UMB Financial Q4 2025 UMB Financial Corp Earnings Call | AllMind AI Earnings | AllMind AI
Q4 2025 UMB Financial Corp Earnings Call
Operator: Hello, everyone, and thank you for joining the UMB Financial Q4 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.
Operator: Hello, everyone, and thank you for joining the UMB Financial Q4 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.
Speaker #1: Hello everyone, and thank you for joining the UMB Financial Q4 2025 Financial Results Conference Call. My name is Gabrielle, and I will be coordinating your call today.
Speaker #1: 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.
Speaker #1: I will now hand over to your
Speaker #1: Ahead. Good morning, and welcome to
Kay Gregory: Good morning, and welcome to our Q4 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 acquisitions, 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.
Kay Gregory: Good morning, and welcome to our Q4 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 acquisitions, 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.
Speaker #2: our Q4 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.
Speaker #2: Jim Ryan, 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.
Speaker #2: Before we begin, let me remind you that today's presentation contains forward-looking statements, including the discussion of results, benefits, future financial and operating synergies, gains, and costs the company expects to realize from our acquisition, as well as other opportunities management foresees.
Speaker #2: 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.
Speaker #2: 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.
Kay Gregory: 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.
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.
Speaker #2: 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.
Speaker #2: Now, I'll turn the call over to Mariner Kemper.
J. 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.
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.
Speaker #3: Kay: Good morning, everyone. We will share some thank yous, brief comments about our results, then open up for questions. We reported another strong quarter to close out 2025, with a successful acquisition of Heartland Financial, the opening of our first branch location in Utah, and another year of record earnings.
Speaker #3: 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.
Speaker #3: A few Q4 metrics that I want to highlight are return on average assets of 1.20%, compared to 1.04% 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 61.8% in the period a year ago.
J. Mariner Kemper: A few fourth quarter metrics that I want to highlight are return on average assets of 1.20, compared to 1.04 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 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.
A few fourth quarter metrics that I want to highlight are return on average assets of 1.20, compared to 1.04 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 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.
Speaker #3: 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.
Speaker #3: 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.
Speaker #3: 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.
J. Mariner Kemper: For the full year, we earned $684.6 million, or $9.29 per share. Q4 included $39.7 million of acquisition expenses, compared to $35.6 million last quarter. Excluding these and some smaller non-recurring items, our Q4 net operating income was $235.2 million, or $3.08 per share. Q4 net interest income totaled $522.5 million, an increase of 10% from Q3. 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.
For the full year, we earned $684.6 million, or $9.29 per share. Q4 included $39.7 million of acquisition expenses, compared to $35.6 million last quarter. Excluding these and some smaller non-recurring items, our Q4 net operating income was $235.2 million, or $3.08 per share. Q4 net interest income totaled $522.5 million, an increase of 10% from Q3. 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.
Speaker #3: 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, which benefited net interest income.
Speaker #3: 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 continued to drive results, which contributed $4.5 million, or a 5.1% linked-quarter increase in trust and securities processing income.
J. Mariner Kemper: New business activities from our fund services and private wealth teams continued 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 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 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.
New business activities from our fund services and private wealth teams continued 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 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 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.
Speaker #3: During the quarter, we exited substantially all of our position and 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.
Speaker #3: 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.
Speaker #3: C&I was again our strongest contributor this quarter, with 27% annualized growth over the third quarter average balances. The rate of net payoff and paydown as a percentage of total loans was 3.9%.
J. Mariner Kemper: The rate of net payoffs and pay downs as a percentage of total loans was 3.9%. Looking ahead into Q1, overall loan activity and pipeline remain strong. Our loan growth has continued to outpace many peer banks. Banks that have reported Q4 results so far have posted a 4.9% median annualized increase in average loans compared to our 13%. Total net charge-offs for Q4 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.
The rate of net payoffs and pay downs as a percentage of total loans was 3.9%. Looking ahead into Q1, overall loan activity and pipeline remain strong. Our loan growth has continued to outpace many peer banks. Banks that have reported Q4 results so far have posted a 4.9% median annualized increase in average loans compared to our 13%. Total net charge-offs for Q4 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.
Speaker #3: 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%.
Speaker #3: Total net charge-out for the fourth quarter was just 13 basis points. For the full year of 2025, net charge-out was 23 basis points, below our long-term historical average of 27 basis points.
Speaker #3: 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.
Speaker #3: Our total watchlist levels will fluctuate from quarter to quarter as we manage our book. We're quick to recognize trouble, take action, and address any issues.
J. Mariner Kemper: 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'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 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.
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'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 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.
Speaker #3: This proactive management has been consistent, and historically we've seen very little migration to loss, as evidenced by our charge-out history. We're incredibly proud of our history.
Speaker #3: 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.
Speaker #3: This equates to a median annual growth 10.4%. rate of 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.
Speaker #3: We continue to build capital, with a December 31st common equity tier one ratio of 10.96%, a 26 basis point increase from September, and ahead of the timeline we noted in our announcement of our acquisition.
J. Mariner Kemper: We continue to build capital with December 31 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 Q4 calls about their M&A stance, and I'd like to proactively address that topic. As I've 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. We do that with exceptional asset quality metrics that we are really proud of.
We continue to build capital with December 31 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 Q4 calls about their M&A stance, and I'd like to proactively address that topic. As I've 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. We do that with exceptional asset quality metrics that we are really proud of.
Speaker #3: 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.
Speaker #3: As I've 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.
Speaker #3: 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.
J. Mariner Kemper: 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 that 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.
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 that 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.
Speaker #3: 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.
Speaker #3: We're still answering our phones, building and maintaining relationships, and we expect that Tucking acquisitions that make financial and strategic sense can be part of our ongoing strategy.
Speaker #3: 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.
Speaker #3: 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.
Speaker #3: 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 UMB, including one of the best teams in the business.
J. Mariner Kemper: 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 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 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 details.
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 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 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 details.
Speaker #3: 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.
Speaker #3: 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.
Speaker #3: 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.
Speaker #3: detail. Thanks, Mariner.
Ram Shankar: Thanks, Mariner. Our Q4 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 and $92 million for 2027. 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.
Ram Shankar: Thanks, Mariner. Our Q4 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 and $92 million for 2027. 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.
Speaker #2: 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.
Speaker #2: interest margin from total accretion The benefit to net 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.
Speaker #2: These totals do not include any estimates for accelerated payoffs. Slide 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.
Speaker #2: 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.
Ram Shankar: 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 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.
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 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.
Speaker #2: 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.
Speaker #2: 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.
Speaker #2: 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.
Ram Shankar: 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 Q3 levels, as noted on slide 12. As previously disclosed, we had a non-recurring 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 had $39.7 million of merger-related costs, compared to $35.6 million in the prior 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 Q3 levels, as noted on slide 12. As previously disclosed, we had a non-recurring 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 had $39.7 million of merger-related costs, compared to $35.6 million in the prior quarter.
Speaker #2: And as previously disclosed, we had a non-recurring 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.
Speaker #2: Our fund services and custody teams added a total of 15 new fund families in 2025, with a total of funds. On the expense $109 new side, we had $39.7 million of merger-related costs compared to $35.6 million in the prior quarter.
Speaker #2: As shown, the largest portion of these costs in the past two quarters have been for contract terminations and conversion expense that were heavily weighted in the backup of the year.
Ram Shankar: 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 Q3. The largest drivers included an additional $10.5 million in incentive comp expense related to our strong Q4 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.
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 Q3. The largest drivers included an additional $10.5 million in incentive comp expense related to our strong Q4 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.
Speaker #2: 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 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.
Speaker #2: 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 are normalized quarterly expenses where approximately $380 million.
Ram Shankar: Excluding the deferred comp impact, the recalibration of incentive compensation for the Q4 outperformance, and the additional $2 million in charitable expenses, our normalized quarterly expenses were approximately $380 million. Looking ahead, we would expect Q1 operating expense to be in the $385 to 390 million dollar range. This includes an estimated additional $15 million dollar 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 Q1 elevated levels, we would expect FICA and other payroll taxes to decline by approximately $10 million in the Q2.
