UMB Financial Corp (UMBF) 2025 Q1 法說會逐字稿

Hello, everyone. Thank you for attending today's UMB Financial first quarter 2025 financial results conference call. My name is Sierra, and I'll be your moderator for today.

All lines will be mitted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press one on your telephone keypad.

I would now like to pass the conference over to our host, Kay Gregory, Investor Relations. Please proceed.

Good morning and welcome to our first quarter 2025 call. Mariner Kemper, Chairman and CEO, and Ram Shankar, CFO, will share a few comments about our results. Then we'll open the call for questions from our equity research analysts. 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 the company expects to realize from our acquisition, as well as other opportunities management perceives.

Forward-looking statements in any pro forma 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 security laws.

Presentation materials are available online at investorrelations.umb.com and include reconciliations of non-GAAP financial metrics. All per share metrics are on a diluted share basis.

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

Thank you, Kay, and good morning everyone.

2025 is off to a great start with a strong first quarter and of course, the closing of our acquisition of Heartland on January 30. Through the acquisition, we added just over $14 billion in deposits and more than doubled our branch presence across 13 states. We're on track to realize the cost energies 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 HCLS bankers as they get up to speed on UMB's framework. There is excitement about the opportunities, our capabilities, and our greater capacity bring. 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 was 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 HTLF 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. Our reported earnings this quarter included 62.1 million in day one provisioning and 54.2 million in merger related and other non-recurring charges. Excluding these items, our first quarter net operating income available to common shareholders was 168.9 million or $2.58 per share.

We had both acquisition related and organic growth on both sides of the balance sheet in the quarter. Average loans increased 27.8% to 32.3 billion, and average deposits increased 32.3% to 50.3 billion on a link quarter basis, noting that HCLS balances were only included for 2/3 of the quarter.

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 length 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 a further penetration into these new regions across our footprint.

Quarterly loan activity is on the following slide. Total top line loan production exceeded 1.2 billion in the first quarter, while payoffs and pay downs picked up slightly.

Turning to asset quality, on page 22, you can see the impacts of acquired loans. Charge offs attributed to legacy UMB loans were just 6.2 million or only 10 basis points of average loans for the quarter. In fact, excluding credit cards, legacy UMB once again had net recoveries this quarter.

For the remainder of 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. Non-performing loans related to legacy UMB were just 8 basis points consistent with prior quarters. For reference, banks that have reported first quarter results so far have reported a 0.45% median NPL ratio.

On slide 24 you'll see the details of our first quarter allowance, which stands at 373.4 million up from $261.7 million at the end of the fourth quarter. 62.1 million of PCD related allowance was established as a part of the acquisition, and 62 million of day one allowance was established for non-PCD loans through provision expense.

Now, just a few highlights on our fee income, then Ram will provide more detail on the first quarter impact of purchase accounting and other drivers of our results. We have continued fee income growth across our segments despite some of the market-related variances and other noise.

The addition of HCLS helped drive increased service charge and interchange income, and the 4 billion of additional private wealth customer assets boosted personal banking, trust, and securities processing income. Credit and debit card purchase volume was 5.4 billion in the first quarter, up 18.6% on a year over year basis and surpassing the 5 billion mark for the first time.

This included just over $500 million and spend from HDLS cards in February and March. Over the past 10 years, legacy UMB spending volumes grew from $2.3 billion a compound annual growth rate of 8.7%.

In our institutional businesses, assets under administration continue to expand, increasing 16% year over year stand at 559 billion. Within that segment, corporate trust AUA grew 25% over the last 12 months to 48.6 billion. Our teams continue to bring in new business.

10 years ago, these assets were just under 11 billion, 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 2024. We see a strong pipeline ahead of us in this business with many cross-sale opportunities to find 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&A disrupting the space from which we've seen a lot of benefit, 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 the potential impacts to their business. As a bank with a large commercial customer base, we may have a different view than consumer-heavy banks.

Well, 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 costs 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 perform well in periods of uncertainty.

Now turn it over to Ram from more he did.

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 30 common equity tier one ratio was in line with our expectations and announcement at 10.1%. On page 10, you can see that our first quarter results include a 28.6 million in net accretion to net interest income, including a $2.8 million dollar accelerated benefit from early payoffs 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 $15.6 million increase related to the amortization of newly created intangibles. As Mariner noted, our 86 million provision for the quarter included 62 million in initial provision to establish an allowance for non-PCD acquired loans, which have been non-GAAP for reporting purposes.

