Release Date: April 30, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• UMB Financial Corp (NASDAQ:UMBF) successfully closed its acquisition of Heartland, adding over $14 billion in deposits and doubling its branch presence across 13 states.
• The acquisition has led to an improvement in UMBF's cost of deposits and net interest margin expansion, with an operating efficiency ratio of 55.6% and operating ROA of 1.14%.
• Average loans increased by 27.8% to $32.3 billion, and average deposits increased by 32.3% to $50.3 billion, showcasing strong growth on both sides of the balance sheet.
• Fee income growth was observed across segments, with credit and debit card purchase volume reaching $5.4 billion, up 18.6% year-over-year.
• UMB Financial Corp (NASDAQ:UMBF) reported strong asset quality, with charge-offs attributed to legacy UMB loans at only 10 basis points of average loans for the quarter.

Negative Points

• The acquisition resulted in $62.1 million in day one provisioning and $54.2 million in merger-related and other non-recurring charges, impacting reported earnings.
• There is uncertainty related to tariffs and general economic conditions, which could impact UMBF's commercial customer base.
• The integration of Heartland's portfolio with UMBF's standards may require adjustments, potentially affecting loan growth and credit quality.
• The effective tax rate is expected to increase to between 19% and 20% for the full year 2025, up from 12.6% in the first quarter.
• UMB Financial Corp (NASDAQ:UMBF) faces challenges in aligning deposit pricing between UMB and Heartland markets, which could affect cost savings and efficiency.

Q & A Highlights

• Warning! GuruFocus has detected 1 Warning Sign with UMBF.

Q: Ron, can you provide insights on the near-term net interest income (NII) trajectory, considering the elevated cash balances and strong deposit growth? A: Unidentified_4 (CFO): We don't provide specific earnings guidance, but several factors impacted our first quarter results. Our first quarter EPS of $2.58 included an $0.08 benefit from a discrete tax item, which won't repeat. Our effective tax rate for the rest of 2025 is expected to be between 19% and 20%. Additionally, we had 65 million weighted average diluted shares outstanding in Q1, which will increase to about 76 million shares going forward. We also had a $5 million negative impact from a mark-to-market adjustment. The second quarter will include one more month of Heartland's core earnings, CDI amortization, and contract accretion. We've achieved about $17 million of cost saves on a quarterly run rate basis, with only two months captured in Q1. Our per-day net interest income is about $4.5 to $5 million, which will be added to future quarters.

Q: Can you elaborate on the core net interest margin (NIM) outlook for the second quarter, considering the addition of Heartland? A: Unidentified_5 (CFO): The deposits from Heartland will add another month of cheaper deposits and DDA impact. We expect a rate cut in mid-June, which is the only rate cut we have in the second quarter. We may deploy some excess liquidity yielding 4.30% to get a different yield. The number of days in the quarter will also impact the margin calculation. We estimate the core NIM to be between 2.75% and 2.80%, considering these factors.

Q: Regarding credit, can you provide more color on the Heartland net charge-offs in the quarter? A: Unidentified_3 (CEO): The charge-offs were credits identified from the diligence process. Heartland had addressed some of it, and we took care of more after closing. There's nothing abnormal about the charge-offs; it's just normal business as we clean up identified credits. We expect the overall performance of the combined companies to align with our historical trends, with charge-offs at 27 basis points or better.

Q: How do you view loan growth opportunities with Heartland, and how might it contribute to growth rates going forward? A: Unidentified_3 (CEO): The acquisition provides a fantastic lower-cost, under-levered deposit base and a larger footprint. We've more than doubled our branch network and entered states with significant populations. We're seeing great early indications of high-quality deals across the new Heartland footprint. The addition of Heartland's talented bankers and our regional credit officers will help us close deals faster and maintain high-quality growth.

Q: Can you provide an update on the integration of Heartland and any potential impacts on loan growth and credit quality? A: Unidentified_3 (CEO): The integration is more about aligning Heartland's portfolio with UMB's standards, such as policies and procedures. We've identified and ring-fenced any challenges from the diligence process. We expect the combined portfolio to perform in line with our historical trends. The integration won't change our pipeline or underwriting approach. We're seeing high-quality deals and expect Heartland to be additive to our growth.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.