UMB Financial Q1 2025 Earnings Call Transcript

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Operator

Hello, everyone. Thank you for attending today's UMB Financial First Quarter twenty twenty five Financial Results Conference Call. My name is Sierra, and I'll be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to our host, Kay Gregory, Investor Relations.

Operator

Please proceed.

Kay Gregory
Kay Gregory
IR at UMB Financial

Good morning, and welcome to our first quarter twenty twenty five call. Mariner Kemper, Chairman and CEO and Ram Chopra, CFO, will share a few comments about our results. Then we'll open the call for questions from our equity research analysts. Jim Ryan, President of the Holding Company and CEO of UOB 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 the company expects to realize from our acquisition as well as other opportunities management proceed.

Kay Gregory
Kay Gregory
IR at UMB Financial

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 on slide 51. 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 @investorrelations.umb.com and include reconciliations of non GAAP financial metrics. All per share metrics are on a diluted share basis.

Kay Gregory
Kay Gregory
IR at UMB Financial

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

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

Thank you, Kay, and good morning, everyone. 02/2025 is off to a great start with a strong first quarter and, of course, the closing of our acquisition of Heartland on January 31. Through the acquisition, we added just over 14,000,000,000 in deposits and more than doubled our branch presence across 13 states. We're on track to realize the cost synergies we outlined a year ago when we announced the transaction and plan for systems conversion are well underway at this point. Equally as important, the cultural integration of the two companies is well underway, and we've been pleased with the positive momentum among HCLF bankers as they get up to speed on UME's framework.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

There is excitement about the opportunities, our capabilities, and our greater capacity bring, and we are seeing early encouraging activity in the acquired markets. As we noted a year ago, the primary value proposition of this acquisition hinged on cheaper and granular core deposits. This value is evident and demonstrated by the improvement in our cost of deposits and net interest margin expansion this quarter. Our operating efficiency ratio improved to 55.6% and our operating ROA to 1.14%. While the inclusion of the HDLF results for the first two months of the quarter and the impact of the purchase accounting adjustments made for a difficult set of comparisons, we reported solid core results.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

Our reported earnings this quarter included $62,100,000 in day one provisioning and $54,200,000 in merger related and other non recurring charges. Excluding these items, our first quarter net operating income available to common shareholders was a hundred and 68,900,000.0 or $2.58 per share. We had both acquisition related and organic growth both sides of the balance sheet in the quarter. Average loans increased 27.8% to $32,300,000,000 and average deposits increased 32.3% to $50,300,000,000 on a linked quarter basis. Noting that ACLS balances were only included for two thirds of the quarter.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

On a legacy UMB basis, we saw an 8.3% linked quarter annualized increase in loan balances, again, outpacing many peer banks. Banks that have reported first quarter results so far have reported just 3.3% median annualized increase in loan balances. Legacy UMB average total deposits increased 27.3% on a linked quarter annualized basis. A snapshot of our combined loan book is shown on slide 20. We're very well diversified both in terms of loan products and geography and are looking forward to further penetration into these new regions across our footprint.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

Quarterly loan activity is on the following slide. Total top line loan production exceeded 1,200,000,000.0 in the first quarter, while payoffs and paydowns ticked up slightly. Turning to asset quality. On page 22, you can see the impact of acquired loans. Charge offs attributed to legacy UMB loans were just 6,200,000 or only 10 basis points of average loans for the quarter.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

In fact, excluding credit cards, legacy UMB once again had net recoveries this quarter. For the remainder of 02/2025, we expect the legacy UMB loan portfolio to perform in line with our historical trends while we work to align the acquired portfolio within UMB standards. Nonperforming loans related to legacy UMB were just eight basis points consistent with prior quarters. For reference, banks that have reported first quarter results so far have reported 8.45% median NPL ratio. On slide 24, you'll see the details of our first quarter allowance, which stands at 373,400,000.0, up from 251,700,000.0 at the end of the fourth quarter.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

'60 '2 point '1 million of PCD related allowance was established as a part of the acquisition, and 52,000,000 of day one allowance was established for non PCD loans through provision expense. Now just a few highlights on our fee income, then Ron will provide more detail on the first quarter impact of purchase accounting and other drivers of our results. We have continued to see income growth across our segments despite some of the market related variances and other noise. The addition of HDLS helped drive increased service charge and interchange income, and the 4,000,000,000 of additional private wealth customer assets boosted personal banking, trust, and security processing income. Credit and debit card purchase volume was 5,400,000,000.0 in the first quarter, up 18.6% on a year over year basis and surpassing the 5,000,000,000 mark for the first time.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

This included just over 500,000,000 in spend from HDLS cards in February and March. Over the past ten years, like, UMB spending volumes grew from 2,300,000,000.0, a compound annual growth rate of 8.7%. In our institutional businesses, assets under administration continue to expand, increasing 16% year over year to stand at 559,000,000,000. Within that segment, corporate trust AUA grew 25% over the last twelve months to 48,600,000,000.0. Our teams continue to bring in new business.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

Ten years ago, these assets were just under 11,000,000,000, highlighting the accelerated growth we've seen in all areas of corporate trust. We continue to explore new services such as our CLO trustee and loan administration businesses launched in 02/2024. We see a strong pipeline ahead of us in this business with many cross sell opportunities with fund services and other parts of the company. Alternative servicing is another fast growing part of our business. There continues to be a lot of m and a disrupting the space from which we've seen a lot of benefit.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

And we are seeing more activity related to the democratization of private investing, and we serve several clients who are leading in those initiatives. There's a lot of opportunity ahead of us in this space. Before I turn it over to Ram, we've had quite a few conversations around the uncertainty related to tariffs and general economic conditions that have dominated the headlines recently. We are closely monitoring the impact of the evolving tariff situation and engaging regularly with our clients about potential impacts to their business. As a bank with a large commercial customer base, we may have a different view than consumer heavy banks.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

While it's really too soon to comment, we're largely a supply chain lender, and most of our clients are telling us they are currently able to pass on the cost and expect to do this in the short run. Of course, the uncertainty increases the longer this goes on. As I said before, anyone who claims to know what's coming is purely speculating. We can't predict the next move, but our job is to be prepared to stay in touch with our customers and make adjustments as needed. To wrap up, we are risk managers first, and our many years of managing risk together in a consistent, intentional way have demonstrated that we performed well in periods of uncertainty.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

