UMB Financial NASDAQ: UMBF executives told investors the company delivered a “strong quarter with results well ahead of expectations,” citing robust loan growth, core margin expansion, strong credit metrics and continued momentum across several fee-generating businesses.
Quarter highlights: loan growth, margin expansion and fee momentum
Chairman and CEO Mariner Kemper said the company posted 10.8% linked-quarter annualized loan growth, supported by $2.3 billion in gross production. He also pointed to nine basis points of core margin expansion, which he said was driven by a 24-basis-point decrease in the cost of interest-bearing deposits.
On credit, Kemper described results as “high quality,” citing 19 basis points of net charge-offs and a $27 million provision, which he said was driven mostly by a $1.4 billion increase in period-end loan balances.
Kemper also highlighted strength in fee businesses, naming corporate trust, investment banking, and fund services as key contributors. He said assets under administration in fund services increased by nearly $20 billion from the prior quarter to $565 billion.
Private credit exposure: “negligible” lending and limited fee reliance
Addressing what he called “headlines around the private credit industry,” Kemper said concerns about outsized regional bank exposure “appear to exaggerate exposures and risks.” He emphasized that UMB’s exposure is limited. “The fact is that we have negligible exposure to the private credit industry,” he said, adding that the company’s exposure is to “high quality and experienced operators” with “strong credit structures” and “low leverage at the fund level.”
Kemper said UMB added disclosures to its investor deck to provide more detail on these exposures. He said total MDFI lending exposure is $2.6 billion, or 6.6% of total loans. Within that, he said approximately $300 million—less than 1% of total loans—is to private credit funds, and that about a third of those are subscription lines, which he characterized as lower risk.
He also said that just under $1 billion of MDFI loans are to private equity funds, with the largest portion being subscription lines (capital call lines). Kemper said over 98% of MDFI balances are pass rated and noted the company has historically seen “minimal historic losses” in this type of lending.
On the servicing side, Kemper said $43 billion of the company’s more than $565 billion in AUA is related to private credit—about 7.6%—and that private credit-related AUA rose nearly 5% from the prior quarter. He said related annual fee income totaled approximately $13 million, or 1.6% of annualized first-quarter fee income, and added that any deposit impact from these funds is “immaterial.”
Net interest income, accretion and margin outlook
Ram Shankar, CFO, said first-quarter results included $51 million in net interest income from purchase accounting adjustments, including $15.1 million related to accelerated accretion from early payoffs of acquired loans. He said the benefit to net interest margin from total accretion was approximately 33 basis points.
Shankar said projected contractual accretion is estimated at approximately $71 million for the remainder of 2026 and $79 million for 2027, excluding estimates for accelerated payoffs.
Reported net interest margin was 3.38%. Excluding accretion, Shankar said core margin was 3.05%, up nine basis points sequentially. He attributed the increase primarily to a favorable deposit mix shift and deposit repricing following reduced short-term rates, along with a day-count benefit, partially offset by loan repricing, lower loan fees, and the impact of liquidity balances and a lower benefit from free funds.
Looking ahead, Shankar said the company expects second-quarter margin to be “relatively flat” versus the first quarter’s adjusted margin, with fixed asset repricing benefits offset by day effects and stable deposit costs and mix shift. In Q&A, he described the outlook as “neutral,” noting the “absence of tailwinds” from rate cuts and adding the company’s internal view is there “might be one rate cut maybe later this year, maybe not.”
Fee income and expenses: corporate trust and fund services strength; lower operating expense
Non-interest income was $204.8 million, up $6.4 million, or 3.2%, from the prior quarter, Shankar said. Drivers included strong performance in fund services and corporate trust, higher deposit service charges and investment banking revenue, and a 39% increase in municipal trading income versus the fourth quarter.
Shankar also noted $5.9 million in non-recurring gains from previously charged off HTLF loans and a $3.8 million decline in COLI income, which he said had an offset in reduced deferred compensation expense. Adjusting for investment gains, non-recurring items and COLI mark-to-market, he said first-quarter fee income was approximately $198 million.
On costs, Shankar said merger-related costs fell to $4.4 million from elevated prior-quarter levels. Excluding one-time costs, operating non-interest expense was $375.4 million, down 4.2% from the fourth quarter, driven by lower bonus and commission accruals and reduced deferred compensation expense, partially offset by seasonal increases in payroll taxes, insurance and 401(k) expense.
He said expense performance was favorable to prior guidance due to the timing of marketing and other spend, faster-than-expected contract termination synergies, and deferred compensation expense. For the second quarter, Shankar said operating expense is expected to be in line with consensus expectations of $383 million, reflecting one additional salary day and the impact of the merit cycle that went into effect in April.
Kemper said the quarter produced 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%. Shankar later told analysts the company judges itself on operating leverage and said there is “absolutely nothing magic about 50%” as an efficiency threshold.
Deposits, capital and strategic priorities
Shankar said average deposits were essentially flat in the first quarter, as a 10.4% linked-quarter annualized increase in DDAs was largely offset by lower interest-bearing deposit balances. He added the company now includes customer repurchase agreement balances as “deposit surrogates,” and said average customer funding rose $702 million, or 1.2%, from the prior quarter.
Kemper emphasized that deposit levels can be “episodic” given the company’s institutional and corporate activities, pointing to factors such as tax payments and dividends. He told analysts, “It was not lost business,” adding that client count is growing.
On capital, Kemper said capital continued to build, with a March 31 CET1 ratio of 11.16%, a 20-basis-point improvement from December. He said the board approved an increased share repurchase authorization and that the company repurchased approximately 178,000 shares in March, with plans to remain opportunistic in the second quarter.
In response to questions about proposed capital rules, Shankar said the company’s preliminary read is a “net positive,” citing relief on risk-weighted assets, while noting the inclusion of AOCI as a negative. Kemper said the company is “accreting capital very quickly” and expects increased flexibility as it approaches $100 billion in assets.
Discussing broader capital deployment priorities, Kemper said the “first and highest best use” remains organic loan growth, followed by investing in the business and potential “tuck-in” acquisitions that bring granular, low-cost, underlevered deposits in markets where UMB can leverage its footprint. He also said investors should expect dividend increases each year “as long as we’re performing,” while buybacks would remain opportunistic.
About UMB Financial NASDAQ: UMBF
UMB Financial Corporation NASDAQ: UMBF is a diversified financial services holding company headquartered in Kansas City, Missouri. Through its principal banking subsidiary, UMB Bank, N.A., the company provides a full suite of commercial and consumer banking services. Key offerings include deposit accounts, commercial and consumer lending, treasury and cash management, as well as online and mobile banking solutions designed to serve businesses, individuals and municipalities.
In addition to its core banking operations, UMB Financial delivers wealth management and trust services, investment advisory, asset management and retirement planning to high-net-worth individuals, families and institutions.
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