UMB Financial Corporation (UMBF) Q1 2026 Earnings Report, Transcript and Summary

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? [

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.