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

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Thank you, Mariner, and good morning, everyone. We've added new disclosure slides in our investor presentation that compare purchase accounting adjustments that close to those at the time of announcement. We've also broken out the various aspects of accretion and amortization that impact our financial results. As a reminder, these figures represent just the two month impact of the acquisition. Our March 31 common equity tier one ratio was in line with our expectations and announcement at 10.1%.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

On page 10, you can see that our first quarter results included $28,600,000 in net accretion and net interest income, including a $2,800,000 accelerated benefit from early payoff of some acquired loans. The net benefit to margin from this accretion was approximately 21 basis points. In addition, core margin benefited approximately two to three basis points from higher DDA balances. Our operating expenses reflected a $15,600,000 increase related to the amortization of newly created intangibles. As Mariner noted, our $86,000,000 provision for the quarter included $62,000,000 in initial provision to establish an allowance for non PCD acquired loans, which have been non GAAP for reporting purposes.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Turning to fee income, our reported fee income of $166,200,000 was impacted by 5,200,000.0 in mark to market losses on certain equity investments. HDLF added approximately 17,000,000 in fees for the two months since closed or about 8,000,000 per month. These HDL fees were primarily made above trust and security processing fees from the wealth assets, interchange income from commercial credit and consumer debit volume, deposit service fees, and other miscellaneous fees and adjustments. Adjusting to excluding each deal of contribution, the $1,600,000 COLI loss we noted in the slide, the security loss, and 900,000 in legal settlements, we estimate core UMBP income at hundred and 54,000,000 for the first quarter compared to an adjusted $158,000,000 in the prior quarter. The small decline reflects fewer days and lower back to back swap income and $12.81 fees.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Turning to expenses. Operating expenses was 330,500,000.0 for the quarter and included the 15,600,000.0 in new amortization expenses I referenced earlier. As Mariner noted, we are on target to achieve the cost synergies we identified at announcement. We estimate that we have achieved 17,000,000 of quarterly run rate savings today. Given the earlier than model January 31 close date, we now expect to achieve greater than the estimated 40% of sales in calendar year 2025.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Our effective tax rate of 12.6% for the first quarter included a $5,000,000 benefit or 8¢ per share for the remeasurement of deferred tax assets due to an increase in forecasted state marginal tax rate following the acquisition. Finally, some notes to keep in mind as we look ahead. Relative to the core margin of 2.75% in one q that excludes all accretion, we expect second quarter margin to range between 2.752.8%. Future period contractual net accretion amounts are highlighted on page 12. I will add my usual caveat that the trajectory of our margin will depend on the timing of Fed moves as well as DDA trends and levels of excess liquidity.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

As I noted previously, HDLF contributes approximately 8,000,000 in fee income per month. We expect our second quarter operating expense to be approximately 375,000,000 inclusive of 25,000,000 in total amortization expenses. Drivers include merit cycle increases in April and the impact of an extra day in the quarter, partially offset by seasonally lower FICA and other benefits expense. This can also be impacted by timing of marketing or advertising spend. And finally, we expect the effective tax rate to average between 1920% for the full year 2025.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Now I'll turn it over to the operator for the q and a session.

Operator

Thank you. We will now begin the Q and A session. Our first question today comes from Chris McGratty with KBW. Line is now open.

Christopher Mcgratty
MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)

Good morning.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

Hey, good morning, Chris.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Hey, Chris.

Christopher Mcgratty
MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)

Ram, maybe a big picture question. If annualize the fourth quarter earnings, roughly it puts you on like a $10 run rate already before you layer in the cost saves. And consensus for next year is a little over 11%. I'm interested in your comments on bridging that walk. In particular, the cash balances were very elevated, deposit growth was very strong.

Christopher Mcgratty
MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)

Can you just help us with the kind of the near term NII trajectory? I hear you on the expenses and fees, but the NII is a big piece. So thank you.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Sure, Chris. We we don't give specific earnings guidance, but maybe let me highlight some of the data points that impacted our fourth quarter results. And then if I didn't answer your question, come back at me. So first thing, when you look at our first quarter EPS of February, we noted that there was an 8¢ benefit from a discrete tax item, so that's a one time thing that will not repeat. And as I said in my prepared comments, our effective tax rate for the rest of '25, and '26 would be somewhere in the 19 to 20% level.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Right? And then the other thing you have to adjust for the first quarter is we had only 65,000,000, weighted average diluted shares outstanding. And and because of the timing of when Heartland closed and the equity forward that we did, going forward, most of you guys have your model frightened, it's gonna be about 76,000,000 shares outstanding. What's missing in the first quarter results, obviously, I noted a 5,000,000 negative impact from a mark to market. So, as you guys do it normally, I would I would core adjust that out of the earnings power for the first quarter.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

There's gonna be one more month of Heartland's core earnings. There's also gonna be one month more of CDI and amortization, which is about $8,000,000 pretax for the extra month. And then there's the contract contracts accretion that we have. So you look at page 12, we've disclosed what the second quarter number is gonna be at about 33,000,000. And then the final piece, I would say, is one more month of cost saves.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

As I said in my prepared comments, on a quarterly run rate basis, we've achieved about $17,000,000 of cost saves, but only two months of that is captured in the first quarter. So that's another month that you're gonna get. And then on top of that, there's just growth and number of days impact. Right? So if you look at the first quarter, going back to your point about net interest income, our per day net interest income now with the combined franchise is about 4 and a half to $5,000,000.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

So that's something that's going to be additive when you look at future quarters. So that's a lot of, data points at you, but me know if I didn't answer any of your questions. Again, we don't give guidance about 26. It's hard to figure out what's in consensus models because of the noise. So that's why we bucked our usual trend of not providing guidance to give more clarity for you guys.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

So hopefully, was helpful. But, yeah, if I didn't answer any of your any part of your question, just let me know.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

And the only thing

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

I should say on the growth side, like we have been saying, we do expect, you know, the the coming quarter quarter two's, production pipeline as we've given you a look into that and few historically, that remains as strong or stronger. I know you're hearing different things from other banks, but as you remember, our loan growth comes from market share gains and not economic activity, and and the pipeline remains very strong.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

One more data point I'll I'll add. Just on page page 26, Chris, you've you've seen this chart before on the roll off roll on yields on investment securities. We got now $1,800,000,000 of cash flows coming due in the next twelve months yielding three twenty two, and we are reinvesting if you go into the bond portfolio a hundred to a 25 basis points, at least higher than that. We also have about 3 plus billion dollars of fixed rate loans that currently yield four seventy five that, again, would would reprice 200 basis points assuming no more rate cuts. So those are kind of the underpinnings of what net interest income and net interest margin will look like for the next twelve months.

