UMB FINANCIAL CORP Q4 FY2024 earnings call

• Acquisition of HTLF: Approved by OCC and Fed, expected to close on January 31st. Heartland's deposit franchise showed 6% linked-quarter annualized increase in customer deposits and 2.13% cost of total deposits. Heartland resolved non-core loans and bonds, improving pro forma balance sheet.
• Fourth quarter results: Set new company records in operating income, net interest income, and fee income. Loan balances grew 14.8% linked-quarter annualized, average total deposits grew $2.7 billion. Fee income grew across segments, including private wealth, institutional, and HSA.
• Capital levels: CET1 ratio increased to 11.29%.
• Integration efforts: UMB and Heartland teams working hard for successful transition, with Heartland's deposit franchise and regulatory capital ratios improved.

UMB had a strong fourth quarter with 2024 annual operating income of $461.7 million, net interest income surpassing $1 billion, and fee income of $628.1 million. Fourth quarter GAAP earnings were $120 million or $2.44 per share. Net interest income increased 8.7% from the third quarter due to an 11-basis-point increase in net interest margin and strong earning asset growth. Average total deposits grew $2.7 billion or nearly 31% linked-quarter annualized. Fee income continued to grow across segments, with private wealth teams bringing in $1.3 billion in net new assets in 2024, institutional assets under administration up 18% to $526 billion, and HSA accounts growing to over 1.6 million. Capital levels ended the quarter with a CET1 ratio of 11.29%.

First quarter results will include three months of UMB and two months of Heartland, with impacts from purchase accounting accretion. UMB standalone core margin expected to be relatively flat to fourth quarter 2024 levels. Anticipate no additional rate cuts this quarter, so UMB standalone core margin expected to be flat. 70% of loans reprice within 12 months, majority indexed to short-term rates.

Integration noise: Potential challenges in integrating Heartland's operations, including impact on loan growth and charge-offs initially. Credit risk: Heartland's prior credit issues were identified during due diligence, but ongoing monitoring and integration could introduce uncertainties. Deposit outflows: Seasonal outflows from public funds and corporate trust activities can impact deposit balances.

Q: Jared Shaw asked about the Heartland deal's impact on assumed marks and remaining securities to sell.

A: Mariner Kemper said the major drivers of the acquisition remain intact, customer deposits grew since announcement, and non-performing loans will be down by close.

Q: Brian Wilczynski asked about loan growth trends post-election.

A: Mariner Kemper said it's too early to tell, but market penetration remains the investment thesis.

Q: David Long asked about seasonal deposits and public funds.

A: Ram Shankar said public funds inflow in December and outflow in February, with seasonality in corporate trust also affecting deposits.

Q: Ben Gerlinger asked about Heartland's impact on pro forma earnings.

A: Mariner Kemper said loan balances may be a drag initially, but expected to make up for it with sales force leverage, with lift expected in 2026.

Q: Nathan Race asked about loan growth capacity post-merger.

A: Mariner Kemper said Heartland's loan growth may slow, but UMB's loan growth is expected to continue, with integration expected to lift in 2026.

Q: Chris McGratty asked about capital uses and buybacks.

A: Mariner Kemper said focused on regenerating capital, with no immediate plans for buybacks.

Q: Jon Arfstrom asked about integrating lending processes.

A: Mariner Kemper said deploying regional credit officers immediately to oversee lending processes.

Q: Timur Braziler asked about cost saves cadence.

A: Ram Shankar said 40% of cost saves expected in 2025, with remaining in 2026, tied to systems conversion and contract negotiations.