Earnings call transcript: UMB Financial Q4 2024 beats expectations

UMB Financial Corporation (NASDAQ:UMBF) reported strong financial results for Q4 2024, surpassing analyst expectations. The company posted earnings per share (EPS) of $2.49, beating the forecasted $2.26. Revenue reached $434.18 million, exceeding the anticipated $411.97 million. Trading at an attractive P/E ratio of 13x and currently undervalued according to InvestingPro analysis, the stock rose 1.2% in after-hours trading, closing at $122.56.

Key Takeaways

• UMB Financial’s Q4 EPS of $2.49 surpassed the forecast by 10.2%.
• Revenue exceeded expectations by $22.21 million.
• The company’s net interest income topped $1 billion, with an 8.7% increase quarter-over-quarter.
• Pending acquisition of Heartland Financial (NASDAQ:HTLF) set to close on January 31, 2025.
• Strong loan and deposit growth reported for the quarter.

Company Performance

UMB Financial demonstrated robust performance in Q4 2024, with both earnings and revenue exceeding market expectations. This marks a continuation of the company’s growth trajectory, supported by strategic initiatives and market expansion efforts. The company’s diversified financial model and strong market penetration strategy have positioned it well against industry competitors.

Financial Highlights

• Revenue: $434.18 million, up from $411.97 million forecasted.
• Earnings per share: $2.49, compared to the forecast of $2.26.
• Net interest income: Over $1 billion, reflecting an 8.7% quarter-over-quarter increase.
• Fee income: $628.1 million.
• Net interest margin: Increased by 11 basis points to 2.57%.

Earnings vs. Forecast

UMB Financial reported an EPS of $2.49, surpassing the forecasted $2.26 by approximately 10.2%. Revenue also exceeded expectations, coming in at $434.18 million compared to the anticipated $411.97 million. This positive surprise reflects the company’s effective execution of its strategic initiatives and operational efficiencies.

Market Reaction

Following the earnings announcement, UMB Financial’s stock rose by 1.2% in after-hours trading, closing at $122.56. This movement aligns with the company’s strong earnings performance and favorable market sentiment. Analyst consensus is bullish, with price targets ranging from $120 to $156, suggesting potential upside. The stock has demonstrated impressive momentum with a 43.7% return over the past year, showcasing resilience amidst broader market fluctuations.

Outlook & Guidance

UMB Financial anticipates full integration benefits from the Heartland Financial acquisition by 2026, with a neutral interest rate sensitivity post-merger. The company projects an effective tax rate of 20-24% for 2025. With a "GOOD" overall Financial Health Score from InvestingPro, particularly strong in profit and price momentum metrics, the company’s strategic focus remains on market expansion, talent acquisition, and potential branch expansion in California and Midwest markets.

Access the comprehensive Pro Research Report, available for UMBF and 1,400+ other US stocks, to dive deeper into the company’s growth prospects and financial health metrics.

Executive Commentary

• CFO Ram Shankar noted, "Higher for longer is actually a pretty good environment for us," highlighting the company’s favorable position in the current interest rate landscape.
• President Jim Ryan emphasized, "Our whole investment thesis is market penetration," underscoring the focus on expanding market share.
• CEO Mariner Kemper (NYSE:KMPR) stated, "We’re very conservative," reflecting the cautious approach to the Heartland acquisition.

Risks and Challenges

• Integration challenges with the Heartland Financial acquisition.
• Potential interest rate fluctuations impacting net interest income.
• Market competition, particularly in underserved regions.
• Economic uncertainties that could affect loan growth.
• Regulatory changes impacting financial services.

Q&A

During the earnings call, analysts inquired about the conservative approach to the Heartland acquisition and the company’s EPS accretion targets. UMB Financial maintained its targets and highlighted the potential for loan growth through enhanced market penetration. Additionally, the company addressed potential credit marks and performance expectations, reinforcing its strategic focus and operational resilience.

Full transcript - UMB Financial Corporation (UMBF) Q4 2024:

Cole, Call Moderator: Good morning. Thank you for attending today’s UMB Financial 4th Quarter 2024 Financial Results Conference Call. My name is Cole, and I’ll be the moderator for today’s call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I’d now like to hand the call over to Kay Gregory.

Please go ahead.

Kay Gregory, Investor Relations, UMB Financial Corporation: Good morning and welcome to our Q4 2024 call. Mariner Kemper, Chairman and CEO of UMB Financial Corporation and Ram Shankar, CFO, will share a few comments about our results and then we’ll open the call for questions from our equity research analyst. 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 the pending acquisition as well as other opportunities management proceeds. Forward looking statements and any pro form a metrics are subject to assumptions, risks and uncertainties as outlined in our SEC filings and summarized in our presentation beginning on Slide 49.

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. Now, I’ll turn the call over to Mariner Kemper.

Mariner Kemper, Chairman and CEO, UMB Financial Corporation: Thank you, Kaye, and good morning, everyone. First off, congratulations to our Kansas City Chiefs returning to the Super Bowl in a couple of weeks, exciting times in Kansas City. At UMB, we’re very excited to announce earlier in January that we received approval from the OCC and VED to complete the acquisition of HCLF. We anticipate closing the deal on Friday, January 31. I’m extremely proud of what our associates have achieved during the past several months.

As evidenced by our Q4 and full year 2024 results, the team have remained focused on sustaining and growing our day to day business activities, while at the same time supporting integration efforts and conversion planning. I want to express my appreciation for the huge amount of energy and collaboration from both UMB and Heartland Associates. Both teams have been working very hard to ensure a successful transition for our new customers and associates. As you’ve seen, Heartland filed an 8 ks yesterday afternoon with a summary of their 4th quarter results. We’ve included some of the key performance indicators in the appendix of our deck on Slide 46.

The strong value proposition of the deposit franchise was evident as seen by the 6% linked quarter annualized increase in customer deposits and attractive 2.13% cost of total deposits. In anticipation of the merger close, Heartland preemptively affected the resolution of certain non core loans and bonds, resulting in lower loan balances and higher levels of net charge offs during the Q4. These credits, including those on Heartland’s watch list and all of the bonds were identified during our due diligence process, including the bonds we had earmarked for sale at close. The favorable resolution of these assets better positions our pro form a balance sheet at close, including a reduction in non performing loans. Additionally, the deleveraging of the balance sheet put it in near 50 basis point boost in Heartland’s regulatory capital ratio and further improved its loan to deposit ratio.