Christopher Mcgratty
MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)

Okay. That's helpful. If I could just follow-up, I guess, one, the 4.5 to five NII a day, if you take the round number, it's like 4.5 a quarter. Was is that a jump in update? You're you're trying to say that's a jumping off point before the balance sheet continues to grow?

Christopher Mcgratty
MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)

And then does that include, the scheduled accretion on top of that?

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Yeah. The $4.50 sounds about right. The accretion, you can do the math. I mean, you have $397,000,000 in the first quarter. Let me come back to you on that one.

Christopher Mcgratty
MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)

Okay. And I guess my last question, I could, is just a plan on the balance sheet, where your cash position is almost 15% of the balance sheet. You've got a ton of flexibility with your loan to deposit ratio. How should we think about what

Christopher Mcgratty
MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)

you may

Christopher Mcgratty
MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)

or may not do with the balance sheet earning assets? You've got the preferred outstanding that you acquired. Help us a little bit on that. Thanks.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Yes. So one of the reasons why we have excess cash or the Fed account still earning $4.33 today is, if you look at page 26, we did buy about $400,000,000 of what we call repurchases connected with the Heartland acquisition. So we did as much as we could from a capacity standpoint. We're looking at the market. There's still opportunity for us to invest in treasuries or genies or even Freddie Fannie.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

So we're still evaluating that. So the reason why we have more cash at 12 or $3.31 was some of the bond sales that happened as we as we close the acquisition. But we do plan to deploy it in the next three to six months.

Christopher Mcgratty
MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)

Great. Thank you.

Operator

Our next question comes from David Long with Raymond James. Your line is now open.

David Long
David Long
Managing Director at Raymond James Financial

Good morning, everyone.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Hey. Good morning, Dave.

David Long
David Long
Managing Director at Raymond James Financial

Ram, you you gave some color on the core NIM. The core NIM came in in the quarter at 2.75%. I think you said in the second quarter, your outlook for the core NIM before the purchase accounting was still at 2.75% to 2.8%. What assumptions are you making into that? I would assume adding another month with HTLF that would have been more accretive to that core NIM.

David Long
David Long
Managing Director at Raymond James Financial

So just wanted to see how what went into the that $2.75 to $2.8 outlook on the core NIM for the second quarter?

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Yes. Sure. I mean, so what the positives are obviously, as you said, one more month of Heartland's cheaper deposits. You know, Heartland will also add the one month impact of the DDA. It's going to be another billion billion 1, call it.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

As I noted, we also expect a rate cut in mid June. That's the only rate cut that we have in the second quarter. And then finally, just some assumptions about what will happen to excess liquidity. Like I said to Chris' questions, we may deploy some of that excess liquidity yielding four thirty and and get a different yield on that. The only hit headwind that I can think of is really the number of days.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Right? Because when you go from a ninety to ninety one day quarter, that that impacts the margin calculation. So I would say $275,000,000 to $280,000,000 is our initial estimate of where we end up. And obviously that will be impacted by the contractual accretion that we have listed on page 12 and then any other early payoffs. And the other point that I also made was in the first quarter relative to our expectations, had a two to three basis point benefit from DDA outperformance.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

So that those are all the different moving parts that dictate what will happen to our NIM.

David Long
David Long
Managing Director at Raymond James Financial

Got it. Got it. Great. Thanks for that additional color. And then switching gears to credit, the HTLF net charge offs in the quarter, any common thread amongst these?

David Long
David Long
Managing Director at Raymond James Financial

Was it was it a few credits? Was it much more broad than that? Maybe just a little bit more color on what you guys decided to run through the charge off line from HTLF in the quarter.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

Yeah. Thanks. I think the thing to note about those charge offs is they were credits identified, through you know, from all the way back to diligence and on through. Heartland had taken care of some of it, and and and then we took care of some more of it after we closed. And, you know, as far as I think what you should take from the chart.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

So there's nothing to note of abnormal about the charge offs other than, just normal course of business as we sort of continue to clean up what was identified in the watch list and the diligence process. What I think is more important to note is the overall, performance. So I think what you'll see, for the remainder of the year is we expect the overall performance of the combined companies to perform just in line with what we've historically done as a company, which should be, you know, 27 basis points or better based on the combined performance of the company. And, so I I guess I'd really point you to that, what we expect to be able to do on a combined basis. So right in line with what we're we're able to do.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

And on top of that, you know, as far as, you know, credibility and and trusting us, just look at our trends. Right? Just look at what we've been able to do. And in our deck, you can look at our charge off history on page 23. Again, we expect to continue to perform the way we always have, what we know today.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

And, and then, you know, you think about, really what we get from Heartland is is why why we're so excited about it, which is a bigger chassis and a platform to continue to do what we do very well, which is, have outsized growth with better than pure average quality. So we continue to expect that as we look forward.

David Long
David Long
Managing Director at Raymond James Financial

Excellent. Great. Thanks for taking my questions. Appreciate it, gentlemen.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

Thanks, Dave.

Operator

Our next question comes from Nathan Race with Piper Sandler. Your line is now

Operator

open.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Morning, Nate.

Adam Butler
Adam Butler
Equity Research Analyst at Piper Sandler Companies

Hey. Good morning, everybody. This is Adam Butler on for for Nate.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

Hey, Adam.

Adam Butler
Adam Butler
Equity Research Analyst at Piper Sandler Companies

Just just wanted to first talk about, loan growth.

Adam Butler
Adam Butler
Equity Research Analyst at Piper Sandler Companies

I I appreciate your commentary, Mariner, about how your customers are primarily, along the supply chain and how they're able to pass their cost along to customers right now. But I was just curious just from a growth perspective, how you're thinking about opportunities going forward with Heartland and how you think that might contribute to a growth rate going forward, maybe on, like, a quarter or annualized basis?

