associates who collectively have used the tool to prompt over 53,000 work actions.

The work has generated more than 550 use cases to date from both customer-facing and back-office departments. These range from training, credit administration and portfolio management, board and management reporting and others. Business cases are being prioritized to achieve hard-dollar cost savings, process improvements, and overall improved productivity. Looking ahead, we would expect fourth quarter operating expense to range between $400 million and $405 million, largely reflecting incentive compensation accruals related to company performance as well as technology project costs.

Turning to the balance sheet. The 11.1% annualized loan growth Mariner mentioned was driven once again by nearly 22% annualized growth in average C&I balances, led by strong activity across the footprint, led by St. Louis, Texas, and Utah. As Mariner mentioned, we posted extraordinary loan production of $3.1 billion in the third quarter. Loan yields continue to benefit from higher short-term interest rates and fixed asset repricing as well as a mix shift towards C&I categories. Customer sentiment remains strong, and our pipeline for the fourth quarter remains healthy. I will add the typical caveat that payoff levels remain hard to predict with certainty and will impact net growth levels.

Average deposits, as shown on Slide 25, increased 1.1% from the linked quarter. Average DDA balances declined 6.1% from the second quarter, reflecting expected seasonal disbursements within the Institutional Banking business. Reported net interest margin for the third quarter was 3.32%, in line with the prior quarter. Excluding the 22 basis points contribution from purchase accounting adjustments, core margin was 3.10%, increasing 1 basis point sequentially. The primary linked-quarter drivers of core NIM included continued benefits from asset repricing and higher reinvestment rates within the lending and bond portfolios and the impact of changes in liquidity levels, resulting in a favorable mix shift, offset by a lower benefit from free funds due to DDA seasonality and higher interest-bearing deposit costs.

Our cost of interest-bearing deposits increased nearly 4 basis points, reflecting the partial impact of the FOMC rate hike in September and to a lesser extent, mix shift within deposit categories. Our balance sheet remains generally interest rate neutral with approximately 55% of our $66 billion of earning assets considered to be variable and generally indexed to 1-month SOFR rates, while approximately 52% of our $58 billion deposit book is indexed to short-term interest rates. The trajectory of margin in any particular quarter may be impacted by the timing of both FOMC rate hikes and how 1-month SOFR prices in anticipation of those actions and the mix of new loans and deposits.

As shown on Slide 26, the index deposits will reprice immediately in response to FOMC action, while loan yields reset with a slight lag on the contractual reset dates. Relative to the third quarter core margin of 3.10%, we expect fourth quarter margin to be relatively flat. Finally, our effective tax rate for the third quarter was 18.7% compared to 20.8% in the second quarter. The decrease was primarily driven by a discrete tax benefit from the release of valuation allowances related to certain state deferred tax assets. For the fourth quarter, our tax rate is expected to be between 21% and 22%.

Turning to the financial metrics of the El Dorado Savings Bank acquisition. Transaction assumptions are on Slide 8 of the acquisition deck. With $2.1 billion in high-quality core consumer deposits and $500 million in loans, we view this acquisition as akin to a branch transaction. The purchase price consideration of approximately $500 million will be structured as a cash stock transaction. UMB will issue 1.8 million shares to El Dorado shareholders based on a fixed exchange ratio of 13.553x UMB shares for each share of El Dorado. This transaction will provide an opportunity for customary cost synergies, coupled with additional liquidity to continue funding our extraordinary loan growth. We expect the transaction to be modestly accretive to earnings in 2027.

Now I'll turn it back over to the operator to begin the Q&A session.

[Operator Instructions] Your first question comes from the line of Casey Haire with Autonomous Research.

So Ram, I wanted to touch on the NIM, the core NIM flat in the quarter. Just a little help on some of the drivers. Number one, the new money loan yields versus that 6.09%. And then just some updated thoughts on where beta can finish in this next up-cycle versus the previous up-cycle.

Yes, sure. As we said, we expect fourth quarter NIM to be consistent with where we were on a core basis. So some of the drivers are the usual ones, right, fixed-asset repricing. So if you look at our debt, we have more than $3 billion of loans priced at 5.25% that are going to reset about 100 basis points based on that. We also have $2.5 billion of securities that are going to reprice from 3.80% to -- if you look, we're getting close to 5.60% on new money yields. So that's consistently going to happen for us as you approach the rate cycle. The other drivers are just if you look at our loan yields, excluding PAA, that was up 5 basis points. That's a combination of, again, the fixed asset repricing and new money coming in.

And obviously, 1 month SOFR started moving well ahead of what the Fed did in September as well. So that was a benefit. And then on the flip side of the balance sheet, it's also driven by what's happening with our indexed deposits. So as I said in my prepared comments, 52% of our deposits are indexed. And so far, we've done a pretty good job early on with the soft index in terms of how we negotiate those rates. Obviously, as you know, the hard index deposits are very formulaic and they reprice. So generally, I would say, same thing as the down cycle, we expect 90-ish percent beta on the hard index over time, maybe 65%, 70% beta on the soft index and then the rest of the deposit book should be generally priced.

Given rates are as high as they are, there's not a lot of pressure on, obviously, DDAs in the back book. So that's kind of the entire picture of margin drivers. And the other thing that also happened in the quarter, the last couple of quarters is just the mix that I talked about. If you look at our loan growth, a lot of it was -- almost all of it was C&I loan growth, which has a higher yield than any other loan category. And then when you look at bonds and excess cash versus loans, we had a lot more of loans as a relative percentage of earning assets.

And that stuff will reprice on the way up. Yes, exactly.

Okay. Great. And just lastly on the deposit front, was there any pulling of off-balance sheet funds onto the balance sheet this quarter? And just thinking longer term, the loan growth is great. The deposits have lagged it. I know you guys are in a good position at 69% loan-to-deposit ratio. But if these trends continue where loans significantly outpace deposits, at some point, you're going to bump up on that 75% loan-to-deposit ratio, would that force you to slow down loan growth or push up deposit pricing?

Yes, I'll take that. I mean I think, unfortunately, I don't -- if you could listen to our calls, you know that we talk every year about a low point in the third quarter. So we are -- we have experienced a low point in the third quarter based on seasonality basically. We fully expect to have happen in the fourth quarter, what always happens in the fourth quarter and fully expect, if you look at our deck over time, the way loan growth and deposit growth work year-over-year for that to continue to happen. So we have 0 expectation that what you just described is even remotely a scenario for us to encounter. So fourth quarter deposits will grow. We have a really nice line of sight in some really great corporate and institutional deposit growth in the first quarter. And so that's not even a thing, I guess, is what I'd tell you.

Your next question comes from the line of Jared Shaw with Barclays Capital.

Thanks for the color on the trends going into the fourth quarter. Anything on fee income? You've had really good success there. I mean, how should we think about the rate of growth coming off of core fees with some of those newer initiatives?

Yes. What I love about our remarks every quarter and year in and year out is that our strategy is working. So the good news is what you have seen, you should continue to see our fund services team is on fire. The pipeline is very strong. With the addition of our ETF business, we expect the coming year to be very strong just in the ETF side alone. We've talked about how that business has changed over the last 5 or 6 years from having to rely on smaller, younger businesses to really being able to win large mandates from large existing clients and prospects. So there's not a piece of business we can't win, and we're talking to everybody, and we have a really deep awesome pipeline. So we're very excited about that business.

And as you heard in the prepared remarks, our Corporate Trust business, we've just gone up to #2 in the lead tables. And with offices on both coasts and throughout the country, we're picking up bigger mandates. We talked about this before where now that we're on the coast, you have a sewer and water deal in Illinois or Iowa, it could be a $300 million deal. You have a sewer and water district in New Jersey, it can be a $1 billion deal. So it's really changed the dynamic of the business over time.

We also have been able to attract a lot of talent in that business in both of those businesses, particularly in the corporate trust business as the larger banks take their eye off the ball and really aren't focused on smaller businesses. So a $100 million business for a large national bank is one they're not interested in. For us, we're pretty excited about $100 million business. So we find ourselves picking up people who feel forgotten from some of these larger institutions. And so that's been really great. And then just kind of across the board from -- just there's nice solid strength through the other businesses. And we talked about having $1.5 billion in new asset growth in our wealth business, which is better than where we were full year last year. So just hitting on all strides. Teams are really doing well. The technology is leverageable. The teams are leverageable. We couldn't be more jazzed about our institutional and fee businesses than we are right now.

Great. Appreciate that color. And then secondly, looking at the paydowns and payoffs, anything -- was there anything unusual in the third quarter? Or just as you get bigger, we think we should think that, that's sort of a good stable level offset by the strong production.

Yes. We've been trying to assess that ourselves whether it was unusual. I think it just was a large quarter. I think we are a bigger company and over time, the base should grow. We think that the third quarter was slightly larger than what the average should be going forward. But we do have a bigger base. So we're not totally sure ourselves. But it's more likely to kind of reset to the last couple of quarters than it is to stay at $3.1 billion. But we honestly don't know ourselves because we do have a bigger footprint with a lot of new people hitting stride. We will know a couple -- maybe another 4 quarters down the road what our new baseline is with Heartland. But right now, we're kind of feeling our way through that.

Your next question comes from the line of Jon Arfstrom with RBC Capital Markets.

Just following up on Jared's question on the loan production numbers. Obviously, very strong, better than the prior quarters. I understand you expect some moderation, but anything that you would call out on that over $3 billion production number?

No. Just that it was a strong quarter, and we think explanation point, I think that it's probably a little larger than what we should expect, probably resets a little bit more to a 3-quarter average looking backwards, but we don't really know.

This is Jim Rine, much more C&I driven just as a takeaway. We saw additional payoffs in real estate that we've expected and it wasn't like we lost clients. It just rolled to the secondary market on construction loans, which is exactly how that business is supposed to work for us. But we just had a lot of things book, whether that was delayed from second quarter or pulled through from fourth quarter. But we feel like our previous run rate is also very strong, too. So we think that will normalize back end, as Mariner said, in the first half of the year, but nothing that stands out as a certain industry or segment that was leading the charge. It's very diversified across the board.

Okay. Very helpful. Maybe, Mariner, El Dorado, I understand it's not a huge deal, but I think it makes sense and it's a good fit. Can you maybe talk about the medium-term plans you might have in those markets other than taking the loan-to-deposit ratio up and then touch on just overall M&A appetite that you might have?

Sure. Yes, I'd love to take a moment on El Dorado. I spent a lot of my time getting to know other bank CEOs to think about the customer and the associate the way we do across our footprint and got to know the cooks over the summer and late last year. And we realized very quickly that we thought about the world the same way. We really care about our associates, really care about our communities and our customers. And they have -- we're over 110 years old. They're a little over 50 years old and multiple generations just like us, really -- we really hit it off.

And the near-term goals are to do no harm, right? Like let them continue to do what they do so well in the Sacramento and surrounding areas. Well -- and then the other thing that's really neat is the Nevada part of that is newer. And what's happening with the flight from California into Nevada with a lot of the tech money that's been made and a lot of the wealth that's been made in California. We think that there's a really nice early day benefit that could have longer-term really big upside surprise is the -- what's happening around Lake Tahoe.

And if you see -- look at the map we have there, they're quite a presence right around the lake there and up into Reno. And there's quite a bit happening with movement from one state to another into better tax environments. And this bank has already benefited a lot from that. We think we can kind of double down on that and really -- so I think that's going to be some of the -- some really great early and long-term upside surprises what's happening in Nevada. And then as we take our corporate and commercial banking franchise and product set up from Fresno on in the Sacramento Valley, we think I'm excited that we have time.

We don't really need to worry about it yet. I mean we can kind of take our time to do that right, leverage our way into Sacramento with some hiring and that kind of thing and maybe positioning of branches around the greater metro area. So we're very excited about that. But early on, it's just to leverage the franchise into the whole organization with those great deposits and the under-levered situation. We're very, very excited about it.

And you can see that the branch footprint is very contiguous to the one we have. I love the fact that it's a dense footprint. I love the fact that it increases our overall branch network significantly and the low cost improves. So I mean, this deal will improve our interest-bearing deposits by -- as a company by 7 basis points. and it will take our total cost of fund deposits down by 4 basis points. It will be accretive in '27 and beyond. And we're just -- just one brick at a time. We're just -- this is a very additive beautiful deal that just fits right into who we are like a glove.

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

Maybe I missed it. I appreciate all the color around the betas for your different types of deposits. Did that include the El Dorado $2 billion of low-cost deposits? Could you maybe just put the pieces together and give your rough estimate around what the combined beta on your interest-bearing deposits could be this cycle, maybe the mix or the growth of the deposits by category could shift versus what you have on your slide going forward?

Yes. A couple of things, Janet. I mean the $2 billion, while it's significant, it's not going to materially change the numbers I gave you. The numbers I gave you are just core UMB. And one of the things I would say, Mariner said it and it's in our deck, this quarter, their cost of deposits was 88 basis points. Last quarter it was 93 basis points. So that's kind of bucking the trend of what's going on with -- including us, the rest of the industry with their deposit costs. So I don't expect a whole lot of changes to the beta numbers that I gave earlier from El Dorado.

Again, these are very granular core deposits. The average age of the client, excluding CDs is about 14 years. So no material changes to those beta numbers. And on the mix of future growth, Mariner said, we have a strong pipeline of commercial and institutional deposits. Obviously, we're running deposit campaigns as well, as you can see from our marketing spend. So it's multi-pronged.

Okay. Got it. And staying on that topic, so it looks like you're still alluding to a slight liability sensitivity before turning asset sensitive. You've talked about core NIM being relatively stable in the fourth quarter. So are we -- should we expect a modest dip in core NIM and then NIM expansion in outer quarters? Or because of the fixed rate asset repricing and you still have over 50% of your earning assets floating rate, could it be more of a stable to upward pattern?

It's more of the latter, more of stable, because 1 month -- obviously, we'll know today, unlikely that the Fed does anything today. So whenever 1-month SOFR starts repricing for that, we'll see that benefit on a lag basis on the lending book. But as I said earlier, the fixed asset loans and bonds are happening on a daily basis organically, and then it's just what will happen to deposits, hard and soft index when the Fed does move, assuming that it does move in December.

So, I would say it's more expected to be stable. The sensitivity post-Heartland for any FOMC moves dramatically reduced before Heartland, where we got a lot of consumer deposits, our sensitivity was initially the first couple of quarters because of the deposits repricing faster than loans, you would see a small dip in margin. That sensitivity has been greatly reduced since then.

Along with the remixing on the asset side, more C&I. So we're -- I think what we 68% variable.

77%, yes, 2/3 of variable and then we have the rest of the base. Yes. We have a CLO book and some other CLO floaters that we have. So that's kind of the 58% of our earning assets are variable in nature as well. So I would -- as I said in my prepared comments, I would say we are pretty interest-rate neutral from a balance sheet perspective and Slide 26 demonstrates that.

The next question comes from the line of Timur Braziler with UBS.

Back on the M&A conversation, you guys have been very clear in the past just in regards to tailoring that you wouldn't do anything in advance of that $100 billion threshold getting lifted. I'm wondering with some momentum gaining there, how we should think about future deals. Obviously, the last 2 have been very retail focused. El Dorado is smaller. Is that still the primary focus, retail and then size becomes a little bit more fluid? Or just given the economics on the smaller transaction is the likelihood that we're going to continue seeing smaller tuck-in deals versus maybe something larger?

Yes, Timur, I would just repeat what I've been saying really, which is our capital priorities are investing in the company through organic growth first and that works really well. We've got it dialed in to the extent that we can through networking and staying in touch with the overall banking community, run into opportunities that we would define as tuck-in. We will certainly review those and see if they're the right strategic and financial fit for us, particularly as they relate to in market places where we want to be more meaningful -- more meaningful presence where we already are. So that's similar, same story. I use the definition of tuck-in.

And I would say that how I define tuck-in is where we retain -- it's small enough that we retain control in every way you could define that, control the boardroom, control the culture, control the staff, the team, the leadership -- so control in every way that you can define it is how I would define what a tuck-in looks like. And then as it relates to retail or otherwise, it's really more about making sure that we're adding value and a bank -- traditional bank deal for us is about a quality core deposit franchise that's under -- that's not fully levered up.

We don't need somebody else's lending prowess. We've got lending juggernaut as a machine. We know how to do that on our own. We don't need somebody else's -- we don't need to pick up somebody else's problems. So it's really more about the deposits. And that kind of by default translates into something more largely retail based. It also more retail base more granular, smaller, lower cost average deposit size, which is also attractive. So that's what I would say about all that. And again, it's not something we have to do. But strategically, I think any bank should be looking at all their options. And if you find high-quality institutions that can make your company more valuable over time, every company should look at those things.

Makes sense. And then maybe just on the sustainability of the cost of deposits from El Dorado, clearly very low, but also very little in terms of loan to deposit, those deposits being went out. Is there a level of confidence that the incremental cost of deposits at El Dorado is going to stay well below the broader base? Or once you start maybe leaning on some of those deposits to actually fund growth in some of those markets, the cost there is going to be greater equivalent to kind of where legacy UMB is?

We are not expecting any change at all in that other than just traditional market pressures that may exist already today. And so no, I think we may mix into that footprint some small business, middle market and commercial deposits over time, which I suppose, over time, would bring up the average cost of the deposits in the market area, but what's there today and expanding and building on the retail base there and building a few more branches, et cetera, I think all that should stay just right in line with what we see today.

Your next question comes from the line of Brian Wilczynski with Morgan Stanley.

I wanted to ask about the non-interest-bearing deposits. You've highlighted that 3Q is typically the seasonal low for UMB. You typically see some nice growth in the average balance in the fourth quarter. To what degree does higher rates weigh on non-interest-bearing growth? And should we be expecting a smaller increase in NIB in the fourth quarter?

So we've talked about -- we have a lot of episodic ups and downs. The averages are more important than in the period. The second -- third quarter is traditionally a low point for us in general. I was looking at the other day, I was looking at our previous year, second to third quarter. And actually, this year is better than the previous year as far as the DDA decline. So there's nothing under the chip related to a higher rate environment that's causing that. These are operating dollars. So that's an important point is the DDAs that are really on our balance sheet are operating dollars. They're not hot money for the most part.

And so to the extent that businesses are operating as they normally would, they're going to need operating dollars. So -- the stuff that we have off balance sheet is already off balance sheet. I mean excess dollars are already wherever they're going to be. So what you see from a DDA perspective is general operating money. And it's just a seasonally low point for us in the third quarter. We expect it to build as it always does. Again, looking back historically for us, we expect similar trends to build back up DDA balances in the fourth quarter.

Got it. Appreciate that. And then going back to the loan production that you saw in the third quarter, can you talk a little bit more about where specifically UMB is gaining incremental market share right now and also how? I'm wondering what some of the key factors are? Is it speed to close? Are you being more flexible on pricing? What's driving that incremental market share for UMB right now?

Brian, are you asking us to give our secret sauce on this call to everybody and all our competitors? Just kidding. I guess the thing I'd say is for us, what I would do is I'd just point you to 22 years of double-digit loan growth every quarter, quarter in and out. And without giving you all the level competitive detail as to how we win, I would just say that we do a bottoms-up budgeting process that is not dependent on some multiple GDP.

And so we look at the officer capability capacity, tenure and pipeline and couple that with what is our penetration in both a geographic market as well as the vertical markets across our footprint. And that -- the runway for that for us by ring-fencing and keeping our talent is kind of unending. We can't see the end of the runway for us to continue to outperform just by keeping our people and executing in the market share gains and making sure that we build over time capacity by bringing people up under our team members so that they can be released to do more work.

So, I -- there's nothing real special to it other. And I guess we hail from the Show-Me State. And I would say that the proof is in the pudding. You can kind of see it in our results. We do it quarter-in and quarter-out. And I would say that we don't see any reason why we can't keep doing it. And do you want to add to that, John?

I would just add to that, Brian, that while we're not giving away our standard sauce, which I love -- we talk about being flexible, nimble, and responsive in commercial banking. The flexibility is we might be flexible on terms or covenant or what have you, but we are not flexible on credit quality. That's the underlying ingredient, if you will, that has remained true for the history of the company.

