UMB Financial Corporation (UMBF) Q4 2025 Earnings Report, Transcript and Summary

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. [Operator Instructions] I will now hand over to your host, Kay Gregory. Please go ahead.

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 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 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 includes 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.

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 million compared to $104 million in the third quarter, return on average common equity of 11.27% up from 10.14% and an efficiency ratio that improved to 55.5% from 58.1% in the third quarter and 51.8% 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 nonrecurring 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 noninterest income was impacted by several market-related variances. New business activities 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 securities 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 monetization 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 the quarter. We are seeing positive activity across our footprint, and I'm excited about our additional opportunities in our acquired markets post conversion. C&I 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 was 3.9%. Looking ahead into the first quarter, overall loan activity and pipeline remains 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. Total nonperforming 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 losses 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 charge-off history. We are 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 our 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 31 common equity Tier 1 ratio of 10.6%, a 26 basis point increase from September and ahead of the time line 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 M&A stance, and I'd like to proactively address that topic. As I said many times, we don't need to do M&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&A will continue to be measured. While many believe thresholds may move under the current administration, we are operating as those rules still remain in place. We believe that we've built something very special here at UMB, 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 capitalized 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 details.

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 payoffs 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 onetime costs by expense categories. Noninterest 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 Mariner 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 $196.2 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 processing 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 2 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 onetime costs, operating noninterest 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 outperformance, 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 million to $390 million range. This includes an estimated additional $15 million increase in FICA, payroll taxes and 401(k) 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 and 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 nonaccrual loans that became current during the quarter and a bond repayment, favorable basis risk between Fed target rates, which impact our funding costs and 1 month SOFR, which impacted 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 benefits from free funds. Total average deposits in the fourth quarter increased 5.6% on a linked quarter annualized basis. While we expected DDAs 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 balancing mix, 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 disclosed 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 4 basis points from interest reversals on nonaccrual and the bond prepayment that I mentioned, we expect first quarter margins 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 reinvestments 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&A session.

[Operator Instructions] Our first question is from Jon Arfstrom from RBC Capital Markets.

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.

Yes, Jon. Thanks. It's Mariner. I'd say, fortunately, the story remains the same as it has been for -- 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 win for us in the quarter as it continues to be. 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. A few trends. Energy continues to be strong and the sort of M&A, family office, transactional work continues to be strong across the footprint with the companies being acquired by private equity firms or family offices or looking for growth capital or transition ownership capital and -- but otherwise, I'd say pretty broad. Jim, anything?

Yes, I would agree. We've had some real bright spots through the HTLF 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 C&I 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. We converted on Columbus Day. So we think that the benefit from Heartland is still significant and forward looking. We've got a -- we'll see that benefit in the coming years just accelerate as time goes on.

Okay. Good. Tom, a quick one for you, certainly not worried about credit, but can you touch on the NPL increase and just any likely updated time line for working through some of the acquired credits?

Yes. The increase was specific to one credit that is fully secured. We don't anticipate any loss from that one. As it relates to 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 again, our report card really net charge-offs, and we believe with what we know today, we're still going to trend towards that historical norm.

Our next question is from Jared Shaw from Barclays.

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

Yes, I would say it probably picks up a little. If you just historically look at what happens between fourth quarter and first quarter that there's a slight pickup. And then public funds, this is not interest-bearing -- or noninterest-bearing only, it's 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 -- on the CLO side and other corporate trust teams. And then looking at the public fund side, we had about $1 billion of inflows coming in, in December, continues to build in January. And then in the second half of February, you'll see about $1 billion go away on the rest of the deposit story.

Due to tax payments.

Yes. Yes.

And then on the -- how are early trends on the HSA side 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 maybe do a deal to add in that space specifically?

I'll take that high level, and if I miss something, 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 elevated one way or the other. It's a nice steady addition to the book.

Our next question is from Chris McGratty from KBW.

Just going to -- on the expenses, I hear 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're generating operating leverage, but where are you investing to grow the company?

Yes, definitely 100% of the cost saves 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 terms, there were contract terminations that are happening right now. You saw a part of our onetime costs 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 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, 401(k) match and payroll taxes, the elevated spike us being a larger company and all that, but that should also recede in the second quarter by about $10 million.

And I would just add that I think the thing to focus on, and we've demonstrated it and we'll 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 whether we're successful with sales activities as has been 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.

Okay. Great. And as my follow-up, the trust and securities processing line has been a really big source of growth. I mean 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?

Well, I think looking backwards, we don't give guidance. 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 2 -- it's coming from all of the businesses that we're in, but those are the 2 largest drivers with the biggest tailwinds.

Our next question is from Ben Gerlinger from Citi.

