UMB Financial Q4 2024 Earnings Report

UMB Financial EPS Results

• Actual EPS: $2.49
• Consensus EPS: $2.25
• Beat/Miss: Beat by +$0.24
• One Year Ago EPS: $2.29

UMB Financial Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $412.27 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

UMB Financial Announcement Details

• Quarter: Q4 2024
• Date: 1/28/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, January 29, 2025
• Conference Call Time: 9:30AM ET

UMB Financial (NASDAQ:UMBF) operates as the bank holding company that provides banking services and asset servicing in the United States and internationally. The Commercial Banking segment provides commercial loans and credit card; commercial real estate financing; letters of credit; loan syndication, and consultative service; various business solutions including asset-based lending, mezzanine debt, and minority equity investment; and treasury management service, such as depository service, account reconciliation, cash management tool, accounts payable and receivable solution, electronic fund transfer and automated payment, controlled disbursement, lockbox service, and remote deposit capture service. The Institutional Banking segment offers fund, asset management, and healthcare service to institutional clients; and fund administration and accounting, investor service and transfer agency, mutual fund service, alternative investment service, fixed income sale, trading and underwriting, and corporate trust and escrow service, as well as institutional custody service. This segment also provides healthcare payment solution includes custodial service for health saving accounts and private label, multipurpose debit cards to insurance carriers, third-party administrator, software companies, employers, and financial institutions. The Personal Banking segment offers deposit account, retail credit card, private banking, installment loan, home equity line of credit, residential mortgage, as well as internet banking, ATM network, private banking, brokerage and insurance service, and investment advisory, custody, and trust services. It operates through a network of branches and offices. The company was founded in 1913 and is headquartered in Kansas City, Missouri.

UMB Financial Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good morning. Thank you for attending today's UMB Financial 4th Quarter 2024 Financial Results Conference Call. My name is Cole, and I'll be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I'd now like to hand the call over to Kay Gregory.

[Operator]

Please go ahead.

[Kay Gregory, Investor Relations at UMB Financial]

Good morning and welcome to our Q4 2024 call. Mariner Kemper, Chairman and CEO of UMB Financial Corporation and Ram Shankar, CFO, will share a few comments about our results and then we'll open the call for questions from our equity research analyst. 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 the pending acquisition as well as other opportunities management proceeds. Forward looking statements and any pro form a metrics are subject to assumptions, risks and uncertainties as outlined in our SEC filings and summarized in our presentation beginning on Slide 49.

[Kay Gregory, Investor Relations at UMB Financial]

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

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

Thank you, Kaye, and good morning, everyone. First off, congratulations to our Kansas City Chiefs returning to the Super Bowl in a couple of weeks, exciting times in Kansas City. At UMB, we're very excited to announce earlier in January that we received approval from the OCC and VED to complete the acquisition of HCLF. We anticipate closing the deal on Friday, January 31. I'm extremely proud of what our associates have achieved during the past several months.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

As evidenced by our Q4 and full year 2024 results, the team have remained focused on sustaining and growing our day to day business activities, while at the same time supporting integration efforts and conversion planning. I want to express my appreciation for the huge amount of energy and collaboration from both UMB and Heartland Associates. Both teams have been working very hard to ensure a successful transition for our new customers and associates. As you've seen, Heartland filed an 8 ks yesterday afternoon with a summary of their 4th quarter results. We've included some of the key performance indicators in the appendix of our deck on Slide 46.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

The strong value proposition of the deposit franchise was evident as seen by the 6% linked quarter annualized increase in customer deposits and attractive 2.13% cost of total deposits. In anticipation of the merger close, Heartland preemptively affected the resolution of certain non core loans and bonds, resulting in lower loan balances and higher levels of net charge offs during the Q4. These credits, including those on Heartland's watch list and all of the bonds were identified during our due diligence process, including the bonds we had earmarked for sale at close. The favorable resolution of these assets better positions our pro form a balance sheet at close, including a reduction in non performing loans. Additionally, the deleveraging of the balance sheet put it in near 50 basis point boost in Heartland's regulatory capital ratio and further improved its loan to deposit ratio.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

As we discussed in our original acquisition modeling, we will maintain a conservative credit mark on Heartland's loan. And as a combined entity, we expect our ACL coverage ratio will also increase. Now turning to our results released yesterday afternoon, we had a phenomenal quarter in 2024 on a strong note. Our results, which contain several record setting metrics, are even more impressive given the extra integration work completed by so many of our team. We set new company records with 2024 annual operating income of $461,700,000 net interest income that surpassed 1,000,000,000 and fee income of $628,100,000 For the Q4, we reported GAAP earnings of $120,000,000 or $2.44 per share, driven by strong performance across the board.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