We're going to -- our process allows us to be more responsive in the way we go to market and the way we have regional credit officers in each market along with local leadership. So, we're able to turn things around more quickly. And by having experienced bankers, you add more value when you're sitting in front of a client. But at the end of the day, it all starts with our people and calling on the right types of companies that when we do have success and are awarded the business, that it shows up in a meaningful way. And we -- and that's been repeatable again for the last 20-plus years. So if you're wondering how we continue to do it, it's not by being the cheapest or giving the house away on various covenants. Credit quality remains at the core.

And given that El Dorado is based in California, I mean, California only makes up about 3% of your loans today. Is it fair to say that's sort of where the new incremental opportunity is? Does that open up a lot for UMB?

I mean, California, for us, after Heartland, we've got whole -- we have a litany of opportunities for significant expansion. California is one of them with a fourth- or fifth-largest economy, depending on how you measure it. We've got Twin Cities. We have Utah, we have Texas. All these are nascent, young markets for us with great people on the ground. In California, we got Allan Cellini as our new President out there, and we're very excited about what he brings to the table. And so California is one of the opportunities, and -- but it's one of many.

Brian, it's really appreciated.

Great. What Mariner mentioned it, but in our existing markets, there's runway. And the major -- we have 2 major metros that we're -- #1 is market share. So market penetration is the core to how we plan on continuing to grow. And what that means is we take other banks clients in those markets. It's not dependent upon a growing economy or GDP. It's taking its market penetration, and that continues to be the #1 focus on how we grow the company, lending wise.

Your next question comes from the line of Brandon Rud with Stephens.

So most of might have been answered. If I could just maybe ask one more modeling question. Can you give us some guidelines or guideposts for the capital impact of El Dorado, whether it's TBV dilution or CET1?

It will be about 15 to 20 basis points dilutive to CET1 at close. But given the pace of our capital generation between now and close, we'll be right back where we are. I mean we're at 11.5% CET1, for instance, at 9/30 and we'll be north of that post-deal as well. So, it's not material from that standpoint.

Your next question comes from the line of Brendan Nosal with Hovde Group.

Just one for me. I wanted to approach the earlier loan-to-deposit question from more of the opportunity side as opposed to the risk side. So if I look back over the past year or 2, richer balance sheet, right, more loans plus cash, a more utilized loan-to-deposit ratio. Just wondering how much further you're either able to or willing to push balance sheet capacity given that you clearly still have more headroom versus your typical bank?

Brendan, I think if you're -- if you're implying you think that our loan-to-deposit ratio is creeping on us like to a point where that ends up starting to look different that's what you're alluding to?

I'm more coming from the angle of you have a richer, more profitable balance sheet than you've had a year or 2 ago, just given the richer mix and how much more willing are you able to let that run to drive a continued richer mix and more of an opportunity as opposed to a risk?

I'm not sure I understand the question. Are you...

Yes. If you're talking about cash. I mean we had excess cash because of the buildup during COVID and all that, right? So we're comfortable where cash is from the current standpoint. And as we said, our loan-to-deposit ratio is 69% right now. If we look at the highest point, we've been at 74% or 75%. And so that's -- we're not doing that intentionally in the sense that we're not taking our loan-to-deposit ratio higher. As Mariner said, both sides of the balance sheet, we see a lot of opportunities from a pipeline perspective.

Yes. I guess I would -- so now that I thought that's what you were asking. So if you were to look at Page 40 in our deck, that's the way to think about the business. And we fully expect to keep doing what we've been doing by having the deposits continue to keep pace with loan growth through all the different activities. But one of the beauties of our company is all the different sources of deposit growth that we have and the strength of our institutional businesses and our wealth business and our private banking business and our small business operation.

If you look at the middle bar there, our loan-to-deposit ratio, no matter what has happened through there, it's bumped around between 68% to 65%. Any one quarter, maybe it bumps up a little over 70%, maybe we are happy to be at a higher level if that happens, but we fully expect to fund our business with our deposits. The real value of a banking franchise is in their deposits.

And if we ever felt like we were having to buy money to fund our loan growth, we would feel like we lost our strategic footing. And so we're very focused on being able to, over time, keep deposit growth pace with our loan growth. And we think we can do that. We've done it. If you look at it again on Page 40, you can see what we do year in and year out. No reason, I can see that we wouldn't be able to continue to do that on a go-forward basis.

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

Mariner, you alluded to a bit earlier on the fund services growth in the quarter, but it seems like it's one of the strongest sequential growth that we've seen within Fund Services over the past several quarters and revenues in that line up 22% year-to-date over last year. So just curious if you can just kind of unpack if there were any kind of new client wins? And just generally, is kind of the rate of growth that we've seen year-to-date and over the second quarter kind of sustainable within that line going forward?

Yes. The business is really just hitting its stride. I think it just gets better from here. The pipeline is very robust. The client sizes are bigger. The opportunities are larger, deeper, broader. I think the business is kind of hitting its maturity and its ability to really compete across all the asset classes and asset types, and I just think it gets better from here. And there's no particular account I would point to that's looking backwards that is part of that nice growth, 22% growth.

I'd say it's just -- it's broad. We talked a little bit about a few things that are driving it, i.e., the platforms for democratizing, investing with the guys that are making available alternative investments to a broader base of clientele. Those platforms that we were partnering with at the very beginning of that, we just benefit from the growth. The ETF business, it's early days. We're just launching that, but we already have line of sight into the clients that are going to come into that. That's why we launched it.

And that also ties into my comments about some of the visibility of deposit growth in the first quarter. So yes, I mean, it's -- we're just -- got a great team, a great product set, and they're just hitting stride. And I would also add that the custody side of the business doesn't totally -- custody side of the business doesn't totally depend on just the fund services business anymore. We're fully selling that across all verticals, insurance, government, corporate and having a lot of success there as well.

Got it. That's helpful. Just one more for me on operating leverage and kind of the expectations there around expense growth. Historically, expenses have been growing 6%, 7% absent the HTLS acquisition from last year. But just curious, just given some opportunities to maybe become more efficient with AI and back-office areas. Are you guys maybe thinking that operating leverage can accelerate into next year and perhaps '28, notwithstanding the acquisition impact? And just if you can comment on kind of what opportunities you're seeing to just streamline operations with some of the technology out there these days?

Yes. I mean, I don't want to go down a rabbit hole year on that. We -- Ram had some comments in his prepared remarks about that. I think you should hear more from all of us about that over time. We absolutely think as a company, we will get -- become more efficient as we deploy AI into things like credit administration, fraud detection, all those kinds of things across the organization, which we are currently deploying. I don't have -- it's too early to give you the actual impact, but all those projects are underway across the whole company. It's just the latest iteration of the technology evolution and companies, sure better be deploying all this everywhere they can.

One of the things we want to do being a financial institution where large companies depend on us day in and day out is we want to make sure we're doing it judiciously and carefully so that we're not -- while we're making ourselves better, we don't increase risk at the same time. So we're taking our time to do it right and put all the governance in place along the way on the front end. We have over 1,000 associates now using Glean. And we're seeing all sorts of benefit on a daily basis as we measure how that's being used. So again, part of that is like let's make sure we measure how that's being used, how people are using it, how the tokens are being used, do it very judiciously.

But I would tell you, we're using it everywhere, plan to deploy it everywhere in every way to make ourselves more efficient, take tasks, repeatable tasks out of human hands, take friction out take human error, reduce human error. And to me, more importantly than all of this is allow our people to do more as opposed to focusing on reducing staffing levels is allowing our great people to do more. So very excited about the way we're using AI. I think it's a great benefit, and it's just kind of next-gen tech in my mind, the way I think about it. And you guys want to add anything to that?

I think you covered it well. There are lots of small wins. There have been some bigger wins, especially in the fraud area and look forward to that continuing.

Your next question comes from the line of Terry McEvoy with Wells Fargo.

Just one question for me. The NDFI loans represented about, call it, 35% of the net loan growth last quarter, and I'm just comparing the presentations Q2, Q3. So my question is, what NDFI verticals were behind the $400 million increase? And how sustainable is that growth?

Yes. Thanks for that question. There's nothing really -- we looked at that and thought, is something that stands out here. And I would say that nothing really stands out in there. It's kind of broad-based. We have this big fund services business, so there's some subscription lines in there. Most of it would be, as we studied it, is just current customers using the lines and borrowing money. So that's really kind of what happened in the quarter. For the most part, it wasn't actually growth in client level for the most part. It was more using the debt -- existing debt with existing clients.

I would just say, while it does show up as part of our loan growth in the quarter, I would remind you that from my vantage point, NDFI really is just a reclass. Most of these clients have been doing business with us for 20-plus years. Just as a general reminder for everybody, NDFI is just a reclass done by the government so that they can have a better vantage point into how banks in general were lending to other companies who did similar things to us. And so it wasn't supposed to capture a new trend. It was really more of a reclassification. So I just want to remind you of that. So for us, that's all it was. There really is no NDFI growth on our balance sheet. It's just a classification of things we've been doing forever. So nothing really to note. Customers using their lines and expanding their businesses and such.

Your next question comes from the line of David Feaster with Raymond James.

I wanted to start just following up on the credit side. Obviously, you guys are very disciplined on credit. You've got a strong track record. Your credit metrics are really good. But as you dig into the portfolio, is there anything -- as you talk to your clients, is there anything that you're watching a bit more closely or proactively maybe managing out or throttling back on? And just as you stress the book from higher rates, is there anything that you're maybe watching a bit more closely?

Great question, David. I guess how I'd answer that is we're all trained customers. So Tom and Jim and myself, who are all in this room together, have been doing business together and approving loans together for 30-plus years together. And we've seen just about everything, and we like to think we'll get smarter as we go through all the things we've been through. And we believe in gravity as a company, we believe what goes up, comes down. We're always worried. So -- and I would just say that the way we underwrite every credit we underwrite is that it's going to go bad and how we're going to get our money back.

So, we don't worry unusually about our own portfolio. I mean if you're asking comments about the economy, I could spend the next 30 minutes talking to you about how I'm worried about the economy. But that's why we take such good care of our own credit portfolio. So we've gone from 2004, $2 billion in loans and 22 basis points of charge-off, to $42 billion in loans today and 13 basis of charge-off. So, we like to think we get the bumps and the bruises make us smarter and keep us out of trouble. One of the things we do really well is we identify challenges and potential challenges on our watch list, so the top category of our watch list. The 5s can look like an EKG or the Rocky Mountains because we're quick to put stuff on there.

But what you'll notice is the very bottom line, the charge-off line on our chart that we would produce is 0. So we have next to 0 charge-offs because we're quick to take action, quick to identify problems and quick to manage things. So I guess this is something that I'm most proud of and care about the most. And we worry a lot about credit, and that's why we have such a clean book.

Your bigger question -- obviously, your bigger question about the client base. They're basically all talking about the economy. They're concerned about it, but they're still cautiously optimistic. We're not hearing a lot of deep concern from our customer base.

That's encouraging. And maybe just following up on El Dorado. I mean, look, obviously, you're getting a ton of excess liquidity, great core deposit base. How do you think about -- as you close, I mean, there's going to be some opportunities to maybe reinvest those or reposition the book? Or how do you think about using that excess liquidity and maybe as you think about managing your rate sensitivity?

Well, I mean, how we plan on using that liquidity is we want to help our customers build their lives and borrow money from us to do so. And we're excited to be able to deploy that with our customers, both in California and elsewhere. We would love to put it to work right there in those communities. But we're excited to do that. And I mean, as far as the, I guess, the investment book, if you were asking about that, Ram can take that.

Yes. So they have $1.4 billion of high-quality mortgage-backed securities primarily. So as part of the acquisition, as you know, David, we have the market. So they will come to current yields, current market yields, call it, 5.25% or even higher than that. So that's a pretty good book in line with what we would buy from a pre-purchase analysis and everything my treasury team does here. So that's a pretty quality book. And then we'll use the existing cash flows, both from our existing bond portfolio and new deposit growth to continue to fund our organic growth strategy.

Your next question comes from the line of Ben Gerlinger with Citi.

Ram, over the past, I think, 4 quarters, you've given a guide of NIM being flat-ish. And it's been in the ish, but it's always had an upward bias. Just kind of thinking like when you look at over the past year, what has outperformed when you kind of give that forward NIM to being better than flat?

So the 1 basis point, I would say I think one, it was probably the mix of assets within the loan book in favor of C&I and then less cash. Cash makes 3.88% today. And I take the same funds and make a new loan at 6.25%, it helps at the margin what the loan yields are doing. That's why we have a 5 basis points increase in our core loan yields. I think that's a big part of the remixing and then everything else, right, remixing within the fixed asset repricing that we talked about within the bond portfolio and the loan portfolio.

Again, with the amount of deposit moves and lending that we do, it's always hard to predict margin, but I feel pretty good that we got to within a basis point of where it was last quarter. And if I outperform in the fourth quarter, it's because we have more deposit growth coming in. The other -- it could be off plus-or-minus a couple of basis points. So we feel pretty good about margin guidance overall. So other than that, I can't think of anything. Obviously, the timing of -- as I said in my prepared comments, the timing of when the FOMC might do something October versus December would impact that as well.

Got you. No, that's helpful. And then Mariner, you sounded open to doing some deals. I mean you kind of gave some guide of like boardroom composition and culture and things like that. But in theory, like you could have a pretty wide range in terms of assets. Is there a ceiling? I mean, considering if you're looking at just boardroom itself, like you could in theory do something like $25 billion. I don't want to put words in your mouth, but it seems like you're open to doing deals with a bias towards the smaller end, but you're agnostic on size. Is that a fair way to frame it?

No, I wouldn't say we're agnostic on size. A couple of things that are of note. We're approaching $100 billion, and we need to make sure we're ready for that. And we would not -- because we're not ready today, while we have a plan, we're not ready today, we would not do a deal that would put us on top of that number. So that's important for you to know when you think of those numbers you're throwing around.

And then the other part about Board composition, the idea of what I was trying to get at there was that I like my Board and it's -- I don't need somebody else's Board. So to the extent that I have to do a deal that's a size where I'm giving up board seats, we don't need to do that. So that was what was intended to help you with sizing. -- is typically when you're giving up percentage of your company of any meaningful size, you're giving up board seats. So that was what I was trying to take that, if that's helpful.

The last question comes from the line of Anthony Elian with JPMorgan.

On loans, you saw another quarter of really strong net growth. I know you mentioned in the prepared remarks that production is likely to moderate here in 4Q. But how should we think about net loan growth in 4Q also in light of the macro headwinds you called out in the press release?

We didn't intend to call out any macro headwinds in the press release we did. I think the loan growth, what we try to do is give a kind of a look at the next 90 days. That's about as much as we normally do. And what I was trying to guide for fourth quarter was a loan growth rate that looks more like the last -- the third quarter and the second quarter -- or sorry, the second quarter and the first quarter than the third quarter, if that makes sense.

Okay. And I guess the comments I was referring to is where you mentioned persistent inflation, the Middle East conflict, higher rates, et cetera. But I hear your message. My follow-up on El Dorado -- go ahead, Mariner.

Yes, I think those are just backdrop conversation. They're not -- they were not intended to guide you towards loan growth. So...

That's clear. My follow-up on El Dorado. You're picking up over $2 billion -- you're picking up over $2 billion of low-cost deposits, and it looks like a small enough deal for UMB. Over the near term, is additional M&A off the table as you work to close and integrate El Dorado?

No, that's a great question. Absolutely not. It's a small enough deal. Our team is -- have got really good muscle memory. The government is in a place where they're very helpful in kind of moving things along. This is -- we're looking at this more like a branch deal, not a heavy lift. I know many people are looking at me thinking they're going to get yellow because they're going to be doing the work, but it's a short -- long story long, no, it shouldn't keep us from doing more M&A if the right deal came along.

We have reached the end of the Q&A session. I will now turn the call back to management for closing remarks.

I guess I jumped the gun. Thanks, everybody. We're really thrilled about our quarter and about joining up with Cook family in California and all the great things we're going to do. So thanks for the time and the support. We'll talk to you soon.

Thanks, Mariner. And if you have questions, you can always reach us at (816) 860-7106. Thanks, and have a great day.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello, and thank you for standing by. My name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the UMB Financial Second Quarter 2026 Financial Results Conference Call. [Operator Instructions]

I would now like to turn the call over to Kay Gregory with Investor Relations. Please go ahead.

Good morning, and welcome to our second quarter 2026 call. Mariner Kemper, Chairman and CEO; and Ram Shankar, CFO, will share a few comments about our results, and then we'll open the call for questions from equity research analysts. Jim Rine, President of the holding company and CEO of UMB Bank, along with Tom Terry, Chief Credit Officer, will be available for the question-and-answer session.

Before we begin, let me remind you that today's presentation contains forward-looking statements, including the discussion of future financial and operating results as well as other opportunities management foresees. Forward-looking statements and any pro forma metrics are subject to assumptions, risks and uncertainties as outlined in our SEC filings and summarized in our presentation on Slide 48.

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. Presentation materials are available online at investorrelations.umb.com and include reconciliations of non-GAAP financial measures. All per share metrics refer to common shares and are on a diluted share basis.

Now I'll turn the call over to Mariner Kemper.

Thank you, Kay, and good morning, everyone. Yesterday afternoon, we reported second quarter net income of $271.8 million, resulting in earnings per share of $3.56. Our strong results generated an operating return on tangible common equity of 20.3% and an operating efficiency ratio of 48.1%. A few highlights from the quarter include a 12.6% linked-quarter annualized growth in average loan balances, bolstered by a record $2.6 billion in gross production, continued high-quality credit metrics with net charge-offs of just 16 basis points of average loans. Nonperforming loans were 31 basis points, an improvement from 38 basis points in the first quarter, 4 basis points of core margin expansion through disciplined pricing on both sides of the balance sheet and ongoing momentum in our fee businesses.

Our private investment activity continued to deliver with $27.1 million in net gains from our holdings, primarily related to our investment in Beacon Communications and SpaceX Technologies. Total fee income from our varied institutional banking businesses increased 6% on a linked-quarter basis and 19.6% from the second quarter in 2025, led by asset servicing and corporate trust. Each of those businesses saw a more than 20% year-over-year increase in fee income. In Fund Services, assets under administration increased nearly $57 billion from the prior quarter and stand at $622 billion. And finally, our off-balance sheet deposits grew by 3.6% from the first quarter to $23.7 billion. This growth drove an increase of $4.2 million or 23% in our 12b-1 fees and money market income.

As expected, deposit growth and pricing continue to be an industry focal point. Our average deposit balances were flat for the quarter as increase in commercial and asset servicing were partially offset by the seasonal decline in public funds, along with our lower investor solution balances. Our average cost of interest-bearing deposits stayed roughly flat as well. While balances were flat, we are well positioned with a diverse funding mix, low loan-to-deposit ratio and healthy liquidity levels. The third quarter is typically a seasonal low point for deposits, but we feel good about our deposit pipeline in the second half of the year. Although we were able to improve core margin this past quarter, as you've heard us say, we are focused on balance sheet and net interest income growth as long as it comes at a reasonable spread.

Additionally, our balance sheet remains flexible with nearly $1.5 billion of excess cash and additional $24 billion in off-balance sheet client deposits. A portion of those deposits can always be brought on balance sheet if desired at market rates. And our asset base also provides additional flexibility, including $2.3 billion in securities that roll off or mature within the next 12 months. On the capital front, levels continue to build with June 30 common equity Tier 1 ratio of 11.45%, a 29 basis point increase from March. Our capital priorities remain the same with supporting organic loan growth at the top of the list. We have demonstrated consistent growth with a median linked-quarter annualized increase in loan balances of 10.5% over the past decade.

Our continued strong financial performance and pace of capital accretion allowed us to raise the dividend this quarter. Yesterday, the Board declared a common dividend of $0.50 a share, representing a 16.3% increase, supporting our commitment to return value to our shareholders. We also opportunistically repurchased approximately 38,000 shares for $5 million during the quarter.