Excluding the deferred comp impact, the recalibration of incentive compensation for the Q4 outperformance, and the additional $2 million in charitable expenses, our normalized quarterly expenses were approximately $380 million. Looking ahead, we would expect Q1 operating expense to be in the $385 to 390 million dollar range. This includes an estimated additional $15 million dollar 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 Q1 elevated levels, we would expect FICA and other payroll taxes to decline by approximately $10 million in the Q2.
Speaker #2: 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 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.
Speaker #2: Offsets will include day count impact and post-conversion synergies. After the first quarter's elevated levels, we would expect FICA and other payroll taxes to decline by approximately $10 million in the second quarter.
Speaker #2: 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.
Ram Shankar: 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 Q4 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 non-recurring 4 basis points benefit from interest recapture on nonaccrual loans that became current during the quarter, and a bond prepayment. Favorable basis risk between Fed target rates, which impact our funding costs, and 1-month SOFR, which impacts our loan yields.
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 Q4 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 non-recurring 4 basis points benefit from interest recapture on nonaccrual loans that became current during the quarter, and a bond prepayment. Favorable basis risk between Fed target rates, which impact our funding costs, and 1-month SOFR, which impacts our loan yields.
Speaker #2: 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.
Speaker #2: The primary drivers of the link-quarter increase in core NIM included a non-recurring 4 basis points benefit from interest recapture on non-accrual loans that became current during the quarter and a bond prepayment; favorable basis risk between Fed target rates, which impact our funding costs, and one-month SOFR, which impacts our loan yields; benefits of a favorable mix shift in both earning assets and deposits, including the 24.9% link-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.
Ram Shankar: 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 tenth rate cut, and higher loan fees, partially offset by lower benefits from fee funds. Total average deposits in the Q4 increased 5.6% on a linked quarter annualized basis. While we expected DDA to rebound from seasonal lows in the Q3, 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.
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 tenth rate cut, and higher loan fees, partially offset by lower benefits from fee funds. Total average deposits in the Q4 increased 5.6% on a linked quarter annualized basis. While we expected DDA to rebound from seasonal lows in the Q3, 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.
Speaker #2: Total average deposits in the fourth quarter increased 5.6% on a link quarter annualized basis. While we expected DDA 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.
Speaker #2: 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%.
Ram Shankar: 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....
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....
Speaker #2: 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.
Speaker #2: 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.
Speaker #2: Relative to the fourth quarter adjusted margin of 2.92%—that excludes accretion and the non-recurring 4 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 catches up and is offset by positive churn in fixed-rate loans and bond reinvestment and day impact.
Ram Shankar: Relative to the Q4 adjusted margin of 2.92%, that excludes accretion, the non-recurring four basis points from interest reversals on non-accruals, and the bond prepayment that I mentioned, we expect Q1 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, bond reinvestment, and day impact. We have not assumed any upside to margin from additional rate cuts in the Q1 based on current implied market probabilities. Actual margin and NIR results will depend on levels of DDA growth, levels of excess liquidity, any SOFR movements, and mix shift within the lending and funding portfolios. Finally, our effective tax rate was 20.3% for the Q4 and 19.7% for the full year.
Relative to the Q4 adjusted margin of 2.92%, that excludes accretion, the non-recurring four basis points from interest reversals on non-accruals, and the bond prepayment that I mentioned, we expect Q1 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, bond reinvestment, and day impact. We have not assumed any upside to margin from additional rate cuts in the Q1 based on current implied market probabilities. Actual margin and NIR results will depend on levels of DDA growth, levels of excess liquidity, any SOFR movements, and mix shift within the lending and funding portfolios. Finally, our effective tax rate was 20.3% for the Q4 and 19.7% for the full year.
Speaker #2: 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 NIR results will depend on levels of DDA growth, levels of excess liquidity, any SOFR movements, and mix shifts within the lending and funding portfolios.
Speaker #2: 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.
Ram Shankar: 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.
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.
Speaker #2: 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.
Speaker #2: 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.
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 Jon Arfstrom from RBC Capital Markets. Your line is now open. Please go ahead.
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 Jon Arfstrom from RBC Capital Markets. Your line is now open. Please go ahead.
Speaker #2: When preparing to ask your question, please ensure your device is on mute locally. Our first question is from John Armstrong from RBC Capital Markets.
Speaker #2: Your line is now open. Please go ahead.
Speaker #2: ahead. Thanks.
Jon Glenn Arfstrom: Thanks. Good morning, everyone.
Jon Arfstrom: Thanks. Good morning, everyone.
Speaker #3: Good morning,
Speaker #4: Good morning, John.
Ram Shankar: Morning, John.
Ram Shankar: Morning, John.
Speaker #5: Good morning. everyone.
J. Mariner Kemper: Morning.
Mariner Kemper: Morning.
Jon Glenn Arfstrom: Maybe Mariner or Jim, just can you give us a little more detail on the drivers of the commercial loan growth in the quarter? You know, 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.
Speaker #3: 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.
Jon Arfstrom: Maybe Mariner or Jim, just can you give us a little more detail on the drivers of the commercial loan growth in the quarter? You know, 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.
Speaker #3: 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.
Speaker #3: Thank
Speaker #5: Yeah, John. Thanks, 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.
J. Mariner Kemper: Yeah, Jon. Thanks. It's 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, it's the same as it's been. We're seeing it across really all markets are, 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. That story continues to be the same, that few, you know, few trends.
Mariner Kemper: Yeah, Jon. Thanks. It's 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, it's the same as it's been. We're seeing it across really all markets are, 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. That story continues to be the same, that few, you know, few trends.
Speaker #5: We're seeing it across really all markets. Our performing well—really all verticals have kind of a broad win for us in the quarter, as it continues to be.
Speaker #5: 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; story continues to be the same.
Speaker #5: A share gains. And that 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 companies being acquired by private equity firms or family offices, or looking for growth capital or transition ownership capital.
J. Mariner Kemper: 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?
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?
Speaker #5: And, but otherwise, I'd say pretty broad, Jim.
Ram Shankar: Yeah, 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.
Ram Shankar: Yeah, 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.
Speaker #3: Yeah, 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.
Speaker #3: 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.
Speaker #3: But again, the C&I has been, across the board, the real driver, as Mariner—
Speaker #3: had mentioned.
Speaker #5: And it's early
J. Mariner Kemper: It's early still with Heartland. Good, all good signs. It's still early. You know, we, we converted on Columbus Day, so, we think that the benefit from Heartland is still significant and forward-looking. You know, we've got to -- we'll, we'll, see that benefit in, in the coming years and just accelerate as time goes on.
Mariner Kemper: It's early still with Heartland. Good, all good signs. It's still early. You know, we, we converted on Columbus Day, so, we think that the benefit from Heartland is still significant and forward-looking. You know, we've got to -- we'll, we'll, see that benefit in, in the coming years and just accelerate as time goes on.
Speaker #5: 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.
Speaker #5: We've got a we'll see that benefit in the coming years just accelerate as time goes on.
Speaker #3: 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?
Jon Glenn Arfstrom: 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.
Jon Arfstrom: 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.
Speaker #3: Thanks.
Ram Shankar: 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 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, our net charge-offs, and we believe with what we know today, we're still going to trend toward that historical norm.
Ram Shankar: 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 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, our net charge-offs, and we believe with what we know today, we're still going to trend toward that historical norm.
Speaker #4: 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.
Speaker #4: 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.
Speaker #4: 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 on that charge-off, we believe with what we know today, we're still going to trend toward that historical norm.
Speaker #3: Okay. Thank you very much.
Jon Glenn Arfstrom: Okay. Thank you very much.
Jon Arfstrom: Okay. Thank you very much.
Speaker #4: Thanks,
Ram Shankar: Thanks, John.
Ram Shankar: Thanks, John.
Speaker #4: Jim.
Speaker #2: Thank you,
Operator: Thank you, John. Our next question is from Jared Shaw from Barclays. Your line is now open. Please go ahead.
Operator: Thank you, John. Our next question is from Jared Shaw from Barclays. Your line is now open. Please go ahead.
Speaker #2: John, our next question is from Jared Cho from Barclays. Your line is now open. Please go ahead.
Speaker #6: Thanks. Good morning.
Jared David Wesley Shaw: Thanks. Good morning.
Jared Shaw: Thanks. Good morning.
Speaker #4: Hey, Jared. Good morning.
Ram Shankar: Hey, Jared. Morning.
Ram Shankar: Hey, Jared. Morning.