On an operating basis, we earned $2.49 per share. Net interest income increased 8.7% in the 3rd quarter, driven by an 11 basis point increase in net interest margin and strong earning asset growth. As expected, we benefited from strong balance sheet growth as well as deposit cost reduction on our index deposit book as short term rates have come down. On a linked quarter basis, the total cost of funds beta was 58% and our earning asset beta was just 37%. The beta on interest bearing deposits was 55%.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

Balance sheet growth included a very strong 14.8% linked quarter annualized increase in average loan balances, driven by yet another quarter of record top line production of $1,600,000,000 While C and I led the growth for the quarter, we also saw solid increase in CRE and in consumer real estate. For comparison, banks that have reported so far have had a median annualized increase in average loan balances of just 3.1%. Credit quality in our portfolio remains excellent with 14 basis points of net charge offs for the quarter and just 10 basis points for the full year. C and I continues to perform well with just 3 basis points of net charge offs for the full year. Non owner occupied CRE has had a net charge off ratio of 0 for the past 4 years.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

And in fact, our charge offs are less than $900,000 in total in this category since 2016. Our non performing ratio remained flat at 8 basis points for the Q4. On a longer term basis, I'm proud of our track record that puts us near the top of the industry. From 2004 to 2024, our non performing loan ratio has averaged just 0.38% compared to 0.92% for our peers and approximately 1.9 percent for the industry as a whole. On the other side of the balance sheet, our average total deposits grew $2,700,000,000 or nearly 31% on a linked quarter annualized basis, largely driven by the activity in our commercial and institutional customer base.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

Average DDA balances increased 48% linked quarter annualized to $10,600,000,000 For comparison, banks that have reported 4th quarter results so far have a median annualized average deposit increase of just 7.3%. The strength of our diversified financial model was evident this quarter with the continued fee income growth across all segments. The top contributors include 12b1 fees, money market revenue and trust and securities processing income. To highlight a couple of successes behind that growth, private wealth teams brought in a net new asset level of $1,300,000,000 in 2024, a 75% increase over 23. And institutional assets under administration continue to expand, up 18% year over year to stand at $526,000,000,000 Corporate trust assets, part of the institutional totals, have grown significantly over the past 10 years to $42,400,000,000 representing a compound annual growth rate of 14%.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

And in our Healthcare business, the number of HSA accounts grew steadily from just 588,000 accounts at the end of 2014 to more than 1,600,000 accounts at the end of 2024 for a CAGR of 11%. As you know, we focus on operating leverage rather than specific expense growth targets. Compared to the Q4 a year ago, we posted positive operating leverage of 3.8 percent on an operating basis. Ram will provide more detail on income and expense drivers shortly. Finally, our capital levels continue to build.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

We ended the quarter with a CET1 ratio of 11.29 percent, an increase of 7 basis points from the Q3 and 35 basis points from a year ago of 2023. As a reminder, our capital levels don't include the $232,000,000 forward equity offering agreement that we announced in April, which we expect to settle in full during the Q1 of 2025. We're very pleased with our strong results for the quarter coupled with the opportunities we see for a combined UMB and HCLF in the Q1. We're very excited about what 2025 and beyond will bring. We continue to believe that the addition of HPLS is a great fit from a strategic, financial and cultural perspective and we look forward to reporting on a combined basis at the end of the Q1.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

Now I'll turn it over to Ram for more detail.

[Ram Shankar, Executive VP & CFO at UMB Financial]

Thanks, Bernard. Net interest income of $269,000,000 represented a linked quarter increase of $21,600,000 or 8.7 percent, reflecting balance sheet growth, favorable reinvestment yields, lower interest expense on index deposits that reprice and a mix shift in funding composition including the strong DDA growth that we experienced during the quarter. These benefits were partially offset by the repricing of variable rate loans. The $1,600,000,000 or 3.9 percent increase in average earning assets was driven by strong loan growth Mariner mentioned along with an additional $586,000,000 in average securities and $102,000,000 in Fed funds sold and resale agreements. During the last two quarters, we began pre purchases of nearly $1,000,000,000 of U.