Finally, our results in the first half of the year drove positive operating leverage of 12.2% on a year-over-year basis. We continue to expect positive operating leverage for the full year of 2026, even with the continuing impact of lower expected contractual accretion buses. I'm extremely pleased with the second quarter results, and I'm excited to continue this momentum in the second half of the year.

Now I'll turn it over to Ram for more detail on the drivers of our results. Ram?

Thanks, Mariner. The second quarter included $35.9 million in net interest income from purchase accounting adjustments, $10.9 million of which was related to accelerated accretion from early payoffs of acquired loans. The benefit to net interest margin from total accretion was approximately 23 basis points. On Slide 10 is the projected contractual accretion, which is estimated at approximately $46 million for the remainder of 2026 and $77 million for 2027.

Slides 12 and 13 include some key highlights and drivers of our quarter-over-quarter variances. Noninterest income for the quarter was $245.5 million, an increase of $40.7 million or nearly 20% from the first quarter. Drivers included the investment security gains that Mariner noted, along with increased 12b-1 and money market income and strong performance in fund services and corporate trust.

Within the other income category, we had some market valuation-related variances, including $8.7 million in company-owned life insurance income, an increase of $11.2 million, which has a similar offset in increased deferred compensation expense. Derivative income related to customer swap activity was $4.1 million, an increase of $1.3 million linked-quarter. activity from former Heartland locations brought in just over half of that income. Adjusting for investment gains and mark-to-market on COLI, our fee income for the second quarter was approximately $210 million.

On the expense side, we had just $1.7 million in merger-related costs. Operating noninterest expense was $398 million, an increase of 6% compared to the first quarter. The largest drivers included an increase of $7.5 million in total salaries and benefits expense related to the impact of second quarter merit increases and a $12.6 million increase in deferred compensation expense, offset by $12.5 million in expected seasonal decreases in payroll taxes, insurance and 401(k) expense.

Additionally, we recorded $4.1 million in operational losses and a timing-related increase of $3.6 million in legal and consulting expenses. Compared to the guidance we provided last quarter, the increase in expenses was driven largely by deferred compensation expense, which varies with market activity and the operational losses that I mentioned. Looking ahead, we would expect third quarter operating expense to be in line with the current consensus expectations of approximately $390 million.

Turning to the balance sheet. Driving the 12.6% annualized loan growth that Mariner mentioned was once again nearly 22% annualized growth in average C&I balances, led by strong activity across the footprint, including St. Louis, Utah, Texas, and Arizona. Our pipeline remains strong heading into the third quarter. Average deposits, as shown on Slide 25, remained flat from the prior quarter as the increase in interest-bearing demand and savings was nearly offset by decreases in DDA and time deposits. Reported net interest margin for the second quarter was 3.32%. Excluding the 23 basis points contribution from purchase accounting adjustments, core margin was 3.09%, increasing 4 basis points sequentially.

The primary drivers of the linked-quarter increase in our core NIM included benefits of a favorable earning asset mix shift in favor of loans and the impact of changes in liquidity levels. Relative to the second quarter adjusted margin of 3.09% that excludes accretion, we expect third quarter margin to be relatively flat. As usual, actual margin and NII will depend on levels of DDA growth and excess liquidity, any SOFR movements and mix shifts within the lending and funding portfolios.

Finally, our effective tax rate was 20.8% for the second quarter compared to 21.1% for the first quarter. Looking ahead, our tax rate is expected to remain between 20% and 22% for 2026.

Now I'll turn it back over to the operator to begin the Q&A session.

[Operator Instructions] Your first question is from the line of Jon Arfstrom with RBC.

Mariner and Jim, I think we ask this every quarter, and I think we probably know the answer, but it's a good way to start the call. Just give us a little bit more on the gross loan production trends that you're seeing. It was another strong number. You call out some markets, but is it the overall economy supporting this pace of production? Anything you would call out that was maybe a little bit unusual? And just curious how you feel the pipelines look.

I wish I had something exciting and different to tell you, Jon, but it's business as usual. We see growth across all regions, all verticals, very solid across the board. There are some interesting trends. I think just in the space in general, there is more private equity and family office purchasing taking place, ESOPs taking place in the marketplace. But that's not new, I mean just part of the storyline. It's really just kind of business as usual and the next 90 days as we've been able to tell you for some time, looks very similar to the last 90 days.

I would only add that obviously, we've highlighted some markets in the past, but it's coming from across the footprint as all markets, and it's led by C&I, is laid out in the deck, but it continues to be strong and pipelines continue to look good, just like we've continued to perform.

Yes. As we've said many times, it's market share gains really over economic activity. Economic activity can on the margin pull us up or drag it down slightly, but it's really market share gains and building out our presence in all the markets we're in.

[Audio Gap]

We'll open up the line of Chris McGratty to continue with his questions.

I guess the follow-up would be 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, what's the jumping off point in the back half?

So it won't really relate 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 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 of that, if that helps. And then the comment was 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. But it shouldn't -- your question is, do 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 NIM 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 spot rates on both.

Yes. I'll answer the second question. First, the spot rate 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 5.99% to 6.01% and our cost of interest-bearing deposits went up 2 basis points. So we'll expect that to grind up or down based on what's happening. And then the impact to margin will entirely be predicated 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 picture, if there were to be any rate hikes, you can see it on our IRR page. Our sensitivity to higher rates or lower rates are very modest. 47% impact on NII for 100 basis points move. So any quarter, that should be very negligible impact both on NII and NIM.

And expectations, we outpaced growth anyway.

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%. 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 you 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 for 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 ratios. 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 deck, I would say that's really the way to think about our business is not to think about it from quarter-to-quarter, but 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 -- that's one 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.

So 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 range 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 trust and securities 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. One of the things I'd say overall about -- one of the main pieces within trust and securities processing is our fund servicing business. And 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, 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 size spectrum and complexity spectrum.

And so the pipelines are very, very strong. And I think we talked before to one 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. 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 overall deposits being down in the third quarter given the further public fund outflows and then rebound in the fourth quarter? And is there any seasonality to Investor Solutions segment within the deposit category, which has been down a couple of quarters?

Yes. No, 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 have the seasonality part, which is mostly public funds 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 us up significantly or drag us down 1 month to 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 Nate 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 what your profitability, you'll be building capital at pretty strong clips?

Yes. We've done some preliminary assessment on that, Adam. And our early expectation is it could be depending on the RWA changes, it 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 Mariner said in his prepared remarks, we're well ahead of where we thought we would be post Heartland 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.

I too take a balanced approach to it. I mean we certainly want to focus on building long-term value through focusing on organic growth as 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 one other one 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 at?

Well, if you look at our peer group, you can see that we have the best, if not one 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 you're putting on versus fixed. And we like to manage that, think about that as we're worried about what -- 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 winds 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 relationships. So everybody probably says that, but you can see it in our numbers.

[Operator Instructions] Our 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 it 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?

So 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 escrow agent 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 that public and public 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, we'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 debt issuance is on the upswing, we benefit from that, both as an issuer on the municipal side. We have a great 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 in 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 -- we benefited from that. 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 are Fund Services and Corporate Trust. And while we're talking about debt issuance on Corporate Trust side, there's also aviation and then 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 are 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 paydowns 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 that last quarter is probably an anomaly low quarter, but 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, but we -- it looks like 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 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.

Thank you for standing by. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the UMB Financial First Quarter 2026 Financial Results Conference Call. [Operator Instructions] I will now turn the call over to Kay Gregory, Investor Relations. Please go ahead.

Good morning, and welcome to our first quarter 2026 call. Mariner Kemper, Chairman and CEO; and Ram Shankar, CFO, will share a few comments about our results. Then we'll open the call for questions from equity research analysts. James Rine, President of the holding company and CEO of UMB Bank, along with Tom Terry, Chief Credit Officer, will be available for the question-and-answer session.

Before we begin, let me remind you that today's presentation contains forward-looking statements, including the discussion of future financial and operating results as well as other opportunities management foresees. Forward-looking statements and any pro forma metrics are subject to assumptions, risks and uncertainties as outlined in our SEC filings and summarized in our presentation on Slide 50. 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. Presentation materials are available online at investorrelations.umb.com and include reconciliations of non-GAAP financial measures. All per share metrics refer to common shares and are on a diluted share basis. Now I'll turn the call over to Mariner Kemper.

Thank you, Kay, and good morning, everyone. We'll share some brief comments and open it up for questions. We reported another strong quarter with results well ahead of expectations. We had 10.8% linked quarter annualized loan growth, boosted by $2.3 billion in gross production, 9 basis points of core margin expansion driven by a 24 basis point decrease in the cost of interest-bearing deposits, high-quality credit metrics, including 19 basis points of net charge-offs and provision of $27 million, driven mostly by the $1.4 billion increase in period-end loan balances. And finally, continued momentum in our fee businesses with strong contributions from Corporate Trust, Investment banking and fund services, where assets under administration increased nearly $20 billion from the prior quarter and stands at $565 billion. I'll let Ram get into more detail around our results in a moment. But first, I'd like to address some of the headlines around the private credit industry, which appear to exaggerate exposures and risks at regional banks.

Private credit has been around for years and has been and will continue to be an important part of capital formation on a global basis. We have heard some concern that due to our varied lines of business, we may have some outsized exposures and could impact our performance. The fact is that we have negligible exposure to the private credit industry and what exposure we do have is to high-quality and experienced operators that have diversified holdings, strong credit structures and low leverage at the fund level, all underwritten to low loan-to-value metrics. We are proud to partner with a few of the strongest players by providing asset servicing solutions to their funds. This quarter, we've added additional disclosures to our IR deck to explain what private credit means to us and more importantly, what it doesn't.

First, on Slide 31, we have outlined our total NDFI lending exposure, providing additional color to the standard call report categories. As you can see, our total NDFI exposure is $2.6 billion or just 6.6% of total loans. Within that total, approximately $300 million or less than 1% of the loans both loans are subscription lines, which carry an even lower level of risk. As I noted earlier, these private credit funds are primarily secured by diversified holdings of senior secured loans, have strong borrowing bases, minimal exposure to at-risk industries, low leverage, and they have continued to see strong gross inflows. Just under $1 billion of our NDFI loans are to private equity funds with the largest portion of these being subscription lines, also known as capital call lines. As you can see from the definition included on Page 31, subscription lines inherently carry even lower risk to lenders as they are short-term lines that are repaid with funds received on capital calls made to investors who are contractually obligated to contribute the capital to the fund upon request.

The slide gives other detail and characteristics of our high-quality portfolio, including the fact that over 98% of NDFI balances are pass rated. As you have heard us say before, lending to NDFIs is not a new phenomenon and has long been a part of our C&I portfolio with minimal historic losses. Turning to our fee income exposure to private credit funds. We've added some additional detail on asset servicing and custody slide on Page 36. Approximately $43 billion of our more than $565 billion in assets under administration is related to private credit, representing just 7.6% of the total. More significantly, the AUA tied to private credit funds increased nearly 5% from the end of the prior quarter. The related annual fee income totaled approximately $13 million or just 1.6% of annualized first quarter fee income. And similarly, any deposit impact from these funds is immaterial.

Moving on, our capital levels continue to build with March 31 common equity Tier 1 ratio of 11.16%, a 20 basis point improvement from December. While our capital priorities remain the same with organic growth at the top of our list, our Board approved an increased share repurchase authorization. And as you can see in our earnings release, we opportunistically repurchased approximately 178,000 shares in March. We will continue to remain opportunistic in the second quarter.

Finally, our results this quarter drove positive operating leverage of 6.4% on a linked-quarter basis, a 155 basis point improvement in operating ROTCE and an operating efficiency ratio of 47.6%. We continue to expect positive operating leverage for the full year of 2026, even with the impact of lower expected contractual accretion benefits. I'm extremely pleased with the performance of our newer markets, and I'm excited to continue the momentum throughout the remainder of this year. And now I'll turn it over to Ram for some additional detail on the drivers of our first quarter results. Ram?

Thanks, Mariner. The first quarter included $51 million in net interest income from purchase accounting adjustments, $15.1 million of which was related to accelerated accretion from early payoffs of acquired loans. The benefit to net interest margin from total accretion was approximately 33 basis points.

On Slide 10 is the projected contractual accretion, which is estimated at approximately $71 million for the remainder of 2026 and $79 million for 2027. These totals do not include any estimates for accelerated payoffs. Slides 12 and 13 include some key highlights and drivers of our quarter-over-quarter variances. Noninterest income for the quarter was $204.8 million, an increase of $6.4 million or 3.2%. Drivers included strong performance from both Fund Services and Corporate Trust, increased deposit service charges and investment banking revenue, where municipal trading income increased by 39% from fourth quarter levels.

Within the other income category, we had $5.9 million in nonrecurring gains on previously charged off HCLF loans, a variance of $5.4 million from the fourth quarter. And we had a $3.8 million decline in COLI income, which has a similar offset in reduced deferred compensation expense. Adjusting for investment gains, the nonrecurring items I noted and mark-to-market on COLI, our fee income for the first quarter was approximately $198 million. On the expense side, we had just $4.4 million in merger-related costs compared to elevated levels in the prior quarter when the largest portion of contract termination and conversion expenses were recognized. Excluding the impact of onetime costs, operating noninterest expense was $375.4 million, a reduction of 4.2% compared to the fourth quarter. The largest drivers included a reduction of $5.9 million in salaries and benefits expense related to lower bonus and commissions accruals following strong fourth quarter performance and a $3.9 million reduction in deferred compensation expense, partially offset by seasonal increases in payroll taxes, insurance and 401(k) expense.

Compared to the guidance I provided last quarter, the favorability in expenses was driven by timing of marketing and other spend, sooner-than-expected synergies realized on contract terminations and deferred compensation expense. Looking ahead, we would expect second quarter operating expense to be in line with the current consensus expectations of $383 million. The increase from first quarter primarily reflects additional salary day as well as the impact of our merit cycle that went into effect in April.

Turning to the balance sheet. Driving the 10.8% annualized growth that Mariner mentioned was 22% annualized growth in average C&I balances, led by strong activity in Texas. Other regions, including California, St. Louis, Colorado and Utah posted double-digit quarterly growth. It's great to see the momentum building in several of our acquired regions, along with Utah, where we opened our first physical bank location in December. Our pipeline remains strong heading into the second quarter. Average deposits, as shown on Slide 25, were essentially flat in the first quarter as the 10.4% linked quarter annualized increase in DDAs was largely offset by lower interest-bearing deposit balances. We added a metric this quarter that adds customer repurchase agreement balances, which are deposit targets.

Average customer funding increased $702 million or 1.2% from the prior quarter and 4.8% on a linked quarter annualized basis. This balance remix, coupled with the residual impact of the rate cuts in the fourth quarter, drove our cost of total deposits down by 19 basis points to 2.06%, while cost of interest-bearing deposits declined by 24 basis points to 2.79% -- we realized a blended beta of 70% on total deposits for the quarter, driven by favorable mix shift as well as continued outperformance of pricing on our soft index deposits.

Reported net interest margin for the first quarter was 3.38%. Excluding the 33 basis points contribution from purchase accounting adjustments, core margin was 3.05%, increasing 9 basis points sequentially. The primary drivers of the linked quarter increase in core net interest margin included benefits of the favorable deposit mix shift and repricing of deposits following the reduction in short-term interest rates and the positive impact of day count in the quarter, partially offset by loan repricing and lower loan fees and the impact of liquidity balances and a lower benefit from free funds.

Relative to the first quarter adjusted margin of 3.05% that excludes accretion, we expect second quarter margin to be relatively flat as the benefits from fixed asset repricing are offset by day effect and stable deposit costs and mix shift. I will add my typical caveat that actual margin and net interest income will depend on the levels of DDA growth and excess liquidity, any SOFR movements and mix shift within the lending and funding portfolios.

Finally, our effective tax rate was 21.1% for the first quarter compared to 20.3% for the fourth quarter. Looking ahead, our tax rate is expected to be between 20% and 22% for 2026. Now I'll turn it back over to the operator to begin the question-and-answer session.

[Operator Instructions] Your first question comes from the line of Jon Arfstrom with RBC Capital Markets.

Maybe Mariner or Jim, for you guys on the pipelines. Good number, the $2.3 billion, maybe a little seasonality in there, but do you expect that to continue to grow from here? And you flagged this in the release, but have you seen any impact on pipelines from some of the geopolitical risks or higher energy costs?

I'll take that first. Jim, feel free to add anything. I think this is a good news story, which is that I don't really have anything new to tell you from being in the seat for 22 years. I said the same thing every quarter for 22 years, which is the next quarter looks pretty good, and it is not seasonal at all. And we continue to book loans based on our strategy, bottoms-up capability capacity of the officer, market share opportunity in the markets that we're in and in the verticals we're in. And there is a very long runway for us across our entire footprint, including some new very big markets like California. Anything...

The only thing I would add is it continues to be strong, and it's from a cross-section from all markets.

Okay. And then anything on the payoffs and paydowns slowing? I know that, that number jumps around, but it was a pretty big step down in the quarter. And I guess, is there anything you would flag on that?

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No. Actually, I would say that the anticipated payoffs and paydowns in the first quarter actually materialized. So we expected to happen. And it can kind of bump around. The reality of it as we look forward, if we're going to be higher for longer instead of seeing rates come down, we're not likely to see as much payoffs and pay downs for the rest of the year, if that's going to be the case, which seems to be the prevailing thought that we're probably sticking where we are, if not maybe -- well, we'll just say we don't see -- we don't anticipate any rates coming down anytime soon. So...

Your next question comes from the line of Jared Shaw with Barclays.

Just looking at the fee income lines, you had some really good strength there this quarter. How should we think about fee income for the -- going out for the year and for the second quarter, sort of building off of what we saw this quarter?

Yes. I mean we -- we don't really -- I can't give any guidance on expectations for growth and fee income other than to point backwards. We continue to expect the same kind of performance from the team and the pipelines across all those businesses remain very strong to include the 2 that drive it really for our business and have for some time, which would be fund services. and Corporate Trust. And then the addition, we've been giving you a little color over the last couple of years, the success we've had with our private investment group. And we expect to continue to see exits and successes periodically there as well. So yes, I mean, expectations continue to be without giving you any specific guidance as strong as they have been, pipelines are good, activity is strong. We're taking share across the board in all those businesses.

On the -- at the time of the Heartland deal, you talked about the opportunity of Corporate Trust in some of those new markets. Are you seeing any activity there yet? Or is that still more in the future as you build out those markets and capabilities?

Yes. And I think what we intended -- the message intended with that is that Corporate Trust is a very local business, and it's a brand business. I think the brand extension, having offices and signs and visibility across California and other places and places for lawyers to meet together in offices and things like that is brand extension and pushes the business further. It's hard really to point directly towards Heartland specifically, but we know that, that brand extension with those locations and stuff is helpful. And we've also done a lift out. We talked about that, I think, last quarter, Wilmington Trust in California. And so I would say it's -- I'd call it mostly brand extension. It helps.

And this is Jim. Jared, what Mariner mentioned, we've continued to add to the team in all markets. So we look for that to do nothing but grow in the heartland markets that we inherited.

Okay. And then if I could just follow up on the deposits. Ram, you called out sort of the impact to NIM from potential deposit mix shift in DDA growth. If we look at average DDAs versus end of period, it feels like there could be some good growth built in there. How should we think about sort of that DDA balance growing from here? Or is there just sort of a lot of quarter end variability?

So I'm going to take that. Ram can jump in after me. But I think as we've said many times, there's a couple of dynamics for us. Oftentimes, we try to guide you to thinking about averages rather than point in time. And that's because of a lot of the episodic nature of the -- all of our institutional businesses and some of our larger corporate business with things such as dividends and tax payments and all those kinds of things that can happen from quarter-to-quarter. So that's true. But also, I mentioned a moment ago, picking up Wilmington Trust team in California, adding team members across the country and our New York office and our L.A. office, et cetera, in Corporate Trust and the momentum we have in fund services. The addition of more clients in between those episodes allows the base to grow over time. So the expectation without knowing is that, that DDA baseline grows over time due to all the success and momentum we have in client acquisition that takes place in between those episodes.