Jared David Wesley Shaw: Hey, hey. Maybe just looking at deposits, some really good growth in DDAs there, both average and end of period. I know that, you know, there's moving parts that can impact that, you know, at any given day. But, you know, as we start off the year here, how should we think about maybe, you know, average DDA growth quarter-over-quarter? Is there an opportunity for that to grow?
Jared Shaw: Hey, hey. Maybe just looking at deposits, some really good growth in DDAs there, both average and end of period. I know that, you know, there's moving parts that can impact that, you know, at any given day. But, you know, as we start off the year here, how should we think about maybe, you know, average DDA growth quarter-over-quarter? Is there an opportunity for that to grow?
Speaker #6: Hey. Hey. Maybe just looking at deposits and really good growth in DDAs there, both average and end-of-period. And I know that there are moving parts that can impact that.
Speaker #6: 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 there an opportunity for that to—
Speaker #6: grow? Yeah.
Ram Shankar: Yeah, I would say it probably picks up a little. If you just historically look at what happens between Q4 and Q1, there's a slight kick up, and then, you know, and then public funds, and this is not interest-bearing.
Ram Shankar: Yeah, I would say it probably picks up a little. If you just historically look at what happens between Q4 and Q1, there's a slight kick up, and then, you know, and then public funds, and this is not interest-bearing.
Speaker #4: I would say probably it picks up a little if you just historically look at what happens between fourth quarter and first quarter. There's a slight pickup.
Speaker #4: And then public funds, and this is not interest-bearing or non-interest-bearing only. It's slight pickup. And as I said in my prepared comments, we did have some new client acquisitions, particularly in our corporate trust group.
James D. Rine: ... 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 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 this, on the rest of the deposit story.
James Rine: ... 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 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 this, on the rest of the deposit story.
Speaker #4: 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 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.
Speaker #4: We're excited about the prospects from our newly acquired teams 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, which continued to build in January. Then, in the second half of February, you'll see about $1 billion go away on the rest of the deposit.
Speaker #5: Due to tax payments. Yeah.
J. Mariner Kemper: Due to the tax payments.
Mariner Kemper: Due to the tax payments.
Jared David Wesley Shaw: Okay.
Jared Shaw: Okay.
Speaker #6: Okay.
James D. Rine: Yeah, yeah.
James Rine: Yeah, yeah.
Speaker #4: Yeah. And
Speaker #6: Then how are early trends on the HSA side? If the benefits from the budget bill—have you been able to look a little more at the potential market impact there?
Jared David Wesley Shaw: And then, how are the 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?
Jared Shaw: And then, how are the 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?
Speaker #6: And is there any appetite to maybe do a deal to add in that space?
Speaker #6: specifically? I'll take that high
J. Mariner Kemper: I'll take that high level, and then 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 that elevated one way or the other. It's a nice, steady addition to the book.
Mariner Kemper: I'll take that high level, and then 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 that elevated one way or the other. It's a nice, steady addition to the book.
Speaker #5: level, and then 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.
Speaker #5: 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.
Speaker #5: to the It's a nice steady addition book
James D. Rine: You know?
James Rine: You know?
J. Mariner Kemper: Okay.
Mariner Kemper: Okay.
Speaker #1: Great. Thanks.
Jared David Wesley Shaw: Great, thanks.
Jared Shaw: Great, thanks.
Speaker #4: Thanks,
James D. Rine: Thanks, Jared.
James Rine: Thanks, Jared.
Speaker #4: Jared. Thank
Speaker #2: Thank you, Jared. Our next question is from Chris McGrathy from KBW. Your line is now open. Please go ahead.
Operator: Thank you, Jared. Our next question is from Chris McGratty from KBW. Your line is now open. Please go ahead.
Operator: Thank you, Jared. Our next question is from Chris McGratty from KBW. Your line is now open. Please go ahead.
Speaker #2: ahead. All right.
Christopher Edward McGratty: Great, great. Good morning.
Christopher McGratty: Great, great. Good morning.
Speaker #3: Great. Good
Speaker #3: morning. So I'm just going Good morning, Chris. to hey, good morning, everybody. On the expenses, I hear you on the first quarter, and then the normalization thereafter.
James D. Rine: Good morning, Chris.
James Rine: Good morning, Chris.
Christopher Edward McGratty: Hey, good morning, everybody. On the expenses, I hear you on Q1 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. Just, you know, you're generating operating leverage, but where are you investing to grow the company? Thanks.
Christopher McGratty: Hey, good morning, everybody. On the expenses, I hear you on Q1 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. Just, you know, you're generating operating leverage, but where are you investing to grow the company? Thanks.
Speaker #3: 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.
Speaker #3: You're generating operating leverage, but where are you investing to grow the company? Thanks.
Speaker #4: Yeah, definitely, 100% of the cost saves that we identified at the time of the announcement of that transaction have been realized as of today.
James D. Rine: Yeah, definitely 100% of the cost savings that we identified at the time of the announcement of that 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 Q4 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.
James Rine: Yeah, definitely 100% of the cost savings that we identified at the time of the announcement of that 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 Q4 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.
Speaker #4: So post-conversion, after a little while, there were the 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.
Speaker #4: So, as we sit today, all those have been acted upon and are part of our run rate going forward. And then, the other side is just normal inflation.
Speaker #4: 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, there's an elevated FICA cost being a larger company and all that.
James D. Rine: Obviously, in Q1, because of the timing of our bonus payments, resets of FICA, 401(k) match, and payroll taxes, there's an elevated spike, us being a larger company and all that, but that should also recede in Q2 by about $10 million.
Obviously, in Q1, because of the timing of our bonus payments, resets of FICA, 401(k) match, and payroll taxes, there's an elevated spike, us being a larger company and all that, but that should also recede in Q2 by about $10 million.
Speaker #4: But that should also recede in the second quarter by about 10.
Speaker #4: million.
Speaker #5: And I would just add that I
J. Mariner Kemper: 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 you know whether we're successful with sales activities. As has been 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.
Mariner Kemper: 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 you know whether we're successful with sales activities. As has been 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.
Speaker #5: I think the thing to focus on—and we've demonstrated it, and will continue to—is that we're disciplined. 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 it's been in the past.
Speaker #5: 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.
Speaker #3: 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.
Christopher Edward McGratty: Okay, great. And as I 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?
Christopher McGratty: Okay, great. And as I 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?
Speaker #3: There's a lot of stuff in there. Can you help on what would be a reasonable growth rate for that?
Speaker #3: business? Well, I
J. Mariner Kemper: 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 are largely coming from the alternative side, which would be the privates, private equity, and hedge funds, et cetera, 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.
Mariner Kemper: 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 are largely coming from the alternative side, which would be the privates, private equity, and hedge funds, et cetera, 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.
Speaker #5: Thinking looking backwards, and I'll 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.
Speaker #5: 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, etc., kind of the alternative space, leads the way really.
Speaker #5: there, as it does in the marketplace, 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 largest drivers with the biggest
Speaker #5: tailwinds. Great.
Christopher Edward McGratty: Great, thank you.
Christopher McGratty: Great, thank you.
Speaker #3: Thank you.
Speaker #4: Thank you, Chris.
James D. Rine: Thank you, Chris.
James Rine: Thank you, Chris.
Speaker #2: Thank you, Chris. Our next question is from Ben Gullinger from Citi. Your line is now open. Please go ahead.
Operator: Thank you, Chris. Our next question is from Ben Gerlinger from Citi. Your line is now open. Please go ahead.
Operator: Thank you, Chris. Our next question is from Ben Gerlinger from Citi. Your line is now open. Please go ahead.
Speaker #2: ahead. All right.
Benjamin Tyson Gerlinger: Hi, good morning.
Benjamin Gerlinger: Hi, good morning.
Speaker #3: Good morning. I appreciate the color on the gap versus core margin, but kind of—can I get the commentary for one key? 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 are no more cuts, is the growth you're adding dilutive or accretive to the core margin?
James D. Rine: Good morning.
James Rine: Good morning.
Benjamin Tyson Gerlinger: I appreciate the color on the gap versus core margin, but I kind of—I get the commentary for one Q, and 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's 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?
Benjamin Gerlinger: I appreciate the color on the gap versus core margin, but I kind of—I get the commentary for one Q, and 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's 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?