As we discussed in our original acquisition modeling, we will maintain a conservative credit mark on Heartland’s loan. And as a combined entity, we expect our ACL coverage ratio will also increase. Now turning to our results released yesterday afternoon, we had a phenomenal quarter in 2024 on a strong note. Our results, which contain several record setting metrics, are even more impressive given the extra integration work completed by so many of our team. We set new company records with 2024 annual operating income of $461,700,000 net interest income that surpassed 1,000,000,000 and fee income of $628,100,000 For the Q4, we reported GAAP earnings of $120,000,000 or $2.44 per share, driven by strong performance across the board.

On an operating basis, we earned $2.49 per share. Net interest income increased 8.7% in the 3rd quarter, driven by an 11 basis point increase in net interest margin and strong earning asset growth. As expected, we benefited from strong balance sheet growth as well as deposit cost reduction on our index deposit book as short term rates have come down. On a linked quarter basis, the total cost of funds beta was 58% and our earning asset beta was just 37%. The beta on interest bearing deposits was 55%.

Balance sheet growth included a very strong 14.8% linked quarter annualized increase in average loan balances, driven by yet another quarter of record top line production of $1,600,000,000 While C and I led the growth for the quarter, we also saw solid increase in CRE and in consumer real estate. For comparison, banks that have reported so far have had a median annualized increase in average loan balances of just 3.1%. Credit quality in our portfolio remains excellent with 14 basis points of net charge offs for the quarter and just 10 basis points for the full year. C and I continues to perform well with just 3 basis points of net charge offs for the full year. Non owner occupied CRE has had a net charge off ratio of 0 for the past 4 years.

And in fact, our charge offs are less than $900,000 in total in this category since 2016. Our non performing ratio remained flat at 8 basis points for the Q4. On a longer term basis, I’m proud of our track record that puts us near the top of the industry. From 2004 to 2024, our non performing loan ratio has averaged just 0.38% compared to 0.92% for our peers and approximately 1.9 percent for the industry as a whole. On the other side of the balance sheet, our average total deposits grew $2,700,000,000 or nearly 31% on a linked quarter annualized basis, largely driven by the activity in our commercial and institutional customer base.

Average DDA balances increased 48% linked quarter annualized to $10,600,000,000 For comparison, banks that have reported 4th quarter results so far have a median annualized average deposit increase of just 7.3%. The strength of our diversified financial model was evident this quarter with the continued fee income growth across all segments. The top contributors include 12b1 fees, money market revenue and trust and securities processing income. To highlight a couple of successes behind that growth, private wealth teams brought in a net new asset level of $1,300,000,000 in 2024, a 75% increase over 23. And institutional assets under administration continue to expand, up 18% year over year to stand at $526,000,000,000 Corporate trust assets, part of the institutional totals, have grown significantly over the past 10 years to $42,400,000,000 representing a compound annual growth rate of 14%.

And in our Healthcare business, the number of HSA accounts grew steadily from just 588,000 accounts at the end of 2014 to more than 1,600,000 accounts at the end of 2024 for a CAGR of 11%. As you know, we focus on operating leverage rather than specific expense growth targets. Compared to the Q4 a year ago, we posted positive operating leverage of 3.8 percent on an operating basis. Ram will provide more detail on income and expense drivers shortly. Finally, our capital levels continue to build.

We ended the quarter with a CET1 ratio of 11.29 percent, an increase of 7 basis points from the Q3 and 35 basis points from a year ago of 2023. As a reminder, our capital levels don’t include the $232,000,000 forward equity offering agreement that we announced in April, which we expect to settle in full during the Q1 of 2025. We’re very pleased with our strong results for the quarter coupled with the opportunities we see for a combined UMB and HCLF in the Q1. We’re very excited about what 2025 and beyond will bring. We continue to believe that the addition of HPLS is a great fit from a strategic, financial and cultural perspective and we look forward to reporting on a combined basis at the end of the Q1.

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

Ram Shankar, CFO, UMB Financial Corporation: Thanks, Bernard. Net interest income of $269,000,000 represented a linked quarter increase of $21,600,000 or 8.7 percent, reflecting balance sheet growth, favorable reinvestment yields, lower interest expense on index deposits that reprice and a mix shift in funding composition including the strong DDA growth that we experienced during the quarter. These benefits were partially offset by the repricing of variable rate loans. The $1,600,000,000 or 3.9 percent increase in average earning assets was driven by strong loan growth Mariner mentioned along with an additional $586,000,000 in average securities and $102,000,000 in Fed funds sold and resale agreements. During the last two quarters, we began pre purchases of nearly $1,000,000,000 of U.

S. Treasuries and agency mortgage backed securities in advance of our planned delevering of certain bonds held by Heartland. The average impact of these pre purchases was approximately $168,000,000 in the 4th quarter. Average interest bearing liabilities increased 1.6% from the linked quarter with increases in interest bearing deposits partially offset by the decrease of $1,100,000,000 in borrowed funds reflecting the repayment of borrowings under the BTFP plan and FHLB advances. Average DDA growth was driven primarily by corporate trust and capital markets, where DDA can fluctuate based on tax or bond payments and other trustee activities, particularly at quarter year end.

The percentage of index deposits remained relatively flat with approximately 35% of total deposits hard index to short term interest rates. As Fed fund rates changes, these deposits reprice immediately. An additional 17% of our deposits are soft index, balances negotiated at current prevailing market rates. On these soft index deposits, we will generally move rates pretty quickly following Fed rate moves. Overall, we continue to expect our deposit betas on the way down to be steeper than peer banks as we experienced this quarter.

