UMB Financial Corporation (UMBF) Q4 2025 Earnings Call Transcript

UMB Financial Corporation (NASDAQ: UMBF) Q4 2025 Earnings Call dated Jan. 28, 2026

Corporate Participants:

Kay Gregory — Investor Relations

James D. Rine — President and Chief Executive Officer

Ram Shankar — Executive Vice President and Chief Financial Officer

Mariner Kemper — Chief Executive Officer

Thomas Terry — Executive Vice President & Chief Credit Officer

Analysts:

Jon Armstrong — Analyst

Jared Shaw — Analyst

Christopher McGratty — Analyst

Ben Gerlinger — Analyst

Brian Wilczynski — Analyst

Brian Foran — Analyst

Janet Lee — Analyst

David Long — Analyst

Nathan Race — Analyst

Timur Braziler — Analyst

Presentation:

operator

Sa. It. Sa. Sam. Sa. Welcome everyone. The UMB Financial Fourth Quarter 2025 Financial Results Conference call will begin shortly. In the meantime, if you would like to pre register to ask a question, please press Star followed by one on your telephone keypad. If you change your mind, please press Star followed by two. Once again, today’s call is going to start shortly. Thank you for your pat. Hello everyone and thank you for joining The UMB Financial Fourth Quarter 2025 Financial Results Conference Call. My name is Gabrielle and I will be coordinating your call today. During the presentation you can register a question by pressing STAR followed by one on your telephone keypad.

If you change your mind, please press Star followed by two on your telephone keypad. I will now hand over to your host, Kay Gregory. Please go ahead.

Kay Gregory — Investor Relations

Good morning and welcome to our fourth 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 Equity Research analysts. Jim Rhine, 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 that the Company expects to realize from our acquisition as well as other opportunities management foresees.

Forward looking statements and any pro forma metrics are subject to assumptions, risks and uncertainties as outlined in our SEC filings and summarized in our presentation on slide 50. 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 at investorrelations.umb.com and include reconciliations of non GAAP financial measures. All per share metrics refer to common shares and are on a diluted share basis. Now I’ll turn the call over to Mariner Kemper.

Mariner Kemper — Chief Executive Officer

Thank you Kay and good morning everyone. We will share some brief comments about our results then open up for questions. We reported another strong quarter to close out 2025 with the successful acquisition of Heartland Financial, the opening of our first branch location in Utah and another year of record earnings. We posted significant improvements in our profitability metrics as we continue to build scale, deliver profitable growth on both sides of the balance sheet and maintain our unwavering focus on strong asset quality metrics. A few fourth quarter metrics that I want to highlight are return on average assets of 120 compared to 104 in the third quarter.

Return on average common equity of 1127 up from 1014 and an efficiency ratio that improved to 55.5 from 58.1 in the third quarter and 61.8 in the period a year ago. I’m incredibly proud of our associates for delivering strong fundamental and financial performance in 2025 while providing outstanding customer experience to our existing and newly acquired clients, all of which continue to drive our exceptional results. Reported net income available for common shareholders for the fourth quarter was 209.5 million or $2.74 per share, an increase of 16.1% from the third quarter. For the full year we earned 684.6 million or $9.29 per share.

Fourth quarter included 39.7 million of acquisition expenses compared to 35.6 million last quarter. Excluding these and some smaller non recurring items, our fourth quarter net operating income was 235.2 million or $3.08 per share. Fourth quarter net interest income totaled 522.5 million, an increase of 10% from the third quarter. This was driven by double digit growth in loans and DDAs along with the impact of lower rates on our index deposits benefited net interest income. Our fee businesses continued their strong performance in the quarter while our total non interest income was impacted by several market related variances.

New business activity from our fund services and private wealth teams continue to drive Results which contributed 4.5 million or 5.1% linked quarter increase in trust and security processing income during the quarter we exited substantially all of our position in Voyager shares. While we can’t predict the future success in our private investment business, our pipeline remains strong and we’re likely to see periodic monetizations going forward. Looking at the balance sheet, we posted 13% linked quarter annualized growth in average loans and 5.6% in average deposits. Quarterly top line loan production reached 2.6 billion in a quarter. We are seeing positive activity across our footprint and I’m excited about our additional opportunities in our acquired markets.

Post conversion, CNI was again our strongest contributor this quarter with 27% annualized growth over the third quarter. Average balances the rate of net payoffs and pay downs as a percentage of total loans of 3.9%. Looking ahead into the first quarter, overall loan activity and pipeline remained strong. Our loan growth has continued to outpace many peer banks. Banks that have reported fourth quarter results so far have posted a 4.9% median annualized increase in average loans compared to our 13% total net charge offs for the fourth quarter were just 13 basis points. For the full year of 2025, net charge offs were 23 basis points below our long term historical average of 27 basis points.

Points total non performing loans were 145 million or 37 basis points of loans, while total criticized loan levels improved 9.1% from the prior quarter. Industry wide NPLs for the banks reported so far were a median of 55 basis points. Our total watch list levels will fluctuate from quarter to quarter as we manage our book, we’re quick to recognize trouble, take action and address any issues. This proactive management has been consistent and historically we’ve seen very little migration to loss as evidenced by our target of history. We’re incredibly proud of our history. As I mentioned, for the 20 year period ending with 2025, our annual losses have averaged just 27 basis points.

Over that same period, average loan balances have increased from 3 billion to 36 billion through market and vertical expansion, including a recent acquisition. This equates to a median annual growth rate of 10.4%. We’ve achieved these results through our focus on risk management and the continuity that comes by having the same team in place managing credit together. Through all of these cycles. We continue to build capital with December 31st common equity tier 1 ratio of 10.96 a 26 basis point increase from September and ahead of the timeline in which we noted in our announcement of our acquisition.