I appreciate the color on the GAAP versus core margin. But kind of -- and I guess the commentary for 1Q. I know you don't give a full year. So I was just kind of thinking just kind of philosophically, if the curve stays the same, and there is no more cuts, is the growth you're adding dilutive or accretive to the core margin? Because your growth is great. I'm 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?

Generally, I would say the margin will be stable, all else being equal, right, without rate movements, without mix shift in DDA, our earning assets. It depends on 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 yield, they've held up pretty well, right? If you look at the last couple of months, they've averaged between 4.25% and 4.40% on bond versus -- bond investments versus the roll-off of 3.60%. So those are all tailwinds from the margin that can offset any repricing risk that might happen on the loan book or the shape of the yield curve stays the same with no additional leverage on deposit pricing because the Fed is not cutting rate, I think our margin will be generally consistent with where we are right now.

I might add, environmentally, SOFR has been kind of a tailwind the way it's been priced in recent periods. So that has been a tailwind. So if that continues, it would...

Yes, that's a great point. Yes, 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 of SOFR, 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.

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

So you touched off on a few things there. So I guess I would -- pure M&A, I'd revert you back to my comments in the script, which are just that we're focused on organic growth. And the phone line is open, and we maintain relationships otherwise on the M&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&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, whether they're corporate trust teams or a couple of 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 M&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 talent, people will talk to them all that long.

Our next question is from Brian Wilczynski from Morgan Stanley.

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?

Great question. I'll touch on this as the 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. 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, it's 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 signs and more offices across our footprint will help the ability to feel an 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 be New Mexico or Wisconsin or Minnesota. So those are really exciting. Treasury management, 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 4 or 5 deals just in 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 frequently. So very, very excited about all of that. And so those would be the main. The other one, which we -- this is the thing I'd 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 of that cocktail party is a target where it isn't the case of 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 Council stuff, we can do business with literally anybody at a cocktail party. So that's another benefit for them as you're out networking your community event or you're going somewhere after church or you're a holiday cocktail party, everybody is a target.

That's really helpful color. And then as my follow-up on the 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. I know that chart goes back about a year or so, but I was 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?

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 that it'd be slightly more elevated just because of 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 UMB largely is the high-quality nature of our borrower. So we have a borrowing base on the C&I 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 thing steady surprisingly, regardless of what the environment is.

Our next question is from Brian Foran from Truist.

I have one small one. Just one small one and then maybe one bigger picture one. So the small one, I'm looking at Slide 36, I definitely understand 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, why the quarter-over-quarter decline in AUA for the overall business?

Yes, Brian, this is Mariner. I saw that in your early note and we all sat around trying to figure out 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 client activity, inflows, outflows. So really the better way to think about that is the total assets under administration, which is up on a linked-quarter basis. So nothing in there on the trend side. The business has tremendous momentum.

Perfect. And then on the M&A commentary, I wonder if like maybe you could look back with Heartland almost a year under your belt, key lessons learned that maybe inform any future transactions? Are there 1 or 2 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 targeting sourcing, integrating any, just big picture, having done this one of the bigger transactions, I guess the biggest, the first one in a while, what was the top 1 or 2 lessons learned?

Yes. I got to 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 -- I know, I'm almost speechless about it. The transaction went so well, incredibly well, flawlessly. You have a little tiny lessons learned 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," 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, were there to answer questions and help them 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 deal. And as far as lessons learned, I mean, gosh, 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 like I said, I just pinch myself. I wish I could give you something other than it was fantastic because it feels unrealistic to tell you there weren't any big lessons. But I don't know you guys want to add anything?

And this is Jim Rine. 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 Mariner nailed it. We -- it couldn't have gone any better, quite frankly. But the #1 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 to make sure that we know what we're getting into as it relates to culture and that, that needs to be the right fit.

Yes. 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, and that was very helpful and would be always the case for us. And yes, I mean, the only thing I would say being candid and lessons learned would be in smart really is that 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 should expect a 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. We just have a fantastic team that's super committed working around the clock, and I feel lucky.

Our next question is from Janet Lee from TD Cowen.

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, ex [ NE ] that 4 basis points one-off impact in the quarter, relatively flattish. And I guess another question would be that, that 76% deposit beta in the quarter was pretty outsized. Do you think you'll be able to maintain that? Or what was that in a different outsized quarter?

Yes, I'll take that, Janet. Yes. So we are pretty neutral as you look at our interest rate simulation that we disclosed 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 mix, 50% our deposits are indexed, right? So we run a pretty matched 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 2 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 for the following period, right, based on how they reset. So at this point out to answer your first question, yes, generally, we would expect our NIM to be plus or minus where our core NIM was in the fourth quarter adjusted for that 4 basis points. I forgot your second question already. Can you repeat that second one?

Just the beta of 76%, is that sustainable or outsized?