Net interest margin for the Q4 increased 11 basis points sequentially to 2.57%. The primary drivers of the increase were the positive impacts of 31 basis points from repricing of interest bearing deposits, 9 basis points from reduction in borrowing levels, partially offset by a negative 16 basis points related to loan repricing and mix, 6 basis points related to excess liquidity levels and 5 basis points related to changes in the benefit of free funds. Looking into the next quarter, given the anticipated closing date of January 31, our Q1 results will include 3 months of UMB operations and 2 months of hard lift and all the yet to be determined impacts from purchase accounting accretion associated with the merger. Based on our outlook for no additional rate cuts this quarter, we expect UMB standalone core margin to be relatively flat to Q4 2024 levels. As shown on the right side of Page 32, 70% of loans repriced within the next 12 months with the majority of those indexed to short term rates and adjusting monthly.

Details of the hedges we have in place are also on that slide. During the Q4, we added 2 floor spreads each with $250,000,000 of notional value. At year end, we had $3,000,000,000 of notional value hedges comprised of 3 floor contracts and 10 floor spreads. Based on the forward start arrangements, dollars 2,250,000,000 of these $3,000,000,000 hedges are within their payment windows with the remainder becoming effective over the next 60 days. Assuming no additional rate cuts, the net impact of these hedges on our net interest income is expected to be fairly modest.

The combined AFS and HCM portfolios averaged $12,800,000,000 an increase of 4.6% from the prior quarter. As I mentioned above in the 3rd and 4th quarters, we preemptively bought additional securities in advance of closing the HCLF acquisition. As discussed at the time of the announcement, we had identified a pool of securities in HCLF’s portfolio that didn’t match our investment profile currently standing at approximately $2,000,000,000 We expect to sell any remaining bonds in this pool at close, likely reinvesting the proceeds into agency mortgage backed securities or U. S. Treasuries.

The average purchase yield in our portfolio was 4.54% for the quarter, while securities rolling off had a yield of 3.39%. We expect $1,500,000,000 of securities with an average yield of 2.62 percent to roll off over the next 12 months. The reinvestment of these cash flows at the current accretive yield in bonds or loans will help that increase margin regardless of any threat action. Turning back to the income statement. Non interest income was $265,200,000 a linked quarter increase of 4.1%.

We recognized a pretax gain of $4,100,000 in the 4th quarter on the sale of UMB Distribution Services, part of our asset servicing business. Fee income in the quarter also included $1,000,000 in gains on the sale of other non core assets. Excluding these two items, our core fee income of approximately $160,000,000 reflected strong traction in our institutional and private wealth business lines. Brokerage income increased $2,900,000 linked quarter driven by higher 12b-1s and money market revenue. Corporate Trust off balance sheet money market balances have increased by nearly 35% in the past 12 months and now stand at $16,300,000,000 This quarter has further demonstrated our ability to garner both on balance sheet and off balance sheet deposits, thanks to the strength of our diversified business model.

Trust and securities processing income where the strong private wealth and asset servicing activity Mariner mentioned is captured increased $2,600,000 or 3.6 percent from the 3rd quarter. Partial offsets include some market related variances in investment security gains and COLI income, which each decreased $2,000,000 from the 3rd quarter. The reported non interest expense of $270,400,000 for the quarter included pretax acquisition expenses of $3,700,000 Additionally, within the other expense line, we had $4,500,000 of additional operating losses in the 4th quarter. On an operating basis, which excludes the merger charges, non interest expense increased $15,800,000 linked quarter and included a $15,400,000 increase in salary and bonus expense as our strong performance in several businesses continued resulting in higher incentive accruals. While we calibrate our accruals on these performance based measures throughout the year based on expected performance, our strong second half results, particularly our 4th quarter meant that these accruals needed to be revised higher.

Expense offsets included lower bank card expense and lower supplies expense. The $1,800,000 decrease in deferred compensation expense is the offset related to COLI income. Excluding some of the items I mentioned, we would put our quarterly normalized starting point for expenses closer to $250,000,000 Additional details are available in our slides and press release. Separately, in the Q1, we expect to pay approximately $2,000,000 in dividends on preferred stock that we will assume from Heartland. Finally, our effective tax rate was 18.5% for both the Q4 and full year 2024 compared to 17% for full year 2023.

The 2024 increase primarily related to a smaller portion of income from tax exempt municipal securities and higher non deductible acquisition costs versus 2023. For full year 2025, our preliminary estimate, including the HTLF acquisition is an effective tax rate of 20% to 24%. Now I’ll turn it over to the operator for the Q and A session.

Cole, Call Moderator: Our first question is from Jared Shaw with Barclays (LON:BARC). Your line is now open.

Ram Shankar, CFO, UMB Financial Corporation: Hey, good morning. Hey, good morning, Jared. Good morning.

Jared Shaw, Analyst, Barclays: Maybe just starting with the Heartland deal and the impact of their 4th quarter on, I guess, how that compares to the marks that you had assumed at the beginning. Can you just sort of walk through what’s

Mariner Kemper, Chairman and CEO, UMB Financial Corporation: if

Jared Shaw, Analyst, Barclays: the change in non performers, if that changes your total assumed mark or how we should think about that? And then the $2,000,000,000 of securities that you said that were identified, how much is still left to sell versus what they’ve already cleaned up?

Mariner Kemper, Chairman and CEO, UMB Financial Corporation: Yes, Jared, this is Mariner. Thanks for the question. We remain super excited about the impact that Arlen is going to have. I would start by saying and then I’ll answer directly just to kind of set the stage for any future questions might come on the call around Heartland. Obviously, there are some stringent rules about how we operate separately as companies.

And we have given you guys in the deck, there’s a slide in there that sort of summarizes all that happened. And in our prepared remarks, I’m not really going to be giving you a whole lot more than what we already disclosed just because we are operating as separate companies until we close on Friday. But I will try to give you a little more high level color in the sense that basically, if you think about when we announced this transaction in April 24, the pro form a assumptions we made around $72,000,000,000 of securities and capital levels of approximately 10% and the importance of the demand or the overall customer deposits sticking and being the reason that we’re really doing this transaction, all remain very much intact. So I guess I would what I would say is that when you think about all that we assumed in April with some puts and takes, some things are better, some things were worse. At the end of the day, the major drivers of this transaction remain very much intact, whether it’s capital levels or customer deposits being intact.