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

Yeah. So, great question. I mean, I'll circle back around really to our thesis for doing the deal in the first place, which is, you know, a fantastic lower cost, under levered deposit base and a much bigger footprint. So, we, you know, we more than doubled our branch network, and we went into a handful of states with big populations that we have no exposure to. I mean, you've seen some of the latest data on California.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

The GDP of California is bigger than a a lot of our our countries, you know, that we trade with around the globe. So we we have a significant opportunity. You know, when we announced the deal, I used a a phrase, big engine being dropped onto a big bigger chassis. And that's really, you know, what we're getting from Heartland is a a lot of great people. So we're seeing really great new early indication just in the first couple months coming through loan committee, all across the new Heartland footprint of really high quality, great deals.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

We think there was some pent up demand kind of last back, you know, back end of a few months before we close, dragging some closings out. So we're seeing a lot of really great activity pipeline. We've been really impressed with the the lenders and bankers that that we've we've acquired. Know, I sit in on every loan meeting, and, I've been really impressed with what we're seeing and, very excited about that. So the indications are really good for what they're gonna add across all this footprint.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

So, again, you know, lower cost, under levered deposits in a much bigger footprint with great people, and, we're able to you know, we talked about how we dropped in our regional credit officers day one, UMD regional credit officers who so the immediate benefit of that is we've got people dropped into this new footprint who know how we do things, can help close deals faster, and keep the highest level of quality up. So so our regional credit officers will help close deals, and they will also be able to assess talent and assess assess deals in a UMB fashion in a way to keep our, long term high quality, coupled with our outstanding loan growth. So better than better than average quality, better than pure quality as we've seen, you know, on page 23 again in our deck, which is what this team all the leadership that's at the table with me. You know, the three of us, Tom, Jim, Mariner, and several others, we've been doing this for thirty years together. And, you know, so you can see how we perform there on 23.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

You can see what happens on page 44 against the peers over time even if we go into a recession. If you look at page 44 on the deck, you can see how the industry and the peers perform during a recession, and you can see how we perform during a recession. So, you know, we're super jacked about the future and what what Heartland's gonna bring to us and what we can bring to Heartland.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

And,

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

you know, we're really, really excited about dropping our dropping our our our big engine on that new chassis.

Adam Butler
Adam Butler
Equity Research Analyst at Piper Sandler Companies

Okay. That's that's very helpful commentary. And then I know you touched on it briefly, but just, just to get a little bit more specific, I was curious if you guys had an idea for now that there's been two months with Heartland, what the overall AEA base run rate could look like going into the second quarter? And then also it's also been briefly mentioned, but it looks like you guys have mainly gotten through selling off, the securities from Heartland's book that you wanted to, but I was just curious about the appetite for for more going forward.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Yeah. I know. I I you cut out maybe did you say average earning assets? Is that what you asked?

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

What was the run rate?

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

You asked

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

the run rate question. What was it?

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Yeah. It's so, you know, so that's a good great question. And, yeah, it allows me to clarify something that I've seen in some early notes. So there's been some comments about the size of the loan portfolio that we acquired from from Heartland at 9,800,000,000.0 of the waterfall slide. The things I would remind is 9,800,000,000.0 is net of the fair value first thing.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

So that's another 484,000,000. So add another 500,000,000 on top of that. And then as we discussed in our pro formas, there was another 500 plus million that got reclassed from loans to, industrial revenue bonds. So that's a reclass. So that's nearly about a billion more that should be added to that 9,800,000,000.0.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Right? So so to your question, Adam, my point is the average earning assets captures that. So if you look at our expectations and and where you see on a normalized basis, earning assets are between, you know, 60 and a half to 61 and a half. So and then on top of that, we'll get any growth on top of that. And then, Chris, I'll go back to your question.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

I did the math. So the 4 and a half million per day does not include PAA. The higher end, another half a million times ninety one days, which is 45, will include the PAA.

Adam Butler
Adam Butler
Equity Research Analyst at Piper Sandler Companies

Okay. That's that's super helpful commentary, and thank you for answering my questions.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

Thanks, Adam.

Operator

Our next question comes from Garrett Shaw with Barclays. Your line is now open.

Jared Shaw
Jared Shaw
Managing Director at Barclays Capital

Hey, good morning.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Hey, Jared.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Good morning.

Jared Shaw
Jared Shaw
Managing Director at Barclays Capital

Good morning. Congrats on the deal closing. When you look at the deposits, did Heartland do anything sort of pre close to to work down their cost of deposits? Or were there any major steps that that you took after close to to readjust their pricing or their their products?

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

No. That just came over. Right? Right? As it was.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

Not nothing nothing to note at all, really.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

The only thing they did is the delevering of some of the brokered CDs that they had, so those ran down. And then the only thing as part of our conversion efforts we are doing is making sure that the deposit pricing is aligned between UNB and Heartland Markets, so no material shifts that way.

Jared Shaw
Jared Shaw
Managing Director at Barclays Capital

Okay. And when

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

did we look at the We just got out of what we expected, which is lower cost deposits, you know, for the most part. Yeah. Broke went about brokered. I mean, we we ran our some of our brokers off too, so did everybody in the industry. So, you know, that's just kind of I think that's underlying everybody, really.

Jared Shaw
Jared Shaw
Managing Director at Barclays Capital

Yeah. And then when we look

Jared Shaw
Jared Shaw
Managing Director at Barclays Capital

at the growth in DDA, anything you can point to there that was driving a lot of that success? Is it higher average balances? Is it customer acquisition or expanding the offerings into the new the new footprint?

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Yeah. It's a combination of all of that. Yeah. For us, it's the, you know, up and down volatility that we get with some, you know, large clients that are either deploying money in the market or you know? So when you think about corporate trust or our investor solutions businesses, we see some high fluctuations.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

We did, obviously, add on more clients as well. But for us, the the challenge always and internal debate always remains about the levels of DDAs because of, some of the activities of our clients and what's going on with

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

the equity or debt markets.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

Yeah. The only thing I would add is I think you you have to take a longer term look of our deposits in general. You know, I I would think of it at multiple quarters or even year over year, not so much linked quarter or month end or quarter end, just because the scale of what we do is is so large with institutional businesses. So I so from one quarter to the next or one month to the next, there can be some volatility.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

But overall, it's about client growth over the long run. And and as the client growth continues on the institutional businesses, that baseline demand deposit just grows. So you just have to think about it. You have to look past a month and look past a quarter to really get a sense of what's happened with our DDS.