Turning to fee income, our reported fee income of 166.2 million was impacted by 5.2 million in mark to market losses on certain equity investments. HTLF added approximately $17 million in fees for the two months it closed, or about 8 million per month.

PHPL of fees were primarily made up of 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 exclude HCLS's contribution, the $1.6 million COLI loss we noted in the slides, the security loss, and $900,000 in legal settlements, we estimate core UMEP at 154 million for the first quarter compared to an adjusted 158 million in the prior quarter. The small decline reflects fewer days and lower back to back swap income and 12b1 fees.

Turning to expenses, operating expenses was 330.5 million for the quarter and included the 15.6 million in new amortization expenses I referenced earlier. As Mariner noted, we are on target to achieve the cost energies we identified as announcements. We estimate that we have achieved 17 million 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 savings in calendar year 2025.

Our effective tax rate of 12.6% for the first quarter included a $5 million benefit, or $0.08 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 cube that excludes all accretion, we expect second border margin to range between 2.75% and 2.80%. 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.

As I noted previously, HTLF contributes approximately 8 million in fee income per month. We expect our second quarter operating expense to be approximately 375 million inclusive of 25 million in total amortization expenses. Drivers include marriage cycle increases in April and the impact of an extra day in the quarter partially offset by seasonly 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 19% and 20% for the full year 2025.

Now, I'll turn it over to the operator for the Q&A session.

Thank you. We will now begin the Q&A session.

(Operator Instructions).

Our first question today comes from Chris McGratty with KBW. Your line is now open.

Hey, good morning.

Hey morning, Chris.

Ram, maybe a big picture question. If you annuallyze the fourth quarter earnings roughly it puts you down 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 is very strong. 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.

Sure, Chris, 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 258, we noted that there was an $0.08 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, right?

And then the other thing you have to adjust for the first quarter is we had only 65 million weighted average diluted shares outstanding, and because of the timing of when Heartland closed and the equity forward that we did, going forward, most of you guys have your models right. It's going to be about 76 million shares outstanding.

What's missing in the first quarter results, obviously I noted a $5 million negative impact from a mark to market. So as you guys do it normally, I would core adjust that out of the earnings power for the first quarter. There's going to be one more month of Heartland's core earnings. There's also going to be one month more of CDI and amortization, which is about $8 million pre-tax for the extra month.

And then the contract accretion that we have. So you look at page 12, we've disclosed what the second quarter number is going to be at about 33 million.

And then the final piece, I would say is one more month of cost saves, as I said in my prepared comments on a quarterly run rate basis we've achieved about $17 million of cost saves, but only two months of that is captured in the first quarter, so that's another month that you're going to get.

And then on top of that there's this growth and number of days in fact, 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 $4.5 million to $5 million. So that's something that's going to be added to when you look at future quarters.

So that's a lot of data points at you, but let 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. So hopefully that was helpful, but, yeah, if I didn't answer any of any part of your question, just let me know.

And the only thing I should say on the growth side, just like we have been saying, we do expect, the coming quarter to production pipeline, as we've given you a look into that 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 the pipeline remains very strong.

One more data point I'll add just on page 26, Chris, you've seen this chart before on the roll off, roll on yields on investment securities. We've got now $1.8 billion of cash flows coming due in the next 12 months, yielding 322 and we are reinvesting if you go into the bond portfolio, 100 to 125 basis points, at least higher than that.

We also have about $3 billion of fixed rate loans that currently yield 475 that again 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 12 months.

Okay, and that's helpful. If I could just follow up, I guess one is the four the 4. 5 to 5 NII a day if you take the round number, it's like 450 a quarter. I was, is that a jumping that's basically you're trying to say that's a jumping off point before the balance sheet continues to grow and then does that include the schedule accretion on top of that?

Yeah, the 450 sounds about right. The accretion, you can do the math. I mean, you have 397 in the first quarter. Let me come back to you on that one.

Okay, and I guess my last question if I could, is just, a plans on the balance sheet or 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 you may or may not do with balancing earning assets you've got the preferred outstanding that you acquired. Help us a little bit on that. Thanks.