Speaker #3: Because your growth is great, and just trying to think—new money coming on, either both sides of the balance sheet together—would you expect a drift higher or lower on the core margin?
Speaker #4: Yeah. Generally, I would say the margin would be stable, all else being equal—without rate movements, without mix shift in DDIs, or earning assets.
James D. Rine: Yeah, generally, I would say, you know, the margin will be stable, all else being equal, right? Without rate movements, without mix shift in DDs or earning assets, 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 yields, 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, bond investments versus the roll off of 3.60.
James Rine: Yeah, generally, I would say, you know, the margin will be stable, all else being equal, right? Without rate movements, without mix shift in DDs or earning assets, 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 yields, 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, bond investments versus the roll off of 3.60.
Speaker #4: 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.
Speaker #4: 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?
Speaker #4: 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 rollout of 360.
James D. Rine: 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 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.
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 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.
Speaker #4: 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 this no additional leverage on deposit pricing because the Fed is not cutting rates.
Speaker #4: I think our margin will be generally consistent with where we are right now.
Speaker #5: I might add, environmentally, sulfur has been kind of a tailwind in the way it's been priced in recent periods. So that has been a tailwind.
J. Mariner Kemper: I might add, environmentally, SOFR has been a kind of a tailwind, the way it's been priced in recent periods. So that has been a tailwind. So if that continues, that would-
Mariner Kemper: I might add, environmentally, SOFR has been a kind of a tailwind, the way it's been priced in recent periods. So that has been a tailwind. So if that continues, that would-
Speaker #5: So if that continues, that would.
James D. Rine: Yeah.
James Rine: Yeah.
J. Mariner Kemper: Uh.
James D. Rine: 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 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 Q4 and outlook forward as well.
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 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 Q4 and outlook forward as well.
Speaker #3: That's a great point. Yeah. If you just look at since the Fed started tightening this cycle, since September, the Fed target has come down 75 basis points.
Speaker #3: And one month of 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.
Speaker #3: Gotcha. That's really helpful color. And then the second question, I know you guys are 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 hires throughout '26 via disruption or even team liftouts and just trying to curious on what you guys are approaching as a third party to M&A?
Benjamin Tyson Gerlinger: Gotcha. That's really helpful, fellas. And then the second question: I know you guys are kind of shied off on, 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 hires throughout 2026 via disruption or even team lift outs? I'm just kind of curious on what you guys are approaching the -- as a third party to M&A. Is there anything, anything that's on the table that's be considered a low-hanging fruit?
Benjamin Gerlinger: Gotcha. That's really helpful, fellas. And then the second question: I know you guys are kind of shied off on, 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 hires throughout 2026 via disruption or even team lift outs? I'm just kind of curious on what you guys are approaching the -- as a third party to M&A. Is there anything, anything that's on the table that's be considered a low-hanging fruit?
Speaker #3: Is there anything that's on the table that you consider low-hanging
Speaker #3: Fruit? So you touched off on—
J. Mariner Kemper: 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, you know, we, you know, 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 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.
Mariner Kemper: 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, you know, we, you know, 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 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.
Speaker #5: A few things there. So I guess with pure M&A, I’d revert you back to my comments in the script, which are just that we’re focused on organic growth.
Speaker #5: 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.
Speaker #5: Then you touched on other ways to add things that emulate M&A, I guess—so, liftouts and teams and things like that. So, again, a similar kind of comment.
Speaker #5: 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.
Speaker #5: 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 liftouts—we're always looking for those people business.
J. Mariner Kemper: So we take those calls, we look for those opportunities always. That's how I'd say, you know, 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, talented people, we'll talk to them all day long.
So we take those calls, we look for those opportunities always. That's how I'd say, you know, 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, talented people, we'll talk to them all day long.
Speaker #5: And if we can find high-quality talented people, we'll talk to them all day
Speaker #5: long. Gotcha.
Benjamin Tyson Gerlinger: Gotcha. Helpful. Thank you, guys.
Benjamin Gerlinger: Gotcha. Helpful. Thank you, guys.
Speaker #3: Helpful. Thank you, Josh.
Speaker #4: Thanks, Ben.
James D. Rine: Thanks, Ben.
James Rine: Thanks, Ben.
Speaker #2: Thank you, Ben. Our next question is from Brian Wilkzinski from Morgan Stanley. Your line is now open. Please go ahead.
Operator: Thank you, Ben. Our next question is from Brian Wilczynski, from Morgan Stanley. Your line is now open. Please go ahead.
Operator: Thank you, Ben. Our next question is from Brian Wilczynski, from Morgan Stanley. Your line is now open. Please go ahead.
Speaker #2: ahead. Hi.
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?
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?
Speaker #6: Good morning. I
Speaker #4: Good morning.
Speaker #6: 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.
Speaker #6: Is there anything that you're seeing already today? And how should we think about that progressing over—
Speaker #6: time? Yeah.
Speaker #4: 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.
J. Mariner Kemper: Great question. I'll touch on this as quarters have rolled on. At 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.
Mariner Kemper: Great question. I'll touch on this as quarters have rolled on. At 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.
Speaker #4: 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.
Speaker #4: 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.
Speaker #4: 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.
Speaker #4: So, 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.
J. Mariner Kemper: So 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, is 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 lead, and we're seeing some really nice...
So 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, is 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 lead, and we're seeing some really nice...
Speaker #4: 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.
Speaker #4: 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.
Speaker #4: 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 lead and we're seeing some really nice—Jim mentioned earlier—the franchise lending.
J. Mariner Kemper: Jim mentioned earlier, the franchise lending, that's a perfect example where they would, they would take a 25 percent 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, and so those would be the, those would be the main. The other one, which we, this is a thing I'd say all the time about UMB, because of the complexity of our, 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....
Jim mentioned earlier, the franchise lending, that's a perfect example where they would, they would take a 25 percent 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, and so those would be the, those would be the main. The other one, which we, this is a thing I'd say all the time about UMB, because of the complexity of our, 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....
Speaker #4: 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 just the last handful of months where we'd go from being a participant to a lead or taking the whole thing.
Speaker #4: opportunities already pretty frequently. So very, very excited about all that. And so those would So we see those kinds of be the main the other one which we this is a thing I say all the time about UMB because of the complexity of our offering.
Speaker #4: 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 it isn't the case at most other banks.
J. Mariner Kemper: the case at most other banks. So whether you're a private equity, you know, 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.
the case at most other banks. So whether you're a private equity, you know, 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.
Speaker #4: So, whether you're in 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.
Speaker #4: 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
Speaker #4: target. That's really helpful, color.
Brian Wilczynski: That's really helpful, operator. 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. I know that chart goes back about a year or so, but 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 2026?
Brian Wilczynski: That's really helpful, operator. 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. I know that chart goes back about a year or so, but 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 2026?
Speaker #6: Thank you. And then as myself 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.
Speaker #6: And I know that chart goes back about a year or so, but which is 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.
Speaker #4: Yeah. 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.
J. Mariner Kemper: You know, that's a great question. High level, it's, 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 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 dang steady, surprisingly, regardless of what the environment is.
Mariner Kemper: You know, that's a great question. High level, it's, 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 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 dang steady, surprisingly, regardless of what the environment is.
Speaker #4: 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, etc.
Speaker #4: 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 CNI side that has strong net worth and really strong earnings power.
Speaker #4: Which just sort of tamps overall line down the utilization. And it stays pretty dang steady, surprisingly, regardless of what the environment is.
Speaker #6: Got it. Really appreciate the color, and thank you for taking my—
Brian Wilczynski: Got it. Really appreciate the color, and thank you for taking my questions.
Brian Wilczynski: Got it. Really appreciate the color, and thank you for taking my questions.
Speaker #6: questions. Thanks,
J. Mariner Kemper: Thanks, Brian.
Mariner Kemper: Thanks, Brian.
Speaker #2: Thank you, Brian. Brian. Our next question is from Brian Foreign from 3. Your line is now open. Please go
Speaker #2: Thank you, Brian. Brian. Our next question is from Brian Foreign from 3. Your line is now open. Please go
Operator: Thank you, Brian. Our next question is from Brian Foran, from Truist. Your line is now open. Please go ahead.
Operator: Thank you, Brian. Our next question is from Brian Foran, from Truist. Your line is now open. Please go ahead.