As a matter of fact, customer deposits you see in the deck have actually grown since we announced the deal. And by the time we close nonperforming loans, we’ll be down from where we announced.

Jared Shaw, Analyst, Barclays: Okay. All right. Thanks for that color. And then looking at the expenses, I think you said that $250,000,000 is a good is that a good starting point, did you say? Or that’s a good base for $25,000,000 And how should we think about incentive accruals starting off the year and sort of moving through the year on the U.

M. Profile? Yes.

Ram Shankar, CFO, UMB Financial Corporation: Jared, it’s Rob. So yes, $250,000,000 is the normalized 4th quarter run rate for all the things that I mentioned, right? So as we said, dollars 15,000,000 of the $270,000,000 excess is just catch up and accrual. So those all get reset on day 1 to normal levels, typically 100%. And then the only thing that happens in the Q1 as you guys know is about $8,000,000 to $10,000,000 of FICA resets and all the things that are part of the Q1 resets, payroll taxes and all that.

So $250,000,000 is the steady state run rate. You might see some elevated expenses just because of the FICA payroll reset. Again, I’m talking about core UMB operations before we acquire Heartland. So that will be slightly higher in the Q1 for core UMB just for usual seasonal resets. Okay.

Jared Shaw, Analyst, Barclays: Thanks. And if I could just sneak one more in, you talked a little bit about targeted CRE growth. Where are you is that more attractive to you now because better spreads? Or are you seeing better terms and conditions? Or what’s causing you to be a little more excited about CRE here?

Mariner Kemper, Chairman and CEO, UMB Financial Corporation: I’m not sure I recall those comments, but I’m more excited about it. I would say, I’m not exactly sure what you’re referring to. But we remain, I would say, in the same place as we have been. We like the category. We’re always looking for high quality developers, partners, sponsors and largely in the industrial and multifamily space.

And I guess nothing new there. There’s demand there have been some demand supply demand issues there really related to interest rates and activity. But as far as our interest goes, we remain ever same level of interest in the space. Great. Thanks.

Cole, Call Moderator: Our next question is from Brian Wieczynski with Morgan Stanley (NYSE:MS). Your line is now open.

Brian Wieczynski, Analyst, Morgan Stanley: Hi, good morning. Thanks for taking my question. First question is on the net interest margin. So there’s been a lot of volatility in the forward curve over the past several weeks. Can you just talk about what the range of potential outcomes is for NIM if we get, say, no cuts over the next few months versus the 2 that a lot of people are expecting for 2025?

Thanks.

Ram Shankar, CFO, UMB Financial Corporation: Yes. Hey, Brian, good morning. This is Ram. I think when you think about the yield curve environment, we’ve said this before, higher for longer is actually a pretty good environment for us, especially when you think about some of the data points we’ve shared in our deck. We have $1,500,000,000 of securities rolling off at $260,000,000 kind of yields that we bought in the Q4 at $454,000,000 right?

So as long as the slope of the curve remains pretty close to where it is and if there are no additional rate costs, there’s no more pressure on loan yields. Obviously, there’s not a lot of movement on the deposit costs either. So that’s not a bad environment for us to be able to grow NII without additional loan growth and then there’s the component of added loan growth on top of it. So if you look at our interest rate simulation, stand alone again, we’re slightly liability sensitive. So we don’t expect this is actually a really good rate environment for us.

Higher for longer is a good one from the NII and a new perspective. So we don’t give specific guidance on range of outcomes. But again, there’s a lot of fixed rate loans that are still repricing 200, 300 basis points higher, the $1,500,000,000 of securities cash flows. And then the last caveat always is what happens to DDA balances that can impact or deposit growth that can impact any particular quarter’s NII.

Brian Wieczynski, Analyst, Morgan Stanley: That’s really helpful. Thank you. And then 4Q was another really strong quarter for loan growth, specifically new loan production. Can you talk about any trends that you’ve noticed post election specifically? Is there anything you’re seeing in borrower sentiment or activity levels or anything that impacts your view on what loan growth looks like going forward?

Mariner Kemper, Chairman and CEO, UMB Financial Corporation: It’s a little Brian, it’s a little too early to tell what the new administration’s impact is on that. I would say if you separate activity from sentiment, activity I would say it’s just too early to tell. Sentiment wise there is in general a pretty bullish positive sentiment that there will be a better business environment which should drive more activity. But it’s too early to tell really what that means.

Brian Wieczynski, Analyst, Morgan Stanley: Okay, great. Thank you for taking my question.

Jim Ryan, President of Holding Company, CEO of UMB Bank, UMB Financial Corporation: Yes, this is Jim Ryan. The only thing I would add to that is a quick follow-up is, if you remember, our whole investment thesis is market penetration. So regardless of the political climate, we are underpenetrated in each market with the exception of Kansas City. So there’s a runway to grow, which what I mean by that is we’re basically taking other banks’ clients through the market penetration versus additional economic activity. So we feel quite bullish about our position in 2025.

Brian Wieczynski, Analyst, Morgan Stanley: That’s really helpful. Thank you again.

Ram Shankar, CFO, UMB Financial Corporation: Thanks, Brian.

Cole, Call Moderator: We have a question from David Long with Raymond (NSE:RYMD) James. Your line is now open.

David Long, Analyst, Raymond James: Good morning, David. Good morning, everyone. In the fee based businesses, UMB has shown positive momentum in trust, securities processing, brokerage throughout the year. As we go into 2025, any headwinds that we need to think about in some of these fee based business

Mariner Kemper, Chairman and CEO, UMB Financial Corporation: that could slow the momentum? No, no headwinds at all actually I would say. So if you take the funds we’ll take the biggest pieces. So if you take fund services, the growth in fund services largely comes from alternatives, the alternative space, which is really doesn’t correlate with what’s happening in the public markets. So regardless of what happens to the public markets, that’s really about flows.