Yeah, so one of the reasons why we have this cash or the Fed account, still earning $433 today is as you look at page 26, we did buy about $400 million of what we call pre-purchases connected with the Heartland acquisition. So we did as much as we could from a capacity standpoint. We're looking at the markets. There's still opportunity for us to invest in treasuries or genies or even Freddie Frannies.

So we're still evaluating that. So the reason why we have more cash. At 12 or 331 was, some of the bond sales that happened as we close to the acquisition, but we do plan to deploy it in the next three to six months.

Great, thank you.

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

Good morning, everyone.

Hey dude.

Ram, you gave some color on the core name. The core came in in the quarter at 2.75%, I think you said in the second quarter your outlook for the [coren] before the purchase accounting was still at 275 to 280.

What assumptions are you making into that? I would assume adding another month with HTLF that would have been more accretive to that core name. So just wanted to see, how what went into the that 275 to 280 outlook on the core name for the second quarter.

Yeah, sure. I mean, so what the deposits are obviously, as you said, one more month of Heartland's cheaper deposits, Heartland will also add the one month impact of the DDA. There's going to be another billion one call it as I've 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's questions, we may deploy some of that excess liquidity yielding 430 and get a different yield on that. The only headwind that I can think of is really the number of days, right, because when you go from a 90 to 91 day quarter that impacts the margin calculation. So I would say, 275 to 280 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, we had a two to three basis point benefit from DDA on performance, so that those are all the different moving parts that dictate what will happen to our name.

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

Yeah, thanks. I think, the thing to note about those charge offs is they were credits identified through, from all the way back to diligence and on through. Heartland had taken care of some of it and then we took care of some more of it after we closed. And as far as I think what you should take from the chart, so there's nothing to know 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 in 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 would be, 27 basis points or better based on the combined performance of the company.

And so 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 able to do and on top of that. As far as, credibility and trusting us, just look at our trends, right? Just look at what we've been able to do, 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. And then, you think about really what we get from Heartland is 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 outside growth with better than pure average quality. So we continue to expect that as we look forward.

Excellent, great, thanks for taking my questions. Appreciate it, gentlemen. Thanks.

The next question comes from Nathan Rees with Piper Sandler. Your line is now open.

Morning, Nate.

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

Hey, just wanted to first talk about loan growth. 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.

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, a fantastic lower cost. Under levered deposit base and a much bigger footprint. So 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. The GDP of California is bigger than a lot of our countries that we trade with around the globe.

So we have a significant opportunity, when we announced the deal, I used a phrase, a big engine being dropped onto a big, bigger chassis. And that's really, what we're getting from Heartland is a lot of great people, so we're seeing really great new early indication just in the first couple of months coming through the loan committee all across the new Heartland footprint of really high quality, great deals. We think there was some pent up demand kind of last, the 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 lenders and bankers that we've acquired.

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 going to add across all this footprints. So again, lower costs, under levered deposits in a much bigger footprint with great people, and we're able to, we talked about how we dropped in our regional credit officers, day one, UMB regional credit officers.

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 high level of quality up. So our regional credit officers will help close deals and they will also be able to assess talent and assess deals in the UMB fashion in a way to keep our long term high quality coupled with our outstanding lung growth.

So better than average quality, better than peer quality as we've seen on page 23 again in our deck, which is what this team, all the leadership of that's at the table with me, the three of us, Tom, Jim, Mariner, and several others we've been doing this for 30 years together and so you can see how we perform there on '23. 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.

We're super jacked about the future and what Heartland's going to bring to us and what we can bring to Heartland and, we're really excited about dropping our big engine on that new chassis.

Okay, that's very helpful commentary. And then I know you touched on it briefly, but 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 AA based 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 more going forward.

Yeah, I know, you cut out maybe did you say average earning assets, is that what you have?

What was the run rate? The run rate question. What was it?

Yeah, so that's a great question, and 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 Heartland at 9.8 billion in the waterfall slide.

The things I would remind is 9.8 billion is net of the fair value first thing, so that's another 484 million. So add another 500 million on top of that. And then as we discussed in our pro forma, there was another 500 plus million that got reclassed from loans to industrial revenue bonds. So there's a reclass. So there's nearly about a billion more that should be added to that 9.8 billion, right?

So to your question, Adam, my point is the average earning assets captures that. So if you look at our expectations. And where you see on a normalized basis earning assets are between, 60.5 to 61.5. 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, did the math. So the 4.5 million per day does not include PAA. The higher end, another 500 times 91 days, which is 45, will include the PAA.