Jared Shaw
Jared Shaw
Managing Director at Barclays Capital

Okay. Thanks for that color. And then on the expenses, can you give a little update on maybe some of the timing of cost saves that are still to come? Any big milestones we should be looking at for layering in those expense saves?

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Yeah. The big, points are legal day one, which is all the the 17,000,000 that I talked about that that we've achieved already. The next one, typically happens in the fourth quarter. That's that's true for both one time cost and cost saves. That's when the conversion happens, and then there's additional cost saves both from a people perspective and a vendor perspective.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

So, you know, for for the the run rate in 2026, early '20 '20 '6 will, will will reflect the synergized expense base, but you'll see another, slew of cost saves come in

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

the fourth quarter of this year.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Justin, just a reminder to you guys what we said at the announcement was we were gonna get 40% of the cost saves. And then based on the earlier close compared to what, we said when we announced the transaction, that we are getting two more months of the save for calendar year '25.

Jared Shaw
Jared Shaw
Managing Director at Barclays Capital

Okay. Okay. Thanks.

Jared Shaw
Jared Shaw
Managing Director at Barclays Capital

And then I could just speak on

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

Yep. One I can say

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

we feel very good about the overall cost saves in the modeling. We feel very confident with them.

Jared Shaw
Jared Shaw
Managing Director at Barclays Capital

Okay.

Jared Shaw
Jared Shaw
Managing Director at Barclays Capital

And then just a quick one. You have 3% ag related C and I. Is there any impact there from export and tariffs?

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

What was that? I'm sorry. Have the 6% number again. I didn't follow that.

Jared Shaw
Jared Shaw
Managing Director at Barclays Capital

Just on the it looked like about 3% of, C and I is aggregated. Any impact, expected impact there from from tariffs? Yeah. Agriculture?

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

Gotcha. I think, you know, it it's it's a little too early to have any, I think, real valuable commentary to this. I think, as I said in my call, I I I think anybody who's talking to you confidently about this is speculating, in my opinion. But, what what I'd say in general about most of our clients, as we reach out and we assimilate the feedback from all of our officers back to headquarters, and and do it ourselves. The the general theme is that, they all are telling us that they can pass on the cost at this point.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

And and then, you know, I I think that that's generally the impact for the large majority of our borrowers through the remainder of this year based on what we know today. If if if, you know, this tariff path we're on doesn't revert itself one way or another some point this year and it sticks, that uncertainty is gonna start to weigh in future, you know, certainly in '26 and late in '25. But it's gonna be the consumer as we all know. It's gonna feel this first. You and me doesn't really rely a whole lot on the consumer from a lending perspective.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

We're pretty insulated from that on a relative and comparative basis to a lot of our peers. So and we don't have a lot of exposure to consumer discretionary. So that would be the other place to see it from a supply chain or a commercial perspective would be consumer discretionary, and we should keep a close eye on our exposure to consumer discretionary. We don't have a lot of that. So that's what I would say, you know, at this point today.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

Keep a close eye on it. Talk to our customers a lot. You know, in the profile, the UMD customer is is very strong. These are these are borrowers that, you know, believe in gravity, believe in what goes up, must come down. So there's there's a retained earnings and cash flow.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

You know? So we we just have a better, stronger borrower who who's seen ups and downs so they prepare their balance sheet and income statements for exactly what we're staring at. We do best during uncertain times.

Jared Shaw
Jared Shaw
Managing Director at Barclays Capital

Thanks a lot.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Thanks, Jared.

Operator

Our next question comes from Tamir Braziler with Wells Fargo. Your line is now open.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Good morning, Tamir.

Timur Braziler
Timur Braziler
Director - Mid-Cap Bank Equity Research at Wells Fargo

Hi. Good morning, guys. Following up on the deposit related question, just the gap between end of period and average DDAs looks like that gap higher this quarter. I know this is a common question you get, but just can you give us a sense of where those average DDAs shake out? And how should we think about that gap closing in 2Q?

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

So so I'll I'll let Ram play clean up here. But at at the end

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

of the

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

day, quarter end, you know, the actuals and averages be very different from each other. So at the end of the quarter, the as stated number was pretty high. And I would say for the first quarter, that's that's kind of the lumpy nature of the venture and stuff that that happens for us. We've talked a lot about this. We think we're gonna be, in the second quarter, probably flat, as we stare at it based on on on what we see today.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

It's really hard. Again, back to the kind of event driven episodic nature, but it's really hard to tell exactly where we'll end up. But we will end up with a little bit more Heartland because of, you know, one month less, what happened in first quarter. So, you know, we can't really give you I mean, if we do, we tell you. Right?

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

But, we we don't know for sure, but, you know, flat to slightly up based on, another month of

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

of part.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Yeah. And then the flat part is just on the core. Like, it's the UMB basis. So the 13.4 that we had in the first quarter average, as I said earlier and Mary alluded to, you would add another billion 1 for the extra month of Portland.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

They had called it a 3 and a half billion dollar DDA book. So this thirteen four and another billion plus on top of that.

Timur Braziler
Timur Braziler
Director - Mid-Cap Bank Equity Research at Wells Fargo

Okay. That's great color. Thank you. And then, Mariner, you made a comment in your prepared remarks that you're working to align the acquired portfolio with UMBF standards. I'm just wondering what does that portend from both a credit quality standpoint?