Your next question comes from the line of Brendan Nosal with Hove Group.

Maybe just kicking off here on capital. Any early read on the updated capital rules overall and then specifically how it ties into how you think about $100 billion and maybe pair that alongside the increased activity we saw in the buyback this quarter?

Yes, I'll take this. And just to pick on our preliminary read, it's a net positive for us. Obviously, a lot of relief from risk-weighted assets. We're still studying it on going from 100% to 95% on some of the commercial relationships and LTV-based assignments on residential mortgages. And the negative is just the inclusion of AOCI. So I still think it's a net positive for us in terms of what it means to our CET1, our total capital ratios.

I would just add with the addition of Heartland and how efficient we become, we're accreting capital very quickly on top of all that. So it's just a beautiful position to be in. We're in a position to have likely more flexibility with capital. All the things that Ram just said, along with our ability to accrete and grow capital is going to give us flexibility as we look into getting closer to 100. So we feel well positioned. And then again, we also believe because of the quality of our assets, we benefit from likely being able to support lower levels of capital than our peers anyway long term.

Okay. All right. That's fantastic. Maybe pivoting to more of a top-level question on just the overall return profile, pretty meaningful step-up in ROA over the past couple of quarters. And I get that things can move around period to period. But just conceptually, are we at a level that you can more or less maintain going forward? Or are there environmental pressures that kind of ease that somewhat?

We expect to continue to perform Ram, I don't know if you have any other color.

Yes, we don't give long-term guidance on our growth targets. But even if you exclude some of the purchase accounting things that go through our income statement, if you exclude that, our performance has been increasing because of strong operating leverage, good balance sheet growth, good margin trajectory. So we feel pretty good about it. And then just to add to your previous question on capital, we still have almost $600 million of pretax accretion left to take through our income statement for the next 2, 3 years, right? So that's $6 of EPS and close to 100 basis points of capital. So that's on top of the regular outperformance that we see in our legacy operations before all the purchase accounting benefits. So we're pretty excited. So it's a denominator that's growing at a fast clip. And so that's why you saw what we did this quarter, including doing some buybacks before our quiet period ended. Obviously, we have $1.4 billion of loan growth, and you heard the comments about the pipeline looking pretty strong. And then we will be more opportunistic about looking at our dividend and other opportunities.

I would also just add, as a reminder, one of the reasons we did Heartland was to gain strength in our retail business, which we've doubled our branch network, double our granular low-cost deposits. And that is a really nice leverage point going forward for us. Our retail business was a bit more of a drag on those profitability metrics, and that has gotten a lot more efficient, and we expect it to continue to do so as it grows.

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

I wanted to touch on the NIM outlook from the loan yield side of things. Just where are new money yields versus that 6.52% level in the first quarter?

So you got to look at our loan yields, excluding the accretion, right? So if you look at one of our pages, we show that the loan yields are close to just 6% under 6% if you exclude the accretion benefit from loans. And for the first quarter, our production yields are somewhere between 6% and 6.25%. So they are pretty accretive on new money coming in. And then there's the whole fixed asset repricing that happens within the loan portfolio as well. We have close to $3 billion of loans that have sub 5% rates that are repricing higher in today's environment.

Okay. Great. Yes, I understand the core yield impact. And then apologies if I missed this, on the expenses, very good discipline here in the first quarter. Just I guess some color on what drove that $10 million of surprise versus your guidance. And with the guide being up in the second quarter, what are some of the drivers there? Because I think there was some seasonal roll-off in 2Q. So just a little color on what's going on with the expenses.

Yes. Some of it was just -- I explained it in my prepared comments, but I'll repeat it. Some of it was just timing of when we expected some of the marketing spend to happen. So that didn't happen as I had anticipated in the first quarter when I gave my guidance. The other one is we also did a great job doing the expense saves from some of the contract terminations. So they happened sooner than what we expected. That was part of our $385 million to $390 million guidance that I gave last quarter. And then the step-up in the second quarter is one more day. And then it's the merit cycle that goes into effect in April for our associate base. So those are the 2 drivers that take $375 million. We also had an expense credit, if you will, of $3 million from our deferred comp. So if you add that, our first quarter baseline is more like $378 million. And what I guided to is about $383 million that assumes the step-up because of the merit cycle and one more day.

Your next question comes from the line of Janet Whitley with TD Cowen.

On deposits, I want to better understand the reason for the decline or the muted deposit growth in the quarter. I thought 1Q was -- there's a seasonal public fund inflows. And even if I look at it on an average basis on Page 25, I see commercial balances decline, although other parts have been growing. So I just wanted to see whether this is just timing or seasonality or whether there was something else that attributes to somewhat muted deposit growth for the quarter?

Yes. Thanks, Jon. I tried to address that a moment ago. It's complex, so I get it. We have so many lines of business that make it harder to understand the real. So what we -- how we like to describe it for you is that you need to think about it on averages instead of point in time anyway in general. And then we have a lot of episodic stuff that goes through a lot of those business lines that you see on that page, that 36, 35 on 25. Most of those businesses other than public funds is a seasonal deal. So that's a drawdown in the quarter because of tax payments and such. The rest of them are more episodic. And so that's why you have to think about averages. And I also like to point to 42 because you really need to think about what's happening to our deposits over time, not even just averages for a single quarter.

We have a very long-term track record of adding clients. So in between on a quarter-to-quarter basis, you can see tax payments and dividend payments and putting money to work and all those kinds of things that can kind of bump things around a little bit. But you really need to think about kind of multiple linked quarters and kind of year-over-year growth and what we're able to do as a company. And that's the way I think about it. That's the way I would like to think you all should think about it, what is our long-term ability to grow deposits, and we have an exceptional deposit-generating machine. And so that's the way I would look at it. And so there's nothing -- I guess, what I would end with is there's nothing to pick up from at the end of the quarter. It's just business as usual, business activity, client count is good, client count is growing, nothing to read into with those numbers.

It was not in a nutshell, we did not lose any business.

Great. And you've already touched on it earlier on total fees and really appreciate all the color you gave on the private credit exposure on Slide 36. So this means that you -- at least from either deposit or for the fee perspective on the trust and security processing fees, which have been growing at a very strong pace, you're not seeing any disruption to that flow and the trajectory of that line item should just be continued growth since you're not really seeing any outflows on AUA and the fee income side of the business. Is that a fair way to put it?

Yes, that's absolutely correct. And one of the things I think is really important to note about this business for us is from time to time, investors will ask, I'm going to take you down a little history lane here for a second. There was a time when hedge funds were leading the way. And as you're all aware, hedge funds became out of favor. And during that same time, we got the same set of questions, oh, what's going to happen to your assets under administration as hedge fund -- the hedge fund business slides away. Well, the answer to that is private investing is still leading the way. And so with our business, basically, as you go from hedge funds to private equity and within private equity intervals come out and that's a popular vehicle, then private credit comes along and then private credit has this conversation that's taking place with private credit. It doesn't mean all this money goes to public investing. It means it redistributes back through the other verticals within private investing. So we are the beneficiary regardless as that money moves around within the private investing universe. So we have benefited handsomely over time regardless of which one of those verticals is accumulating capital costs.

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

Just going back to the capital description, to your earlier point, you're generating a lot of capital internally just given the profitability profile and you obviously eclipsed your CET1 target this quarter. And just given that the capital is going at such strong even with double-digit balance sheet growth, how are you guys thinking about using the buyback authorization as more of a kind of a continuous tool to manage excess capital? I know it's been more episodic in the past, but just curious how you're thinking about buybacks as more of a kind of consistent component to excess capital management.

Yes. I would repeat myself here, sorry, Nathan. We have a long a long-tested philosophy around that, which is as long as we're able to do what we've been able to do and expect to continue to do, the first and highest best use of our capital is to put it into loans, and we're very successful at it. We don't see that fading away. We've got an excellent team, a big deep pipeline. We've got long-tenured associates. We big new markets to pursue, having lots of success really across the board, Wisconsin for us is on fire. Minneapolis has really turned on. California is doing great. New Mexico, I mean I could go on and on. So the new markets are really performing and just -- we're kind of early days getting the benefit out of the new markets. So I think they're not even operating at their highest levels.

So first and foremost, loans, -- and then it's sort of the combination of the other capital uses based on lots of variables, right? What -- how is our currency trading within all the other currencies and what's going on in the economy, M&A, we still think it makes sense for us to do tuck-in acquisitions that meet our test for low-cost granular under levered deposits, well-run smaller banks that fit into the markets we're already operating in. So that fits -- that's investing in the business, so that would probably be next -- and then the next 2 on the list are going to be buybacks and dividends. And we'll be opportunistic on the -- as we have been, we'll be opportunistic on the buyback side. And our expectation on the dividend side is that U.S. investors should expect as long as we're performing that you should see an increase in our dividend this year. So that's the way I think about it is we're first going to be thinking about investing in our business and then think about buybacks.

Understood. Makes sense. And maybe a bigger picture question for you. It seems like to your point, you're kind of firing all cylinders. There's good opportunities to grow share across each vertical and line of business. Are there any segments or businesses where you're -- that's not working where you're seeing opportunities for greater efficiency or operational improvement going forward?

Yes. I mean, well, first of all, anybody who's not trying to leverage technology to make their business more efficient should have their heads at Tam. And so we're always looking at ways to do -- to operate better and machine learning is being deployed across the whole organization to get smarter, better, faster, bolder. So we're deploying that as we always have. So I think AI is sort of an overused, misused term for basically being smart using technology to make your business better. But -- so we're looking for ways to do that all the time. And I think you'll see us do that successfully going forward. Otherwise, I would say, really, it's just making sure the sales force is -- has everything they need, and we're staying out of the way and letting our exceptional tenured team of best in the business folks get out there and build our business. I mean I think we have a really tremendous opportunity as a company to sort of take the feel of local, national. So we've been using that term. We really think we can take local national from Illinois to California and from Milwaukee and Twin Cities all the way down to New Mexico and all throughout Texas. We think we can kind of be the go-to bank with the team that's in place and has deep pipelines.

Your next question comes from the line of Brian Wilczynski with Morgan Stanley.

Just wanted to follow up on the core net interest margin guidance for the second quarter. Ram, you mentioned that new loan growth is accretive to core loan yields. You talked about the fixed rate asset repricing. Can you just elaborate on some of the puts and takes and any headwinds that keep core NIM stable in 2Q as opposed to up?

Yes. It's just the incremental cost of deposits relative to what we can make on the asset side, right? So if you look at our cost of interest-bearing deposits in the last quarter, it was about 280%. We have -- as Mariner said, we have very diversified funding mix. And it depends on where it comes from, whether it comes from DDAs or some other verticals, our interest-bearing cost -- or cost of deposits can vary from one quarter to another quarter. depending on where it's coming from. So there are no headwinds in that regard. I think it's the absence of tailwinds that we have with rate cuts. Our internal view is there might be one rate cut maybe later this year, maybe not. So there are no more tailwinds from that standpoint that benefit our beta. So neutral. Neutral. -- we expect our deposit cost to be stable and some accretion on the lending side because of new money yields and fixed assets repricing.

Stable with the opportunity of outperformance on demand deposit. And again, I'd say opportunity, right? So that's a possibility for us. Otherwise, it would be stable, right?

Got it. Yes. Really appreciate that color. And then maybe just on the deposit side, you had really strong growth this quarter in the corporate trust deposits. Can you just remind us of some of the drivers for that business? I know UMB has an aviation business. You have a relatively new CLO business. Can you sort of just talk about what's working there and what the environment is right now for Corporate Trust?

Thank you. Well, it sounds like you. Yes. So yes, exactly. The aviation business is hitting on all cylinders. We have certainly our CLO business is firing up really well on a national basis. So lots of opportunity there. Infrastructure spending is finally happening on a national basis. So our offices in the coast have really started to pick up. We did this lift out. We talked about a couple of times on the call already. which is allowing for -- so there's a big lift on the infrastructure side. And so it's really, I would say, across all those verticals. And to your point, there are a couple of relatively new verticals. And I don't know, Jim, do you want to add anything to that?

That's really great. I think it's really -- it's also across the board, more of what we've always been doing.

We're #2 and #3 in the country by a number of issues now. And our coastal offices are relatively new. So I think there's a huge runway for what we're able to do out of Orange County and New York up and down the coast.

Your next question comes from the line of Chris McGratty with KBW.

Ram, I appreciate the commitment to operating leverage this year. You think about the moving pieces over the medium term, you've got the accretion rundown. But it feels like this model is capable of operating leverage for the foreseeable future. I guess any response to that?

Yes. I mean that's why even last time and Mariner said it this time as well, right, whether there's more private investment gains or less private investment gains, whether there's more accretion or less accretion, our job is to maintain positive operating leverage as we build scale. Some of our strategic pillars are about building scale in each of the markets, and we're doing that very selectively. And then we're being more profitable as we grow into our sites as well. So definitely, this is not an environmental thing. This is always -- we want to weather all economic environments and achieve positive operating leverage that way.

We judge ourselves on operating leverage. We think that's the way to think about it. So every dollar spent should have positive leverage and just how we operate the business.

And as a follow-up, is there anything magic about the 50% efficiency? I mean you're kind of in the low 50s today, kind of balancing the need for investments, the benefits from AI and that dynamic. Is there anything magic about 50%?

I would say, honestly, nothing magic about 50%. As a matter of fact, we're -- we feel like we're doing really well where we are given the mix of business. Being at 47% where we are right now is like a top-of-class number for just the net interest margin shop. And so the fact that we're able to perform at 47% with all of our institutional businesses layered on top of that, we feel pretty good about that. So no, I think there's nothing magic about 15...

[Operator Instructions] Your next question comes from the line of Brian Forum with Truist.

I definitely appreciate you led with anyone not using technology to get better needs to be examined. But I thought it was interesting, I think you said AI is overused or overhyped or can you just expand a little bit on where you think the AI for banks is a little too much?

No. No, not too much, not a limit. What I said was I think the term is overused. I think that we think this is a big philosophical thing. I just think at the end of the day, AI is the use of data to run your business better and make better decisions and move faster. And it's not a new subject is my point. And so we've -- the TV and Bloomberg and CNBC and the Wall Street Journal have all really made a big deal out of it. But at the end of the day, it's the use of machine learning to get better, smarter, faster, bolder, which is not a new subject. And so that's all I was saying. I wasn't saying banks are doing too much of it or not enough of it or whatever. I was just saying, you should sure as hell be doing it, leveraging the use of faster computing and better data to make your business better, smarter, faster, bolder. So if you're not doing that, you should be your head is what -- so that -- it wasn't people are doing too much, not enough of it. It was -- you sure have felt better for doing it.

Perfect. On M&A, as I'm sure you're aware, there just kind of became this narrative last year that somehow you were on the list to do a big deal. I thought it was interesting you kept using the word tuck-in. Any other parameters you'd give on like what an ideal tuck-in deal looks like for you? And maybe as an extension, if and when $100 billion line finally goes up, does the definition of the size of a tuck-in change? Or is it really independent of that move in regulation?

Yes. Yes. Well, first, I would say -- I mean, I'm still surprised that somehow there was some narrative that we were going to go do some big deal. So I've never understood that we would never give up control of our company, try to merge 2 management teams, give up half our board, blah, bah, bah, so on and so forth. We've never done that. We're never going to do that. We have a fantastic management team and a great strategy, and I have no need to do that, no desire to do that. So the purpose of using the term tuck-in is sort of to help with the definition of doing a deal that's not going to affect any of that where we can tuck it in. It can still be our management team, don't have to give up and compete with -- give up half the boardroom or part of the boardroom or whatever it is and try to merge 2 cultures, et cetera. So that's what tuck-in is supposed to me.

And so -- and again, I think our definitions are long use. So it's kind of -- I understand why my long use definitions get misused or misunderstood. But what we say is a tuck-in, so a smaller deal that -- and then it would be in market or contiguous where we can leverage our people, leverage synergies, leverage brand and all that. And really importantly for us would be granular low-cost deposits that are under levered. So that's another really important one. We don't really want to do a deal where every next dollar we lend out has to be from acquired deposits. So we love the idea of an institution that is leverageable that has deposits that we can put to use and because we have the asset generating machine, and we don't want to put that under pressure. So those are kind of the general themes, if that's helpful.

I will now turn the call back over to management for closing remarks.

Well, thank you, everybody. As always, we love your interest in our company and the time and spend to get to know us better. I hope that Page 31 helped dispel some of the misguided understanding of what the private credit stuff means to us, less than 1% of our loans, et cetera. And we have a very long track record of being lenders that do the same thing across every asset class. We lend the same way no matter what we're lending into, and we've had a very long track record, which you can see on 42 and '22 is where the quality -- the intersection of growth on 42 and quality on '22. It is what we like to define as rarefied air that we live in. And we've got a long-tenured team and a great track record. So I'd just point you to our track record, I guess, as you think about those issues. And we're very excited about what lays ahead, and we appreciate your interest.

Thank you, Mariner. And as always, if you have follow-up questions, you can reach us at ---. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Hello, and welcome to the Annual Meeting of Shareholders of UMB Financial Corporation. Please note that today's meeting is being recorded. [Operator Instructions]. It is now my pleasure to turn today's meeting over to Mariner Kemper, UMB's Chairman and Chief Executive Officer. Mr. Kemper, the floor is yours.

Good morning, and thank you all for joining us virtually today for our Annual Meeting of Shareholders. While we just ended the first quarter, this meeting typically looks back at the performance of the prior year. 2025 was a milestone year for UMB, marking the successful completion of our acquisition of Heartland Financial, our largest to date.

From announcement in the spring of 2024 to the full system conversion in October of '25, both UMB and Heartland teams worked tirelessly to create a seamless experience for our customers. We've experienced strong early growth from our teams in the new markets, and we expect the growth to continue now that the operating companies are together as one. Additionally, in 2025, we saw the opening of our first branch in Utah, posted significant improvements in profitability metrics and solid growth on both sides of the balance sheet. Importantly, these results were achieved while maintaining our unwavering focus on asset quality metrics.

We've included a couple of additional slides in our presentation about our 2025 performance, and you can review those slides for a few more highlights. We plan to release our first quarter results after market hours closed today, and we'll have our call with investors -- the investor community tomorrow morning. As excited as I am to talk about our recent performance, this morning's remarks and Q&A will be limited to the business of the annual meeting. Watch for our first quarter results and press release later today for more detail.

Finally, we published our 2025 Corporate Citizenship Report, which is now available on our website. This report highlights our continued focus on prudent business practices, efficient and sustainable resources, transparent governance and culture. Our goal is to always exceed the expectations of our associates, customers, shareholders and communities by delivering products and services with integrity and trust. I encourage you to take a look and read more about our new and ongoing initiatives to care for our resources and meet the needs of our associates and communities.

Now I'd like to take this portion of the meeting into the business segment. As Chairman of the Board of UMB Financial Corporation, I will be presiding today. I now call the meeting to order. The annual meeting of shareholders is held pursuant to the bylaws of the company and written notice to all shareholders. The Secretary has delivered an affidavit of mailing from our transfer agent affirming that notice of this meeting was duly given. A copy of that notice and the affidavit will be included in the minutes of the meeting.

Shareholders of record at the close of business on February 27, 2026, are entitled to vote at the meeting. The rules of the meeting are available for review in the meeting portal. I'd now like to introduce the directors of UMB who are in attendance today. We welcome Robin Beery; Janine Davidson, Casey Gallagher, Greg Graves, Brad Henderson, Jenny Hopkins, Gordon Lansford III, Margaret Lazo, Susan Murphy, Tammy Peterman, Kris Robbins, Josh Sosland, and Leroy Williams and our advisory directors, Tom Wood III and Jim Rine.

Before we go on, I'd like to take a moment to acknowledge 2 of our departing directors, Tim Murphy, whose service first began in 1999 as a Director of our Bank Board and who has served on the UMBFC Board since 2016; and John Schmidt, who joined us in 2025 after many years of service as Lead Director on the HTLF Board. We value the extensive business experience they have brought to the Board and wish them well in their future endeavors. Thanks, guys.