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

Thanks.

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

Hey, good morning.

Hey, Jared, morning.

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

No, that just came over right as it was, nothing to note at all, really.

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 materials shifts that way.

Okay, and when we look at the --

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

Yeah. And then when we look at the growth in DDA, any, you know that any anything you can point to there that was, driving all that success is it higher average balances? Is it customer acquisition or expanding the offerings into the new footprint?

Yeah.

It's a combination of all of that, for us it's the, up and down volatility that we get with some large clients that are either deploying money in the market or, so when you think about corporate trust or our investor solutions businesses, we see some high fluctuations. We did obviously add on more clients as well, but for us, the challenge always and the internal debate always remains about the levels of DDAs because of some of the activities of our clients and what's going on with the equity or debt markets.

Yeah, I don't think I would ask. I think you have to take a longer term look of our deposits in general, I would think of it in multiple quarters or even year over year, not so much link quarter or month in or quarter in, just because the scale of what we do is so large with institutional businesses. So from one quarter to the next or 1 month to the next, there can be some volatility. But overall it's about client growth over the long run and as the client growth continues on the institutional businesses, that baseline of 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 DDAs.

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 we should be looking at for layering in those expense saves?

Yeah, the big points are legal day one, which is all the 17 million that I talked about that we've achieved already. The next one typically happens in the fourth quarter. That's true for both one-time costs 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.

So for the run rate in 2026, early 2026 will reflect the synergized expense base. But you'll see another slew of costs come in the fourth quarter of this year.

Just to remind you guys, what we said at the announcement was we were going to 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.

Okay, thanks, and then if I could just --

I just say we feel very good about the overall costs and the modeling, feel very confident with them.

Okay.

And then just a quick one, you have 3% a related CNI is there any impact there from export and tariffs?

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

Just on the, it looked like about 3% of CNI is a related any impact, expected impact there from tariffs, yeah, agriculture.

Gotcha. I think, 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 think anybody who's talking to you confidently about this is speculating in my opinion, but, 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 do it ourselves. The general theme is that they all are telling us that they can pass on the costs at this point.

And then, I think that's generally the impact of the large majority of our borrowers through the remainder of this year based on what we know today if, this tariff path we're on doesn't revert itself one way or another, some point this year and it sticks, that uncertainty is going to start to weigh in future, certainly in '26 and late in '25.

But it's going to be the consumer, as we all know, it's going to feel this first. You and me doesn't really rely a whole lot on the consumer from a lending perspective. 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 and we don't have a lot of that.

So that's what I would say, at this point today, keep a close eye on it, talk to our customers a lot, in the profile of the UMB customer. It is very strong. These are these are borrowers that, believe in gravity, believe in what goes up must come down. So there's retained earnings and cash flow and so we just have a better, stronger borrower 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.

Thanks a lot.

Thanks, Jerry.

Our next question comes from Timur Braziler with Wells Fargo. Your line is not open.

Good morning, Timur.

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.

So I'll let Ram play clean up here, but at the end of the day.

Quarter in, the actuals and averages can be very different from each other. So at the end of the quarter, the as data number was pretty high, and I would say for the first quarter that's kind of the lumpy nature of venture and stuff that that happens for us. We talked a lot about this, we think we're going to be in the second quarter probably flat.

As we stare at it based on what we see today, it's really hard, again back to the kind of event-driven episodic nature of it, 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, one month less in what happened in the first quarter, so. We can't really give you.

I mean if we do, we tell you, right, but we don't know for sure, but, flat to slightly up based on another month of.

Yeah, and the flat part is just on the core I guess the UMB. So the 13.4 that we had in the first quarter average, as I said earlier and Mariner alluded to, you would add another 3 billion for the extra month of Heartland. They had called it a $3.5 billion DDA book, so just 13.4 and another billion dollars plus on top of that.

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 UMB's standards. I'm just wondering, what does that portend from both a credit quality standpoint has much of what's been identified already been addressed? Is there still some clean up 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 has to change to align with UMB.

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

So really that comment was more about bringing the whole portfolio under kind of the way we do things, policies, procedures, have a guarantee on this one, or something like that where they wouldn't have had a guarantee on something such as an example, just doing it our way, it's really mean, so it's really more color than really down in the weeds type comment..