Timur Braziler
Timur Braziler
Director - Mid-Cap Bank Equity Research at Wells Fargo

Has much of what's been identified already been addressed? Is there still some cleanup work to do in regards to that comment? And then I'm just wondering what that might mean from a loan growth standpoint going forward as to how much of the Heartland underwriting criteria methodology, whatever you want you want to call it, to change to to align with UMB.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

Yeah. That that's a great question. That comment was really more of a directional big picture question about you know, I talked a moment ago about the profile of the UMB customer, and we talked as we, you know, to announce this deal that there was, in the diligence process that there were some credits that, we identified. And and then in the general, slightly different way of underwriting didn't necessarily mean that they were, not good credits. They just were underwritten so differently.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

So, really, that comment was more about bringing the whole portfolio under kind of way we do things, policies, procedures, know, have a guarantee on this one, you know, or something like that where they wouldn't have had a guarantee on something. So that's just an example. Just just doing it our way is really meant. So it's really more color than than really down in the weeds type comment. And so and and I and I made a comment earlier about you say your question about, performance overall.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

You know, sure, it we've we've identified everything, you know, so we've we've ring fenced and identified where we think there are challenges of gating all the way back to diligence through through now. And, are there a few basis points of loss in there? Maybe. But what I what I was trying to tell you earlier on a on a combined basis based on what we knew about the whole portfolio, we expect to perform, like we have been or or better in total. So that that's what I say about overall charge offs.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

And so we we feel as good as we have about it, and, we're, you know, excited. The the thing about you and then you asked about, will that change the the pipeline or the way we underwrite? I'd say, absolutely not. Like I mentioned earlier, we've got two months of activity from them already. And and there's there's no difference in the desire to do high quality great deals.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

Seeing plenty of high quality great deals coming through the pipeline, and they've got talented folks bringing it to the table. So, no expectation for that to to do anything other than be added to what I said earlier about taking that big deposit base and and and deploying it with their people and ours in a in a more meaningful way. I mean, the only thing what I would say about this whole deal is the only thing that's different about UMB and then the combined UMB and Heartland is that we're gonna be able to grow faster, more efficiently, more profitably, and keep the same level of quality as we as we put it on because we've been able to drop our own regional credit officers into the footprint we acquired. And as I said earlier, you know, that'll allow us to move quicker, which allows us to grow faster, and it'll allow us to keep the quality level the same as UMB has always had because we've got people that we know and trust on the ground to make that that happen. And the pipeline remains, as I said, on a combined basis, very strong, and we're, it's a the the second quarter pipeline as we've done historically, for you guys.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

We've given you a peak in the next ninety days, and that that pipeline looks as good or better than it did in the first quarter.

Timur Braziler
Timur Braziler
Director - Mid-Cap Bank Equity Research at Wells Fargo

Great. And then if I can just one more. Looking at the accretion expectations, and maybe this is a hard question to answer, but we had a little bit of accelerated accretion in 1Q, the 2,800,000. I'm just wondering if you think about the puts and takes of maybe, again, aligning Heartland with U and B versus just maybe slower payoff activity, just given some of the broader uncertainty. Do you see accelerated accretion maybe accelerating as some of those, loans that maybe aren't aligned or are are, you know, helped out of the bank a little bit faster?

Timur Braziler
Timur Braziler
Director - Mid-Cap Bank Equity Research at Wells Fargo

Or does the environment, you know, weigh down that timeline and we just get more or less scheduled accretion? Guess, Ram, how are you thinking about that dynamic?

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Yeah. It's a hard question to answer if you rightfully surmised. You know, we gave you on page 12 the contractual accretion and, you whether loans pay off or are managed out, that'll impact, and and be a good guide to that accretion number. It's so hard to sit, say sitting here.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

We have no idea.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Yeah. At this point, it's just hard to predict what's gonna happen.

Timur Braziler
Timur Braziler
Director - Mid-Cap Bank Equity Research at Wells Fargo

Yeah.

Timur Braziler
Timur Braziler
Director - Mid-Cap Bank Equity Research at Wells Fargo

Got it.

Timur Braziler
Timur Braziler
Director - Mid-Cap Bank Equity Research at Wells Fargo

Great. Thank you

Timur Braziler
Timur Braziler
Director - Mid-Cap Bank Equity Research at Wells Fargo

for the question.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Thanks, Steve.

Operator

Our

Operator

next question comes from Brian Wilczynski with Morgan Stanley. Your line is now open.

Brian Wilczynski
Brian Wilczynski
Vice President - Equity Research at Morgan Stanley

Hi. Good morning.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Hey, Brock.

Brian Wilczynski
Brian Wilczynski
Vice President - Equity Research at Morgan Stanley

I was wondering if you could update us on your interest rate sensitivity following the acquisition. It looks like on Slide 28 of the deck in the ramp scenario, you view yourself as liability sensitive in the first year, but more asset sensitive in the second year. I was wondering if you could just talk through that.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Yes. As you see, on '28, like we said, so for a hundred basis points cut, we expect our base net interest income before any balance sheet growth to be slightly up. And and the the the main driver of that and and well, I'll use this opportunity to update you guys on where we are with the hard index and soft index. So with the new, including the new acquisition in this event of March, so 27% of our total deposits are hard index, and another 18% are soft index. So when rates are cut in this hundred basis point scenario, as we talked about before, those reprice immediately.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

And then DDAs are 2728% these non index to complete that pie. And then what happens in the second year is because of sulfur movements and repricing of loans, that has a negative impact in terms of loan yields catching up with what has already happened with deposits. Right? So that's why we're slightly, again, point six percent. I would call that very slightly liability sensitive.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

And then year two tends to be the impact of loan yields repricing down because as you see on the right side, we still have a fairly decent variable rate book, which is two thirds of our portfolio.

Brian Wilczynski
Brian Wilczynski
Vice President - Equity Research at Morgan Stanley

That's really helpful. And then for my follow-up on the reserve ratio, you mentioned the uncertainty in the environment. Nobody quite knows how things are going to play out. I was wondering if you could provide some color on what's baked into the reserve ratio today as far as the economic outlook, maybe unemployment rate and just where you see that reserve ratio trending over the next few quarters?

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Yes. So we're watching the so we use, in our CECL methodology, we use Moody's baseline scenario right now. It's weighted %, so there's no, blend of any other recessionary s one, s three environments just yet. And then as of the April 15 publication or mid April publication, the Moody's estimates do not factor in that. And part of that is, as Meredith said earlier, it's just too soon to speculate what's going to happen to GDP or whatever, seeing a stat inflation or what Fed funds do.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

But our seasonal model, as you know, is predicated on multiple macroeconomic variables by a far b code. For our c and I book, we use a combination of GDP growth, capacity utilization, credit spreads. What does the ten year treasury look like against triple b, household income. So there's a lot of different variables that go into each different portfolio. So based on what we've seen so far in the Moody's baseline, you know, at this point, there's not a big demand on provision, but that can change as as the variables get tweaked favorably or unfavorably.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

And then the outcome side of it is we don't expect our book to perform any differently because of how we underwrite. You know, if you look at the last so if you look at page I think it's, 44 in our deck, you look at how we perform during those times. And, you know, because of how we underwrite, because of how we manage credits, you know, if even if we have to provision more because of that, you know, the the the longer term impact of, call it, over provisioning against our performance, you you know how that works out. So we do expect to continue to underwrite, perform, and manage credits the way we always have.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

That's a good point.