Our capital priorities remain the same with organic growth at the top of the list. Many bank management teams have received questions on their fourth quarter calls about their MA stance and I’d like to proactively address that topic. As I’ve said many times, we don’t need A to do M and A. We have a strong proven ability to generate assets and we continue to take share and grow organically at a pace ahead of our peers. As you saw us demonstrate in this past quarter, and we do that with exceptional asset quality metrics that we are really proud of.

We expect these trends to continue, especially given the opportunities we see for penetration in our newly acquired markets and expanding in our existing markets. Organic growth is and always will be our top capital priority. At the same time, we also feel that we are adept at evaluating and integrating acquisitions to bolster our organic growth. We’re still answering our phones, building and maintaining relationships, and we expect the tuck in acquisitions that make financial and strategic sense can be part of our ongoing strategy. We’ve also been asked about the size of potential deals without giving specific parameters we would be wary of transactions that would put us close to the $100 billion mark.

We are in the early stages of assessing what the threshold means to us, and until we are ready, our appetite for any M and A will continue to be measured. While many believe thresholds may move under the current administration, we are operating as though those rules still remain in place. We believe that we’ve built something very special here at umv, including one of the best teams in the business. We are not going to put that at risk by pursuing a deal that might dilute our culture, our business model, our organic momentum, or our strong balance sheet.

Finally, as we look into 2026, we’re excited to continue the momentum we saw in 2025 and capitalize on the opportunities in our newly acquired markets. As always, our primary focus will be on positive operating leverage no matter what the economic or geopolitical environment brings our way. Now I’ll turn it over to RAM for more detail.

Ram Shankar — Executive Vice President and Chief Financial Officer

Thanks, Mariner Our fourth quarter results included $52.7 million in net interest income from purchase accounting adjustments, $12.3 million of which was related to accelerated accretion from early payoff of acquired loans. The benefit to net interest margin from total accretion was approximately 33 basis points. On slide 10 is the projected contractual accretion, which is estimated at 126 million for the full year 26 and 92 million for 27. These totals do not include any estimates for accelerated payoffs. Slides 12 and 13 include some key highlights and drivers of our quarter over quarter variances as well as breakout of one time costs by expense categories.

Non interest income for the quarter included 2.2 million in net investment security gains comprised of $6.3 million of gains on various equity investments, partially offset by a 4.8 million linked quarter market value loss on Voyager stock. As Marilyn noted, we sold substantially all of our Voyager position in the fourth quarter since its IPO. Our net gain on our investment in Voyager was approximately 17 million on an initial investment of 6 million, translating to an internal rate of return of 30% and a nearly 4x multiple on invested capital. Fee income excluding these valuation changes was 1.96.2 million, a decrease of 11.2 million from the third quarter.

The largest drivers were 9.2 million in market related variances in both Coli and Boli income and a $2.9 million decrease in derivative income from elevated 3Q levels. As noted on slide 12 and as previously disclosed, we had a nonrecurring benefit in the third quarter of 2.5 million related to a legal settlement. Partially offsetting these decreases was the $4.5 million increase in trust and securities process income that Mariner mentioned, driven by solid performance in asset servicing and private wealth. Our fund services and custody teams added a total of 15 new fund families in 2025 with a total of 109 new funds.

On the expense side we have 39.7 million of merger related costs compared to 35.6 million in the prior quarter. As shown, the largest portion of these costs in the past two quarters have been for contract termination and conversion expense that were heavily weighted in the back half of the year excluding the impact of merger and other one time costs. Operating non interest expense was 391.8 million up 1.8% compared to the third quarter. The largest drivers included an additional 10.5 million in incentive comp expense related to our strong fourth quarter and full year up performance increases of 3.4 million in additional charitable contributions and 1.1 million in marketing expense which included some retail advertising campaigns in our new regions.

Deferred compensation expense as shown on slide 12 was 1.6 million for the quarter excluding the deferred comp impact, the recalibration of incentive compensation for the fourth quarter outperformance and the additional 2 million in charitable expenses or normalized quarterly expenses were approximately 380 million. Looking ahead, we would expect first quarter operating expense to be in the 385 to $390 million range. This includes an estimated additional $15 million increase in FICA payroll taxes and 401 expense driven both by typical seasonal resets and timing of bonus payments as well as normal inflation in medical and other costs and other investments.

Offsets will include day count impact and post conversion synergies. After the first quarter elevated levels, we would expect FICA and other payroll taxes to decline by approximately 10 million in the second quarter. As Mariner noted, we expect to achieve positive operating leverage in 2026 notwithstanding an estimated 38 million in lower contractual purchase accounting accretion benefit, an approximately $30 million benefit from our investment in Voyager and other investment gains recognized in 2025. Turning to the balance sheet and margin, reported net interest margin for the fourth quarter was 3.29%. Excluding the 33 basis points contribution from purchase accounting adjustments, core margin was 2.96%, increasing 18 basis points sequentially.

The primary drivers of the linked quarter increase in core nim included a nonrecurring 4 basis points benefit from interest recapture on non accrual loans that became current during the quarter in a bond prepayment, favorable basis risk between Fed Target rates which impact our funding costs and one month sofr, which impact our loan yields. Benefits of a favorable mix shift in both earning assets and deposits, including the 24.9% linked quarter annualized increase in DDA balances, repricing of index deposits from the December 10th rate cut and higher loan fees partially offset by lower benefit from three funds.

Total average deposits in the fourth quarter increased 5.6% on a linked quarter annualized basis. While we expected DDA’s to rebound from seasonal lows in the third quarter, the outsized growth was driven in large part by new customer acquisitions in our corporate trust business as well as the often episodic nature of these deposit inflows. As previously noted, we have very limited line of sight into these movements. This balance remix coupled with the impact of rate cuts drove our cost of total deposits down by 29 basis points to 2.25% while cost of interest bearing deposits declined by 33 basis points to 3.03%.

