UMB Financial outlines $30M in remaining cost synergies and projects stable net interest margin as Heartland integration advances

Earnings Call Insights: UMB Financial Corporation (UMBF) Q3 2025

MANAGEMENT VIEW

* J. Kemper, Chairman & CEO, emphasized the successful integration of Heartland Financial, stating, "We successfully completed the full systems and brand conversion of all HTLF locations," and highlighted "a new record for gross loan production, strong fee income, consistent credit quality and continued positive operating leverage."
* Kemper reported net income available to common shareholders of $180.4 million, including $35.6 million of acquisition expenses, and net operating income of $206.5 million or $2.70 per share. Net interest income totaled $475 million, up $8 million from the prior quarter, attributed to "continued organic growth in average loans and earning assets."
* Fee income rose 12.4% quarter-over-quarter, with trust and securities processing income benefiting from "solid contributions from corporate trust, fund services and private wealth." Investment banking saw "nearly a 14% increase from the second quarter."
* Kemper noted 8% annualized growth in both average loans and deposits, with quarterly loan production surpassing $2 billion. The allowance increased to 1.07% of total loans and net charge-offs were 20 basis points, mostly from credit cards.
* Kemper stated, "We continue to expect charge-off levels to remain near or below our historical averages for the remainder of the year."
* The board declared a quarterly dividend of $0.43 per share, a 7.5% increase from the prior quarter.
* Ram Shankar, Executive VP & CFO, stated, "Our third quarter results included $40.7 million in net accretion and net interest income, $5.6 million of which was related to accelerated accretion from early payoffs of acquired loans."
* Shankar outlined that "operating expenses again included $23.4 million in acquisition-related amortization of intangibles" and that "fourth quarter operating expense to be in the $375 million to $380 million range."
* Shankar reported a 6.8% increase in total institutional assets under administration to $642 billion and a 49% increase in new business for Specialty Trust and Agency Solutions year-to-date.

OUTLOOK

* Shankar expects "fourth quarter operating expense to be in the $375 million to $380 million range to include a $2 million charitable contribution and the expected ramp-up in performance-related incentive comp net of cost saves."
* Core net interest margin guidance is for the "fourth quarter margin to be essentially flat" compared to the third quarter's 2.78%.
* The company continues to project "charge-off levels to remain near or below our historical averages for the remainder of the year."
* Full-year 2025 effective tax rate expected between 19% and 22%.

FINANCIAL RESULTS

* Net income available to common shareholders was $180.4 million, including $35.6 million in acquisition expenses. Net operating income was $206.5 million or $2.70 per share.
* Net interest income reached $475 million, up 1.7% from the second quarter, and fee income increased 12.4% sequentially.
* Total institutional assets under administration grew to $642 billion. Specialty Trust and Agency Solutions reported a 49% increase in new business year-to-date, and public finance closed 117 deals in 2025, a 22% increase over 2024.
* The allowance for loan losses was 1.07% of total loans, and total net charge-offs were 20 basis points.
* The common equity Tier 1 ratio climbed to 10.70%, a 31-basis point increase from June 30.

Q&A

* Jon Arfstrom, RBC Capital, asked about sustainability of loan production improvements. Kemper responded that loan growth is "really across all categories, all regions" and emphasized early signs of success from Heartland: "It's just super early days."
* Arfstrom also questioned credit quality. Thomas Terry, Chief Credit Officer, said, "We still feel very good about where we are today and what we see over the next couple of quarters in terms of charge-offs."
* David Long, Raymond James, questioned expense outlook post-conversion. Shankar responded, "We expect all the cost saves that we expect from Heartland at the time of the announcement to materialize by the end of first quarter."
* Long followed up on integration of Heartland lenders. Kemper said the transition allowed UMB to "improve what they're delivering as far as turnaround times and quality of the way we lend."
* Brian Wilczynski, Morgan Stanley, asked about loan growth opportunities from Heartland. Kemper cited "an unending opportunity with what we can do in California" and highlighted upside surprises in Rockford and Wisconsin.
* Wilczynski also asked about M&A. Kemper said, "We do believe strategically, over time, we want to augment our loan growth ultimately as a company with acquired deposits through M&A."
* Jared Shaw, Barclays, inquired about capital deployment. Shankar stated, "Our capital build to get back to 11%, that will happen within 1 or 2 quarters on the pace that we're growing."
* Shaw also asked about the securities portfolio. Shankar noted the treasury managed portfolio is expected to be "about $24.5 billion."

SENTIMENT ANALYSIS

* Analysts focused on sustainability of loan growth, integration of Heartland, and expense management, with a generally positive but probing tone.
* Management delivered confident responses, with frequent mentions of "early days" and "strong pipeline," and reiterated expectations for cost saves and credit performance. Kemper stated, "We continue to expect charge-off levels to remain near or below our historical averages."
* Compared to the previous quarter, the current call included more detailed discussion on cost synergies and integration milestones.
* Management tone remained confident in prepared remarks and constructive with analysts, while analysts maintained a positive but inquisitive stance.

QUARTER-OVER-QUARTER COMPARISON

* Guidance language shifted to focus on realization of remaining cost synergies by end of Q1 2026, compared to a more general expense outlook in Q2.
* Strategic focus strengthened around maximizing Heartland integration benefits and expanding in new markets such as California, Rockford, and Wisconsin.
* Analysts continued to prioritize questions on loan growth, expense synergies, and integration progress, but pressed more on timing and specifics of cost saves.
* Operating expenses rose due to higher acquisition-related costs, but management expects costs to decline as synergies are realized.
* Management's confidence in credit quality and growth pipeline remained consistent with the previous quarter.

RISKS AND CONCERNS

* Management cited an increase in nonperforming loans driven by two legacy HTLF loans, but indicated "we don't expect that there will be any significant change to our outlook for charge-off levels."
* Shankar noted fee income is subject to market value changes in equity positions, particularly Voyager stock.
* Analysts questioned the sustainability of fee income excluding one-time items and the impact of deposit mix shifts on margin.
* Management acknowledged that deposit cost pressures could persist but expects margin to remain stable due to balance sheet positioning.

FINAL TAKEAWAY

Management underscored a successful quarter marked by record loan production, robust fee income, and solid progress integrating Heartland Financial. The company expects to realize the remaining $30 million in cost synergies by first quarter 2026 and projects stable net interest margin in the near term. Credit quality remains strong, and capital ratios are improving, supporting further strategic expansion and shareholder returns.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/umbf/earnings/transcripts]

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