So as funds generate assets and flows into their fund vehicles, that’s where the fees against asset size comes and it doesn’t move up and down with the market as correlated as the public equities and fixed income do. So that’s where that growth comes from. It’s just fund flows and fund generation, new fund creation, etcetera. So the profile for that business remains very strong. And as we said in previous quarters, there’s been a lot of disruption in that space with PE coming in and rolling up fund service providers.

That’s been good for us and continues to be good for us. And we continue to have exceptional ratings from a customer service and outcomes perspective within the industry. So very, very good profile forward looking for that business. We’re also very innovative. So we control our technology and are helping customers create new ways to go to market.

So very good profile there. Corporate trust really also has a very strong forward looking profile. As the government continues to spend and we do all these infrastructure projects, profile just continues to grow for the traditional part of our corporate trust business as we sit in a pole position within our footprint to do all the infrastructure work from an escrow trustee and paying agent perspective, along with the 12b-1 fees that come along with that business as projects are generated. Aviation is the other big vertical there within Corporate Trust. It remains very strong as well as the sort of travel business has turned around and picked up.

There is a huge short supply of airplanes. And so as that releases and the plane Boeing (NYSE:BA) is able to build and get their planes off out of the manufacturing process as well as Airbus and others, it stands to really see a nice pipeline of business for us in that space. And then we launched CLOs this last year and we’re off to a good start this year. Jim, I think we’ve already done this year what we did last year in January. So the CLO space we’re very excited about.

And then we have our wealth business, which we’ve already talked about as we’ve had very, very strong results in our wealth business and our Investor Solutions and HSA business. We gave those results to you in the opening remarks. So all in all, I’d say profile is fantastic looking forward for all those businesses. No real headwinds to speak of at all.

Jim Ryan, President of Holding Company, CEO of UMB Bank, UMB Financial Corporation: No, the only thing I would add is we’ve also continued to invest, as you know, not only in people, but we upgraded operating systems in our Fortiact side of fund services as well as corporate trust. So we’re making these additional investments to handle increased

Mariner Kemper, Chairman and CEO, UMB Financial Corporation: volume. The new footprint that comes with Parkland should help corporate trust. Also it’s a very localized business, so doing business with local law firms. And so as we put our signs up and our offices up across all these new states and markets that should benefit our Corporate Trust business as well.

David Long, Analyst, Raymond James: Perfect. Thanks, Werner. Appreciate all that color. And then typically Q4 is strong with deposits. Are you seeing normal seasonal outflows from the public funds at this point?

And what other moving parts within deposits should we be thinking about for the standalone bank here?

Ram Shankar, CFO, UMB Financial Corporation: Yes. Usually hey, Dave, this is Ram. Yes, second half of December is when we start seeing public funds inflows. It can be it’ll range anywhere from $800,000,000 to $1,000,000,000 and usually early February is when it starts dissipating when actual municipal payments are made and bond and tax payments are made out of these municipalities. So that’s the big driver of that.

And then as we said with the Q4 and there’s always some seasonality even in the Corporate Trust business with bond and tax payments and so it’s always hard to predict that. So those are the only two things that can materially change our deposit pipeline and our outlook for the Q1.

David Long, Analyst, Raymond James: Great. Thanks, Ram. Appreciate it. Thanks, guys.

Cole, Call Moderator: We have a question from Ben Gurlinger with Citi. Your line is now open.

Ram Shankar, CFO, UMB Financial Corporation: Hey, good morning. Hey, Ben. Hey, Ben. So, UMB’s I call it legacy UMB,

Ben Gurlinger, Analyst, Citi: as soon

David Long, Analyst, Raymond James: to be Friday, that’s really strong loan growth, good funding mix, some really healthy margin, fees were good, expenses were a little higher than I would have guessed, but all equal, it’s a pretty healthy result. And I know you have to be a bit tactical with how you respond to Heartland’s questions. When you just look at Heartland’s kind of last couple of quarters, they seem to be shrinking a bit. The margin came in. As you talked to your on charge offs, the credit, what they’ve experienced, it seems like you said that kind of what to expect.

When I look at your the initial kind of pro form a at the day of announcement, you assumed $200,000,000 in change roughly of net income from Heartland. And when I look at Q4, I see a pretty big gap. I would just annualize Q4 Heartland to what to expect for 2025 on the pro form a. Can you kind of help me out with like squaring that circle of like what you guys are actually expecting for the addition for the pro form a UMB? Like what should we expect in 2025?

I know you have a lot of opportunity for marks and cost savings down the next 18 months. But just putting two balance sheets together, I’m not seeing the numbers that you previously assumed.

Mariner Kemper, Chairman and CEO, UMB Financial Corporation: Well, I think so you’re specifically I think focused on the loan balances as a prospective contributor to earnings. I think that’s your specific question there, right? So loan balances have come down. Is that kind of what you’re specifically getting at?

David Long, Analyst, Raymond James: Loan balances

Ram Shankar, CFO, UMB Financial Corporation: and frankly just I mean

David Long, Analyst, Raymond James: the net income in general. Like even if I back up provision out of Heartland there’s an annualized, but there’s still a pretty big gap.

Mariner Kemper, Chairman and CEO, UMB Financial Corporation: So I think when we talked about the pro form a, I would say that really all that we assumed is still pretty well intact related to like I said before the capital levels and all the other puts and takes. The loan balances will at the front end of this be a bit of a drag from the pro form a from our expectations. It’s hard to tell what we’ll be able to do. I mean it’s too early to tell what we’ll be able to do with that on a go forward basis. Our machine, the legacy machine as you call it is very strong.

So I think while their prospects and customers wait for a conversion and likely to slow their historic growth rate a bit. I would think you would expect that. We expect that. We hope to desire to and hope to make up for that with our abilities to leverage our sales force across their footprint and our footprint. We’ll see.

I don’t I can’t until we really get in there and assess what we’ve got and the year unfolds can’t really tell. But that’s our expect we expect and hope to make up for some if not all of that. And then I think we talked about this from the get go that is really we really expected to see the lift in 2026 not in 2025 anyway. So that really is more of the expectation is that on a combined basis that we’re really rolling on all cylinders in 2026.

David Long, Analyst, Raymond James: Got it. Okay. That is helpful. And then when you think about the credit, I know a lot of the cost savings come with conversion later this year. And I guess going into 2026 is where you should kind of really see the pro form a numbers start to dance.