Brian Wilczynski
Brian Wilczynski
Vice President - Equity Research at Morgan Stanley

That's helpful. And then just any thoughts on where you see the reserve ratio maybe trending in the quarters post acquisition?

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Yeah. So we are at one zero three right now, which is up from one zero one, as as we disclosed on day one, legal day one, we provided 24,000,000 against the Heartland portfolio on the $10,000,000,000 vote. So if I had to guess, again, this is, you know, speculative, but, you know, I think the provision has to increase based on what Moody's is gonna model. We have historically said, regardless of the environment, we feel comfortable with the one plus percent HCL coverage ratio. So that's that's where we'll be, you know, generally close to where we are right now.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

Right.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

So from where we are now, we don't expect to do anything more with it than what Moody's would do to us.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Yes.

Brian Wilczynski
Brian Wilczynski
Vice President - Equity Research at Morgan Stanley

That's really helpful. Thank you for taking my questions.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Thanks, Brian.

Operator

Thank you all for your questions. Our next question today comes from Jon Arfstrom with RBC Capital Markets. Your line is now open.

Jon Arfstrom
Jon Arfstrom
Managing Director - Associate Director of US Research at RBC Capital Markets

Hey, thanks. Good morning.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Good

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

morning, Jon.

Jon Arfstrom
Jon Arfstrom
Managing Director - Associate Director of US Research at RBC Capital Markets

Anything you guys would call out one way or the other on the noninterest income trends? And and as part of that, can you talk a little bit about the outlook for the card business? It looks like balances, fees, interchange roll up and and Heartland is additive to that.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

Yeah. I mean, high level and then, you know, the couple of things that can add to it. I'm not sure exactly where where you're taking the question. But if you took out the, mark to mark at market action in the first quarter, we would be, you know, in kind of our typical growth mode. The profile looks pretty good.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

We're seeing great tailwinds really across the board, whether it's within the bank with, with wealth management or it's across our institutional book. All those businesses have deep pipelines, good profiles. Teams feel very good about the trajectory. So that's what I'd say high level. Just a little color on that mark to market issue.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

We had a investment at the company level that didn't meet the Volcker rules, basically. So we ended up having to move it out. And in order to move it out in a timely fashion, we had to take a a loss on it. So it wasn't even a it wasn't really even an underperforming investment. We just were forced to get rid of it.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

And therefore, you know, when people know you need to take, get rid of something, you have to take a loss on it, basically. So we took a loss on something we didn't need wouldn't have wanted to take a loss on. So that's a one time deal. We'll never see you again. And, and and so that's what that was.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

So absent that, the the the business has all really looked good. Don't Jim. Anything you wanna add?

James Rine
James Rine
President at UMB Financial

On the car on the car, that's obviously a synergy opportunity with the with Heartland, and we'll see increased activity at our card sales, specifically consumer, late second quarter, mid second quarter, which we feel good about. The return of the legacy UMD card portfolio continues to grow, having a lot of success in our payables programs coupled with, our traditional consumer and commercial business.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

Yeah. That's so we start selling the consumer card in May into the Heartland book, and then she what page is that worth the Forty forty. 40? So page 40 in the book shows what's happened to the present debit card interchange with the addition of, Heartland. So I think Heartland's about 500,000,000.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

That's for two months. So, I mean yeah. So this number, if we had Heartland for the entire three months, would have been more like 5,700,000,000.0. As I said in my prepared remarks, that's mostly commercial credit and consumer debit.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

Yep.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

So there's opportunities to expand, as Mariner said, on those capabilities. And then on the broadband fee income, just in case you didn't catch it, John, my, prepared comments, I said our one q core legacy only, fee income was about hundred and 54,000,000 if you take out the mark to market that Mariner talked about, take out the take out the negative quality adjustment, and then take out the positive legal settlement. And then, as I said in my guidance, Heartland will add about $8.08 ish million dollars per month. So half another 24,000,000 and then, number of days and then any future growth. So we feel pretty good at this.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

What Jim and Mariner said about our fee income trajectory.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

Team team on

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

the institutional side is really just on fire across the board, seeing all sorts of opportunity all across the country. And, you know, there's pent up demand for municipal underwriting and infrastructure across the country. So for the corporate trust business, CLO business, which is new to us, is on fire. So, you know, this is really across the board. And we've talked about the democratization of, alternatives since we're seeing a lot of opportunity with, organizations that are taking advantage of that.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

So just really across the board. Wealth it's really also doing really well. We've made some really nice changes to the platform and and, open architecture and portals of customer portal and all that. So, you know, really looking we're investing in the customer experience, which is really great, and and, we expect that to bear fruit on that side. So just nothing but great things to say about the fee income project trajectory.

Jon Arfstrom
Jon Arfstrom
Managing Director - Associate Director of US Research at RBC Capital Markets

Okay. Good. That's that's helpful. One more for you, Mariner, I guess. How long do you think it takes for you to get Heartland kind of fully integrated and operating in the same manner as UMB?

Jon Arfstrom
Jon Arfstrom
Managing Director - Associate Director of US Research at RBC Capital Markets

And and related after going through this, is bank M and A more interesting to you? It seems like a more favorable regulatory environment. You haven't done a lot of bank deals recently. Is this how long does it take and is it more interesting to you?