Speaker #2: ahead. Morning, Brian. Oh, hi.
[Analyst] (Truist): Oh, hi.
Brian Foran: Oh, hi.
Speaker #7: I have one small one then. Hey, good morning. Just one small one and then maybe one bigger picture one. So the small one, I'm looking at slide 36.
J. Mariner Kemper: Morning, Brian.
Mariner Kemper: Morning, Brian.
[Analyst] (Truist): I have one small one, and-- 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?
Brian Foran: I have one small one, and-- 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?
Speaker #7: Definitely understand this business has great momentum. There was a small tick down in AUA, at least in the top netted-out totals. Was there anything to note there?
Speaker #7: Why the quarter-over-quarter decline in AUA for the overall?
Speaker #7: business? Yeah.
J. 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 came up with that, because it's 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, 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.
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 came up with that, because it's 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, 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.
Speaker #4: Brian is a 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.
Speaker #4: We did have a quarter link 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.
Speaker #4: So really the better way to think about that is the total assets under administration, which is up on the link quarter basis. So nothing in there in the trend side.
Speaker #4: The business has tremendous momentum.
Speaker #6: Perfect. And then on the M&A commentary, I wonder if maybe you could look back with Heartland almost a year under your belt key lessons learned that may be inform any future transactions.
[Analyst] (Truist): Perfect. And then on the M&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 -- 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?
Brian Foran: Perfect. And then on the M&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 -- 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?
Speaker #6: Are there 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 targeting, sourcing, integrating—any just big picture, having done this, one of the bigger transactions?
Speaker #6: I guess the biggest on the first one in a while what was the top one or two lessons learned?
Speaker #4: Yeah, 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 knew how to do these transactions in Heartland as well, because they had done a bunch of deals themselves.
J. Mariner Kemper: Yeah, 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-- and I just, I already 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, hardworking, 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 tr...
Mariner Kemper: Yeah, 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-- and I just, I already 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, hardworking, 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 tr...
Speaker #4: So we have just an—I don't even know. I'm almost speechless about it. The transaction went so well. Incredibly well. Flawlessly. You have your little, tiny lessons to learn along the way, but it was pretty much a flawless transaction, mainly because we have a super committed, dedicated, hardworking, very smart team. We were super committed to a concept called 'do no harm.'
Speaker #4: 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 the customer interactions and experience to keep that where it needed to be.
J. Mariner Kemper: 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 well received in communities that we're in. And, you know, like I said, I just pinch myself.
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 well received in communities that we're in. And, you know, like I said, I just pinch myself.
Speaker #4: So, just all in all, I mean, I pinch myself right now as I'm talking to you with 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.
Speaker #4: We grew our deposits and then overall we exceeded our expectations on growth so far. On and we got all of our synergies, got all a combined basis, of our dollars out of the deal.
Speaker #4: 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.
J. Mariner Kemper: 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 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-
Speaker #4: Because it feels unrealistic to tell you there weren't any big lessons, but I don't know. You guys want to add something?
James D. Rine: ... Yeah. No, 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, you know, Mariner nailed it. 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 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.
James Rine: ... Yeah. No, 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, you know, Mariner nailed it. 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 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.
Speaker #3: No, 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.
Speaker #3: The team has a process that has been proven, and a mariner nailed it. It couldn't have gone any better, quite frankly. But the number one rule in any of these is going to be culture.
Speaker #3: 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.
Speaker #4: Yeah. case, which is what we would do if we ever did another I think one of the things we did in this particular deal, is that it would be small enough that we would maintain control of everything: culture, management board, and that was very helpful.
J. Mariner Kemper: 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. And 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 the 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 a somewhat more muted growth out of the acquired company, I think, than...
Mariner Kemper: 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. And 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 the 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 a somewhat more muted growth out of the acquired company, I think, than...
Speaker #4: And would be always the case for us. And yeah, I mean, the only thing I would say being candid and lessons learned would be and smart really is that between close and conversion, expectations should be more muted for growth out of the acquired company.
Speaker #4: 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 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.
J. Mariner Kemper: 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 that's super committed and working around the clock, and I feel lucky. That's a great answer. Thank you so much.
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 that's super committed and working around the clock, and I feel lucky. That's a great answer. Thank you so much.
Speaker #4: I wouldn't wish for anything different. And I just would echo that people, people, people, people, we just have a fantastic team with super committed, working around the clock, and I feel lucky.
Speaker #6: That's a great answer. Thank you so
Speaker #6: much. Thanks,
James D. Rine: Thanks, Brian.
James Rine: Thanks, Brian.
Speaker #3: Brian. Thank you, Brian.
Operator: Thank you, Brian. Our next question is from Janet Lee, from TD Cowen. Your line is now open. Please go ahead.
Operator: Thank you, Brian. Our next question is from Janet Lee, from TD Cowen. Your line is now open. Please go ahead.
Speaker #1: Our next question is from Janet Lee from TD Cohen. Your line is now open. Please go ahead.
Speaker #1: ahead. Good
[Analyst] (TD Cowen): Good morning.
Janet Lee: Good morning.
Speaker #5: Morning. If I were—Morning, Janet. I 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.
James D. Rine: Morning, Janet.
James Rine: Morning, Janet.
[Analyst] (TD Cowen): 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 any of that 4 basis points one-off impact in the quarter, relatively flattish. And I guess another question would be that, that 67.6 percent deposit beta in the quarter was pretty outsized. Do you think you'll be able to maintain that, or what was that then, a different-
Janet Lee: 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 any of that 4 basis points one-off impact in the quarter, relatively flattish. And I guess another question would be that, that 67.6 percent deposit beta in the quarter was pretty outsized. Do you think you'll be able to maintain that, or what was that then, a different-
Speaker #5: So as long as you could maintain that beta on the deposits, you could be able to hold that NIM core NIM, XNE, that four basis points one-off impact in the quarter relatively flattish.
Speaker #5: guess another question would be And I that that 76.6% deposit beta in the quarter was pretty outsized; do you think you'll be able to maintain that, or was that a different?
Speaker #5: guess another question would be And I that that 76.6% deposit beta in the quarter was pretty outsized; do you think you'll be able to maintain that, or was that a
Speaker #3: Yeah.
James D. Rine: Yeah.
James Rine: Yeah.
Speaker #5: Outsized quarter?
[Analyst] (TD Cowen): - outsized quarter?
Janet Lee: - outsized quarter?
Speaker #3: I'll take that, Janet. Yeah. So we are pretty neutral if 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 dollars of our earning assets are variable.
James D. Rine: I'll take that, Janet. Yeah, so we are pretty neutral as you look at our interest rate simulation, in that we disclose in our pages. So if you look at it, based on Q4 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% of 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?
James Rine: I'll take that, Janet. Yeah, so we are pretty neutral as you look at our interest rate simulation, in that we disclose in our pages. So if you look at it, based on Q4 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% of 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?
Speaker #3: So that's about 51% of our total earning asset base. And if you look at our funding deposit mix, 50% of our deposits are indexed, right?
Speaker #3: 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 or when the Fed rate cut happens, rate mix of deposits, right?
Speaker #3: 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 cut happens.
James D. Rine: 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 cut happens. So our internal view, based on market probabilities, is still two more rate cuts, one probably at the end of Q2 and one probably in Q4. 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 at this point, I would say, to answer your first question, yes, generally, we would expect our NIM to be ± where our core NIM was in the fourth quarter, adjusted for that four basis points. I forgot your second question already. Was - Can you repeat the second one?
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 cut happens. So our internal view, based on market probabilities, is still two more rate cuts, one probably at the end of Q2 and one probably in Q4. 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 at this point, I would say, to answer your first question, yes, generally, we would expect our NIM to be ± where our core NIM was in the fourth quarter, adjusted for that four basis points. I forgot your second question already. Was - Can you repeat the second one?
Speaker #3: 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.
Speaker #3: 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.
Speaker #3: So at this point, I would say to answer your first question, yeah, generally we would expect our NIM to be plus or minus where our core NIM was in the fourth quarter adjusted for that four basis points.
Speaker #3: I forgot your second question
Speaker #3: Can you repeat your second question? Just the beta
[Analyst] (TD Cowen): Just the beta of 76%,
Janet Lee: Just the beta of 76%,
Speaker #5: Of 76%. Is that sustainable or outsized?