We realized a blended beta of 76% on interest bearing deposits for the quarter driven by favorable mix shift as well as outperformance for repricing on our soft index deposits. On page 27 we disclose our current composition of deposits by rate sensitivity along with our interest rate simulation that shows us positioned as essentially neutral relative to the fourth quarter adjusted margin of 2.92%. That excludes accretion and the nonrecurring four basis points from interest reversals on non accruals and the bond prepayment that I mentioned. We expect first quarter margin to be relatively flat as pricing on variable rate loans with monthly resets catch up and are offset by positive churn in fixed rate loans and bond reinvestment and day impact.

We have not assumed any upside to margin from additional rate cuts in the first quarter based on current implied market probabilities. Actual margin and NII results will depend on levels of DDA growth, levels of excess liquidity, any SOFR movements and mix shifts within the lending and funding portfolios. Finally, our effective tax rate was 20.3% for the fourth quarter and 19.7% for the full year. This compares to 18.5% for the full year. 2024. Looking ahead, our effective tax rate is expected to be between 20 and 22% for 2026. Now I’ll turn it back over to the operator to begin the Q and A session.

Questions and Answers:

operator

Thank you. To ask a question, please press STAR followed by one on your telephone keypad. Now if you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question is from John Armstrong from RBC Capital Markets. Your line is now open. Please go ahead.

Jon Armstrong

Thanks. Good morning, everyone.

Mariner Kemper

Morning, John.

Jon Armstrong

Maybe Mariner or Jim, just can you give us a little more detail on the drivers of the commercial loan growth in the quarter? Pretty strong, but if you can give us a little more detail on that. And then as a follow up, just curious if you can talk a little bit more about the Heartland contributions to the growth you flagged that last quarter about how post conversion it could be a little bit stronger. Thank you.

Mariner Kemper

Yeah, John. Thanks Mariner. I’d say, you know, fortunately the story remains the same as it has been for, you know, I’ve been CEO 22 years now. I would say it’s the same as it’s been. We’re seeing it across really all markets are performing well, really all verticals is kind of a broad, broad win for us in the quarter as it continues to be, you know, as we’ve talked before, our growth really comes from 50% of our growth comes from new customer acquisition and that 50% largely comes from market share gains. And that story continues to be the same.

You know, few trends. Energy continues to be strong and the sort of M and A family office transactional work continues to be strong across the footprint with companies being acquired by private equity firms or family offices or, or looking for growth capital or transition ownership capital. But otherwise I’d say pretty broad. Jim?

James D. Rine

Yeah, I would agree. We had some real bright spots through the HDLF acquisition. Our franchise lending group has been additive to what we’re doing. We’ve also seen nice growth from the team out in California as it relates to our ag business, which has been a real bright spot. But again the CNI has been across the board the real drivers, as Mariner had mentioned. And it’s early still with Heartland. Good. All good signs, but still early. You know, we converted on Columbus Day, so we think that the benefit from Heartland is still significant and forward looking. You know, we gotta, we’ll see that benefit in the coming years, just accelerate as time goes on.

Jon Armstrong

Okay, good. Thank you. Tom, a quick one for you. Certainly not worried about credit, but can you touch on the NPL increase and just any likely updated timeline for working through some of the acquired credits? Thanks. Yeah, the increase was specific to one credit that is fully secured. We don’t anticipate any loss from that one. You know, as it relates to the the overall portfolio of the NPLS and the watch list, that’s a process and it takes time. We’re having a lot of success. I would take you back to our historic charge off numbers and we expect the historical norms to remain the same as we go forward.

So with what we know today, we still feel positive and good about the portfolio and we’re working through them. But you know, again, our report card really are net charge offs and we, we believe with what we know today.

Thomas Terry

We’Re still going to trend toward that historical norm.

Jon Armstrong

Okay, thank you very much.

Mariner Kemper

Thank you.

operator

Thank you, John. Our next question is from Jarrett Sho from Barclays. Your line is now open. Please go ahead.

Jared Shaw

Thanks. Good morning.

Mariner Kemper

Morning.

Jared Shaw

Maybe just looking at deposits, some really good growth in DDAs there, both average and end of period. And I know that, you know, there’s moving parts that can impact that, you know, at any given day. But you know, as we, as we start off the year here, how should we think about maybe, you know, average DDA growth quarter over quarter? Is that a, is there an opportunity for that to grow?

Mariner Kemper

Yeah, I would say it probably picks up a little. If you just historically look at what happens between fourth quarter and first quarter, there’s a slight pick up and then, you know, and then public funds. This is not interest bearing or non interest bearing only. It’s tight, slight pickup. And as I said in my prepared comments, we did have some new client. Acquisition, particularly in our corporate trust group. We’re excited about the prospects from our newly acquired teams from, from on the CLO side and other corporate trust. And then looking at the public fund. Side, we had about a billion dollars of inflows coming in in December, continues to build in January, and then in the second half of February you’ll see about a billion dollars go away on the rest of the deposit story due to tax payments.

Jared Shaw

Okay. Yeah, yeah. And then on the house are early trends. On the HSA side, you know, with the benefits from the budget bill, have you been able to look a little more at the potential market impact there and is there any appetite to, you know, maybe do a deal to add in that space specifically?

Ram Shankar

I’ll take that high level and if I miss something, Jim can, Jim can jump in, but I think that’s pretty much business as usual for us. Nice steady growth through the enrollment season and continuing to sell into our customer base. I think the benefit of the heartland footprint and customer base will be additive to our ability to sell direct there. But I wouldn’t say anything that elevated one way or the Other it’s a nice steady addition to the book.

Jared Shaw

Great, thanks.

Mariner Kemper

Thank Jared.

operator

Thank you, Jarrod. Our next question is from Chris McGrathy from KBW. Your line is now open. Please go ahead.