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

Sure. I'll I'll take them in the order you asked. So on the on the, integration side of sort of how do we become the same company, you know, and how long does it take, there's some really good news there. We when we acquired Parlin, you know, the senior management team didn't come with it. So immediately, they are getting one getting one message from you and me, a consistent, continuous way of doing business, and that all happened immediately.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

And I talked about the regional credit officers, which is our biggest engine, right, on a combined basis is the loan growth coming out of the the the Heartland footprint. So they're getting on the ground real time feedback, approvals, and and and all that immediately. So, you know, there's the technical conversion that takes place in October. But as far as it goes culturally, it's selling and and bringing in business and all that. That's immediate.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

We started that, you know, we started that meeting. As a matter of fact, I should've added this. So that we could bring in new important business between now and close or two months ago and close, we put a process in place from the commercial side to align a Heartland, associate with the UMB associate to book that business on, the UMB rail so that those customers wouldn't have to go through two conversions. And that has allowed us to really keep the momentum going, and we're excited about that, the ability for that to help us bridge between now and October with all that great new business. So I would say that is super on target and kind of almost immediate, if you will, on the cultural side and on sales and the energy side and momentum side.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

You know, the technical sort of, you know, typical conversion side of systems, that is what it is, and that's happening in October. But so that's that. And then, the second question oh, yeah. M and a. So we're focused a % on getting all the juice out of what we've just accomplished and making sure these two teams are humming and rolling together, and we get all the same get all all out of this that we expect to get out of it and keep the quality in check and all that.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

So we're focused on that %. You know, on, as it relates to the future, you know, we're I myself and others, we're doing we're doing those rounds of golf and those steak dinners and all that with the with the with, you know, the, our friends at other institutions so that we keep relationships built. These things don't happen overnight, so we we keep that engine alive and those relationships building so that, when we do get on the other end of this, we're we're ready to roll. And m and a is definitely definitely part of our overall strategy, but currently, we're focused a % on getting this thing done done right.

Jon Arfstrom
Jon Arfstrom
Managing Director - Associate Director of US Research at RBC Capital Markets

Okay. Okay. Thank you very much.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Thanks, John.

Operator

Our next question is a follow-up from Timur Braziler with Wells Fargo. Your line is now open.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Hey, Timur.

Timur Braziler
Timur Braziler
Director - Mid-Cap Bank Equity Research at Wells Fargo

Hi, thanks. Just one follow-up on the capital side. You guys called out $1,000,000 buyback authorization in the release. I'm just wondering what your appetite is here and, what your thoughts are about potentially engaging that from a timing standpoint and magnitude standpoint?

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

Sure, Timur. There's nothing exciting to report there. We do that every year at exact same time and the exact same amount. Typically, that's just, really just to give us the flexibility and the availability. We have no plans.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

Yep. Just let's just add. It's a yearly cycle for the, spare carry purchase authorization and a three year cycle for our shelf registration. Registration. That happens like clockwork.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

Yeah.

Ram Shankar
Ram Shankar
Executive VP & CFO at UMB Financial

So nothing to read into it.

Timur Braziler
Timur Braziler
Director - Mid-Cap Bank Equity Research at Wells Fargo

Great.

Timur Braziler
Timur Braziler
Director - Mid-Cap Bank Equity Research at Wells Fargo

Okay. Thank you.

Operator

Thank you all for your question. There are no longer questions in queue, so I'll pass the conference back to the management team for any further or closing remarks.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

Yes. This is Mariner. I just thought I'd wrap up for everybody just to remind you about how excited we are about this. I'm super pumped about it. I just wanted to, you know, have a chance to just say one more time what the thesis and is for this new, bigger, combined engine that we have created.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

And and mostly what I do is have you take a look back to look forward. And if you look in, you know, in our deck, there's a couple of pages, you know, starting on page 44. We have a management team that's been together, you know, for, nearly thirty years, and we have a long track record of, starting on 42, I should say. We have a long track record of demonstrating outsized growth coupled with, through the next few page, coupled with, better than pure average significantly better than pure average quality. So we live in a we live in a space which I call rarefied air.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

You know, we're kind of in a space by ourselves where we outgrow everybody and we keep a a better quality doing it, and we've been doing it together forever. And and the beauty of this combined company is that we can do that, more efficiently, more profitably as a bigger company, that's running more efficiently. So the one knock on us over a long period of time is we haven't done it sufficiently as other people. Now we're outgrowing, and we can do it at the same level of efficiency. And and, we have this huge engine.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

We we know how to bring in business, and we have this amazing new chassis, new markets, new people, new branches, a ton of new, less expensive, you know, raw material to go deploy with. And we are gonna keep doing what we've been doing in an outsized way with as good quality as we have with a much bigger platform. And, so we're super excited about that. We didn't even touch on revenue synergies. We touched briefly on, around credit cards.

Mariner Kemper
Mariner Kemper
Chairman & CEO at UMB Financial

But right across the board, we have a ton of revenue synergies to deploy all of our products across this new this new footprint. And, you know, and I just end it by saying you've got a team that's been doing it together for thirty years, so we've got credibility doing what we say we're gonna do. So look forward to taking this journey with you as we, as we embark on this over the next many months and years ahead. We're really, super jacked about it. Thanks for your time.

Kay Gregory
Kay Gregory
IR at UMB Financial

Thanks, Marjorie, and, thanks everyone for joining us today. If you have follow-up questions, you can reach us at (816) 860-7106. Thanks and have a great day.

Operator

That will conclude today's conference call. Thank you all for your participation. You may now disconnect your line.

Executives
Analysts

Key Takeaways

  • The Heartland acquisition closed Jan 31, adding $14 B in deposits, doubling branch presence in 13 states and driving lower deposit cost and net interest margin expansion, with $17 M in quarterly run‐rate cost synergies already achieved.
  • Average loans increased 27.8% to $32.3 B and deposits rose 32.3% to $50.3 B linked quarter, while operating efficiency improved to 55.6% and operating ROA reached 1.14%, delivering adjusted net operating income of $168.9 M ($2.58/share).
  • Credit quality remained strong with legacy UMB net charge-offs at 10 bps of loans, nonperforming loans at 8 bps versus a peer median of 8.45%, and total allowance rising to $373.4 M, with the combined portfolio expected to align with historical trends.
  • Fee income accelerated as card purchase volumes grew 18.6% YoY to $5.4 B, assets under administration climbed 16% to $559 B and corporate trust AUA increased 25% to $48.6 B, while new services like CLO trustee and alternative servicing built a robust pipeline.
  • Capital and liquidity are solid with a 10.1% CET1 ratio, Q2 core NIM (ex-accretion) guided at 2.75–2.8%, excess cash earmarked for securities deployment, and management monitoring tariff and macro uncertainty as supply-chain clients largely pass on costs.
AI Generated. May Contain Errors.
Earnings Conference Call
UMB Financial Q1 2025
00:00 / 00:00

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