James D. Rine: Oh, yeah.
James Rine: Oh, yeah.
[Analyst] (TD Cowen): If that's sustainable or outsized.
Janet Lee: If that's sustainable or outsized.
James D. Rine: 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 Q4, 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.
Speaker #3: 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.
James Rine: 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 Q4, 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.
Speaker #3: 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.
Speaker #3: 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.
Speaker #3: So there's fairly limited leverage on that side to keep doing betas until we have another Fed
Speaker #3: So there's fairly limited leverage on that side to keep doing betas until we have another Fed cut. Got it.
James D. Rine: So there's fairly limited leverage on that side to keep doing betas until we have another Fed cut.
So there's fairly limited leverage on that side to keep doing betas until we have another Fed cut.
[Analyst] (TD Cowen): Got 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 it 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, 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?
Janet Lee: Got 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 it 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, 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?
Speaker #5: 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 deposit growth, you're going to fund your loan growth with deposit growth in the same ballpark by dollar amount, or would you yeah, you so basically, would what would be the ideal sort of loan-to-deposit ratio?
Speaker #5: Would you have that going up a little, or do you want to maintain at this level? How should we think about that?
Speaker #3: So I would say, think about it differently. The way we think about loan and deposit ratio is that the value of a bank, of a franchise in the banking industry, is in its deposits.
J. Mariner Kemper: So I would say, think about it differently. The way we think about loan-to-deposit ratio is that the value of a bank's of a franchise in the banking industry is in its deposits. 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. You know, we've been as high as 75% before. Very comfortable there. But we're not aiming there, and we don't give guidance.
Mariner Kemper: So I would say, think about it differently. The way we think about loan-to-deposit ratio is that the value of a bank's of a franchise in the banking industry is in its deposits. 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. You know, we've been as high as 75% before. Very comfortable there. But we're not aiming there, and we don't give guidance.
Speaker #3: 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.
Speaker #3: 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 and deposit ratio.
Speaker #3: 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 a 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.
J. Mariner Kemper: 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. We let the chips fall where they may. Certainly, we don't want to be overly lent up, and so, you know, without giving guidance to that, we certainly wouldn't want to be in the nineties. That would be uncomfortable for us.
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. We let the chips fall where they may. Certainly, we don't want to be overly lent up, and so, you know, without giving guidance to that, we certainly wouldn't want to be in the nineties. That would be uncomfortable for us.
Speaker #3: And we let the chips fall where they may. Certainly, we don't want to be overly limped up. And so without giving guidance to that, we certainly wouldn't want to be in the 90s.
Speaker #3: That would be uncomfortable for us. And the flexibility—I would just add to that—the flexibility of our balance sheet on page 25, right?
James D. Rine: The flexibility, I'll just 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 if we see excess opportunities-
James Rine: The flexibility, I'll just 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 if we see excess opportunities-
Speaker #3: We have $2.2 billion of cash flows coming from our bond portfolio. We're intentional about that. So those are all in the past. We've used that to fund our loan growth.
Speaker #3: We see excess opportunities coming out of hard land. So there's always an opportunity, but as Mariner said, yeah, deposits is where the focus is.
J. Mariner Kemper: Yeah.
Mariner Kemper: Yeah.
James D. Rine: Coming out of Heartland. So there's always an opportunity, but, but as Mariner said, you know, yeah, deposit is where the focus is.
James Rine: Coming out of Heartland. So there's always an opportunity, but, but as Mariner said, you know, yeah, deposit is where the focus is.
J. Mariner Kemper: There's no -- the thing about our franchise and the success of our deposit-generating capabilities; we keep, what? $20 billion off balance sheet?
Speaker #4: And there's no — the thing about our franchise, in the success of our deposit-generating capabilities. We keep, what, $20 billion off balance.
Mariner Kemper: There's no -- the thing about our franchise and the success of our deposit-generating capabilities; we keep, what? $20 billion off balance sheet?
Speaker #4: Sheet? Yeah, we have $20 billion off—oh, gosh, yeah—balance sheet for clients that we put into money markets and earn 12 bps fees on.
James D. Rine: About that, yeah.
James Rine: About that, yeah.
J. Mariner Kemper: Yeah, we have $20 billion off balance sheet for clients that we put into money markets and earn 12 bps fees on. We can bring that on whenever we want, based on what kind of loan growth we, 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, as a depo- as an asset-generating machine, we are also a deposit-generating machine. So this is something we don't worry about.
Mariner Kemper: Yeah, we have $20 billion off balance sheet for clients that we put into money markets and earn 12 bps fees on. We can bring that on whenever we want, based on what kind of loan growth we, 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, as a depo- as an asset-generating machine, we are also a deposit-generating machine. So this is something we don't worry about.
Speaker #4: 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.
Speaker #4: And so we, as a asset-generating machine, we are also a deposit-generating machine. So this is something we don't worry about.
[Analyst] (TD Cowen): Very fair. Thank you for taking my questions.
Janet Lee: Very fair. Thank you for taking my questions.
Speaker #5: Fair, fair. Thank you for thank you for taking my questions.
Speaker #3: Thanks,
James D. Rine: Thanks, Janet.
James Rine: Thanks, Janet.
Speaker #3: Janet. Thank you,
Operator: Thank you, Janet. Our next question is from David Long, from Raymond James. Your line is now open. Please go ahead.
Operator: Thank you, Janet. Our next question is from David Long, from Raymond James. Your line is now open. Please go ahead.
Speaker #1: Janet, our next question is from David Long at Raymond James. Your line is now open. Please go ahead.
Speaker #1: ahead. Good morning,
David Joseph Long: Good morning, everyone.
David Long: Good morning, everyone.
Speaker #6: everyone. I'm the growth expectations from the HTLF franchise. I understand 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 HTLF team or the legacy HTLF team?
J. Mariner Kemper: Good morning.
Mariner Kemper: Good morning.
David Joseph Long: 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 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?
David Long: 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 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?
Speaker #6: Those bankers, growing into the UMB model, or do you guys have to bring in more veteran bankers from larger institutions in those
Speaker #6: locations?
J. 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, some, you know, 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.
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, some, you know, 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.
Speaker #4: The answer
Speaker #4: 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, some places where they are more they are smaller and have not been there as long, etc.
Speaker #4: We have the opportunity over the coming years to add talent and so it's a
Speaker #6: Got it. combination. And then follow-up for Ram. 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.
David Joseph Long: Got it. Thanks, Mariner. Then follow up for Ram. As you look at the cost of deposits, I think you said all in was about 2.25, non-interest bearing and interest bearing for the quarter. Do you know where that ended the year at December 31?
David Long: Got it. Thanks, Mariner. Then follow up for Ram. As you look at the cost of deposits, I think you said all in was about 2.25, non-interest bearing and interest bearing for the quarter. Do you know where that ended the year at December 31?
Speaker #6: Do you know where that ended the year at, December 31st?
James D. Rine: 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, we could have $3 to 4 billion of deposits come in and change the average for any month or, or a period. And so it's hard to judge what that is. But, you know, I would say for the December tenth rate cut, based on that 76% beta, there'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 Q4. So that'll still happen, but I don't have specifics. And, and it's not relevant, really, just to give you one month for us.
Speaker #3: I don't have that date, 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?
James Rine: 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, we could have $3 to 4 billion of deposits come in and change the average for any month or, or a period. And so it's hard to judge what that is. But, you know, I would say for the December tenth rate cut, based on that 76% beta, there'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 Q4. So that'll still happen, but I don't have specifics. And, and it's not relevant, really, just to give you one month for us.
Speaker #3: We could have $3 or $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.
Speaker #3: But I would say for the December 10th 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.
Speaker #3: But I don't have specifics. And it's not relevant, really, just to give you one month for us.
Speaker #6: Yeah, no, that's great. I appreciate the color there, Ram. Thanks, guys. Appreciate it.
David Joseph Long: No, that's, that's great. I appreciate the color there, Ram. Thanks, guys. Appreciate it.
David Long: No, that's, that's great. I appreciate the color there, Ram. Thanks, guys. Appreciate it.
Speaker #3: Thanks, Dave.
James D. Rine: Thanks, Dave.
James Rine: Thanks, Dave.
Speaker #4: Yeah.
Speaker #1: Thank you, David.