Christopher McGratty

Great morning. I’m just going to. Hey, good morning everybody. On the expenses here you on the first quarter and then the normalization thereafter, I guess are all the cost saves realized and then I’m interested in kind of where incremental dollars are being put back into the business. You know, you’re generating operating leverage but where are you investing to grow the company? Thanks.

Mariner Kemper

Yeah, definitely 100% of the coffee that we identified at the time of the announcement of the transaction have been realized as of today. So post conversion after a little while there were the, you know, terms, there were contract terminations that are happening right now. You saw that part of our one time cost in the fourth quarter as well. So as we sit today, all those have been acted upon in part of our run rate going forward. And then the the other side is just normal inflation. As I said in the prepared comments about medical costs obviously in the first quarter because of the timing of our bonus payments and resets of FICA 401k match and payroll taxes that were elevated spike us being a larger company and all that.

But that should also recede in the second quarter by about 10 million.

Ram Shankar

And I would just add that I think the thing to focus on and we’ve demonstrated it and will continue to is that we’re disciplined and so the operating leverage is where we’re focused as it relates to expenses going forward. You shouldn’t expect to see anything other than coming from, you know, whether we’re successful with sales activities as in the past, our expenses can be elevated because of the activities from the sales side of the business. Otherwise really we ought to be able to get investments that we make in the business out of business as usual levels of commitment.

Christopher McGratty

Okay, great. As my follow up the trust in it, the trust and securities processing line has been really big source of growth. I mean I admittedly I keep undershooting the growth rate but can you help us on. It’s a big line item. There’s a lot of stuff in there. Can you help on like what would a reasonable growth rate for that business?

Ram Shankar

Well, you know, I think looking backwards we don’t give guidance. You know, institutional banking year over year had a 12.8% growth rate. And I would just say that the momentum and tailwinds remain strong. And as far as the pieces and parts, our fund services business and largely coming from the alternative side, which would be the private equity and hedge funds, et cetera, kind of the alternative space leads the way there as it does in the marketplace really. And then our corporate trust business. So those are the two. It’s coming from all of the businesses that we’re in, but those are the two, you know, largest drivers with the biggest tailwinds.

Christopher McGratty

Great, thank you.

Mariner Kemper

Thank you, Chris.

operator

Thank you, Chris. Our next question is from Ben Gurlinger from Citi. Your line is now open. Please go ahead.

Ben Gerlinger

Hi, good morning. I appreciate the color on the gap versus core margin, but kind of, and I get the, the commentary for 1, 2 and I know you don’t give a full year. So it’s just kind of thinking, just kind of philosophically, if the curve stays the same and there’s no more cuts, is the growth you, you’re adding dilutive or accretive to the core margin because your growth is great. And just trying to think like new money coming on either both sides of the balance sheet together. Would you expect to drift higher or lower on the core margin?

Mariner Kemper

Generally, I would say, you know, the. Margin would be stable, all else being equal. Right. Without rate movements, without makeshift in DDA or earning assets. Depends what happens on the steepness of the curve. Obviously we’re in a pretty good environment where short term rates which drive our funding are coming down. Maybe they won’t come until June. That’s kind of our internal forecast. And then the long end where the reinvestment yields, they’ve held up pretty well. Right. If you look at the last couple of months, they’ve averaged between four and a quarter and 440 on bond investments versus the roll off of 360.

So those are all tailwinds from the margin that can offset any repricing risk that might happen on the loan book. Or if the shape of the yield curve stays the same with it, no additional leverage on deposit pricing because the Fed is not cutting rates. I think our margin will be generally consistent with where we are right now.

James D. Rine

I might add environmentally, SOFR has been kind of a tailwind the way it’s been priced in recent periods. So that that has been a tailwind. So if that continues, that would. Yeah, that’s a great point. Yeah. If you just look at since the Fed started tightening this cycle, since September, Fed target has come down 75 basis points and one month sulfur which tends to lead, that has come down only 68 basis points. So between that and the steepness of the curve, we’ve seen the benefits that we’re seeing in our margin in the fourth quarter and outlook forward as well.

Ben Gerlinger

Gotcha. That’s really helpful. Color. And then the second question. I know you guys kind of shied off on on whole bank M and A given the market disruption pretty much throughout your footprint, considering it’s a pretty large footprint, is there opportunities for increased hire throughout 26 via disruption or even team lift outs? I’m just kind of curious on what you guys are approaching as a third party to M and A. Is there anything, anything that’s on the table that you considered a low hanging fruit?

Mariner Kemper

So you touched off on a few things there. So I guess I would pure M and A. I’d revert you back to my comments in the. In the script which are just that we’re focused on organic growth and you know the phone line is open and we maintain relationships otherwise on the M and A side looking for possibly some tuck ins along the way but certainly focused on organic growth. Then you touched on other ways to add things that emulate M and A. I guess so lift outs and teams and things like that. So again a similar kind of comment.

We love to find good teams, you know, whether they’re corporate trust teams or a couple lenders that are just disenfranchised somewhere in a market where we think that can be additive. So we take those calls, we look for those opportunities always. But that’s how I’d say, you know, M and A is secondary to organic growth and then lift outs, we’re always looking for those. This is a people business and if we can find high quality talented people, we’ll talk to them all day long.

Ben Gerlinger

Gotcha. Helpful.

Mariner Kemper

Thank you Josh. Thanks Ben.

operator

Thank you Ben. Our next question is from Brian Wilkinski from Morgan Stanley. Your line is now open. Please go ahead.

Brian Wilczynski

Hi, good morning. I wanted to go back to the opportunity with Heartland. I was wondering if you could talk about some of the potential revenue synergies on the fee income side in terms of offering capabilities that UMB has that Heartland did not. Is there anything that you’re seeing already today and how should we think about that progressing over time?