But if you think about just the credit experience that they’ve had, and you called out that some of it is to be expected, but the rest of the loan portfolio, I’m assuming, underwent the same stringent combing through that you went through. Like should we expect some integration noise on charge offs as well once you do become pro form a come Friday?

Mariner Kemper, Chairman and CEO, UMB Financial Corporation: Well, here’s what I’d say about that. We did our diligence, which we shared with The Street that we had full diligence. What I’d say is what you saw happen in the 3rd Q4 was all identified through their existing process and our diligence process. So it was all identified. And so that’s what you see there.

And as far as what’s left that wasn’t identified and resolved, I mean their process they had to do it independently, right? They’ve got their accountants etcetera and they were operating their own process and following their own procedures and policies to reserve. That was their process as they were they use a kind of a reserving against potential losses process. And I think as to best of our knowledge they have a reserve against everything that they’ve identified, right? And in conjunction with working with their regulators and their accountants and they’re following the processes and procedures, theoretically they’ve reserved going into 25 they reserved for everything identified.

So that’s the best I can tell you before it’s under our watch. And so again, we’re operating separate companies and they’re following their process. And best of our knowledge, they’ve done that.

David Long, Analyst, Raymond James: Got you. That’s really helpful color. I appreciate it. Congrats on that.

Cole, Call Moderator: Our next question is from Nathan Race with Piper Sandler. Your line is now open.

Nathan Race, Analyst, Piper Sandler: Hey, everyone. Good morning. Thanks for taking the questions. Just going back to the loan growth discussion, I appreciate that it seems like you guys were able to get in front of some of the problem credits that maybe don’t fit your credit box ahead of the deal closing later this week. And so just curious with maybe less intentional runoff of the HTLF post closing, if you think kind of the addition of HTLF is accretive or maybe just neutral to the overall kind of company’s loan growth outlook going forward?

I mean this year you guys put up 8% loan growth and historically it’s been at least in the high single digit range. So just curious on any thoughts on kind of the combined loan growth capacity of the combined entity going forward?

Mariner Kemper, Chairman and CEO, UMB Financial Corporation: Yes. I guess I would take you back to one of the comments I just made a minute ago about that we do expect 25,000,000 that Heartland’s contribution to the overall loan growth will slow from its previous couple of years growth rate, largely just because their prospects and customers will be waiting for a conversion, right? So I don’t know what that slowing will ultimately be, but we expect some slowing. We expect that our book, we don’t see anything in the way of us continuing to do what we’ve been able to do for the last 21 years showing demonstrating near double digit loan growth every quarter and every year. So we don’t expect that to change for us.

And it is possible that we can take our engine and make up for the slowing that will probably persist in 2025 with their book. We don’t know that we’ll be able to do that, but that’s possible. And we I would reiterate that the expectation really is that on a combined basis after integration and after conversion, the well oiled machine that we expect to deliver on starts more holistically in 2026.

Nathan Race, Analyst, Piper Sandler: Got it. That’s helpful. And just going back to expenses, Ram, I think you alluded to like $250,000,000 kind of the core legacy run rate come out of the Q4. Heartland has been run around $110,000,000 So if you get 2 thirds of an impact from Heartland in 1Q, is that is it fair to assume combined kind of core expenses are in that kind of $320,000,000 to $330,000,000 range for 1Q?

Ram Shankar, CFO, UMB Financial Corporation: Generally doing the math right there, Nate. Yes, I would expect. Again, some of the cost saves are trickling in, right? So when we did the announcement, we still feel pretty good about it. We’re going to get 27.5% of their cost saves over time, including 40% in the 1st year, the stop year of 2025.

So obviously, we’re still working through that with various work streams, But generally, you’re thinking about it right.

Nathan Race, Analyst, Piper Sandler: Okay, great. And is the expectation still that you’ll be able to get 40% of the targeted cost saves completed by the end of this year? Or you guys maybe tracking ahead of expectations on some of those fronts?

Ram Shankar, CFO, UMB Financial Corporation: At this point, we feel good with what we announced.

Mariner Kemper, Chairman and CEO, UMB Financial Corporation: It’s early. We still got to execute, right? But that’s still our expectation.

Nathan Race, Analyst, Piper Sandler: Okay, great. I appreciate all the color. Congrats on

Mariner Kemper, Chairman and CEO, UMB Financial Corporation: a great quarter. Thanks guys.

Ram Shankar, CFO, UMB Financial Corporation: Thank you.

Cole, Call Moderator: Our next question is from Chris McGratty with KBW. Your line is now open.

Kay Gregory, Investor Relations, UMB Financial Corporation0: Great. Thanks. Good morning.

Ram Shankar, CFO, UMB Financial Corporation: Good morning, Chris.

Kay Gregory, Investor Relations, UMB Financial Corporation0: Mariner or Ram, the UMB balance sheet is coming in bigger. You’ve talked about the smaller Heartland balance sheet. But you also mentioned because Heartland is coming in, they’re coming in with more capital. How are you thinking about uses of capital once you get through the conversion beyond loan growth that you’ve talked about? Is there a scenario where at close you would look at your own bond portfolio like other banks have done because you’ve got the capital, and maybe into 2025, 2016?

Is there a thought on a buyback?

Mariner Kemper, Chairman and CEO, UMB Financial Corporation: Well, what I so lots of things are possible down the road, a year, year and a half, 2 years from now, we’re you know us well. We’re very conservative. And I would say that while we’re comfortable with the starting balance sheet capital levels, we certainly would like to get them back to where we are today. And so we’ve got call it a year or so to regenerate that capital. And as long as we continue to perform at that point, we’re going to be generating capital in a very consistent way and then we can start thinking about those things.

But I think over the next year or so we will be regenerating focused on regenerating that capital.

Ram Shankar, CFO, UMB Financial Corporation: Yes. And then the only other thing I would add to your question is we’ve evaluated bond portfolio restructurings and we’re very comfortable with what we own including what we’re going to acquire from Heartland after we sell the bonds that we had originally targeted. So I don’t see a lot of opportunity especially given our capital levels to take a loss on something and deplete our capital even more. So don’t see a whole lot of opportunity doing a balance sheet repositioning there.