Also attending the meeting are Shaun Stoker and Stephen Penn of KPMG, our independent auditors. Although KPMG has indicated that it does not wish to make a statement at this time, these representatives are available to respond to appropriate questions during the Q&A period.

In accordance with our bylaws, I will act as Chairman of the meeting. Ms. Mercer will act as Secretary of the meeting. As Chairman, I appoint Megan Mercer, Amy Harris from UMB and Cassandra Shedd from our transfer agent as inspectors to receive and canvas the votes and certify the results. I request that the inspectors file their oath of office with the Secretary for inclusion in the meeting minutes.

The Secretary has the list of shareholders of record of common stock as of close of business on February 27, 2026. This list has been open for examination at the company for the purposes relevant to this meeting for the past 10 days during ordinary business hours. This list also available during the meeting by shareholders on the meeting website.

The secretary will file a copy of the list of shareholders with the records of the company. Ms. Mercer, will you please present your report of attendance at this meeting so we can determine if we have a quorum.

Mr. Chairman, on February 27, 2026, the record date for this annual meeting, there were outstanding and entitled to vote a total of 76,136,588 shares of common stock. I have been informed that there are 70,379,421 shares of stock represented by proxy or approximately 92.4% of all shares entitled to vote at this annual meeting. The shares represented exceed 50% of the total shares entitled to vote and thus constitutes a quorum.

Thank you, Ms. Mercer. On the basis of the Secretary's report, I find the proper notice has been given and a quorum is present. Accordingly, this meeting has been properly convened. It is 9:07 a.m. on April 28, and the polls for voting on this matter are open. All shareholders entitled to vote at this meeting have the ability to do so online. If you have not yet voted or you wish to change your previously cast vote, please do so via the website used to access this meeting.

Please remember that if you have already voted by proxy, it is not necessary to vote again. After voting has been completed on all agenda matters, we will close the polls and the inspector of election will provide her preliminary report. We will now review the proposals being addressed at this meeting.

The first proposal to come before the meeting is the election of directors at this meeting. We will have -- we will be electing each of the 14 directors for 1-year term expiring at the 2027 Annual Meeting of Shareholders. The nominees are Robin Beery; Janine Davidson, Casey Gallagher, Greg Graves, Brad Henderson, Jenny Hopkins, Gordon Lansford III, Margaret Lazo, Susan Murphy; Tammy Peterman; Kris Robbins, Josh Sosland, Leroy Williams, Jr.; and myself, Mariner Kemper.

Information concerning the profession, skills and qualifications of each nominee is contained in the proxy statement. No other nominations were received prior to the deadline established in the company's bylaws. Therefore, no additional nominations may be made at this meeting, and I declare the nominations to be closed.

Proposal 2 asks shareholders to approve an advisory resolution on the fiscal year-end 2025 compensation of the named executive officers, all as described in our proxy statement. Although nonbinding, the vote will provide information to our Compensation Committee regarding investor sentiment about our executive compensation philosophy, policies and practices. This sentiment will be considered when making future compensation decisions.

Proposal 3 is the ratification of the appointment of KPMG as the company's independent registered public accounting firm to audit the company's financial statements for the fiscal year-end December 31, 2026. The Board of Directors recommends that the appointment be ratified.

Proposal 4 is the approval of the amendment and restated UMB Financial Corporation Omnibus Incentive Compensation Plan to increase the maximum number of shares available for issuance by 3 million shares, to remove the stated termination date of April 24, 2028, and to make the changes as described in the proxy statement.

The plan provides for the grant of cash and equity-based awards to officers, employees and directors of the company mostly linked to the long-term financial rewards for participants with increases in company shareholder value. The capacity added by the amendment and restated plan will enhance the company's ability to attract and retain effective capable officers, employees and directors will add to the continued growth and success of our company.

The Board recommends shareholders vote for the approval of the amendment and restated Omnibus Incentive Compensation Plan. We now appear to have all the proxies and ballots, and I declare the polls are now closed. The inspector of election will maintain the proxies and ballots and will tally the votes. Secretary, will you please report on the results.

Mr. Chairman, based on the Inspector of Election's preliminary report, each of the directors nominees received more than 96% of the votes cast in favor of his or her election and has been elected as a director of the company to serve for a 1-year term that will expire in 2027. The resolution on an advisory basis for the compensation of our named executive officers for fiscal 2025 received more than 96% of votes cast in favor of the proposal and has been approved.

The ratification of the appointment of KPMG as the company's independent registered public accounting firm received more than 98% of those in favor, and the appointment has been ratified. The amended and restated UMB Financial Corporation Omnibus Incentive Compensation Plan received more than 95% of those in favor and has been approved. We will file the final report of the Inspector of Election with the records of this meeting, and we expect to report voting results on a Form 8-K to be filed with the SEC within 4 business days of this meeting.

Thank you, Ms. Mercer. Those are great results for a great company filled with great people doing great things for our community. That concludes our business for this morning, and the meeting is now adjourned.

Now I'd like to open the meeting for a few questions if there are so.

Mr. Kemper, we appear to have no questions for today.

Thank you, and thanks to everyone for joining us today. The slides we discussed this morning will be available on the website, and the audio replay of this meeting will be available shortly. Thanks again for your continued support of UMB.

This concludes the meeting. You may now disconnect.

Hello, everyone, and thank you for joining the UMB Financial Fourth Quarter 2025 Financial Results Conference Call. My name is Gabrielle, and I will be coordinating your call today. [Operator Instructions] I will now hand over to your host, Kay Gregory. Please go ahead.

Good morning, and welcome to our Fourth Quarter 2025 Call. Mariner Kemper, Chairman and CEO; and Ram Shankar, CFO, will share a few comments about our results, then we'll open the call for questions from equity research analysts. Jim Rine, President of the holding company and CEO of UMB Bank; along with Tom Terry, Chief Credit Officer, will be available for the question-and-answer session.

Before we begin, let me remind you that today's presentation contains forward-looking statements, including the discussion of future financial and operating results, benefits, synergies, gains and costs that the company expects to realize from our acquisition as well as other opportunities management foresees. Forward-looking statements and any pro forma metrics are subject to assumptions, risks and uncertainties as outlined in our SEC filings and summarized in our presentation on Slide 50. 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.

Presentation materials are available online at investorrelations.umb.com, and includes reconciliations of non-GAAP financial measures. All per share metrics refer to common shares and are on a diluted share basis.

Now I'll turn the call over to Mariner Kemper.

Thank you, Kay, and good morning, everyone. We will share some brief comments about our results and then open up for questions. We reported another strong quarter to close out 2025, with the successful acquisition of Heartland Financial, the opening of our first branch location in Utah and another year of record earnings. We posted significant improvements in our profitability metrics, as we continue to build scale, deliver profitable growth on both sides of the balance sheet and maintain our unwavering focus on strong asset quality metrics.

A few fourth quarter metrics that I want to highlight are: Return on average assets of $120 million compared to $104 million in the third quarter, return on average common equity of [ 11.27 ] up from [ 10.14 ] and an efficiency ratio that improved to 55.5% from 58.1% in the third quarter and 51.8% in the period a year ago.

I'm incredibly proud of our associates for delivering strong fundamental and financial performance in 2025, while providing outstanding customer experience to our existing and newly acquired clients, all of which continue to drive our exceptional results.

Reported net income available for common shareholders for the fourth quarter was $209.5 million or $2.74 per share, an increase of 16.1% from the third quarter. For the full year, we earned $684.6 million or $9.29 per share.

Fourth quarter included $39.7 million of acquisition expenses compared to $35.6 million last quarter. Excluding these, and some smaller nonrecurring items, our fourth quarter net operating income was $235.2 million or $3.08 per share.

Fourth quarter net interest income totaled $522.5 million, an increase of 10% from the third quarter. This was driven by double-digit growth in loans and DDAs, along with the impact of lower rates on our index deposits benefited net interest income.

Our fee businesses continued their strong performance in the quarter, while our total noninterest income was impacted by several market-related variances. New business activities from our fund services and private wealth teams continue to drive results, which contributed $4.5 million or 5.1% linked quarter increase in trust and securities processing income.

During the quarter, we exited substantially all of our position in Voyager shares. While we can't predict the future success in our private investment business, our pipeline remains strong, and we're likely to see periodic monetization going forward.

Looking at the balance sheet, we posted 13% linked quarter annualized growth in average loans and 5.6% in average deposits. Quarterly top line loan production reached $2.6 billion in the quarter. We are seeing positive activity across our footprint, and I'm excited about our additional opportunities in our acquired markets post conversion.

C&I was again our strongest contributor this quarter with 27% annualized growth over the third quarter average balances. The rate of net payoffs and pay downs as a percentage of total loans was 3.9%. Looking ahead into the first quarter, overall loan activity and pipeline remains strong. Our loan growth has continued to outpace many peer banks. Banks that have reported fourth quarter results so far have posted a 4.9% median annualized increase in average loans compared to our 13%.

Total net charge-offs for the fourth quarter were just 13 basis points. For the full year of 2025, net charge-offs were 23 basis points, below our long-term historical average of 27 basis points.

Total nonperforming loans were $145 million or 37 basis points of loans, while total criticized loan levels improved 9.1% from the prior quarter.

Industry-wide NPLs for the banks reported so far were a median of 55 basis points. Our total losses levels will fluctuate from quarter-to-quarter as we manage our book. We're quick to recognize trouble, take action and address any issues. This proactive management has been consistent and historically, we've seen very little migration to loss as evidenced by our track history.

We are incredibly proud of our history. As I mentioned, for the 20-year period ending with 2025, our annual losses have averaged just 27 basis points. Over that same period, average loan balances have increased from $3 billion to $36 billion through market and vertical expansion, including our recent acquisition. This equates to a median annual growth rate of 10.4%.

We've achieved these results through our focus on risk management and the continuity that comes by having the same team in place managing credit together through all of these cycles.

We continue to build capital with December 31 common equity Tier 1 ratio of 10.6%, a 26 basis point increase from September and ahead of the time line in which we noted in our announcement of our acquisition.

Our capital priorities remain the same, with organic growth at the top of the list. Many bank management teams have received questions on their fourth quarter calls about their M&A stance, and I'd like to proactively address that topic. As I said many times, we don't need to do M&A. We have a strong, proven ability to generate assets, and we continue to take share and grow organically at a pace ahead of our peers as you saw us demonstrate in this past quarter. And we do that with exceptional asset quality metrics that we are really proud of. We expect these trends to continue, especially given the opportunities we see for penetration in our newly acquired markets and expanding in our existing markets.

Organic growth is and always will be our top capital priority. At the same time, we also feel that we are adept at evaluating and integrating acquisitions to bolster our organic growth. We're still answering our phones, building and maintaining relationships and we expect the tuck-in acquisitions that make financial and strategic sense can be part of our ongoing strategy.

We've also been asked about the size of potential deals. Without giving specific parameters, we would be wary of transactions that would put us close to the $100 billion mark. We are in the early stages of assessing what the threshold means to us. And until we are ready, our appetite for any M&A will continue to be measured. While many believe thresholds may move under the current administration, we are operating as those rules still remain in place.

We believe that we've built something very special here at UMB, including one of the best teams in the business. We are not going to put that at risk by pursuing a deal that might dilute our culture, our business model, our organic momentum or our strong balance sheet.

Finally, as we look into 2026, we're excited to continue the momentum we saw in 2025 and capitalized on the opportunities in our newly acquired markets. As always, our primary focus will be on positive operating leverage no matter what the economic or geopolitical environment brings our way.

Now I'll turn it over to Ram for more details.

Thanks, Mariner. Our fourth quarter results included $52.7 million in net interest income from purchase accounting adjustments, $12.3 million of which was related to accelerated accretion from early payoffs of acquired loans. The benefit to net interest margin from total accretion was approximately 33 basis points.

On Slide 10 is the projected contractual accretion, which is estimated at $126 million for the full year '26 and $92 million for '27. These totals do not include any estimates for accelerated payoffs.

Slides 12 and 13 include some key highlights and drivers of our quarter-over-quarter variances as well as breakout of onetime costs by expense categories. Noninterest income for the quarter included $2.2 million in net investment security gains, comprised of $6.3 million of gains on various equity investments, partially offset by a $4.8 million linked quarter market value loss on Voyager stock.

As Mariner noted, we sold substantially all of our Voyager position in the fourth quarter. Since its IPO, our net gain on our investment in Voyager was approximately $17 million on an initial investment of $6 million, translating to an internal rate of return of 30% and a nearly 4x multiple on invested capital.

Fee income, excluding these valuation changes was $196.2 million, a decrease of $11.2 million from the third quarter. The largest drivers were $9.2 million in market-related variances in both COLI and BOLI income and a $2.9 million decrease in derivative income from elevated 3Q levels as noted on Slide 12.

And as previously disclosed, we had a nonrecurring benefit in the third quarter of $2.5 million related to a legal settlement. Partially offsetting these decreases was the $4.5 million increase in trust and securities processing income that Mariner mentioned, driven by solid performance in asset servicing and private wealth.

Our fund services and custody teams added a total of 15 new fund families in 2025 with a total of 109 new funds.

On the expense side, we have $39.7 million of merger-related costs compared to $35.6 million in the prior quarter. As shown, the largest portion of these costs in the past 2 quarters have been for contract termination and conversion expense that were heavily weighted in the back half of the year.

Excluding the impact of merger and other onetime costs, operating noninterest expense was $391.8 million, up 1.8% compared to the third quarter. The largest drivers included an additional $10.5 million in incentive comp expense related to our strong fourth quarter and full year outperformance, increases of $3.4 million in additional charitable contributions and $1.1 million in marketing expense, which included some retail advertising campaigns in our new regions.

Deferred compensation expense, as shown on Slide 12, was $1.6 million for the quarter. Excluding the deferred comp impact, the recalibration of incentive compensation for the fourth quarter outperformance and the additional $2 million in charitable expenses or normalized quarterly expenses were approximately $380 million. Looking ahead, we would expect first quarter operating expense to be in the $385 million to $390 million range. This includes an estimated additional $15 million increase in FICA, payroll taxes and 401(k) expense, driven both by typical seasonal resets and timing of bonus payments as well as normal inflation in medical and other costs and other investments. Offsets will include day count impact and post-conversion synergies.

After the first quarter elevated levels, we would expect FICA and other payroll taxes to decline by approximately $10 million in the second quarter.

As Mariner noted, we expect to achieve positive operating leverage in 2026, notwithstanding an estimated $38 million in lower contractual purchase accounting accretion benefit and approximately $30 million benefit from our investment in Voyager and other investment gains recognized in 2025.

Turning to the balance sheet and margin. Reported net interest margin for the fourth quarter was 3.29%. Excluding the 33 basis points contribution from purchase accounting adjustments, core margin was 2.96%, increasing 18 basis points sequentially. The primary drivers of the linked quarter increase in core NIM included a nonrecurring 4 basis points benefit from interest recapture on nonaccrual loans that became current during the quarter and a bond repayment, favorable basis risk between Fed target rates, which impact our funding costs and 1 month SOFR, which impacted our loan yields, benefits of a favorable mix shift in both earning assets and deposits, including the 24.9% linked quarter annualized increase in DDA balances, repricing of index deposits from the December 10th rate cut and higher loan fees, partially offset by lower benefits from 3 funds.

Total average deposits in the fourth quarter increased 5.6% on a linked quarter annualized basis. While we expected DDAs to rebound from seasonal lows in the third quarter, the outsized growth was driven in large part by new customer acquisitions in our Corporate Trust business as well as the often episodic nature of these deposit inflows. As previously noted, we have very limited line of sight into these movements.

This balancing mix, coupled with the impact of rate cuts, drove our cost of total deposits down by 29 basis points to 2.25% while cost of interest-bearing deposits declined by 33 basis points to 3.03%.

We realized a blended beta of 76% on interest-bearing deposits for the quarter, driven by favorable mix shift as well as outperformance for repricing on our soft index deposits.

On Page 27, we disclosed our current composition of deposits by rate sensitivity along with our interest rate simulation that shows us positioned as essentially neutral. Relative to the fourth quarter, adjusted margin of 2.92% that excludes accretion and the nonrecurring 4 basis points from interest reversals on nonaccrual and the bond prepayment that I mentioned, we expect first quarter margins to be relatively flat as pricing on variable rate loans with monthly resets catch up and are offset by positive churn in fixed rate loans and boundary investments and day impact. We have not assumed any upside to margin from additional rate cuts in the first quarter based on current implied market probabilities.

Actual margin and NII results will depend on levels of DDA growth, levels of excess liquidity, any SOFR movements and mix shifts within the lending and funding portfolios.

Finally, our effective tax rate was 20.3% for the fourth quarter and 19.7% for the full year. This compares to 18.5% for the full year 2024. Looking ahead, our effective tax rate is expected to be between 20% and 22% for 2026.

Now I'll turn it back over to the operator to begin the Q&A session.

[Operator Instructions] Our first question is from Jon Arfstrom from RBC Capital Markets.

Maybe Mariner or Jim, just can you give us a little more detail on the drivers of the commercial loan growth in the quarter, pretty strong, but if you can give us a little more detail on that? And then as a follow-up, just curious if you can talk a little bit more about the Heartland contributions to the growth? You flagged that last quarter about how, post conversion, it could be a little bit stronger.

Yes, John. Thanks. It's Mariner. I'd say, fortunately, the story remains the same as it has been for -- I've been CEO 22 years now. I would say it's the same as it's been. We're seeing it across really all markets are performing well. Really all verticals is kind of a broad win for us in the quarter as it continues to be. As we've talked before, our growth really comes from -- 50% of our growth comes from new customer acquisition, and that 50% largely comes from market share gains. And that story continues to be the same. A few trends. Energy continues to be strong and the sort of M&A, family office, transactional work continues to be strong across the footprint with the companies being acquired by private equity firms or family offices or looking for growth capital or transition ownership capital and -- but otherwise, I'd say pretty broad. Jim, anything...

Yes, I would agree. We've had some real bright spots through the [indiscernible] acquisition, our franchise lending group been additive to what we're doing. We've also seen nice growth from the team out in California as it relates to our ag business. which has been a real bright spot. But again, the C&I has been, across the board, the real drivers, as Mariner had mentioned.

And it's early still with Heartland. Good -- all good signs, but still early. We converted on Columbus Day. So we think that the benefit from Heartland is still significant and forward looking. We've got a -- we'll see that benefit in the coming years just accelerate as time goes on.

Okay. Good. Tom, a quick 1 for you, certainly not worried about credit, but can you touch on the NPL increase and just any likely updated time line for working through some of the acquired credits?

Yes. The increase was specific to one credit that is fully secured. We don't anticipate any loss from that one. As it relates to the overall portfolio of the NPLs and the watch list, that's a process and it takes time. We're having a lot of success. I would take you back to our historic charge-off numbers, and we expect the historical norms to remain the same as we go forward. So with what we know today, we still feel positive and good about the portfolio, and we're working through them. But again, our report card really or net charge-offs, and we believe with what we know today, we're still going to trend towards that historical norm.

Our next question is from Jared Shaw from Barclays.

Maybe just looking at deposits, some really good growth in DDAs there, both average and end of period. And I know that there's moving parts that can impact that at any given day. But as we start off the year here, how should we think about maybe average DDA growth quarter-over-quarter? Is that a -- is there an opportunity for that to grow?

Yes, I would say it probably picks up a little. If you just historically look at what happens between fourth quarter and first quarter, there's a slight pick up and then public funds, this is not interest-bearing -- or noninterest-bearing only, it's light pickup. And as I said in my prepared comments, we did have some new client acquisition, particularly in our corporate trust group. We're excited about the prospects from our newly acquired teams from -- on the CLO side and other corporate trust teams.

And then looking at the public fund side, we had about $1 billion of inflows coming in, in December, continues to build in January. And then in the second half of February, you'll see about $1 billion go away on the rest of the deposit story.

Due to tax payments.

Yes. Yes.

And then on the how are early trends on the HSA side with the benefits from the budget bill, have you been able to look a little more at the potential market impact there? And is there any appetite to maybe do a deal to add in that space specifically?