Mariner Kemper

Great question. We touched on this. As quarters have rolled on the main areas would be mortgage. On the fee side they didn’t really have a mortgage product. We have a really fantastic custom mortgage product. You know the. And so we with the private banking across the footprint we really think we can excel there in a big way. Credit card, they didn’t offer a credit card so we’ve already launched that again very early. But the signs are good, the activity is good. And then our corporate trust business is a very local business. We talked about this before. It’s kind of lawyers to lawyers, local.

So having more, having more signs and more offices across our footprint will help the ability to feel and act local in a lot of these markets and expand into, in particular California, a big market opportunity for us and some of the other markets that we didn’t have a footprint in, whether it would be New Mexico or Wisconsin or Minnesota. So those are really exciting. Treasury management, you know, they had a kind of a basic treasury management platform. So they’ll benefit, we’ll be able to benefit from larger corporate opportunities in their footprint. And then lastly, some obvious stuff that’s sort of an uptick, which would be our legal lending limit, some deals where they were participants.

Now we can leave. And we’re seeing some really nice. Jim mentioned earlier, the franchise lending. That’s a perfect example where they would take a 25% piece of a really nice, high quality franchise opportunity. And we’ve already seen four or five deals just in, you know, just the last handful of months where we go from being a participant to a lead or taking the whole thing. So we see those kinds of opportunities already pretty, pretty frequently. So very, very excited about all that. And so those would be the, those would be the main, the other one which we.

This is the thing I say all the time about umb because of the complexity of our offering, what we’ve been able to bring the heartland officers along to understand is that when you’re at a cocktail party, every single person at that cocktail party is a target where isn’t the case at most other banks. So whether you’re a private equity, you work at a private equity firm or you work in the government or you work at a law firm that does corporate trust and bond counsel stuff, we can do business with literally anybody at a cocktail party.

So that’s another benefit for them. As you’re out networking, you’re a community event, or you’re going somewhere after church, or you’re a holiday cocktail party, everybody’s a target.

Brian Wilczynski

That’s really helpful. Color. Thank you. And then as my follow up on loan growth, another quarter of record production. If I Look at slide 31, the line utilization over the past few quarters has been relatively flat. And I know that chart goes back about a year or so, but we’re just wondering if you could provide some additional context where you are today versus historical levels, what you’re seeing and how you expect that to play out over the course of 26.

Mariner Kemper

You know, that’s a great question. High level, it remains relatively flat and can bump a little bit one way or the other from quarter to quarter, you would think, and we would think, you know, that it’d be slightly more elevated just because of, you know, the environment that we’ve had for many years now with the supply chain issues, et cetera. But I think the answer to that for UMV largely is the high quality nature of our, of our borrower. So we have a, we have a, you know, a borrowing base on the CNI side that has a strong net worth and a really strong earnings power which just sort of tamps down the overall line utilization and it stays pretty dang steady, surprisingly, regardless of what the environment is.

Brian Wilczynski

Got it. Really appreciate the color and thank you for taking my questions.

Mariner Kemper

Thanks, Brian.

operator

Thank you, Brian. Our next question is from Brian Forin from Triste. Your line is now open. Please go ahead.

Brian Foran

Oh, hi. I have one small one. Hey, good morning. Just one small one and then maybe one bigger picture one. So the small one I’m looking at slide 36. Definitely understand, you know, this business has great momentum. There was a small tick down in AUA at least in like the top netted out totals. Was there anything to note there? You know, why the quarter over quarter decline in AUA for the overall business?

Mariner Kemper

Yeah. Brian, this is Mariner. I saw that in your early note and we all sat around trying to figure out where you, where you came up with that. Because it is in the category of transfer agency. We did have a quarter linked quarter, slight decline. But I would say that’s just a nuance, it pops around a little bit. I would focus you on the top line instead of the transfer agency line because it can move around from quarter to quarter, number of clients, activity, inflows, outflows. So really the better way to think about that is the total assets under administration, which is up on a link quarter base.

So nothing in there. On the trend side, the business has tremendous momentum.

Brian Foran

Perfect. And then on the M and A commentary, I wonder if like maybe you could look back, you know, with Heartland almost a year under your belt. Key lessons learned that maybe inform any future transactions. Are there, you know, one or two things you really felt went great and got right that you’d want to replicate in any future deals. And then conversely anything that you would have done different or would do different as you think about, you know, targeting, sourcing, integrating any. It’s just, you know, big picture. Having done this, you know, one of the bigger transactions I Guess the biggest, the first one in a while.

What was the top one or two Lessons learned.

Ram Shankar

Yeah, I gotta say, I feel incredibly lucky to be surrounded by probably the best team in the business. And we picked up some fantastic people who know how to do these transactions in Heartland as well because they had done a bunch of deals themselves. So we have just. And I just, I don’t even know. I’m almost speechless about it. The transaction went so well, incredibly well, flawlessly. You know, you have your little tiny lessons to learn along the way, but it was a pretty much flawless transaction, mainly because we have a super committed, dedicated, hard working, very smart team. We were super committed to a concept called do no Harm, you know, which we communicated a ton. We had ambassadors from UMB that were tied to locations and individuals across the company who were there for the conversion to be there to answer questions and help them through, you know, through the customer interactions and experience to keep that where it needed to be.

So just all in all, I mean, I pinch myself right now as I’m talking to you, it was a fantastic, fantastic deal. And as far as lessons learned, I mean, gosh, you know, we modeled some deposit runoff as I think everybody does when they do these deals. We grew our deposits and then overall we exceeded our expectations on growth so far on a combined basis. And we got all of our synergies, got all of our dollars out of the deal and we’ve been very, received very well in the communities that we’re in. And you know, like I said, I just pinch myself.

I wish I could give you something other than it was fantastic because it feels, you know, unrealistic to tell you there weren’t any big lessons. But I don’t know.