Operator: Thank you, David. Our next question is from Nathan Race, from Piper Sandler. Your line is now open. Please go ahead.
Operator: Thank you, David. Our next question is from Nathan Race, from Piper Sandler. Your line is now open. Please go ahead.
Speaker #1: Our next question is from Nathan Race with Piper Sandler. Your line is now open. Please go ahead.
Speaker #7: Hey everyone, good morning. Thanks in advance for taking the question.
Nathan James Race: Hey, everyone. Good morning.
Nathan Race: Hey, everyone. Good morning.
James D. Rine: Good morning, Nick.
James Rine: Good morning, Nick.
Speaker #3: Hey, Nick.
Nathan James Race: Thanks for taking the question.
Nathan Race: Thanks for taking the question.
J. Mariner Kemper: Hey.
Mariner Kemper: Hey.
Nathan James Race: 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?
Speaker #7: Mariner, the rate or the level of gross loan production stepped up in each of the last few quarters, and even going further back as well.
Nathan Race: 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?
Speaker #7: 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?
Speaker #7: Or would we need to see some hiring to see maybe a step-change function in that gross loan production?
Speaker #7: level? No, I think
J. Mariner Kemper: No, I think 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 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.
Mariner Kemper: No, I think 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 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.
Speaker #4: Guidance there, other than a quarter forward, we try not to give too much 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.
Speaker #4: And then I would just kind of you've got your we're sitting around this table with guys that have been doing this with for 30 years, together, and our if you look at page 42 in our deck, it's a 13% 20-year CAGR for loan growth.
Speaker #4: And that's from grabbing market share and having consistency, 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.
J. Mariner Kemper: 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, I have no expectation that we can't keep doing what we've been doing and do that on an even bigger base. You know, so our base has gone from, you know, on an average basis, from $24 billion in loans to $36 billion in loans. And I, I don't have any expectation other than we keep doing what we're doing on a bigger base.
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, I have no expectation that we can't keep doing what we've been doing and do that on an even bigger base. You know, so our base has gone from, you know, on an average basis, from $24 billion in loans to $36 billion in loans. And I, I don't have any expectation other than we keep doing what we're doing on a bigger base.
Speaker #4: 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.
Speaker #4: 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.
Speaker #7: Okay. Great. That's helpful. And then maybe for Ram, I appreciate the expense, guys, 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.
Nathan James Race: Okay, great. That's helpful. And then maybe for Ram, 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?
Nathan Race: Okay, great. That's helpful. And then maybe for Ram, 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?
Speaker #7: In the second quarter, are there any other kinds 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?
Speaker #3: Yeah. The $10 million just to be clear is only on those seasonal expenses like paying up payroll and 401(k) match, right? No dramatic change in our expense trajectory.
James D. Rine: Yeah, the $10 million, just to be clear, is only on those seasonal expenses like FICA, apparel, and 401(k) match, right? No, no dramatic change in our expense trajectory. No, we would go back to operating leverage. So to the extent that revenue growth ex- you know, 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 you know, dramatic investments.
James Rine: Yeah, the $10 million, just to be clear, is only on those seasonal expenses like FICA, apparel, and 401(k) match, right? No, no dramatic change in our expense trajectory. No, we would go back to operating leverage. So to the extent that revenue growth ex- you know, 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 you know, dramatic investments.
Speaker #3: 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.
Speaker #3: But nothing otherwise, in terms of dramatic investments.
J. Mariner Kemper: We're a disciplined team, and we'll stay focused on making sure the intersection is there between what we spend and what the leverage on it is.
Speaker #4: 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.
Mariner Kemper: We're a disciplined team, and we'll stay focused on making sure the intersection is there between what we spend and what the leverage on it is.
Speaker #7: 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.
Nathan James 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 to maybe get that fee income proportion, you know, up close to the historical levels around, you know, 35%+ of total revenue.
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 to maybe get that fee income proportion, you know, up close to the historical levels around, you know, 35%+ of total revenue.
Speaker #7: But just curious, what the opportunities that may be out there, what the appetite is to maybe acquire a non-bank entity that could augment some of your less capital-intensive businesses to maybe get that fee income proportion up close to the historical levels—around 35% plus of total revenue?
Speaker #4: Well, you kind of asked two questions there. I think when it comes—I think I point back to—we sold, too. If you remember, we sold Scout, and when we sold Scout, that reduced our fees by over $100 million in one year.
J. Mariner Kemper: 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 the way to think about fee income growth for us is not percent of total, but absolute loan growth of the group itself.
Mariner Kemper: 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 the way to think about fee income growth for us is not percent of total, but absolute loan growth of the group itself.
Speaker #4: 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.
Speaker #4: So, if we can maintain a growth rate in our institutional businesses at, as I mentioned earlier, 12.8%, 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, that mix can change just because of what the interest rates are.
J. Mariner Kemper: 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+%, which we've demonstrated, that is more important than it's percent of total, because with interest rates changing from one year to the next, you know, 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 designed aim for where that ends up. So on the other one, just a pure M&A question, I just point you back to my comments.
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+%, which we've demonstrated, that is more important than it's percent of total, because with interest rates changing from one year to the next, you know, 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 designed aim for where that ends up. So on the other one, just a pure M&A question, I just point you back to my comments.
Speaker #4: So we're more focused on making sure the momentum and the strength is there for the businesses themselves as opposed to what their percentage of total is.
Speaker #4: think and expect just because I do of that momentum, that it gains back some of that share of total revenue over time. But we have no designed aim for where that ends up.
Speaker #4: So on the other one, just to peer M&A question, I 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.
J. Mariner Kemper: You know, we're focused on it, you know, the organic growth. Our phones are open, 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 control if we do anything at all. So...
You know, we're focused on it, you know, the organic growth. Our phones are open, 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 control if we do anything at all. So...
Speaker #4: But we're looking for a 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 control we do anything at all.
Speaker #4: So
James D. Rine: 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.
James Rine: 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.
Speaker #7: Name's Jim Ryan. The only other thing I
Speaker #7: What 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.
Speaker #7: And I think that's what you should probably expect in the immediate future.
Speaker #4: Yeah, liftouts in corporate, that—yeah, we keep an eye out for them. We do them all the time. You guys don't even see them, really.
J. Mariner Kemper: Yeah, lift outs in corporate trust 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 screen, but they're always additive.
Mariner Kemper: Yeah, lift outs in corporate trust 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 screen, but they're always additive.
Speaker #4: We do little announcements. Small, tiny little acquisitions, liftouts, for our institutional teams. But that pure dollar level of those are immaterial. So they don't really show up on the radar scene.
Speaker #4: But they're always additive.
Speaker #7: Great. Got it. Okay. Great. I appreciate all the colleagues for asking—a great quarter and
Nathan James Race: Great. Got it. Okay, great. I appreciate all the comments. Congrats on a great quarter and year.
Nathan Race: Great. Got it. Okay, great. I appreciate all the comments. Congrats on a great quarter and year.
Speaker #7: year. Thanks,
James D. Rine: Thanks, Nate.
James Rine: Thanks, Nate.
Speaker #3: Nate. Thank you,
Timur Felixovich Braziler: Thank you, Nathan. Our next question is from Timur Braziler, from Wells Fargo. Your line is now open. Please go ahead.
Operator: Thank you, Nathan. Our next question is from Timur Braziler, from Wells Fargo. Your line is now open. Please go ahead.
Speaker #1: Nathan. Our next question is from Timur Braziler from Wells Fargo. Your line is now open. Please go
Speaker #1: ahead.
Speaker #3: Morning,
James D. Rine: Morning, Timur.
James Rine: Morning, Timur.
Speaker #3: Timur. That's the
J. Mariner Kemper: That's the easiest question we've answered so far, right there.
Mariner Kemper: That's the easiest question we've answered so far, right there.
Speaker #4: easiest question we've answered so far right
Speaker #4: there. Timur, are you there?
James D. Rine: Timur, are you there? You might be on mute.
James Rine: Timur, are you there? You might be on mute.
Speaker #3: We might be on mute.
Speaker #1: Your line is now open, Timur. Please ask your question, and ensure your device is not on mute.
Timur Felixovich Braziler: Your line is now open, Timur. Please ask your question-
Operator: Your line is now open, Timur. Please ask your question-
Nathan James Race: Hi.