I'll take that high level, and if I miss that, Jim, can jump in. But I think that business as usual for us, nice steady growth through the enrollment season and continuing to sell into our customer base. I think the benefit of the Heartland footprint and customer base will be additive to our ability to sell direct there. But I wouldn't say anything elevated one way or the other. It's a nice steady addition to the book.

Our next question is from Chris McGratty from KBW.

Just going to -- on the expenses, I hear you on the first quarter and then the normalization thereafter. I guess, are all the cost saves realized? And then I'm interested in kind of where incremental dollars are being put back into the business. You're generating operating leverage, but where are you investing to grow the company?

Yes, definitely 100% of the cost saves that we identified at the time of the announcement of the transaction have been realized as of today. So post conversion, after a little while, there were the terms, there were contract terminations that are happening right now. You saw a part of our onetime costs in the fourth quarter as well. So as we sit today, all those have been acted upon in part of our run rate going forward. And then the other side is just normal inflation, as I said in the prepared comments about medical costs. Obviously, in the first quarter because of the timing of our bonus payments and resets of FIC, 401(k) match and payroll taxes that elevated spike us being a larger company and all that, but that should also recede in the second quarter by about $10 million.

And I would just add that I think the thing to focus on, and we've demonstrated it and we'll continue to is we're disciplined. And so the operating leverage is where we're focused. As it relates to expenses going forward, you shouldn't expect to see anything other than coming from whether we're successful with sales activities as has been in the past. Our expenses can be elevated because of the activities from the sales side of the business. Otherwise, really, we ought to be able to get investments that we make in the business out of business as usual levels of commitment.

Okay. Great. As my follow-up, the trust and securities processing line has been a really big source of growth. I mean admittedly, I keep undershooting the growth rate. But can you help us on -- it's a big line item, there's a lot of stuff in there. Can you help on like what would a reasonable growth rate for that business?

Well, I think looking backwards, we don't give guidance. Institutional Banking year-over-year had a 12.8% growth rate. And I would just say that the momentum and tailwinds remain strong. And as far as the pieces and parts, our fund services business and largely coming from the alternative side, which would be the private equity and hedge funds, et cetera, kind of the alternative space leads the way there as it does in the marketplace really and then our Corporate Trust business. So those are the 2 -- it's coming from all of the businesses that we're in, but those are the 2 largest drivers with the biggest tailwinds.

Our next question is from Ben Gerlinger from Citi.

I appreciate the color on the GAAP versus core margin, but kind of -- and I guess the commentary for 1Q. I know you don't give a full year. So I was just kind of thinking just kind of philosophically, if the curve stays the same, and there is no more cuts, is the growth you're adding dilutive or accretive to the core margin? Because your growth is great. I'm just trying to think like new money coming on either both sides of the balance sheet together. Do you expect to drift higher or lower on the core margin?

Generally, I would say the margin will be stable, all else being equal, right, without rate movements, without mix shift in DDX, our earning assets, it depends on what happens on the steepness of the curve. Obviously, we're in a pretty good environment where short-term rates, which drive our funding, are coming down. Maybe they won't come until June. That's kind of our internal forecast. And then the long end, where the reinvestment yield, they've held up pretty well, right? If you look at the last couple of months, they've averaged between $4.25 and $4.40 on bond versus -- bond investments versus the roll-off of $3.60. So those are all tailwinds from the margin that can offset any repricing risk that might happen on the loan book or the shape of the yield curve stays the same with no additional leverage on deposit pricing because the Fed is not cutting rate, I think our margin will be generally consistent with where we are right now.

I might add, environmentally, SOFR has been kind of a tailwind the way it's been priced in recent periods. So that has been a tailwind. So if that continues, it would...

Yes, that's a great point. Yes, if you just look at since the Fed started tightening this cycle since September, Fed target has come down 75 basis points. And 1 month of SOFR, which tends to lead that, has come down only 68 basis points. So between that and the steepness of the curve, we've seen the benefits that we're seeing in our margin in the fourth quarter and outlook forward as well.

Got you. That's really helpful color. And then the second question, I know you guys have kind of shied off on whole bank M&A, given the market disruption pretty much throughout your footprint, considering it's a pretty large footprint. Is there opportunities for increased higher throughout 26 via disruption or even team lift out? I'm just kind of curious on what you guys are approaching as a third party to M&A. Is there anything that's on the table that be considered low-hanging fruit?

So you touched off on a few things there. So I guess I would -- pure M&A, I'd revert you back to my comments in the script, which are just that we're focused on organic growth. And the phone line is open, and we maintain relationships otherwise on the M&A side, looking for possibly some tuck-ins along the way. But certainly focused on organic growth. Then you touched on other ways to add things that emulate M&A, I guess, so lift-outs and teams and things like that. So again, a similar kind of comment. We love to find good teams, whether they're corporate trust teams or a couple of lenders that are just disenfranchised somewhere in a market where we think that can be additive. So we take those calls. We look for those opportunities always. But that's how I'd say M&A is secondary to organic growth and then lift outs, we're always looking for those.

This is a people business, and if we can find high-quality talent, people will talk to them all that long.

Our next question is from Brian Wilczynski from Morgan Stanley.

I wanted to go back to the opportunity with Heartland. I was wondering if you could talk about some of the potential revenue synergies on the fee income side in terms of offering capabilities that UMB has that Heartland did not? Is there anything that you're seeing already today? And how should we think about that progressing over time?

Great question. We touched on this as quarters have rolled on. The main areas would be mortgage on the fee side. They didn't really have a mortgage product. We have a really fantastic custom mortgage product and so we -- with the private banking across the footprint, we really think we can excel there in a big way. Credit card, they didn't offer a credit card. So we've already launched that. Again, very early, but the signs are good, the activity is good. And then our Corporate Trust business is a very local business. We talked about this before. It's kind of lawyers to lawyers, local. So having more signs and more offices across our footprint will help the ability to feel an app local in a lot of these markets and expand into, in particular, California, a big market opportunity for us, and some of the other markets that we didn't have a footprint in, whether it be New Mexico or Wisconsin or Minnesota. So those are really exciting -- treasury management. They had a kind of a basic treasury management platform. So they'll benefit -- we'll be able to benefit from larger corporate opportunities in their footprint.

And then lastly, some obvious stuff that's sort of an uptick, which would be our legal lending limit, some deals where they were participants now we can leave, and we're seeing some really nice -- Jim mentioned earlier, the franchise lending, that's a perfect example where they would take a 25% piece of a really nice high-quality franchise opportunity. And we've already seen 4 or 5 deals just in the last handful of months where we go from being a participant to a lead or taking the whole thing. So we see those kinds of opportunities already pretty frequently. So very, very excited about all of that. And so those would be the main. The other one, which we -- this is the thing I'd say all the time about UMB. Because of the complexity of our offering what we've been able to bring the Heartland officers along to understand is that when you're at a cocktail party, every single person in that cocktail party is a target where it isn't the case of most other banks. So whether you're a private equity -- you work at a private equity firm or you work in the government or you work at a law firm that does Corporate Trust and Bond Council stuff, we can do business with literally anybody at a cocktail party.

So that's another benefit for them as you're out net working your community event or you're going somewhere after church or you're a holiday cocktail party, everybody is a target.

That's really helpful color. And then as my follow-up on the loan growth, another quarter of record production. If I look at Slide 31, the line utilization over the past few quarters has been relatively flat. I know that chart goes back about a year or so, but I was just wondering if you could provide some additional context where you are today versus historical levels, what you're seeing and how you expect that to play out over the course of '26?

That's a great question. High level, it remains relatively flat and can bump a little bit one way or the other from quarter-to-quarter. You would think and we would think that it'd be slightly more elevated just because of the environment that we've had for many years now with the supply chain issues, et cetera. But I think the answer to that for UMB largely is the high-quality nature of our borrower. So we have a borrowing base on the C&I side that has a strong net worth and a really strong earnings power, which just sort of tamps down the overall line utilization, and it stays pretty thing steady surprisingly, regardless of what the environment is.

Our next question is from Brian Foran from Truist.

I have one small one. Just one small one and then maybe one bigger picture one. So the small one, I'm looking at Slide 36, I definitely understand this business has great momentum. There was a small tick down in AUA, at least in like the top netted out totals. Was there anything to note there, why the quarter-over-quarter decline in AUA for the overall business?

Yes, Brian, this is Mariner. I saw that in your early note and we all sat around trying to figure out where you came up with that because it is in the category of transfer agency, we did have a quarter linked quarter slight decline, but I would say that's just a nuance. It pops around a little bit. I would focus you on the top line instead of the transfer agency line because it can move around from quarter-to-quarter, number of client activity, inflows, outflows. So really the better way to think about that is the total assets under administration, which is up on a linked-quarter basis. So nothing in there on the trend side. The business has tremendous momentum.

Perfect. And then on the M&A commentary, I wonder if like maybe you could look back with Heartland almost a year under your belt, key lessons learned that maybe inform any future transactions? Are there 1 or 2 things you really felt went great and got right that you'd want to replicate in any future deals? And then conversely, anything that you would have done different or would do different as you think about targeting sourcing, integrating any, just big picture, having done this 1 of the bigger transactions, I guess the biggest, the first one in a while, what was the top 1 or 2 lessons learned?

Yes. I got to say, I feel incredibly lucky to be surrounded by probably the best team in the business, and we picked up some fantastic people who know how to do these transactions in Heartland as well because they had done a bunch of deals themselves. So we have just -- and just to know, I'm almost speechless about it. The transaction went so well, incredibly well, flawlessly. You have a little tiny lessons learned along the way, but it was a pretty much flawless transaction, mainly because we have a super committed, dedicated, hard-working, very smart team. We were super committed to a concept called do not harm, which we communicated a ton. We had ambassadors from UMB that were tied to locations and individuals across the company who were there for the conversion, were there to answer questions and help them through the customer interactions and experience to keep that where it needed to be.

So just all in all, I mean, I pinch myself right now as I'm talking to you, it was a fantastic deal. And as far as lessons learned, I mean, gosh, we modeled some deposit runoff, as I think everybody does when they do these deals. We grew our deposits. And then overall, we exceeded our expectations on growth so far on a combined basis. And we got all of our synergies, got all of our dollars out of the deal. And we've been very received -- very well received in the communities that we're in. And like I said, I just pinch myself. I wish I could give you something other than it was fantastic because it feels unrealistic to tell you there weren't any big lessons, but I know you guys want to add any thing?

This is Jim Rine. The only thing I would add that was a real positive coming out of it was there's a lot of built-up muscle memory. The team has a process that has been proven. And Mariner nailed it, it couldn't have gone any better quite frankly. But the #1 rule in any of these is going to be culture. And I think that would be something that -- not that we wouldn't have before, but just to make sure that we know what we're getting into as it relates to culture and that, that needs to be the right fit.

Yes. I think one of the things we did in this particular case, which is what we would do if we ever did in other deals that it would be small enough that we would maintain control of everything, culture, management, Board, and that was very helpful and would be always the case for us. And yes, I mean, the only thing I would say being candid and lessons learned would be in smart really is that between close and conversion, expectations should be more muted for growth out of the acquired company. And we witnessed that. So UMB outperformed during that period. And so we, on a combined basis, really had great results. But you should expect a somewhat more muted growth out of the acquired company, I think, than -- now I'm just pontificating philosophically with you, but it was a fantastic transaction. I wouldn't wish for anything different. And I just would echo that people, people, people, people. We just have a fantastic team who're super committed working around the clock, and I feel lucky.

Our next question is from Janet Lee from TD Cowen.

If I were to -- just want to make sure that I understand your commentary around NIM correctly. So basically, through 2026, you're pretty neutral to changes in interest rates. So as long as you could maintain that beta on deposits, you could be able to hold that NIM fairly -- core NIM, ex NE that 4 basis points one-off impact in the quarter, relatively flattish. And I guess another question would be that that 76% deposit beta in the quarter was pretty outsized. Do you think you'll be able to maintain that? Or what was that in a different outsized quarter?

Yes, I'll take that, janet. Yes. So we are pretty usual as you look at our interest rate simulation that we disclosed in our pages. So if you look at it based on fourth quarter results, $33 billion of our earning assets are variable. So that's about 51% of our total earning asset base. And if you look at our funding deposit mix, 50% our deposits are indexed, right? So we run a pretty matched both on the asset side and the liability side. So any changes in NIM from quarter-to-quarter will largely be predicated on what happens with changes in DDA balances, interest rate, mix of deposits or when the Fed rate cut happens, right? So if your situation plays out where we don't have any more rate cuts, as I said in my prepared comments, there's potential upside if the June rate can happen. So our internal view based on market probabilities is still 2 more rate cuts, 1 probably at the end of the second quarter and 1 probably in the fourth quarter. There's additional upside for margin from that because our index deposits will reprice down. But then there's always a catch-up in loan yields for the following period, right, based on how they reset.

So I just point out, to answer your first question, yes, generally, we would expect our NIM to be plus or minus where our core NIM was in the fourth quarter adjusted for that 4 basis points.

I forgot your second question already.

The beta of 76%, is that sustainable or outsized?

If the rate cuts happen, yes, our expectation -- the team did a great job outperforming on the soft index deposits, like we said on the prepared comments. So if our outlook is for no more rate cuts, the leverage on the deposit cost side is fairly limited until that happens, right? Index deposits are largely formulaic in the fourth quarter. Reacting to the September, October and December cuts, we passed along a good 76% of it to our existing clients. So it really comes down to when the rate cut happens. We are looking at the back book, but as you look at our slides, only 30% of our deposits are really nonindexed deposits outside of DDAs. So there's fairly limited leverage on that side to keep doing betas until we have another rate cut.

Got it. And just 1 follow-up. Philosophically, should we think of -- in terms of your loan and deposit growth, should we think of as like deposit growth -- you're going to fund your loan growth with deposit growth in the same ballpark by dollar amount? Or would you -- so basically, would you -- yes, what would be the ideal sort of loan-to-deposit ratio? Would you have that going up a little? Or do you want to maintain at this level? How should we think about that?

So I would say think about it differently. The way we think about loan and deposit ratio is at the value of a bank's -- of a franchise in the banking industry is in its deposits. And if we are always focused on bringing in raw material that is cost-effective, core and granular as possible and not limiting that in any way, shape or form, you let the loans end up where they end up. So at the end of the day, it's really -- we don't guide that. We expect to have exceptional loan growth and exceptional deposit growth. We are fully comfortable at a higher level of loan-to-deposit ratio. We've been as high as 75% before, very comfortable there. But we're not aiming there, we don't give guidance. We're comfortable at higher levels. But really, the focus is on building the franchise through high-quality loans and high-quality, granular core deposits and as much as we can in both and we let the chips fall where they may. Certainly, we don't want to be overly [indiscernible]. And so without giving guidance that we certainly wouldn't want to be in the '90s. That will be uncomfortable for us.

And flexibly -- just to add to that, the flexibility of our balance sheet on Page 25, right? We have $2.2 billion of cash flows coming from our bond portfolio. We are intentional about that. So those are all -- in the past, we've used that to fund our loan growth if we see excess opportunities coming out of Heartland. So there's always an opportunity. But as Mariner said, deposits is where the focus is.

And there's no -- the thing about our franchise and the success of our deposit-generating capabilities, we keep, what, $20 billion off balance sheet?

Yes.

We have $20 billion off balance sheet for clients that we put into money markets and earned with 12b-1 fees on. We can bring that on whenever we want based on what kind of loan growth we have if we pay market rates on it. So deposit generation is something we do very, very well. And so we -- as an asset generating machine, we are also a deposit-generating machine. So this is something we don't worry about.

Our next question is from David Long from Raymond James.

On the growth expectations from the HTLF franchise, I understand you're fully 1 organization now. But when you just look at the HTLF growth that you're expecting from that organization, does it come mostly from the current HTLF team or the legacy HTLF team? Those bankers growing into the UMB model? Or do you guys have to bring in more veteran bankers from larger institutions in those locations?

The answer is both. So we think there is a lot of opportunity with the middle market team and small business team that they've built. And then I would say, in places like California, Minnesota, Milwaukee, some places where they are more -- they are smaller and have not been there as long, et cetera, we have the opportunity over the coming years to add talent. And so it's a combination.

Got it. And then a follow-up for Ram. As you look at the cost of deposits, I think you said all in, was about 2.25% noninterest-bearing and interest-bearing for the quarter. Do you know where that ended the year at, at December 31?

I don't have that, Dave, but using any particular month or period end doesn't work for us because of the nature of inflows when the timing of the inflows happen, right? We could have $3 billion, $4 billion of deposits come in and change the average for any month or a period end. So it's hard to judge what that is. But I would say, for the December 10 rate cut, based on that 76% beta, there's still some juice left to squeeze on the deposit cost side because it's not fully baked in for the fourth quarter. So that will still happen. But I don't have specifics, and it's not relevant really, just to give you 1 month for us.

Our next question is from Nathan Race from Piper Sandler.

Mariner, the rate of -- or the level of gross loan production stepped up in each of the last few quarters and even going further back as well. Just curious, when you look at the existing capacity across the team and the runway for growth that you've described in the past, do you think that can continue to step up in this year? Or would we need to see some hiring to see maybe a step change function in that gross loan production level?

No, I think we try not to give too much guidance there other than a quarter forward look, which we do. And so I would say the first quarter looks to be as strong as -- or near the fourth quarter for production. And then I would just kind of -- you've got your -- we're sitting around this table with the guys that have been doing this with for 30 years together. And if you look at Page 42 in our deck, it's a 13% 20-year CAGR for loan growth, and that's from grabbing market share and having consistency and continuity and tenure. We don't turn our team over. And we have a huge, huge runway in most of our markets where we still have low penetration. So there's a significant penetration opportunity as long as we keep our people and build our pipelines.

So I have no expectation that we can't keep doing what we've been doing and do that on an even bigger base. So our base has gone from -- on an average basis from $24 billion in loans to $36 billion in loans. And I don't have any expectation other than we keep doing what we're doing on a bigger base.

Okay. Great. That's helpful. And then maybe for Ram. I appreciate the expense guide for the first quarter. And then I think you mentioned you're expecting about $10 million in terms of the step down from the CECL increase in the second quarter. Are there any other kind of offsets in terms of where you're investing around other areas of expense growth that would mitigate that relief in the second quarter?

Yes, the $10 million, just to be clear, is only on those seasonal expenses like FICO and 401(k) match, right? No dramatic change in our expense trajectory really now. We would go back to operating leverage. So to the extent that revenue growth exceeds our expectations or exceed quarter-over-quarter. You might see additional step-up in expenses on commissions paid on widgets sold. But nothing otherwise in terms of dramatic investments.

We're a disciplined team and we'll stay focused on making sure those -- the intersection is there between what we spend and what the leverage on it is.

Understood. That's helpful. If I could just sneak 1 more in. I appreciate that the focus is on organic, and you're less inclined to do any depository type acquisitions. But just curious what the opportunity set may be out there, what the appetite is to maybe acquire a non-vacancy that could augment some of your less capital-intensive fee businesses to maybe get that fee income proportion up close to the historical levels around 35% plus the total revenue?

Well, you kind of asked 2 questions there. I think when it comes to [indiscernible] fees, I think, I'd point back to, we sold -- if you remember, we sold Scout. And when we sold Scout that reduced our fees by over $100 million in 1 year. We replaced all of that through organic growth in 12 months. So I think the way to think about fee income growth for us is not percent of total, but absolute loan growth of the group itself. So if we can maintain a growth rate of our institutional businesses as I mentioned earlier, 12.8% there and overall fee income of 7%-plus, which we've demonstrated, that is more important than its percent of total. Because with interest rates changing from 1 year to the next, one -- that mix can change just because of where the interest rates are.

So we're more focused on making sure the momentum and the strength is there for the businesses themselves as opposed to what the percentage of total is. I do think and expect, just because of that momentum that it gains back some of that share of total revenue over time, but we have no design aim for where that ends up. So on the other one, just a pure M&A question, I'll just point you back to my comments. We're focused on it, the organic growth. Our phones are open, conversations and stuff with people continue, but we're looking for tuck-in smaller additive deals. And most importantly, if we find those, you got to understand we don't want to give up any kind of controls. We do anything at all. So..