James D. Rine

You guys want to add this is Jim Ryan. The only thing I would add that was a real positive coming out of it was there’s a lot of built up muscle memory. The team has a process that has been proven and, you know, Mariner nailed it. We, it couldn’t have gone any better, quite frankly. But the number one rule in any of these is going to be culture. And I think that would be something that, not that we wouldn’t have before, but just make sure that we know what we’re getting into as it relates to culture and that that needs to be the right fit.

Yeah, I think one of the things we did in this particular case, which is what we would do if we ever did another deal, is that it would be small enough that we would maintain control of everything. Culture Management Board, that was very helpful. And would be always the case for us. And yeah, I mean, the only thing I would say, you know, being candid and lessons learned would be and smart really is that, you know, between close and conversion, expectations should be more muted for growth out of the acquired company. And we witnessed that.

So UMB outperformed during that period. And so we, on a combined basis really had great results. But, you know, you should expect somewhat more muted growth out of the acquired company, I think, than now. I’m just pontificating philosophically with you, but it was a fantastic transaction. I wouldn’t wish for anything different and I just would echo that. People, people, people, people. We just have a fantastic team, was super committed, working around the clock, and I feel l.

Brian Foran

That’S a great answer. Thank you so much.

Kay Gregory

Thanks, Brian.

operator

Thank you, Brian. Our next question is from Janet Lee from TD Cohen. Your line is now open. Please go ahead. Good morning.

Janet Lee

Morning, Janet. If I were to. If I were to. Just want to make sure that I understand your commentary around NIM correctly. So basically through 2026, you’re pretty neutral to changes in interest rates. So as long as you could maintain that beta on deposits, you could be able to hold that. NIM fairly core. NIM exne that four basis points, one off impact in the quarter, but relatively slattish. And I guess another question would be that that 76.76% deposit beta in the quarter was pretty outsized. Do you think you’ll be able to maintain that or what? Was that a different outsized quarter?

Mariner Kemper

I’ll take that, Janet. Yeah. So we are pretty neutral if you. Look at our interest rate simulation in that we disclose in our pages. So if you look at it based on fourth quarter results, $33 billion of our earning assets are variable. So that’s about 51% of our total earning asset base. And if you look at our funding deposit makes, 50% of our deposits are indexed, right. So we run a pretty matched book both on the asset side and the liability side. So any changes in NIM from quarter. To quarter will largely be predicated on what happens with changes in DDA balances, interest rate, mix of deposits, or when the Fed rate cut happens. Right. So if your situation plays out where we don’t have any more rate cuts, as I said in my prepared comments, there’s potential upside if the June rate can happen. So our internal view based on market probabilities is still two more rate cuts, one probably at the end of the second quarter and one probably in the fourth quarter. There’s additional upside for margin from that because our index deposits will reprice down.

But then there’s always a catch up in loan yields the following period. Right. Based on how they reset. So. So at this point, to answer your.

Janet Lee

First question, yeah generally we would expect RNIM to be plus R minus where our core NIM was in the fourth quarter. Adjusted for that four basis points. I forgot your second question already.

Mariner Kemper

Can you repeat that beta of 76% is that sustainable or outsized. For the rate cut if the rate cuts happen? Yes, our expectation the team did a great job outperforming on the soft index deposits like we said on the prepared comments. So if our outlook is for no. More rate cuts, the leverage on the deposit cost side is fairly limited until that happens. Right. Index deposits are largely formulaic in the fourth quarter. Reacting to the September, October and December cuts we passed along a good 76% of it to our existing clients. So it really comes down to when the rate cut happens. We are looking at the back book but as you look at our slides, only 30% of our deposits are our really non index deposits outside of DDAs. So there’s fairly limited leverage on that side to keep doing betas until we have another Fed cut.

Janet Lee

It. Thank you. And just one follow up. Philosophically should we think of in terms of your loan and deposit growth, should we think of as like deposit growth, you’re going to fund your loan growth with deposit growth in the same ballpark by dollar amount or would you. So basically would you. Yeah. What would be the ideal sort of loan to deposit ratio? Would you have that going up a little or do you want to maintain at this level? How should we think about that?

James D. Rine

So I would say think about it differently. The way we think about loan and deposit ratio is that the value of a bank’s of a franchise in the banking industry is in its deposits. And if we are always focused on bringing in raw material that is cost effective core and granular as possible and not limiting that in any way shape or form, you let the loans end up where they end up. So at the end of the day it’s really. We don’t guide that. We, we expect to have exceptional loan growth and exceptional deposit growth.

We are fully comfortable at a higher level of loan to deposit ratio. We’ve been as high as 75% before. Very comfortable there, but we’re not aiming there. We don’t give guidance, we’re comfortable at higher levels but really the focus is on building the franchise through high quality loans and high quality granular core deposits. And as much as we can in both. And we let the chips fall where they may. Certainly we don’t want to be overly lint up. And so, you know, without giving guidance that we certainly wouldn’t want to be in the 90s, that would be uncomfortable for us.

Janet Lee

And the flexibility, just to add to that, the flexibility of our balance sheet on page 25, right. We have $2.2 billion of cash flows coming from our bond portfolio. We, you know, we’re intentional about that. So those are all in the past. We’ve used that to fund our loan growth. We see excess opportunities coming out of Heartland.

Ram Shankar

So there’s always an opportunity. But as Mariner said, you know, yeah. Deposits where the focus is and there’s no the thing about our franchise and the success of our deposit generating capabilities, we keep what, 20 billion off balance sheet? Yeah, we have 20 billion off balance sheet for clients that we put into money markets and earned 12v1 fees on. And we can bring that on whenever we want based on what kind of loan growth we have if we pay market rates on it. So, you know, deposit generation is something we do very, very well. And so we as a, as an asset generating machine, we are also a deposit generating machine.

So this is something we don’t worry about.