[Ram Shankar, Executive VP & CFO at UMB Financial]

S. Treasuries and agency mortgage backed securities in advance of our planned delevering of certain bonds held by Heartland. The average impact of these pre purchases was approximately $168,000,000 in the 4th quarter. Average interest bearing liabilities increased 1.6% from the linked quarter with increases in interest bearing deposits partially offset by the decrease of $1,100,000,000 in borrowed funds reflecting the repayment of borrowings under the BTFP plan and FHLB advances. Average DDA growth was driven primarily by corporate trust and capital markets, where DDA can fluctuate based on tax or bond payments and other trustee activities, particularly at quarter year end.

[Ram Shankar, Executive VP & CFO at UMB Financial]

The percentage of index deposits remained relatively flat with approximately 35% of total deposits hard index to short term interest rates. As Fed fund rates changes, these deposits reprice immediately. An additional 17% of our deposits are soft index, balances negotiated at current prevailing market rates. On these soft index deposits, we will generally move rates pretty quickly following Fed rate moves. Overall, we continue to expect our deposit betas on the way down to be steeper than peer banks as we experienced this quarter.

[Ram Shankar, Executive VP & CFO at UMB Financial]

Net interest margin for the Q4 increased 11 basis points sequentially to 2.57%. The primary drivers of the increase were the positive impacts of 31 basis points from repricing of interest bearing deposits, 9 basis points from reduction in borrowing levels, partially offset by a negative 16 basis points related to loan repricing and mix, 6 basis points related to excess liquidity levels and 5 basis points related to changes in the benefit of free funds. Looking into the next quarter, given the anticipated closing date of January 31, our Q1 results will include 3 months of UMB operations and 2 months of hard lift and all the yet to be determined impacts from purchase accounting accretion associated with the merger. Based on our outlook for no additional rate cuts this quarter, we expect UMB standalone core margin to be relatively flat to Q4 2024 levels. As shown on the right side of Page 32, 70% of loans repriced within the next 12 months with the majority of those indexed to short term rates and adjusting monthly.

[Ram Shankar, Executive VP & CFO at UMB Financial]

Details of the hedges we have in place are also on that slide. During the Q4, we added 2 floor spreads each with $250,000,000 of notional value. At year end, we had $3,000,000,000 of notional value hedges comprised of 3 floor contracts and 10 floor spreads. Based on the forward start arrangements, dollars 2,250,000,000 of these $3,000,000,000 hedges are within their payment windows with the remainder becoming effective over the next 60 days. Assuming no additional rate cuts, the net impact of these hedges on our net interest income is expected to be fairly modest.

[Ram Shankar, Executive VP & CFO at UMB Financial]

The combined AFS and HCM portfolios averaged $12,800,000,000 an increase of 4.6% from the prior quarter. As I mentioned above in the 3rd and 4th quarters, we preemptively bought additional securities in advance of closing the HCLF acquisition. As discussed at the time of the announcement, we had identified a pool of securities in HCLF's portfolio that didn't match our investment profile currently standing at approximately $2,000,000,000 We expect to sell any remaining bonds in this pool at close, likely reinvesting the proceeds into agency mortgage backed securities or U. S. Treasuries.

[Ram Shankar, Executive VP & CFO at UMB Financial]

The average purchase yield in our portfolio was 4.54% for the quarter, while securities rolling off had a yield of 3.39%. We expect $1,500,000,000 of securities with an average yield of 2.62 percent to roll off over the next 12 months. The reinvestment of these cash flows at the current accretive yield in bonds or loans will help that increase margin regardless of any threat action. Turning back to the income statement. Non interest income was $265,200,000 a linked quarter increase of 4.1%.

[Ram Shankar, Executive VP & CFO at UMB Financial]

We recognized a pretax gain of $4,100,000 in the 4th quarter on the sale of UMB Distribution Services, part of our asset servicing business. Fee income in the quarter also included $1,000,000 in gains on the sale of other non core assets. Excluding these two items, our core fee income of approximately $160,000,000 reflected strong traction in our institutional and private wealth business lines. Brokerage income increased $2,900,000 linked quarter driven by higher 12b-1s and money market revenue. Corporate Trust off balance sheet money market balances have increased by nearly 35% in the past 12 months and now stand at $16,300,000,000 This quarter has further demonstrated our ability to garner both on balance sheet and off balance sheet deposits, thanks to the strength of our diversified business model.