Nate, it's Jim Rine. The only other thing I would add to that is what you've seen from us on the institutional side has mainly been through talent, acquiring great people in those markets to accelerate that fee income. And I think that's what you should probably expect in the immediate future.

Yes, lift-outs in Corporate Trust and other places like that. We keep an eye out for a little. We do them all the time. You got don't even see them really we do little announcements, small, tiny little acquisitions, lift-outs for our institutional teams, but the pure dollar level of those are immaterial, so they don't really show up on the radar screen, but they're always additive.

Our next question is from Timur Braziler from Wells Fargo.

Hi. Can you hear me now?

Yes.

Just one more for me on loan growth, a 2-parter. I guess, first on the Heartland piece. Is that now firing on all cylinders? Or is there still ability to to add capacity there in terms of overall production? And then similarly, on loan payoffs, that's been stepping up over the last couple of quarters. I'm just wondering if we're reaching a plateau there or if there's you think another leg higher as rates move lower?

On the Heartland loan growth capacity and capability. I've touched on that a little earlier. We -- it is -- it's early days. They -- the traction is good. We think we can get a lot out of the team that exists. And then in some of the markets where they're newer and smaller, we think over time, we can add some talent and accelerate that growth. But there's a lot of energy. We're seeing a lot of activity in loan committee. I feel very good about what we're going to see from them and are seeing early from them from the team. And so then the second question about payoffs, there was a slight elevation, but if you look at the combined number of all of those items was paydowns or payoffs from third quarter to fourth quarter it remains kind of in line. And so as rates come down, if they come down, there is some expectation that, that could accelerate some.

We saw on the combined category of all those numbers together in the fourth quarter went from 3.3% to 3.9%. So there was a slight tick up, but I would say that that doesn't -- that movement doesn't send a lot of directional or trending to us. But certainly, there's a possibility that, that could accelerate. There's some pent-up demand for that for things to go into the secondary market from the construction book. But we haven't seen it yet.

And as we look at what we know right now as we look into the first quarter, talking to the teams and doing the work we do to project forward, it looks still in line with what we saw in the fourth quarter.

We currently have no further questions, so I will hand back to management for closing remarks.

Yes. I've got just a couple of things I want to end on because we're pretty excited about where we are coming off the heels of our acquisition and how well it performed. I just want to remind you all, I'm sitting around the table here with Tom and Jim, myself, a few others, but the 3 of us have been working together for 30 years together, Tom 40 years. I'm at 31, Jim's at 32. We've been leading this -- particularly the credit efforts of the company, in my case, for 22 years at the helm. I've been doing these calls for 22 years, approaching 100 quarters of doing this with you all. And I know the 1 thing that I've learned from the investor community is you hate surprises, and you hate being alarmed. And so what I'd like to do is take you momentarily to my favorite section in our deck, which is the long-term performance trends 41 through 47 in our deck. And just to remind you of a couple of things of what's happened over the last 20 years for UMB with his team to put through at ease around being surprised an alarm. We do the same thing year in and year out. So if you look at net interest income over the last 20 years, the CAGR is 12.1%, revenue 20 years 9.4% CAGR, net loan growth 20 years CAGR 13%, deposit growth 20 years 12% CAGR, charge-offs less than 27 basis points over the last 20 years. And particularly during the crisis, you can see from '08 to '12, our line forms the bottom of the chart where the rest of the industry looks like a shark fin. And you fast forward to where we are with $38 billion in loans in the fourth quarter, and we had 13 basis points of charge-off compared to 20 years ago with $2.7 billion of loans, we had 22 basis points charge-offs with $2.7 billion of loans against our $38 million today and 13 basis points of charge-offs in the fourth quarter. And then you could go to the dividend. For those of you who care about the dividends, 273% -- 274% growth in our dividend over the last 20 years. And in this last year, a 5.5% increase year-over-year.

and then risk-weighted, risk-adjusted returns, you can see that on Page 45. So not only do we do it, but I think as a company, we live at the -- we breathe rarefied air at the intersection of industry-leading growth and industry-leading quality. And really, the point of all that as it translates into the last page there, and you see our 20-year compound annual growth rates. So our diluted earnings per share of 7.9% over the last 20 years against the KRX of 4.1%, peer median at 3.2% and the industry at 3.5%, and then our tangible book value per share, 6.8% over the last 20 against 4.7% for the KRX, 3.7% for the peer, and 4.7% for the industry.

So at the end of the day, I guess, the thing that I get from all of you the most is, you have being surprised, you hate being alarms and you like quality. So if you just spend a few minutes on those pages and reflect on that and you think about the future, and you've got the same team telling you when we say something we're going to do, we do what we say and we say what we can do and we've been doing it for a long time. So you can count on us to keep delivering. Thanks for the time. We're really excited about the future. We're excited about what we've done, and I love working with this team, and we love talking to you guys. So have a great day.

Thanks, Mariner. As always, if you have follow-ups, you can reach us at (816) 860-7106. Thanks for joining us, and have a great day.

Thank you all. This concludes today's UMB Financial's Fourth Quarter 2025 Financial Results Conference Call. Thank you for joining. You may now disconnect your lines.

Hello, everyone, and welcome to the UMB Financial Third Quarter 2025 Financial Results Conference Call. My name is Carla, and I will be coordinating your call today. [Operator Instructions] I would now like to hand the call over to the Investor Relations at UMB Kay Gregory to begin. Please go ahead when you're ready.

Good morning, and welcome to our third quarter 2025 call. Mariner Kemper, Chairman and CEO; and Ram Shankar, CFO, will share a few comments about our results, then we'll open the call for questions from our equity research analysts.

Jim Rine, President of the holding company and CEO of UMB Bank, along with Tom Terry, Chief Credit Officer, will be available for a question-and-answer session.

Before we begin, let me remind you that today's presentation contains forward-looking statements, including the discussion of future financial and operating results, benefits, synergies, gains and costs that the company expects to realize from the acquisition as well as other opportunities management foresees.

Forward-looking statements and any pro forma metrics are subject to assumptions, risks and uncertainties as outlined in our SEC filings and summarized in our presentation on Slide 50. 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. Presentation materials are available online at investorrelations.umb.com and include reconciliations of non-GAAP financial measures.

All per share metrics refer to common shares and are on a diluted share basis. Now I'll turn the call over to Mariner Kemper.

Thank you, Kay, and good morning, everyone. We'll share some brief comments about our third quarter results, then open it up for questions. As you may have seen in our recent release, I'm very excited that we've reached the important milestone in our acquisition of Heartland Financial early this October.

We successfully completed the full systems and brand conversion of all HTLF locations. I'm incredibly proud of the teams that have been working together around the clock to make the smooth transition for our clients as well as for our associates, all while continuing to excel at their day jobs, which is evidenced by our strong third quarter results.

We saw a new record for gross loan production, strong fee income, consistent credit quality and continued positive operating leverage. Reported net income available to common shareholders of $180.4 million included $35.6 million of acquisition expenses compared to $13.5 million in the second quarter.

Excluding these and some smaller nonrecurring items, our third quarter net operating income was $206.5 million or $2.70 per share.

Third quarter net interest income totaled $475 million, an increase of $8 million or 1.7% from the second quarter, driven primarily by continued organic growth in average loans and earning assets, partially offset by the impact of strong growth and higher cost interest-bearing deposits from our institutional businesses.

Fee income was strong, increasing 12.4% on a linked-quarter basis, excluding the impact of market valuation changes on our equity positions. Trust and securities processing income was positively impacted by solid contributions from corporate trust, fund services and private wealth.

And in investment banking, increased activity in agency and mortgage-backed trading drove nearly a 14% increase from the second quarter.

Looking at the balance sheet, we had solid increases on both sides with 8% linked-quarter annualized growth in both average loans and deposits. Quarterly top line loan production surpassed $2 billion for the first time with strong organic growth momentum supplemented by the continued success from our acquired markets.

The rate of payoffs fell slightly to 3.6% and remains in line with historical trends. C&I was our strongest contributor for the quarter with more than 14% annualized growth over the second quarter average balances.

Additionally, as I mentioned last quarter, we've begun offering mortgage products in our new regions in the spring and have been encouraged by the early success, which has led to nearly $20 million in closed loans. We continue to see a strong pipeline.

Looking ahead in the fourth quarter, overall loan activity and pipeline remains strong, both in legacy and HTLF markets. Our loan growth has continued to outpace our peer banks. Banks that have reported third quarter results so far have reported a 5.5% median annualized increase in average loan balances compared to our 8% growth.

With the recent discussions around lending to companies designated as nondepository financial institutions, we've added some stats on our C&I page to give some context.

Expanded definition from the Fed on loans to NDFIs was merely a reclassification of a broad range of exposures that includes high-quality working capital or capital call lines, private equity partnerships and loans made to insurance companies. These have long existed within bank C&I portfolios.

After recalibrating our reporting to meet these updated definitions, our portfolio was approximately $2.1 billion at the end of September, representing just under 6% of total loans.

Approximately 1/3 of these are subscription lines, largely to our fund services and private equity clients. And like all of our loans, these are strategically underwritten and actively monitored and managed and have historically had excellent credit quality.

Speaking of credit quality, our allowance increased to 1.07% of total loans on September 30. Total net charge-offs for the third quarter were 20 basis points, with the largest portion being credit card as has been consistent in past quarters.

Net charge-offs on legacy UMB loans were just 8 basis points of average loans, down from 13 basis points in the prior quarter. Given what we know today, we continue to expect charge-off levels to remain near or below our historical averages for the remainder of the year.

Total nonperforming loans were $132 million or 35 basis points of loans. The quarterly increase was driven by 2 legacy HTLF loans that have substantially adequate PCD reserves today. Banks that have reported third quarter results so far have reported a median NPL ratio of 48 basis points.

While we've seen a slight increase in NPLs, we don't expect that there will be any significant change to our outlook for charge-off levels. We continue to build capital with a September 30 common equity Tier 1 ratio of 10.70%, a 31-basis point increase from June 30, moving closer to our pre-acquisition levels.

Finally, as announced yesterday, I'm pleased to report that our Board of Directors declared a quarterly dividend of $0.43 per share to common shareholders. This represents an increase of 7.5% from the prior quarter and marks the 23rd dividend increase in the past 20 years.

You can see our strong track record of growing our dividends on Slide 46. Since 2004, we've increased our annual dividend almost 300% while continuing to grow our balance sheet and tangible book value. Now I'll turn it over to Ram for more detail.

Thanks, Mariner. I'll begin with the purchase accounting update included on Slides 9 and 10 of our materials. Our third quarter results included $40.7 million in net accretion and net interest income, $5.6 million of which was related to accelerated accretion from early payoffs of acquired loans.

The net benefit to net interest margin from total accretion was approximately 26 basis points. Our operating expenses again included $23.4 million in acquisition-related amortization of intangibles.

On Slide 10 is the projected contractual accretion for the next 5 quarters as well as for full year 2027. Slides 12 and 13 include some key highlights and drivers of our quarter-over-quarter variances as well as a breakout of onetime costs by expense categories.

You will see the accretion income there, along with the solid noninterest income growth Mariner mentioned. Metrics behind our fee income included a 6.8% increase in total institutional assets under administration, which now stands at $642 billion.

Additionally, our Specialty Trust and Agency Solutions team have seen a 49% increase in new business year-to-date and public finance has closed 117 deals in 2025, an increase of 22% over 2024.

Fee income will continue to be impacted by changes in market value of our 904,000 share ownership in Voyager stock. As noted, the September 30 closing price was $29.78 compared to $39.25 on June 30.

The second quarter gain from the IPO of $29 million and a $9 million mark-to-market from the change in stock price during the third quarter resulted in a negative $38 million swing in fee income sequentially.

As we've said previously, our pipeline remains strong in our private investment business, and we are likely to see periodic monetizations going forward.

Also, as noted, excluding the investment gain line item and normal mark-to-market accretion on BOLI and COLI investments, we also benefited from some onetime fees this quarter to the tune of $6 million. These primarily included a $2.3 million BOLI debt benefit and a $2.5 million legal settlement paid to us.

On the expense side, we had $35.6 million of merger-related costs compared to $13.5 million in the previous quarter. Excluding the impact of merger and onetime costs, operating noninterest expense was $385 million, an increase of just 1.3% compared to the second quarter.

Looking ahead, we would expect fourth quarter operating expense to be in the $375 million to $380 million range to include a $2 million charitable contribution and the expected ramp-up in performance-related incentive comp net of cost saves.

We remain on track with our announced acquisition-related expenses as well as cost synergies. Turning to the balance sheet and margin. Reported net interest margin for the third quarter was 3.04%.

Excluding the 26-basis point contribution from purchase accounting adjustments, core margin was 2.78%, down 5 basis points sequentially.

The primary drivers of the linked-quarter decline in net interest margin were a 3-basis point negative impact from free funds and 4 basis points compression due to a strong 4% growth in average interest-bearing deposits, led by higher cost deposit balances held by our institutional clients.

These balances totaling over $1 billion, coupled with the seasonal decline in DDAs, drove our cost of interest-bearing deposits higher by 2 basis points and our cost of total deposits up by 7 basis points.

We realized blended betas in line with our expectations on our index deposits in the month of September, but the benefit was muted due to the mid-September timing of the FOMC cut.

On Page 27, we disclose our current composition of deposits by rate sensitivity. As a reminder, our interest rate simulation on that page shows us positioned as essentially neutral and is a static balance sheet analysis where cash flows are replaced by similar instruments at current market yields.

It does not contemplate growth in the balance sheet, which may impact overall margin. Relative to the third quarter core margin of 2.78%, excluding accretion, we expect fourth quarter margin to be essentially flat.

Key assumptions include one additional 25 basis points rate cut in October and the residual benefit from the September rate cut, along with a slight seasonal rebound in DDA balances and positive churn in the bond and fixed rate loan portfolios as highlighted on Slides 25 and 27.

Offsets include the impact of September and October rate cuts on our variable rate loan portfolio and lower benefit of free funds in a lower rate environment.

Finally, our effective tax rate was 20.4% for the third quarter compared to 19.2% for the same quarter last year. For the full year 2025, our effective tax rate is expected to be between 19% and 22%. Now I will turn it back over to the operator to begin the question-and-answer session.

[Operator Instructions] And our first question comes from Jon Arfstrom with RBC Capital.

I asked about this last quarter on production trends, and I just want to go back to it because trends are up again. Curious, Mariner, you touched on it, but can you dissect it a little bit more for us?

Is that improvement from borrower sentiment? Anything you're doing differently? Is it Heartland? Or is it something else? And then maybe comment on the sustainability of that?

Yes. Thanks, Jon. It's a long-standing answer. We use the term runway and penetration often when we talk about our loan growth. And it's really across all categories, all regions. It's coming from Heartland, it's coming from UMB.

And as we've talked before, our loan growth budgeting and forecasting comes from what the penetration is locally, the size of the opportunities that we have from the towns that we're in and then importantly, what the capacity and capability of the officer core is.

So it's a bottoms-up exercise and the tenure of our associates building long, deep pipelines and the sheer opportunity we have across our footprint. So nothing really new to report, lots of execution opportunity as long as we keep our people, keep let them build their pipelines.

And the exciting thing is it's really early days on seeing the penetration opportunities in the new footprint. So we're seeing some already early signs from it, but I mean, it's just super early days.

When we did the acquisition, we talked about the chassis and the engine. So the chassis is that we picked up through Heartland is absolutely what we thought it was going to be, and we're seeing the early indications of that success. But again, really good news. It's still very early.

Okay. Good. Maybe for you, Tom, credit has been topical. I think yours looks just fine and you guys touched on it a little bit. But anything new on credit? It looks like the balance changes are primarily Heartland driven, but anything to note on some of the core trends on credit?

No, we're still very pleased with how we're handling the new Heartland credits. And we've talked about the last couple of quarters, the fact that we've identified a lot of these. We have already put reserves against them, and now we're just working them through.

So still feel very good about where we are today and what we see over the next couple of quarters in terms of charge-offs. We think we'll be right in line with what we've talked about and the one thing to keep in mind is we did have a couple of larger additions to the nonperforming.

We still expect those to come out in good shape. We're secured. We have reserves against them. We're secured. We just need to work through them. So still feel optimistic about the economy. Our borrowers are making money. So it's kind of the same message we've had the last couple of quarters.

And I would just reiterate that our comments on guidance around charge-offs, I just reiterate that, which is that we don't expect anything different, and we'd expect the remainder of the year to be at or below our historic charge-off levels.

And our next question comes from David Long with Raymond James.

Ram, I appreciate the color on the fourth quarter outlook on the expenses. But as we look into the first quarter of '26, you guys have completed the core conversion. How should we be thinking about the step in expenses into the first quarter with the conversion being done then?

Yes, I'll take a stab at it. And we don't give specific guidance beyond the next quarter. And I'll speak to the top of the house. We expect all the cost saves that we expect from Heartland at the time of the announcement to materialize by the end of first quarter, right?

So I had said at legal day 1, which was back in January, we got close to $70 million of the cost saves on an annualized run rate basis.

Following the conversion, we've taken actions on another $5 million quarterly, so call it $20 million of additional cost saves that leaves about $30 million left which we'll get over the next 3, 4 months. So that will be fully baked in.

The reason I can specifically answer your question is, obviously, there's core inflation that's going on at UMB in terms of investing in certain things. So -- but just said, like as I said before, we expect $375 million to $380 million.

We have some more cost saves to come in, and then there will be some normal inflation as part of UMB's investment, legacy UMB investment.

Got it. And then just to be clear, so it sounds like there's still -- in the first quarter, there still could be some costs that need to come out. So is the second quarter the clean quarter?

Yes, I would say that.

Okay. Okay. Perfect. And then switching gears, just on the lending side, with the acquisition of HTLF and bringing in their lenders, how have they been integrated? And are they continuing to operate with the same sort of customer focus as they had under the HTLF brand?

Or are there opportunities for them to step up and maybe take on some larger relationships? Just talk about that integration process.

I'll take a stab at this and then let Jim jump in. But as we talked before, the beauty of this -- the combination was we got to drop the UMB way of doing things in holistically across the organization day 1.

And we had enough talent in our group with regional credit officers to drop them in across the whole footprint to provide guidance and quick turnaround times, access to decision makers, et cetera to not only keep up what they were able to deliver, but I would argue to improve what they're delivering as far as turnaround times and quality of the way we lend.

So they've been, I think, really pleased with what we're bringing to the table. And so the uptake has been very quick because it was -- we were not meshing 2 cultures. Jim, I don't know if you want to add anything to that?

Yes. There, I don't have much else to add other than the former HTLF officers certainly embraced it. They have more support in market, more turning -- ability to turn answers around to the clients quicker.

And our sales process, it differs in various banks, but we feel like our credit culture is extremely strong, and they've embraced what we do, and it's also increased their ability on higher hold limits where it's necessary. So it's working great. It really is.

Yes. Most important thing is we're not meshing 2 people. I mean the really important thing is we're not really -- we're not meshing 2 cultures. So that would slow things down. So there's really 0 of that to contend with.

The next question comes from Brian Wilczynski with Morgan Stanley.

Maybe just staying with Heartland and the opportunity there. It definitely sounds like you're still early innings in terms of the benefit.

Can you just elaborate a little bit more in terms of where you see the most opportunity for new loan production, either across Heartland's regions and in particular or any particular loan categories where you're seeing the most opportunity?

How much time do you have? I mean it's really across the board and in different stages in different places. I mean just a couple of examples. California, as we all know, is a very significant market opportunity, for example. So to get -- there's just an unending opportunity with what we can do in California.

So it's about what pace we do that, what kind of hiring takes place. So that's an example of California. So without a loan, like it's hard to even put a number on that one.

Other things like Rockford were really -- was a real positive surprise for us. We knew it would be additive, but where it's placed on the map, being close to Chicago and the team up there and the production that we're already seeing has been a really nice upside surprise.

Wisconsin at all across Wisconsin, lots of really fantastic opportunities. There's a really, really neat team there. And I hate even starting doing this because there's great people across all the markets that we picked up, seeing a lot of really great activity in New Mexico.