Janet Lee

Thank you for taking my questions.

Mariner Kemper

Thanks, Janet.

operator

Thank you, Janet. Our next question is from David Long, from Raymond James. Your line is now open. Please go ahead.

David Long

Good morning everyone. On the growth expectations from the HTLF franchise. I understand, you know, you’re fully one organization now, but when you just look at the HTLF growth that you’re expecting from that organization, does it come mostly from the current HDF team or the legacy HDF team, those bankers growing into the UMB model? Or do you guys have to bring in more veteran bankers from larger institutions in those locations?

Mariner Kemper

The answer is both. So we think there is a lot of opportunity with the middle market team and small business team that they built. And then I would say in places like California, Minnesota, Milwaukee, you know, some places where they are more, they are smaller and have not been there as long, etc. We have the opportunity over the coming years to add talent. And so it’s a combination.

David Long

Got it. Thanks, Mariner. And then follow up for Rahm. As you look at the cost of deposits, I think you said all in was about two and a quarter, not interest bearing. And interest bearing for the quarter. Do you know where that ended the year at December 31st?

Mariner Kemper

I don’t have that, Dave. But you know, using any particular Month or period end doesn’t work for us because of the nature of inflows. When the timing of the inflows happen, right, we could have 3, 4 billion dollars of deposit come in and change the average for any month or period. And so it’s hard to judge what that is. But, you know, I would say for the December 10th rate cut, based on that 76% beta, that’s still some juice left to squeeze on the deposit cost side because, you know, it’s not fully baked in for the, for the fourth quarter.

So that will still happen, but I don’t have specifics and it’s not relevant really, just to give you one month for us.

David Long

No, that’s, that’s great. Appreciate the color there, Ron. Thanks, guys. Appreciate it. Thank you.

operator

Thank you, David. Our next question is from Nathan Race from Piper Sandler. Your line is now open. Please go ahead.

Nathan Race

Hey everyone, good morning. Thanks for taking the question. Mariner. The rate of or the level of gross loan production stepped up, you know, in each of the last few quarters and even going further back as well. You know, just curious, when you look at the existing capacity across the team and the Runway for growth that you’ve described in the past, do you think that can continue to step up in this year or would we need to see, you know, some hiring to see maybe a step change function in that gross loan production level?

Mariner Kemper

No, I think we, you know, we try not to give too much guidance there other than, you know, a quarter forward look, which we do. And so I would say the first quarter looks to be as strong as, or near the fourth quarter for production. And then I would just kind of, you know, you’ve got your, we’re sitting around this table with guys I’ve been doing this with for 30 years together. And you know, our, if you, if you look at page 42 in our deck, it’s a 13%, 20 year CAGR for loan growth. And that’s from grabbing market share and having consistency in continuity and tenure.

We don’t turn our team over and we have huge, huge Runway in most of our markets where we still have low penetration. So there’s a significant penetration opportunity as long as we keep our people and build our pipelines. So I have no expectation that we can’t keep doing what we’ve been doing and do that on an even bigger base. So our base has gone from, you know, on an average basis from 24 billion in loans to 36 billion in loans. And I don’t have any expectation other than we keep Doing what we’re doing on a bigger base.

Nathan Race

Okay, great, that’s helpful. And then maybe for rom, appreciate the expense guide for the first quarter. And then I think you mentioned you’re expecting about $10 million in terms of the step down from the seasonal increase in the second quarter. Are there any other kind of offsets in terms of where you’re investing or around other areas of expense growth that would mitigate that relief in the second quarter?

Ram Shankar

Yeah, the 10 million, just to be. Clear, is only on those seasonal expenses like FICA payroll and 401k match, right? No, no dramatic change in our expense trajectory. Now we would go back to operating leverage. So to the extent that revenue growth exceeds our expectations or exceeds quarter or quarter, you might see additional step up in expenses on commissions paid, on widgets sold, but nothing otherwise in terms of, you know, dramatic investments. We’re a disciplined team and we’ll stay focused on making sure those, the intersection is there between what we spend and what the leverage on it is.

Nathan Race

Understood, that’s helpful. If I could just sneak one more in. You know, appreciate that the focus is on organic and you’re, you know, less inclined to do any depository type acquisitions. But just curious, you know, what the opportunity set may be out there, what the appetite is to maybe acquire, you know, a non bank entity that could augment, you know, some of your less capital intensive fee businesses, maybe get that fee income proportion, you know, up close to the historical levels, around, you know, 35% plus the total revenue.

Ram Shankar

Well, you kind of asked two questions there. I think when it comes, when it comes to, I think I point back to we sold, if you remember, we sold Scout and when we sold Scout, that reduced our fees by over 100 million in one year. We replaced all of that through organic growth in 12 months. So I think that the way to think about fee income growth for us is not percent of total, but absolute loan growth of the group itself. So if we can maintain a growth rate of our institutional businesses at I mentioned earlier, 12.8% there and overall fee income of 7 plus percent, which we’ve demonstrated, that is more important than its percent of total because with interest rates changing from one year to the next, you know, one that that mix can change just because of what the interest rates are.

So we’re more focused on making sure the momentum and the strength is there for the businesses themselves as opposed to what the percentage of total is. I do think and expect just because of that momentum that it gains back some of that share of total revenue over Time, but we have no design to aim for where that ends up. So on the other one, just a pure MA question, I just point you back to my comments. You know, we’re focused on it, you know, the organic growth, our phones are open, the conversations and stuff, you know, with people continue.

But you know, we’re looking for tuck in smaller additive deals. And most importantly, if we find those, you got to understand, we don’t want to give up any kind of controls if we do anything at all. So.

