UMB Financial Corporation Q2 FY2025 earnings call

• Business environment remains positive with perceived real headwinds subsiding. Borrower sentiment is strong. - Reported net income included acquisition expense, and net operating income excluding nonrecurring items was strong. - Had a $37.7 million pretax gain on prior investments, including $29.4 million on Voyager Technologies investment. - Average loans and deposits grew, with legacy UMB average loan balances up 15.3% annualized. - Loan pipeline strong for third quarter, with $1.9 billion in topline production in second quarter. - Completed pilot conversion of Heartland's Minnesota franchise. - Trust and securities processing fees increased due to new clients, assets under administration rose. - Expenses included $13.5 million of merger-related costs, salaries and benefits expense increased due to new Heartland associates, charitable contributions increased.

The reported net income available for common shareholders was $215.4 million, including $13.5 million of acquisition expense. Excluding these, second quarter net operating income was $225.4 million or $2.96 per share. Average loans increased 12.7% to $36.4 billion and average deposits increased 10.7% to $55.6 billion on a linked quarter basis. Core net interest margin expanded by 8 basis points. Trust and securities processing fees increased by $3.5 million led by fund services, with assets under administration and fund services and custody growing to $543 billion. Credit and debit card purchase volumes reached $5.6 billion, driving a 10.4% increase in bank card fees. Net charge-offs attributed to the legacy UMB portfolio in the second quarter were $9 million (13 basis points of average UMB loans), total net charge-offs including acquired loans were 17 basis points. CET1 ratio was 10.39%, a 28 basis point increase from March 31.

• Third quarter operating expense expected to be in the range of $380 million to $385 million. - Third quarter fee income impacted by changes in market value of Voyager stock until position is exited. - Full year 2025 effective tax rate expected to be between 19% and 21%. - Third quarter margin expected to be flat linked quarter.

• Uncertainties in geopolitical tension. - Risks associated with the acquisition, including integration and expense uncertainties. - Market volatility impact on investment returns and asset values.

Q: Jon Arfstrom asked about deconstructing loan growth, how much from Heartland and trend.

A: Mariner Kemper and Jim Rine said loan production was strong, Heartland team performing well, expecting similar trend in future.

Q: Jared Shaw asked about impact of HSA changes on deposits and fees.

A: Jim Rine said viewed as marginal opportunity, need for education.

Q: Chris McGratty asked about cost saves realization.

A: Ram Shankar said $17 million of cost saves realized last quarter, big slug in fourth and first quarters.

Q: Nathan Race asked about third quarter margin and fourth quarter outlook.

A: Ram Shankar said potential for upward bias in margin depending on Fed policy.

Q: Brian Wilczynski asked about Heartland team contribution to balance sheet and deposit pricing.

A: Mariner Kemper said Heartland team contribution in early stage, Ram Shankar said deposit costs affected by growth mix.

Q: David Long asked about fee revenue synergies from HTLF.

A: J. Mariner Kemper and Jim Rine said starting to see energy, more to come.

Q: Timur Braziler asked about Heartland team contribution to balance sheet growth and deposit costs.

A: Mariner Kemper said contribution in early stage, Ram Shankar said deposit costs affected by growth mix not competition