[Ram Shankar, Executive VP & CFO at UMB Financial]

Trust and securities processing income where the strong private wealth and asset servicing activity Mariner mentioned is captured increased $2,600,000 or 3.6 percent from the 3rd quarter. Partial offsets include some market related variances in investment security gains and COLI income, which each decreased $2,000,000 from the 3rd quarter. The reported non interest expense of $270,400,000 for the quarter included pretax acquisition expenses of $3,700,000 Additionally, within the other expense line, we had $4,500,000 of additional operating losses in the 4th quarter. On an operating basis, which excludes the merger charges, non interest expense increased $15,800,000 linked quarter and included a $15,400,000 increase in salary and bonus expense as our strong performance in several businesses continued resulting in higher incentive accruals. While we calibrate our accruals on these performance based measures throughout the year based on expected performance, our strong second half results, particularly our 4th quarter meant that these accruals needed to be revised higher.

[Ram Shankar, Executive VP & CFO at UMB Financial]

Expense offsets included lower bank card expense and lower supplies expense. The $1,800,000 decrease in deferred compensation expense is the offset related to COLI income. Excluding some of the items I mentioned, we would put our quarterly normalized starting point for expenses closer to $250,000,000 Additional details are available in our slides and press release. Separately, in the Q1, we expect to pay approximately $2,000,000 in dividends on preferred stock that we will assume from Heartland. Finally, our effective tax rate was 18.5% for both the Q4 and full year 2024 compared to 17% for full year 2023.

[Ram Shankar, Executive VP & CFO at UMB Financial]

The 2024 increase primarily related to a smaller portion of income from tax exempt municipal securities and higher non deductible acquisition costs versus 2023. For full year 2025, our preliminary estimate, including the HTLF acquisition is an effective tax rate of 20% to 24%. Now I'll turn it over to the operator for the Q and A session.

[Operator]

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

[Jared Shaw, Managing Director at Barclays]

Hey, good morning.

[Ram Shankar, Executive VP & CFO at UMB Financial]

Hey, good morning, Jared.

[Jared Shaw, Managing Director at Barclays]

Good morning.

[Jared Shaw, Managing Director at Barclays]

Maybe just starting with the Heartland deal and the impact of their 4th quarter on, I guess, how that compares to the marks that you had assumed at the beginning. Can you just sort of walk through what's

[Jared Shaw, Managing Director at Barclays]

if

[Jared Shaw, Managing Director at Barclays]

the change in non performers, if that changes your total assumed mark or how we should think about that? And then the $2,000,000,000 of securities that you said that were identified, how much is still left to sell versus what they've already cleaned up?

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

Yes, Jared, this is Mariner. Thanks for the question. We remain super excited about the impact that Arlen is going to have. I would start by saying and then I'll answer directly just to kind of set the stage for any future questions might come on the call around Heartland. Obviously, there are some stringent rules about how we operate separately as companies.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

And we have given you guys in the deck, there's a slide in there that sort of summarizes all that happened. And in our prepared remarks, I'm not really going to be giving you a whole lot more than what we already disclosed just because we are operating as separate companies until we close on Friday. But I will try to give you a little more high level color in the sense that basically, if you think about when we announced this transaction in April 24, the pro form a assumptions we made around $72,000,000,000 of securities and capital levels of approximately 10% and the importance of the demand or the overall customer deposits sticking and being the reason that we're really doing this transaction, all remain very much intact. So I guess I would what I would say is that when you think about all that we assumed in April with some puts and takes, some things are better, some things were worse. At the end of the day, the major drivers of this transaction remain very much intact, whether it's capital levels or customer deposits being intact.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

As a matter of fact, customer deposits you see in the deck have actually grown since we announced the deal. And by the time we close nonperforming loans, we'll be down from where we announced.

[Jared Shaw, Managing Director at Barclays]

Okay. All right. Thanks for that color. And then looking at the expenses, I think you said that $250,000,000 is a good is that a good starting point, did you say? Or that's a good base for $25,000,000 And how should we think about incentive accruals starting off the year and sort of moving through the year on the U.

[Jared Shaw, Managing Director at Barclays]

M. Profile? Yes.

[Ram Shankar, Executive VP & CFO at UMB Financial]

Jared, it's Rob. So yes, $250,000,000 is the normalized 4th quarter run rate for all the things that I mentioned, right? So as we said, dollars 15,000,000 of the $270,000,000 excess is just catch up and accrual. So those all get reset on day 1 to normal levels, typically 100%. And then the only thing that happens in the Q1 as you guys know is about $8,000,000 to $10,000,000 of FICA resets and all the things that are part of the Q1 resets, payroll taxes and all that.