David Long, Analyst, Raymond James: Okay. And if I

Mariner Kemper, Chairman and CEO, UMB Financial Corporation: could Our perspective on repositioning just us, okay, us talking is that you’re fixing a problem when you do it and we don’t have any problems to fix.

Kay Gregory, Investor Relations, UMB Financial Corporation0: No, I wasn’t intimating there’s a problem. I’m just saying you’re going to have more capital on the smaller balance sheet acquired. But I get the message I think. In terms, Ron, on Slide 32, your rate sensitivity, you talked about the hedges. You talked about Hyre For Longer being good.

But as you kind of go through the merger, does the just remind us of rate overall rate positioning, ideal curve, ideal rate scenario for the bank?

Ram Shankar, CFO, UMB Financial Corporation: Yes. I would say, as we said, pro form a, we expect so we are liability sensitive on our standalone. Heartland was materially asset sensitive until they terminated some of their hedges that we talked they talked about in the Q4 release. And so they began slightly less asset sensitive. And if you put the let the two balance sheets together, we’re pretty neutral.

So I’ll go back to my earlier question to answer on the first question. This is actually a pretty good rate environment. We have a higher and steeper curve with reinvestment rates that are significantly higher than what’s going rolling off. New loan yields are accretive to where we are. So we feel pretty good about what that means for our margin outlook in NII.

David Long, Analyst, Raymond James: Okay. Thank you.

Cole, Call Moderator: We have a question from Jon Arfstrom with RBC. Your line is now open.

Ram Shankar, CFO, UMB Financial Corporation: Hey, thanks. Good morning. Good morning, John.

Mariner Kemper, Chairman and CEO, UMB Financial Corporation: Great.

Kay Gregory, Investor Relations, UMB Financial Corporation1: Mariner, what are you focused on initially with Heartland? I mean, it’s obviously closing very soon, but what are the first couple of things that you want to get accomplished early?

Mariner Kemper, Chairman and CEO, UMB Financial Corporation: Well, I think that’s a great question. I think culture, I would put at the very top of the list, which is to assimilate the teams, make sure that we do as good a job as we can, making them feel welcome and comfortable, learn our processes, our procedure, our way of doing things. We pretty much the core foundational component of UMB is risk management. And we want to make sure that they understand how we think about risk and then can quickly integrate and help keep that profile intact. So I would say that that’s probably number 1 at the top of the list is bringing the families together and breaking bread and making sure that everybody is on the same singing from the same book.

And then from there, it will be assessing sort of the talent for growth and then making sure we’re building the pipeline on our end to add talent to the footprint and help build out the growth profile. And then on a retail basis, one of the things we’re really excited about, right, is we’re doubling our footprint, doubling our branch network, doubling our deposit levels there. And Liz Lewis (JO:LEWJ), who oversees that for us, we’re very excited about the so we’ll be going through a process of optimizing the branch network. We’re going to make sure that we fill out the markets where we know we can play and we’ll be exercising our muscle basically kind of bringing all that back to life at UMD with being in the market with campaigns on a regular basis, refreshing branches and expanding the branch footprint in the markets where we feel like we already have a strong presence and fill them out like Arizona, Kansas City, Denver being the highest profile ones there that we know we have the right to play in a broad major retail way and making sure we hold places together like New Mexico, which is a top player in New Mexico and make sure that we stay invested there.

And then we’ll look for ways to do things like what do we do in Central Valley (NASDAQ:CVCY) of California where there are 10,000,000 people from Bakersfield to Sacramento. And how can we build out a footprint there and take advantage of that 10,000,000 people through maybe bolt on acquisitions over time and branch build out and hiring talent. Similar story in say Minneapolis and Milwaukee. And then there’s some other really great markets right outside of say Chicago land like Rockford. We have a nice branch network already in Rockford, Illinois and sort of expand and build out and grow and see what we can do around the Chicago land area with that.

So I would say it’s somewhat I started at the top of the list. The number of opportunities is sort of endless. So I think it’s our job is really to stay focused. I’ll have my team kind of banging on me to stay focused because it’s an enormous amount of opportunity. And I did do that in order of sort of what we want to attack first.

Kay Gregory, Investor Relations, UMB Financial Corporation1: Okay. Okay. How long do you think it there have been some questions on lending obviously in the Heartland balance sheet. How long do you think it takes you to bring in your lending process or lending engines to the Heartland footprint?

Jim Ryan, President of Holding Company, CEO of UMB Bank, UMB Financial Corporation: Well, that’s one

Mariner Kemper, Chairman and CEO, UMB Financial Corporation: of the things we’re most excited about. I’ll say the thing I’m most excited about related to the connection between our risk profile and being able to deploy that and then move forward growing the business our way is we had the depth coming in to be able to deploy our regional credit officer model into their footprint. So at UMB, we have in our own footprint, we have regional credit officers with loan authority that are people who have worked here 20 plus years who know how we do things. And so we’ve given them the authority to oversee the people, the process, the product, the customers, stay on top of all of that in the footprint. And so we identified in the process of bringing this Heartland into the family individuals that have that same profile with us give them opportunities for career development.

And we’ve identified several regional credit officers to oversee the new parts of the footprint. And so we’re going to do that immediately. Byron, we have with somebody who’s here in Kansas City actually moved is moving this weekend to Madison. And he was running our loan review process for UMB and we’re moving him to Madison to be our regional credit officer for the upper Midwest as an example. I could go on, but that’s the I’m super excited about that because I think that is the way we’re going to do it.

And you ask how long it’s going to take, I’d say that is immediate. So I think the ability to get in oversee and do it our way will be immediate. The loan growth part will come. I don’t have the answer to how loan growth will come yet, but we certainly expect that we just got to get in there and do the work.

Kay Gregory, Investor Relations, UMB Financial Corporation1: Okay. And then Ron, just a quick one to follow-up on Chris McGratty’s question on Slide 32. On the right side, what’s the message you want us to take away from that? It seems like most of the loans are repriced and you’re protecting against further cuts. Is that what you want us to take away from that?