James D. Rine

Nate, this is Jim Ryan. The only other thing I would add to that is what you’ve seen from us on the institutional side has mainly been through talent acquiring great people in those markets to accelerate that fee income. And I think that’s what you should probably expect in the immediate future. Yeah, lift outs in corporate trusts and other places like that. Yeah, we keep an eye out for little. We do them all the time. You guys don’t even see them, really. We do little announcements, small, tiny little acquisitions, lift outs for our institutional teams, but the pure dollar level of those are immaterial. So they don’t really show up on the radar scene, but they’re always additive.

Nathan Race

Right, Got it. Okay, great. I appreciate all the colleagues on a great quarter and your.

Kay Gregory

Thanks, Nate.

operator

Thank you, Nathan. Our next question is from Timur Braziler from Wells Fargo. Your line is now open. Please go ahead.

Kay Gregory

Morning, Timur. That’s the easiest question we’ve answered so far right there. Timur, are you there? You might be on mute.

operator

Your line is now open. Timur, please ask your question and ensure your device is unmuted locally.

Timur Braziler

Hi, can you hear me now?

Mariner Kemper

Yep. Yeah, gotcha.

Timur Braziler

Hey there. Thanks. Sorry about that. Just one more for me. On loan growth, two parter, I guess. First on the Heartland piece, is that now firing on all cylinders or is there still ability to. To add capacity there in terms of overall production and then similarly on loan payoffs, that’s been stepping up over the last couple of quarters. I’m just wondering if we’re reaching a plateau there or if there’s, you think another leg higher as rates move lower.

Mariner Kemper

On the. On the Heartland loan growth capacity and capability. I touched on that a little earlier. We. It is, it’s early days. The traction is good. We think we can get a lot out of the team that exists. And then in some of the markets where they’re newer and smaller, we think over time we can add some talent and accelerate that growth. But there’s a lot, there’s a lot of energy we’re seeing A lot of activity in loan committee. Feel very good about what we’re going to see from them and seeing early from them, from, from the team.

Timur Braziler

And so then the second question about payoffs, there was a slight elevation, but if you look at the combined number of all of those items was pay downs or payoffs from third quarter to fourth quarter, it remains kind of in line. And so as rates come down. If.

Mariner Kemper

They come down, there is some expectation that that could accelerate. Some, you know, we, we saw on the combined category of all those numbers together in the fourth quarter went from 3.3 to 3.9. So there was a slight tick up. But I would say that’s, that doesn’t, that movement doesn’t send a lot of directional or trending to us. But, but certainly there’s a possibility that that could accelerate. There’s some pent up demand for that for things to go into the secondary market from the construction book, but we haven’t seen it yet. And as we look at what we know right now, as we look into the first quarter for, you know, talking to the teams and doing the work we do to project forward, it looks still in line with what we saw in the fourth quarter.

Timur Braziler

Great, thank you.

operator

Thank you, Timur. We currently have no third door questions, so I will hand back to management for closing remarks.

Mariner Kemper

Yeah, thanks. I’ve got just a couple things I want to end on because we’re pretty excited about where we are coming off the heels of our acquisition and how well it performed. I just want to remind you all, I’m sitting around the table here with Tom and Jim, myself, a few others, but the three of us have been working together for, you know, 30 years together. Tom 40 years. I’m at 31, Jim’s at 32. We’ve been leading this, particularly the credit efforts, but the company in my case, for 22 years at the helm, I’ve been doing These calls for 22 years approaching, you know, 100 quarters of doing.

This with you all. And I know the one thing that I’ve learned from the investor community is you hate surprises and you hate being alarmed. And so what I’d like to do is take you momentarily to my favorite section in our deck, which is the long term performance trends 41 through 47 in our deck. And just remind you of a couple things of what’s happened over the last 20 years for UMB with this team to put you at ease around being surprised and alarmed. We do the same thing year in and year out. So if you look at net Interest income over the last 20 years.

The CAGR is 12.1% revenue 20 years, 9.4% CAGR net loan growth 20 years CAGR 13% deposit growth 20 years, 12.6% CAGR less than 27 base points over the last 20 years. And particularly during the crisis, you can see from 08 to 12, our line forms the bottom of the chart where the rest of the industry looks like a shark fin. And you fast forward to where we are with $38 billion in loans in the fourth quarter and we had 13 basis points of charge off compared to 20 years ago with $2.7 billion of loans. We had 22 basis points to charge offs with 27 $2.7 billion loans against our 38 billion today and 13 basis.

Points of charge off in the fourth quarter. And then you could go to the dividend, for those of you who care about the dividends, you know, 273%, 274% growth in our dividend over the last 20 years. And in this last year, a 5.5% increase year over year. And then you know, risk weighted risk, risk adjusted returns, you can see that on, on page 45. So you know, not only do we do it, but I think as a company we live at the, we breathe rarefied air at the intersection of industry leading growth and industry leading quality. And the really the point of all that as it translates into the last page there and you see our 20 year compound annual growth rates.

So our diluted earnings per share are 7.9% over the last 20 years against the KRX of 4.1% pure median at 3.2 and the industry at 3.5. And then our tangible book value per share, 6.8% over the last 20 against 4.7 for the Carex, 3.7 for the peer and 4.7 for the industry. So at the end of the day, I guess the thing that I get from all of you the most is you hate being surprised, you hate being alarmed and you like quality. So if you just spend a few minutes on those pages and reflect on that and you think about the future, you’ve got the same team telling you when we say something we’re going to do, we do what we say and we say what we do and we’ve been doing it for a long time.

So you can count on us to keep delivering. Thanks for, thanks for the time. We’re really excited about the future, we’re excited about what we’ve done and I love working with this team and we love talking to you guys. So have a great day.

Kay Gregory

Thanks Mariner. As always. If you have follow ups, you can reach us at 816-860-7106. Thanks for joining us and have a great day.

operator

Thank you all. This concludes today’s UMB Financials Fourth Quarter 2025 Financial Results Conference call. Thank you for joining. You may now disconnect your lines. Sa.