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

And so we feel as good as we have about it and we're excited. The thing about you then you asked about will that change the pipeline or the way we underwrite I say absolutely not, like I mentioned earlier, we've got two months of activity from them already.

There's no difference in the desire to do high quality great deals. We're 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 do anything other than be additive to what I said earlier about taking that big deposit base and deploying it with their people and ours 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 going to 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, that will allow us to move quicker, which allows us to grow faster and that will allow us to keep the quality level same as human beings always had because we've got people that we know and trust on the ground to make that happen.

In the pipeline remains, as I said, on a combined basis, very strong and we're, it's the second quarter pipeline, as we've done historically for you guys, we're going to peak in the next 90 days, and that pipeline looks as good or better than it did in the first quarter.

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 and 1 million to 2.8 million.

I'm just wondering if you think about the puts and takes of maybe you know again aligning Heartland with UNB 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 are helped out of the bank a little bit faster, or does the environment, weigh on that timeline and we just get more or less scheduled accretion I guess how are you thinking about that dynamic?

Yeah, that's a hard question to answer if you rightfully survived. We gave you on page 12 the contractual accretion and whether loans pay off or are managed out, that'll impact and be a good guide to that accretion number. It's so hard to say sitting here we have no idea. Yeah, at this point it's just hard to predict what's going to happen, yeah.

Got it. Great, thank you for the question.

Thanks.

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

Hi, good morning.

Hey I was wondering if you could, hey, 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.

Yeah, you see, in 28 like you rightly said, so for 100 basis points cut, we expect our base net interest to come before any balance sheet growth to be slightly up, and the main driver of that, and well, I'll use this opportunity to update you guys on where we are with hard index and soft index.

So with the new, including the new acquisition and this is as of March, so 27% of our total deposits are hard index and another 18% are soft index. So when rates are cut in this 100 basis point scenario, as we talked about before, those reprice immediately. And then DDA got 27% and 28% non-indexed to complete that pie. And then what happens in the second year is because of softer 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 0.6%. I would call that very slightly liability sensitive. 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 which is 2/3 of our portfolio.

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 the unemployment rate, and just where you see that reserve ratio trending over the next few quarters.

Yeah, so we're watching, so we use in our season methodology we use Moody's baseline scenario right now. It's weighted 100%, so there's no blend of any other recessionary S1, S3 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 Mariner said earlier, it's just too soon to speculate what's going to happen to GDP or whether we're seeing a taxflation or what Fed funds do.

But our CIO model, as is predicated on multiple macroeconomic variables by FRB code for our CNI book we use a combination of GDP growth, capacity utilization, credit spreads, what does a 10 year treasury look like against BBB, 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, at this point there's not a big demand on provisions, but that can change as the variables get tweaked favorably or unfavorably.

And then the outcome side of it is we don't expect our book to perform any differently because of how we underwrite, 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 because of how we underwrite, because of how we manage credits. If even if we have to provision more because of that the longer term impact of call it overprovisioning against our performance how that works out. So we do expect to continue to underwrite, perform, and manage credits the way we always have.

That's a good point.

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

Yeah, so we are at 103 right now, which is up from 101, as we disclosed on day one, we provided 124 million against the Heartland portfolio on the $10 billion vote. So if I had to guess again this is, speculative, but I think the provision has to. Increase based on what Moody's is going to model, we have historically said regardless of the environment we feel comfortable with the 1% HL coverage ratio. So that's where we'll be, generally close to where we are right now, right? So from where we are now we don't expect to do anything more with it than what Moody's would do to us, yes.

That's really helpful.

Thank you for taking my questions.

Thanks, Brian.

Thank you all for your questions.

(Operator Instructions). Our next question today comes from Jon Arfstrom with RBC Capital Markets. Your line is now open.

Hey thanks. Good morning.

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

Yeah, I mean high level and then you know the couple that can add to it. I'm not sure exactly where you're taking the question, but if you took out the mark to mark market action in the first quarter, we would be in kind of our typical growth mode, the profile looks pretty good. We're seeing great tailwinds really across the board, whether it's within the bank, 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 say, high level, just a little color on that market to market issue. We had an investment at the company level that didn't meet the [Volcker] rules basically, so we ended up having t, move it out and in order to move it out in a timely fashion, we had to take a loss on it.

So it wasn't even, it wasn't really even an underperforming investment. We just were forced to get rid of it and therefore, 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 so that's what that was. So absent that, the businesses all really look good. I don't yeah.