Or am I misreading that? Thanks.

Ram Shankar, CFO, UMB Financial Corporation: Are you talking about the hedges? Or are you talking about the top half?

Kay Gregory, Investor Relations, UMB Financial Corporation1: Both of them.

Ram Shankar, CFO, UMB Financial Corporation: So the top half, we’re just stating what our variable rate book looks like. Obviously, when you look at an earning asset basis and liability basis, we’re pretty maxed in terms of what percentage of our earning assets are variable versus what percentage of our deposits being indexed are variable. So it’s pretty correlation. That’s why we get our neutral position when it looks to interest rates. And so that’s why I say what we have right now in terms of the rate environment is very ideal for us.

And then on the bottom side is a conservative approach that we’ve taken historically to make sure that we’re protected against rates falling, right? So we over the last 18 months, I want to say we put these $3,000,000,000 of notional hedges synthetic hedges here to protect us from down rates. And at the end of the day, what my point earlier in the prepared comments was even if there are no more rate cuts, the impact from these hedges is not going to be material for our net interest income and net interest margin because the as some of these hedges amortize, the benefits also start reaping in. Some of these hedges are already in the money based on the movements and so forth that we’ve seen so far. And then if additional rate cuts were to happen, there’s a little bit more upside, again modest, I would say.

Some of these hedges are 4 to 5 year terms. So that’s a long period of time that we basically bought insurance against falling interest rates. So that’s the message, I would say. Hopefully that’s clear and what you’re looking for. Okay.

Kay Gregory, Investor Relations, UMB Financial Corporation1: Yes, that helps. Okay. Well, good luck this weekend and I guess next weekend as well, Mariner.

Mariner Kemper, Chairman and CEO, UMB Financial Corporation: Yes. Thank you, sir. Yes. I’m going to be there by the way. So look for me in the stands.

All right.

Ram Shankar, CFO, UMB Financial Corporation: Thanks,

Cole, Call Moderator: Our next question is from Timur Barbellar with Wells Fargo (NYSE:WFC). Your line is now open.

Ram Shankar, CFO, UMB Financial Corporation: Good morning, Timur. Tibor, are you there?

Ben Gurlinger, Analyst, Citi: Sorry, yes. Can you hear me?

Ram Shankar, CFO, UMB Financial Corporation: Yes. I can hear you now.

Ben Gurlinger, Analyst, Citi: Hey, guys. Sorry about that. The first question just on the cadence of the cost saves, the 40% that you’re expecting this year. How much of that hits in 4Q on the systems conversion? And then just the remaining 60%, how quickly in 26% do we see those coming through?

Ram Shankar, CFO, UMB Financial Corporation: It really depends on contract by contract, right? Some of it is people, some of it is obviously vendors and how long we want those vendors to stay past conversion day. But generally, full blown conversion that we expect to complete in the Q4 means that most if not all of their systems will be on ours. So that’s the expectation. And then it’s just accelerating some of the negotiations we have with our providers and making sure that we can get those cost saves on a run rate basis.

And that’s where you’ll see the biggest one time cost that you will see will be either in the it will be in the Q1 and the Q4 for those specific reasons, right, between people and the technology contracts that are being unwelled.

Ben Gurlinger, Analyst, Citi: Okay. Thanks. And then I want to take another shot at Ben’s question. Just looking at the earnings run rate that was put out in the initial deck, it looks like Heartland earnings are down close to 30% from that initial deck. I’m wondering how much of that type of cleanup on the balance sheet had been expected.

Are you somewhat surprised by the level of decline? And how are you thinking about potentially filling this hole?

Mariner Kemper, Chairman and CEO, UMB Financial Corporation: Yes. Sorry, I’m going to attempt to do a little better for you, but still have to be pretty careful about the pre and post here and their operations and ours. From a modeling perspective, I think highest level best thing I can tell you there is from an EPS accretion perspective, our targets are still in place on a combined basis, okay, for what we shared early on in the process. So that’s all still in place. Some of that comes from us, some of that comes from them are some of our outperformance, some of their underperformance, etcetera.

But I think what’s important to note is that those EPS accretion targets are in place, are still in check. So that’s the thing I would focus on. As far as surprises, again, what I’d say is again puts and takes, right? All of what they took all of what they accomplished was on credits identified in the diligence process. Some of them were worse, some of them were better, but all of it was identified.

And again, at the end of the day, the way I think about it is you’ll have the loan levels from an earnings perspective and you’ll have capital levels in line with what we expected to start with. And from that perspective, them reserving and identifying everything at the end of the year for their processes and for the regulatory environment, the expectation is all that’s been done and reserved for at the appropriate levels and marked at the appropriate levels. And we’ll start February 1, overseeing it. And then at the end of the Q1, you’re going to see a full look at all that from us. And you’ll start seeing a much fuller picture at that point.

But from a performance perspective, whether it comes from us or it comes from them, all of it is largely intact and within striking distance of everything we announced back in April. The other thing I would say that we didn’t get to earlier nobody’s asked is about the credit mark. In addition to all that I just said, we will be coming in with a conservative credit mark on top of all that as we roll into the combined entity in February.

Ben Gurlinger, Analyst, Citi: Okay. So it sounds like what was laid out in April assumes some level of degradation as the credit process went along and if the credit mark is conservative maybe more of that is going to be made up on the accretion side?

Ram Shankar, CFO, UMB Financial Corporation: Yes.

Mariner Kemper, Chairman and CEO, UMB Financial Corporation: Certainly that will play a role. That will play a role what I was getting at the top of the house was whether it’s our outperformance or their underperformance at the end of the day our EPS accretion expectations are still intact.

Ben Gurlinger, Analyst, Citi: Okay. Thank you.

Cole, Call Moderator: There are no additional questions at this time. So I’ll pass the call back over to the management team.

Kay Gregory, Investor Relations, UMB Financial Corporation: Thank you everyone for joining us today. We appreciate your time and your interest. If you have follow-up questions, you can reach us at 816-860-7106. Thanks and have a great day.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.