Timur Braziler: Hi.
Timur Felixovich Braziler: Ensure your device is unmuted locally.
Operator: Ensure your device is unmuted locally.
Speaker #1: locally. Hi.
Nathan James Race: Hi, can you hear me now?
Timur Braziler: Hi, can you hear me now?
Speaker #8: Can you hear me
Speaker #8: now?
Speaker #3: Yep. Yeah.
James D. Rine: Yep.
James Rine: Yep.
J. Mariner Kemper: Yeah. Got you. Hey there.
Mariner Kemper: Yeah. Got you. Hey there.
Speaker #4: Gotcha. Hey
Speaker #4: there. All right.
Speaker #8: 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 add capacity there in terms of overall production?
Nathan James Race: 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 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?
Timur Braziler: 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 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?
Speaker #8: 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 you think there's another leg higher as rates move.
Speaker #8: lower? On
J. Mariner Kemper: On the Heartland loan growth capacity and capability, I touched on that a little earlier. 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 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 are seeing early from them, from the team.
Speaker #4: the Heartland loan growth capacity and capability, I touched on that a little earlier. It is early days the traction is good. We think we can get a lot out of the team that exists.
Mariner Kemper: On the Heartland loan growth capacity and capability, I touched on that a little earlier. 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 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 are seeing early from them, from the team.
Speaker #4: 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.
Speaker #4: But 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 our seeing early from them.
Speaker #4: 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.
J. Mariner Kemper: 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, those pay downs or payoffs from Q3 to Q4, it remained kind of in line. So as rates come down, if they come down, there is some expectation that that could accelerate some. You know, we saw on the combined category of all those numbers together in Q4, went from 3.3 to 3.9. So there was a slight tick up, but I would say that that movement doesn't send a lot of directional or trending in it to us. But certainly there's a possibility that that could accelerate.
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, those pay downs or payoffs from Q3 to Q4, it remained kind of in line. So as rates come down, if they come down, there is some expectation that that could accelerate some. You know, we saw on the combined category of all those numbers together in Q4, went from 3.3 to 3.9. So there was a slight tick up, but I would say that that movement doesn't send a lot of directional or trending in it to us. But certainly there's a possibility that that could accelerate.
Speaker #4: And so as rates come down, if they come down, there is some expectation that that could accelerate some. We saw on the combined together in the fourth category of all those numbers, quarter went from 3.3 to 3.9.
Speaker #4: 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.
Speaker #4: 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.
J. Mariner Kemper: 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. Great. Thank you.
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. Great. Thank you.
Speaker #4: 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.
Speaker #3: Great. Thank
Speaker #1: You .
Speaker #2: Thank you . Tamar . We currently have no further questions . We currently have no further questions , so I will hand back to management for closing remarks .
Operator: Thank you, Timur. We currently have no further questions, so I will hand back to management for closing remarks.
Operator: Thank you, Timur. We currently have no further questions, so I will hand back to management for closing remarks.
J. Mariner Kemper: Yeah, thanks. I've got just a couple of things I want to end on because we're, we're pretty, 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, the, particularly the credit efforts, but the company, in my case, for, 22 years at the, at the helm. I've been doing these calls for 22 years, approaching, you know, 100 quarters of doing this with you all. And, and I know the one thing that I've learned from the investor community is you hate surprises, and you hate being alarmed.
Mariner Kemper: Yeah, thanks. I've got just a couple of things I want to end on because we're, we're pretty, 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, the, particularly the credit efforts, but the company, in my case, for, 22 years at the, at the helm. I've been doing these calls for 22 years, approaching, you know, 100 quarters of doing this with you all. And, and I know the one thing that I've learned from the investor community is you hate surprises, and you hate being alarmed.
Speaker #3: Yeah , thanks . I've got just a couple want to end things I on because we're we're pretty pretty excited about where we are coming off the heels of our acquisition and how remind you all , performed .
Speaker #3: well it want to I just 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 .
Speaker #3: Tom , 40 years . I'm a 31 . Jim's a 32 . We've been leading this the 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 , pushing a , you know , a hundred quarters of doing this with you all .
Speaker #3: 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 .
J. Mariner Kemper: And so what, 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 of things, 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, 9.1, 9.4% CAGR. Net loan growth, 20 years CAGR, 13%. Deposit growth, 20 years, 12.6% CAGR.
And so what, 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 of things, 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, 9.1, 9.4% CAGR. Net loan growth, 20 years CAGR, 13%. Deposit growth, 20 years, 12.6% CAGR.
Speaker #3: In our deck. And just to remind you of a couple of things, what's happened over the last 20 years for UMB with this team to put you at ease around being surprised and alarmed.
Speaker #3: We do the same thing year out . So if you look in and year at net interest income over the last 20 years , the Keger is 12.1% revenue , 20 years , 9.1 9.4% kegger , net loan growth 20 years .
Speaker #3: Kegger 13% . Deposit growth 20 years 12.6% . Kegger charge offs less than 27 basis points over the last 20 years , and particularly during the crisis , you you can see from oh 8 to 12 hour line forms the bottom of the chart where the rest of the industry looks like a shark fin .
J. Mariner Kemper: Charge-offs, less than 27 basis points over the last 20 years, and particularly during the crisis, you, you can see from 2008 to 2012, 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 Q4, and we had 13 basis points to charge off. Compared to 20 years ago, with $2.7 billion of loans, we had 22 basis points to charge off with $2.7 billion of loans against our $38 billion today, and 13 basis points of charge-offs in Q4, Q4. And then you could go to the dividend, for those of you who care about the dividend.
Charge-offs, less than 27 basis points over the last 20 years, and particularly during the crisis, you, you can see from 2008 to 2012, 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 Q4, and we had 13 basis points to charge off. Compared to 20 years ago, with $2.7 billion of loans, we had 22 basis points to charge off with $2.7 billion of loans against our $38 billion today, and 13 basis points of charge-offs in Q4, Q4. And then you could go to the dividend, for those of you who care about the dividend.
Speaker #3: And if 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 .
Speaker #3: We had 22 basis points . Charge offs with 27 , $2.7 billion of loans against our 38 billion today and 13 basis points of charge offs in the fourth quarter .
Speaker #3: Fourth quarter . And then you could go to the the care about dividend dividend . For , you know , 273% , 274% growth in our dividend over the last 20 years .
J. Mariner Kemper: You know, 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-adjusted returns, you can see that 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, and really the point of all that, as I translate it into the last page there, and you see our 20-year compound annual growth rates.
You know, 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-adjusted returns, you can see that 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, and really the point of all that, as I translate it into the last page there, and you see our 20-year compound annual growth rates.
Speaker #3: And in this last year , 5.5% increase year over year . And then , you know , risk weighted risk , risk adjusted returns .
Speaker #3: 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 .
Speaker #3: The intersection of industry leading growth and industry leading quality . And really the point of all that as a translates into the last page there .
Speaker #3: 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 KR of 4.1% , pure median at 3.2 , and the industry at 3.5 .
J. Mariner Kemper: So our diluted earnings per share are 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. Again, 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 our diluted earnings per share are 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. Again, 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.
Speaker #3: And then our tangible book value per share , 6.8% over the last 20 against 4.7 for the KR , peer , and 3.7 for the 4.7 for the industry at the end .
Speaker #3: So I guess the of the day , I get from all of you the most is you hate being surprised , you hate being alarmed , and you like quality .
J. Mariner Kemper: So if you just spend a few minutes on those pages and reflect on that, and then 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 the, 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.
So if you just spend a few minutes on those pages and reflect on that, and then 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 the, 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.
Speaker #3: So if you just spend a few minutes on those pages and reflect on that , and the you think about you've got the same team telling you .
Speaker #3: 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 .
Speaker #3: 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 .
Speaker #3: And I love working with this team and we love talking to you guys . So have a great day .
[Company Representative] (UMB Financial Corporation): 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.
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.
Speaker #4: Thanks 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 Financial's Q4 2025 financial results conference call. Thank you for joining. You may now disconnect your lines.
Operator: Thank you all. This concludes today's UMB Financial's Q4 2025 financial results conference call. Thank you for joining. You may now disconnect your lines.
Speaker #2: Thank you all . This concludes today's UMB Financial fourth 2020 quarter financial results conference call . Thank you for joining . You may now disconnect your lines .