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

Yeah, so we start selling the consumer part in May into the Heartland book and then see what page is that worth 40 so page 40 in the book shows what's happened to debit card interchange with the addition of Heartland. I think Heartland's about 500 million.

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 5.7 billion. As I said in my prepared remarks, that's mostly commercial credit and consumer debit, so there's opportunities to expand as Mariner said, on those capabilities. And then on then broadly on the fee just in case you didn't catch it, Jon, my prepared comments, I said our one core legacy only. Fees about $154 million if you take out the mark to market that Mariner talked about, take out the take out the negative co adjustment, and then take out the positive legal settlement. And then, as I said in my guidance, Heartland will add about $8 million per month, so add another $24 million and then a number of days and then any future growth. So we feel pretty good at this what Jim, Mariner said about our fee income trajectory.

Team on the institutional side is really just on fire across the board, seeing all sorts of op opportunity all across the country, and, 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, it's just really across the board and we've talked about the democratization of alternatives and we're seeing a lot of opportunity with organizations that are taking advantage of that, so just really across the board, well is really also doing really well. We've made some really nice changes to the platform and open architecture and portals of customer portal and all that, so, really looking.

We're investing in the customer experience, which is really great, and we expect that to bear fruit on that side, so just nothing but great things to say about the fee income trajectory.

Okay good 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 and related after going through this is bank M&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?

Sure, I'll take them in the order you asked, so on the integration side of sort of how do we become the same company, and how long does it take, there's some really good news there.

We, when we acquired Heartland, the senior management team didn't come with it, so immediately they are getting one message from UMB, a consistent, continuous way of doing business, and that's all happened immediately.

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 Heartland footprint. So they're getting on the ground. Real-time feedback, approvals, and all that immediately, so.

There's the technical conversion that takes place in October, but as far as it goes, culturally selling and bringing in business and all that, that's immediate. We started that meeting. As a matter of fact, I should have 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 on 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 the sales and the energy side and momentum side. The technical sort of typical conversion side of system, that is what it is, and that's happening in October.

But so that's that and then the second question, oh yeah, M&A. So we're focused 100% on getting all the juice out of what we've just accomplished and making sure these two teams are humming and rowing together and we get all this thing, get all out of this that we expect to get out of it and keep the quality in check and all that.

So we're focused on that 100% on, as it relates to the future, we're, I Myself and others, we're doing those rounds of golf and those steak dinners and all that with the our friends at other institutions so that we keep relationships built. These things don't happen overnight, so we keep that engine alive and those relationships building so that when we do get on the other end of this, we're ready to roll. M&A is definitely part of our overall strategy, but currently we're focused 100% on getting this thing done and done right.

Okay.

Okay, thank you very much.

Thanks, Jon.

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

Hey, Timur

Hi, thanks.. Just one follow up on the on the capital side, you guys called out a million dollar buyback authorization on 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.

Sure there's nothing exciting to report there. We do that every year at the 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.

Let's just add it's a yearly cycle for the authorization and a three year cycle for our shelf registration that happens like clockwork, so nothing to read into it.

Okay, thank you.

Thank you all for your question.

They are no longer questions and queues, so I'll pass the conference back to the management team for any further or closing remarks.

Yeah, 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 have a chance to just say one more time with the thesis and is for this new bigger combined engine that we have created.

And mostly what I do is have you take a look back to look forward. And if you look in, on our deck, there's a couple of pages, starting on page 44. We have a managing team that's been together for nearly 30 years, and we have a long track record of starting at 42, I should say we have a long track record of demonstrating outsized growth coupled with through the next few pages, coupled with better than average, significantly better than pure average quality.

So we live in a space which I call rarefied air, we're kind of in a space by ourselves where we outgrow everybody and we keep a better quality doing it and we've been doing it together forever. 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 as efficiently as other people. Now we're outgrowing and we can do it at the same level of efficiency. And we have this huge engine. 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 raw material to go deploy with, and we are going to 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, but right across the board we have a ton of res revenue synergies to deploy all of our products across this new footprint and. And I just end it by saying you've got a team that's been doing it together for 30 years, so we've got credibility doing what we say we're going to do. So I 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.

Thanks, Mariner, 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.

That will conclude today's conference call.

Thank you all for your participation. You may now disconnect your line.