So some of it's kind of population based where we see maybe more opportunities. It's going to be some of these markets with more population. And then you back into where we are in the life cycle of how many people were already hired and how many people we could -- can hire. And yes, how penetrated we are already.

So there's really low penetration. It's the age-old story for UMB even before Heartland, which is there's really significant penetration opportunity just to get our -- just getting our small share, let's say, we're aiming to take 10% of all those markets. I mean, that would triple the size of UMB just by itself.

So it's an enormous opportunity, and we're in just early days about just retaining this great talent we picked up and adding to it over the next few years.

That's really helpful. And then I wanted to ask about bank M&A activity clearly picking up across many parts of the country, including in your footprint.

I was wondering what opportunities that presents for UMB, either as an acquirer or as a way to win business from other banks who are doing deals? How do you think about the opportunity for the bank here?

Yes. I'm going to reiterate some comments I've been making about this subject for some time. We don't need to do M&A. We have a very strong engine.

But because of that very strong engine, we do believe strategically, over time, we want to augment our loan growth ultimately as a company with acquired deposits through M&A because they're sticky, they're granular, they're low cost and they're hard to come by to ultimately keep up with the kind of loan growth we've had over time.

So we think it is a good strategic move for us to back up the engine we have with augmented acquired underlevered deposits to really great franchises across our footprint. So we don't have anything other than a desire and a strategic focus.

It is part of our strategy. So we build relationships and are looking for good partners over time. No need from a time line perspective other than we just think over the life cycle of UMB, it's good and additive to add good partnerships to the well-run banks to the mix.

And the next question comes from Jared Shaw with Barclays.

I guess sticking with the capital discussion, you grew CET1 this quarter. It's still below where it was before the Heartland deal.

Do you think you could deploy capital through a deal with the CET1 here? Or would you want that to be above 11% before sort of embarking on any capital strategies?

Well, there's a lot of moving pieces in the M&A space. Anything from picking up a bank that has excess capital itself to our ability to earn back very quickly after an M&A transaction to raising capital, et cetera. I mean, there's any number of variances and variables to answer that question with.

We certainly think over time, psalms 1 quarter or 2 or a couple of quarters connect to each other, we'd like to be at higher levels of capital. We're very comfortable dropping down for a couple of quarters if it's based on a high-quality transaction. Ram, I don't know if you want to add anything to that?

Yes. Just on the capital side, Jared, related to the M&A comment, our capital build to get back to 11%, that will happen within 1 or 2 quarters on the pace that we're growing, right? So we are ahead of our schedule in terms of what we thought would happen to our capital accretion from the Heartland transaction because of both the benefits of the merger as well as for UMB outperformance. So that could be a couple of quarters away.

Yes. And so the answer to the extent that M&A played a role on that, those were my answers.

Great. And then on the securities portfolio, last quarter, you sort of implied that we could see higher growth in securities. How are we -- are you thinking about sort of that cash securities mix here going into the end of the year?

Yes. What I said last time was our treasury managed portfolio, which includes the Fed account will be about $24 billion. So we've added a new line on the summary pages you noticed what's between AFS held to maturity and the portfolio.

So we could see based on the overbuy activity that we were doing, we could see that going up to about $24.5 billion versus the $23.7 billion that you are seeing for third quarter averages.

Okay. If I could just sneak one last one in on the accretion. If we get the cut as expected -- as you expect in your outlook, what could that do to accelerated accretion? How much do you think is sort of, I guess, you could say, at risk with another cut in terms of being able to accelerate?

It's really hard to say whether -- what's driving the prepays. It could be market, it could be property selling. It could be a lot of variety of things.

I don't know if the first 50 basis points cut is enough to move the needle on refinancings at this point. But again, it's anybody's guess, Jared.

What we do on Page 10 is just do the contractual accretion.

So we know in all likelihood, it will outperform that because of just the prepays and what happens with the loan portfolio churn. But in terms of trying to quantify it or tie it to how many rate cuts we get, it's challenging.

The next question comes from Janet Lee with TD Cowen.

I want to talk about your Institutional Banking division. Obviously, that is a key differentiator and growth driver for you. If I look at the trust and secure processing fee line, it's up almost 18% year-over-year. And if I look at the assets under administration, it's up very strong over the past year. What is the key driver behind that?

Are you just taking more market share away from the competitors? Or are you seeing more accelerated growth from the Heartland acquisition where maybe you're picking up some growth? I would assume a lot of that is just like legacy UMB.

But I want to get a sense of where your outlook is for this division. I would also assume the one big beautiful bill that could also increase the TAM for your HSA deposits. So I just want to get a sense of where you think this business is headed.

I'll hit a couple of high-level things, and Jim might add some things because those businesses report to him directly. At the high-level basis, 2 of these business lines drive most of that, and that would be assets, our asset servicing business, which is you'll see on Page 36 in our investor deck.

And majority of that comes from alternatives, which would be like hedge funds and private equity. We're a top player on a national basis in that particular space. And there's been a lot of disruption.

PE has been -- acquired a lot of these firms, and that's been disruptive to the boardrooms. So because of that, we've picked up a lot of the business that has been available through boardroom conversations. And the momentum is very, very strong. We have exceptional reputation.

If you look again on Page 36, upper right-hand corner, you can see some of the best in fund accounting, the awards we get year in and year out. And so we have an exceptional reputation and a deep pipeline converting all the time.

And lastly, I'd say there's a trend in the space, which is the democratization of private investing, which you've been reading about, I'm sure. And we have partnered with a couple of the major players as their service provider who are providing vehicles on a broad basis across the nation to democratize the availability of private investing.

So we're seeing a lot of growth just through those large partnerships we have. And so that's what I say about fund services. It's a really, really great profile. They're marching their way towards -- aiming towards $1 trillion in assets under administration. So there -- it's a really strong team.

On corporate trust, which would be the other big driver, we're a consolidator on a national basis. We're top 1 or 2. You can see that on Page 37. And we're doing #3 by number of issues and by dollar volume.

And we recently, over the last 5 years, we opened offices in L.A. and New York, which allow us to upscale the opportunity to go up on the lead table. So for example, if you do a -- like a sewer or water deal in Des Moines, Iowa, it's going to be a couple of hundred million.

You do a sewer water deal in L.A. it could be a couple of billion. So by doing business on the coast, it really lifts our ability to go up the lead tables and take more share. So that's exciting for that business.

And we have some new verticals there that are doing really well, CLOs, ABS and then our aviation business is really on fire. So we're sort of a top-tier player, taking more share all the time in that space.

You mentioned HSAs, good solid business. Mostly we pick up business through the business we already have largely during the enrollment seasons. It's a good, steady, solid addition for us.

As far as the big beautiful bill, there could be some benefit there, but I think it's been overplayed a bit. Jim, I probably took most of your thunder but go ahead.

It's okay, Mariner, I'm used to it. But I would add that this is all legacy UMB as far as the business and the opportunity is very strong in the corporate trust space, especially in these new markets as you know a lot of this sort of local issuance and when you're doing business in those markets.

So it will be a great referral source from the HTLF team and also be able for us to expand our footprint. But institutional banking will continue to benefit from the Heartland acquisition.

Our wealth business, there's other businesses in there that are very additive and doing a great job, but our wealth business is on fire as well. But those are the 2 big drivers right now.

Got it. And you called out that $6 million sort of onetime benefit in the third quarter to your fee income. But is -- so if I exclude that $6 million, is that a good run rate? Or is there more to come down a little in the fourth quarter?

Yes. The best way -- if you go to Page 15, Janet, I'll just do a waterfall, if you will. So our GAAP fees were $203 million. If you add back the $4 million security losses that we had, that's $207 million. And then if you look at the BOLI line, this quarter around, we broke out BOLI and COLI.

The absolute amount was $16.5 million, of which $2.5 million was that debt benefit that I mentioned in my prepared comments. And then the remaining $14.5 million, there's always an equal offset on 50% of that with deferred comp expenses, they were up $7 million because of that.

So there's a market volatility to it. It's not something that we can control. So those get written up or written down based on what happens to the equity markets.

And then if you look at the other line, excluding the COLI and BOLI, we have $16.5 million. I had mentioned $2.5 million of a onetime legal settlement that was a benefit to us. There was another $1 million of some onetime fees.

So the run rate there is about $13 million. And as you see in one of the other pages, the biggest driver of that was back-to-back swaps. So our derivative team had a pretty impressive quarter with $5 million of fees this quarter compared to about $3 million, $3.5 million last quarter.

So those are the big drivers. So if you add all that, subtract all that, you could end up with -- again, depending on what happens with COLI and BOLI, you could end up with $190 million.

The last point I'll make is what I said in my prepared comments, our private investment portfolio, we expect some monetizations more frequently. So that's been a good trend for us. And then the other thing that can happen is the volatility with some of our existing equity investments.

And the next question comes from Timur Braziler with Wells Fargo.

Maybe tying fees into NII, but really strong quarter for some of the trust and securities processing fees. And then I noticed you called out the asset servicing client deposit balances as part of the mix shift that was maybe weighing on margin.

I'm just wondering, in general, as we look out and we get a couple of rate cuts in here, the remixing on the institutional side for the deposit base, just the puts and takes of whether or not incremental dollars of deposits coming in are still dilutive to the cost of funds.

Does that kind of neutralize as we get a couple more rate cuts? Just maybe talk us through some of the mix shift on the deposit side and what that might portend for cost of funding as we start getting some rate cuts here.

Yes. And it's really hard to predict what happens with some of these large clients. It can be for a variety of reasons that we typically don't have some visibility into it, why the buildup happens. It could be they're holding cash before they invest in the markets, they're rebalancing. So a lot of things can happen.

But when you look at the asset servicing, just using that as an example, they are one of those hard index deposits. And so they'll be priced at Fed funds minus 25 basis points, for instance, right?

And so when you look at our total cost of interest-bearing deposits at 3.30% and based on the Fed funds rate, that will be higher than what the current prevailing deposit costs are, right? So that can happen.

And then as I said, going back to the margin puts and takes, we're going to get absolutely in the fourth quarter, somewhere between $1.5 billion and $2 billion of new deposits coming from our public funds business between the second half of December through February.

So those would be positive things that happen for deposit growth. As I noted in my prepared comments, we expect a slight pickup in DDAs from the low point of seasonality in the third quarter. And then there's all the index deposits that get repriced down for the September rate cut.

So we didn't see the full benefit of the third quarter. So we're going to see that in the fourth quarter. And then today's rate cut, assuming that we get one today, that will also -- the fact that it's so early in the quarter will also help bring down the cost of deposits.

And over time, I mean, again, some of this is just guessing, but from history, if we get all the cuts that are anticipated, there's less interest in the rate paid, the further you get down. And so moving rates down becomes easier in a lower rate environment. So that history has played its way out. That's a few quarters away.

Okay. That's good color. And then looking at the 2 legacy HTLF loans that were moved to NPL status this quarter. I know earlier in the call, you had referred to the fact that a lot of these had already been reserved for.

But with these 2 specific ones, were these part of kind of the purchase accounting mark taken at deal close? Or did something happen kind of subsequent to deal close that drove the credit migration there?

Tom, do you want to take that?

Yes. The larger of the 2, we had identified in due diligence and had a specific reserve against it. There's a smaller one that is -- was newer, that was on their watch list, but we hadn't reserved for until this quarter. So...

But again, I'd reiterate our comments around charge-offs, which is even with them being further deteriorated, we still feel confident in our charge-off rate comments.

And the next question comes from Brian Foran with Truist.

Just circling back to the M&A discussion, I guess when you talk about the primary attraction being deposits that can feed the loan growth engine over time, beyond whole bank acquisitions or anything like branch divestitures, maybe consolidation in the trust and custody space, I think people immediately think to like buying a bank outright.

But are there any other kind of other avenues that might accomplish the goal of getting some low-cost funding to help you going forward?

Sure. All things are on the table. I would just say that we are diligent and disciplined around profitability. So it's harder to make sense of branch deals than it is whole bank deals just from a profitability standpoint.

And I would also say that oftentimes, branch deals, I mean, just by definition, when somebody is getting rid of branches, it's the branches they don't want. So it's harder to pick through branch deals in my mind.

We've looked at them, and you can continue to get excited about them. But if you kind of parse what you're looking at, sometimes it's kind of hard to see something better than what the people getting rid of and we're seeing.

So they're all on the table, and we're just, I guess, disciplined about profitability. And all those other ideas are always on the table. The deposits are probably -- the engine for UMB is loan growth, and we're really, really good at it. And so we just don't want to be distracted.

So if we do other deals, we don't want to distract from making sure we keep the engine or the golden goose or whatever -- whatever analogy you want to use, we got to make sure we keep it healthy. So we're disciplined, what I'd say about that.

And the next question comes from Nathan Race with Piper Sandler.

Just a point of clarification on the margin outlook for the fourth quarter. I think you said stable versus the 3Q level. Were you referring to the reported margin or the core margin that I think came in at 2.78% in the quarter?

The 2.78%, yes, core margin. As I said earlier, it's hard to predict what might happen with accretion outside of the contractual part. So my comments were about the 2.78% core margin, excluding all accretion.

Okay. Got it. And then I know you guys don't provide guidance into next year but just thinking about some of the margin factors at play. I mean, is there still an opportunity to continue to work down the cash levels as we saw here in the third quarter?

And then I imagine with the cash flow coming off the bond portfolio and just the higher beta nature of your deposit base that the margin can maybe kind of grind a little higher if we get Fed rate cuts spread out over the course of next year.

And I know you guys provide the NII sensitivity in your deck, but I don't think necessarily we're going to see a parallel shift down in rates. So if we just see some movement on the short end, is that generally a positive scenario in terms of the margin outlook?

Yes, absolutely, Nate. Definitely, I would say, based on cash flows, right? So have -- for instance, if you look at Page 25, where we show our securities portfolio cash flows over the next 12 months, we have $2.1 billion of cash flows rolling off at 360 yields.

We would say that today's repurchase yields are about 450 on mortgage backs and maybe even 100 basis points or 80 basis points higher on the municipal side, if we can find the muni supply that we want to.

So definitely, that churn, as I talked about, positive churn still exists in the bond portfolio. Really, the buy yields have to come down by 100 basis points before that becomes neutral in terms of the breakeven on what's rolling off versus what's rolling on.

Similarly, if we look at our fixed rate loan portfolio on Page 27, we added this other bullet in here. We have $3 billion of fixed rate loans that are going to reprice within 12 months. The average rate today on those is less than 5%.

So arguably, that's another 150 basis points pick up. And then as you rightly mentioned, we have close to 50% of our deposits, total deposits that are indexed to movements in short-term rates. So those are the positive impacts from a margin perspective outside of accretion and everything else.

The only other flip side is what happens with loan pricing, right? As we see on Page 27, 2/3 of our loan book is also repricing on a lag basis to either prime rate or 1-month SOFR. So that will have some detrimental impact.

And that's where the interest rate simulation comes in. And to my comments in the prepared comments, we are pretty neutral from a balance sheet perspective. On year 1, for 100 basis points rate cut, you can see a 1.1% increase.

And then in year 2, because of the 1.7% drag because of loans catching up with what happens on the deposit side. So if you factor both those in, that's pretty neutral from a rate positioning perspective.

Okay. Really helpful. And then not to beat a dead horse on the M&A commentary. But Mariner, can you just remind us if the right opportunity came along, what type of acquisition should we be thinking about in terms of maybe size, geography and what kind of earn-back period you would look to include in that type of deal on tangible book dilution?

Well, you're not going to like this answer because I'm not going to give you much of one. But what I'd say is that I kind of come back to discipline. There are some pretty standard. There's really good data around market acceptance of deals around how many years payback the Street has been comfortable with, et cetera.

So we're well aware of kind of what the norms are, and we're disciplined around how we think about that. As far as size goes, we're -- there's just a lot of variables. I mean we're just looking for high-quality partners.

Certainly, now with what we've been able to accomplish already, you do the same amount of work for a small deal as you do a bigger deal. So we know we can do a bank per loan size and do it well. So there's no real guidance I'd give you on size.

There are a lot of dynamics ahead of us right now that make that answer really complicated around crossing $100 billion and regulatory environment. Is that changing? Is it not changing? So it's kind of a hard conversation to get into you on a call like this, but we're -- I hope that helps.

And our next question comes from Brendan Nosal with Hovde Group.

Just wanted to ask a follow-up on M&A, but more about the perspective of how you folks think about preserving what you already have in that scenario.

Specifically, how do you think about preserving your fee franchise and your strong fee revenue mix with a potential deal, just given that your fee franchise is one of the most unique characteristics of UMB and seemingly any deal you do would probably dilute that mix at least a little bit? So how do you approach balancing that?

Yes. Well, first of all, I think the absolute growth rate of our fee is more important than a percentage to total. So as long as -- in my mind, anyway, as long as we continue to grow those very healthily and maybe even accelerate their growth rate, I'm personally with about its percentage to total revenue than I -- if all things are working.

It's all about staying disciplined. I mean we're not going to do a deal that picks up more net interest income than fees if it's not going to contribute handsomely, right, to the overall story.

So as long as they're all growing and all improving their profit profiles, I'm not sure I really care what the percentages to total are. That's how I feel about it.

[Operator Instructions] And our next question comes from Chris McGratty with KBW.

Ram or Mariner, just going back to the fee income discussion. I mean, for the industry, fees aren't really growing. You've got unique businesses, which I think have some structural tailwinds that you talked through.

But I just want to try to put a little bit of a finer point on the opportunity in the trust and securities processing asset servicing. I mean, would you think this is kind of a mid- to high single-digit opportunity growth annually, double digit? I'm just trying to get a sense because I think we've all been underestimating the potential here.

Yes. I mean it's hard to -- obviously, we don't give guidance, so I can't really directly answer that. So we're aiming much higher and I think we have the capability to continue to grow the profile. The thing that's happening, I was in New York with our team making calls a couple of weeks ago.

And because of the profile, what's happened to the businesses is we've gone from calling on and winning smaller profile boutique business to winning business from household names that you would recognize that have global profiles, right?

So the sort of this -- the profile of the business has changed dramatically. And so the types of business we're winning is different. And there's really not any business on the landscape of fund services or corporate trust or any of the businesses that we can't win.

And so the technology is there, the people are there, the profile is there, the momentum is there, and it's just sheer execution. It's about keeping our people and staying invested in the technology.

And so if I retain the team and we stay invested in the technology, which we can do through the -- you've seen what's happened to our profitability metrics, which allows us to stay invested in our businesses. There's nothing from keeping us growing the profile of those businesses and taking more share.

Okay. And I guess as a follow-up or an extension, maybe the question is operating leverage, efficiency ratio. I guess what's the -- I'm trying to get a little bit of a sense of now that you're through the deal and you've got the growth kicking up again.

Where do you think, especially in light of regulatory costs, like where do you think this company as it is today, what's the potential of in terms of KPI?

Do you want to take that? I mean there's a lot of improvement. You see it in the numbers. You see it in the numbers already. Our profitability metrics are up very nicely, and that was intended. It's part of why we did the deal.

And back to my last comment, I mean, this profitability allows us to invest in our businesses more efficiently.

So we can invest in our retail business more efficiently than we could before, which allows us to grow the business more profitably. And you could say that about several of the lines. I don't know what else...

On the regulatory front, we're going to be really mentioned, right? There's a lot of dialogue about what $100 million might look like in the future.

So we're not going to -- we're going to researching it, but in terms of spending any dollars relative to that in '25 or even in '26, we're going to be measured until we know what the rules that we are going to face are.

So at this point, I wouldn't consider or contemplate any big significant investments from that standpoint because the overtones are certainly positive that most of the $100 million requirements will continue to move higher or go away.

And that was our final question. So I'll hand back over to the management team for any closing remarks.

Thanks, everybody, for joining. That was a full and thorough -- lots of great questions. As you know, we love talking about UMB. It was a great quarter, and we look forward to reporting our results next quarter. Thank you.

Thank you, everyone, for joining today's call. This concludes the call. You may now disconnect. Have a great rest of your day.