For the rate -- 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 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.

Got it. 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 -- yes, 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?

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 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 lent up. And so without giving guidance that we certainly wouldn't want to be in the '90s. That will be uncomfortable for us.

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 are intentional about that. So those are all -- in the past, we've used that to fund our loan growth if we see excess opportunities coming out of Heartland. So there's always an opportunity. But as Mariner said, deposits is 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?

Yes.

We have $20 billion off balance sheet for clients that we put into money markets and earn 12b-1 fees on. 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 deposit generation is something we do very, very well. And so we -- as an asset generating machine, we are also a deposit-generating machine. So this is something we don't worry about.

Our next question is from David Long from Raymond James.

On the growth expectations from the HTLF franchise, I understand you're fully in 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 HTLF team or the legacy HTLF 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?

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

Got it. And then a follow-up for Ram. As you look at the cost of deposits, I think you said all in, was about 2.25% noninterest-bearing and interest-bearing for the quarter. Do you know where that ended the year at, at December 31?

I don't have that, Dave, but 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 billion, $4 billion of deposits come in and change the average for any month or a period end. So it's hard to judge what that is. But I would say, for the December 10 rate cut, based on that 76% beta, there's still some juice left to squeeze on the deposit cost side because it's not fully baked in 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 1 month for us.

Our next question is from Nathan Race from Piper Sandler.

Mariner, the rate of -- or the level of gross loan production stepped up in each of the last few quarters and even going further back as well. 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 some hiring to see maybe a step change function in that gross loan production level?

No, I think we try not to give too much guidance there other than 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've got your -- we're sitting around this table with the guys that have been doing this with for 30 years together. And 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 and continuity and tenure. We don't turn our team over. And we have a 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 -- 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.

Okay. Great. That's helpful. And then maybe for Ram. I 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 around other areas of expense growth that would mitigate that relief in the second quarter?

Yes, the $10 million, just to be clear, is only on those seasonal expenses like FICA payroll and 401(k) match, right? No dramatic change in our expense trajectory. We would go back to operating leverage. So to the extent that revenue growth exceeds our expectations or exceeds quarter-over-quarter, you might see additional step-up in expenses on commissions paid on widgets sold, but nothing otherwise in terms of 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.

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

Well, you kind of asked 2 questions there. I think when it comes to -- I think, I'd 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 1 year. We replaced all of that through organic growth in 12 months. So I think 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 as I mentioned earlier, 12.8% there and overall fee income of 7%-plus, which we've demonstrated, that is more important than its percent of total because with interest rates changing from 1 year to the next, one -- that mix can change just because of where 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 aim for where that ends up. So on the other one, just a pure M&A question, I'd just point you back to my comments. We're focused on it, the organic growth. Our phones are open, the conversations and stuff with people continue, but 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..

Nate, this is Jim Rine. 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.

Yes, lift-outs in Corporate Trust and other places like that. We keep an eye out for a 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 screen, but they're always additive.

Our next question is from Timur Braziler from Wells Fargo.

Hi. Can you hear me now?

Yes.

Just one more for me on loan growth, a 2-parter. I guess, first on the Heartland piece. Is that now firing on all cylinders? Or is there still ability 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?

On the Heartland loan growth capacity and capability. I've touched on that a little earlier. We -- it is -- it's early days. They -- 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 of energy. We're seeing a lot of activity in loan committee. I feel very good about what we're going to see from them and are seeing early from them from the team. 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 paydowns or payoffs from third quarter to fourth quarter it remains kind of in line. And so as rates come down, if they come down, there is some expectation that, that could accelerate some. 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 doesn't -- that movement doesn't send a lot of directional or trending to us. 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 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.

We currently have no further questions, so I will hand back to management for closing remarks.

Yes. I've got just a couple of 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 3 of us have been working together for 30 years together, Tom 40 years. I'm at 31, Jim's at 32. We've been leading this -- particularly the credit efforts of the company, in my case, for 22 years at the helm. I've been doing these calls for 22 years, approaching 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 to remind you of a couple of things of what's happened over the last 20 years for UMB with his team to put you at ease around being surprised an 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. Charge-offs less than 27 basis 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 charge-offs with 27 -- $2.7 billion of loans against our $38 million today and 13 basis points of charge-offs in the fourth quarter. And then you could go to the dividend, for those of you who care about the dividends, 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 risk-weighted, risk-adjusted returns, you can see that on Page 45. So 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 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 of 7.9% over the last 20 years against the KRX of 4.1%, peer 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 KRX, 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, and 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 can do and we've been doing it for a long time. So you can count on us to keep delivering. 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.

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.

Thank you all. This concludes today's UMB Financial's Fourth Quarter 2025 Financial Results Conference Call. Thank you for joining. You may now disconnect your lines.