UMB(US:UMBF)2023-04-26 18:17Financial Data and Key Metrics Changes - Net income for Q1 2023 was $92.4 million or $1.90 per share, with operating pre-tax pre-provision EPS at $2.78, up from $2.44 in Q1 2022 [12][20] - Net interest income decreased by 1.4% compared to the previous quarter, with a net interest margin of 2.76%, down seven basis points [13][14] - Average deposit growth was 2.4% and average loan growth was 19.3% on a linked quarter annualized basis [6][9] Business Line Data and Key Metrics Changes - Total loan production for the quarter was $934 million, with commercial real estate and construction growth primarily from industrial and multi-family categories [7][8] - Non-interest income was reported at $130.2 million, with significant contributions from corporate trust and private wealth services [16][48] - Non-performing loans improved to 0.07% of total loans, with net charge-offs at just 0.09% of average loans [6][18] Market Data and Key Metrics Changes - The company reported a liquidity coverage of approximately 116% of uninsured deposits as of April 20 [11][23] - The average size of office credits in the portfolio is $8.2 million, with 82% being recourse loans and a weighted average loan-to-value of approximately 65% [8][52] Company Strategy and Development Direction - The company aims to maintain a disciplined approach to pricing and emphasize lending that comes with deposit relationships [9][15] - There is a focus on enhancing asset pricing discipline and leveraging the diverse deposit base to mitigate risks associated with rising deposit costs [11][15] - The company is positioned to benefit from a flattening yield curve and anticipates mid-single digit growth in net interest income year-over-year [16][41] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by inflation, changes in the yield curve, and deposit beta acceleration due to recent market volatility [4][5] - The company expects to continue seeing opportunities across various verticals despite anticipated economic slowdowns [9][41] - Management expressed confidence in the quality of the loan portfolio and the proactive measures taken to manage credit risk [6][18] Other Important Information - The effective tax rate for Q1 2023 was 17.2%, up from 15.7% in Q1 2022, primarily due to excess tax benefits related to equity-based compensation [20] - The company has a diverse deposit base, with 55% of deposit accounts spanning 10 years or more, and plans to further reduce uninsured deposits [11][12] Q&A Session Summary Question: What is the expected floor for DDA as a percentage of total deposits? - Management expects to maintain overall balances, with a potential slight movement from the current 38% due to higher interest rates, but does not anticipate significant changes [24][25][26] Question: What is the expected peak beta for overall cost of deposits? - The company anticipates the total cost of beta to be around 40% [27] Question: How quickly can rate cuts pass through to margin? - Historically, deposits move faster on the way down, which could benefit the company in future rate cuts [29] Question: What is the outlook for the office CRE portfolio? - The office portfolio is only 4.5% of total loans, with strong borrowers and low loan-to-values, and management does not foresee significant issues [30][31][52] Question: How does the recent ratings boundary affect deposits? - There was a brief disruption post-SVB failure, but the company has since recovered and does not expect long-term impacts [36] Question: What are the growth assumptions for net interest income in 2023? - The guidance includes one more Fed rate hike in May, with expectations for mid-single digit growth in net interest income [37][43] Question: What are the dynamics behind the recent short-term debt increase? - The increase in short-term debt was a precautionary measure, with plans to evaluate and normalize levels based on the current environment [43][44] Question: What are the growth drivers in fund services and corporate trust? - Growth is driven by multi-year investments and strong performance in private equity and corporate trust services [47][48]