[Ram Shankar, Executive VP & CFO at UMB Financial]

So $250,000,000 is the steady state run rate. You might see some elevated expenses just because of the FICA payroll reset. Again, I'm talking about core UMB operations before we acquire Heartland. So that will be slightly higher in the Q1 for core UMB just for usual seasonal resets. Okay.

[Jared Shaw, Managing Director at Barclays]

Thanks. And if I could just sneak one more in, you talked a little bit about targeted CRE growth. Where are you is that more attractive to you now because better spreads? Or are you seeing better terms and conditions? Or what's causing you to be a little more excited about CRE here?

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

I'm not sure I recall those comments, but I'm more excited about it. I would say, I'm not exactly sure what you're referring to. But we remain, I would say, in the same place as we have been. We like the category. We're always looking for high quality developers, partners, sponsors and largely in the industrial and multifamily space.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

And I guess nothing new there. There's demand there have been some demand supply demand issues there really related to interest rates and activity. But as far as our interest goes, we remain ever same level of interest in the space. Great. Thanks.

[Operator]

Our next question is from Brian Wieczynski with Morgan Stanley. Your line is now open.

[Brian Weinstein, Head of Global Markets at Morgan Stanley]

Hi, good morning. Thanks for taking my question. First question is on the net interest margin. So there's been a lot of volatility in the forward curve over the past several weeks. Can you just talk about what the range of potential outcomes is for NIM if we get, say, no cuts over the next few months versus the 2 that a lot of people are expecting for 2025?

[Brian Weinstein, Head of Global Markets at Morgan Stanley]

Thanks.

[Ram Shankar, Executive VP & CFO at UMB Financial]

Yes. Hey, Brian, good morning. This is Ram. I think when you think about the yield curve environment, we've said this before, higher for longer is actually a pretty good environment for us, especially when you think about some of the data points we've shared in our deck. We have $1,500,000,000 of securities rolling off at $260,000,000 kind of yields that we bought in the Q4 at $454,000,000 right?

[Ram Shankar, Executive VP & CFO at UMB Financial]

So as long as the slope of the curve remains pretty close to where it is and if there are no additional rate costs, there's no more pressure on loan yields. Obviously, there's not a lot of movement on the deposit costs either. So that's not a bad environment for us to be able to grow NII without additional loan growth and then there's the component of added loan growth on top of it. So if you look at our interest rate simulation, stand alone again, we're slightly liability sensitive. So we don't expect this is actually a really good rate environment for us.

[Ram Shankar, Executive VP & CFO at UMB Financial]

Higher for longer is a good one from the NII and a new perspective. So we don't give specific guidance on range of outcomes. But again, there's a lot of fixed rate loans that are still repricing 200, 300 basis points higher, the $1,500,000,000 of securities cash flows. And then the last caveat always is what happens to DDA balances that can impact or deposit growth that can impact any particular quarter's NII.

[Brian Weinstein, Head of Global Markets at Morgan Stanley]

That's really helpful. Thank you. And then 4Q was another really strong quarter for loan growth, specifically new loan production. Can you talk about any trends that you've noticed post election specifically? Is there anything you're seeing in borrower sentiment or activity levels or anything that impacts your view on what loan growth looks like going forward?

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

It's a little Brian, it's a little too early to tell what the new administration's impact is on that. I would say if you separate activity from sentiment, activity I would say it's just too early to tell. Sentiment wise there is in general a pretty bullish positive sentiment that there will be a better business environment which should drive more activity. But it's too early to tell really what that means.

[Brian Weinstein, Head of Global Markets at Morgan Stanley]

Okay, great. Thank you for taking my question.

[Jim Rine, Chief Executive Officer, UMB Bank at UMB Financial]

Yes, this is Jim Ryan. The only thing I would add to that is a quick follow-up is, if you remember, our whole investment thesis is market penetration. So regardless of the political climate, we are underpenetrated in each market with the exception of Kansas City. So there's a runway to grow, which what I mean by that is we're basically taking other banks' clients through the market penetration versus additional economic activity. So we feel quite bullish about our position in 2025.

[Brian Weinstein, Head of Global Markets at Morgan Stanley]

That's really helpful. Thank you again.

[Ram Shankar, Executive VP & CFO at UMB Financial]

Thanks, Brian.

[Operator]

We have a question from David Long with Raymond James. Your line is now open.

[Ram Shankar, Executive VP & CFO at UMB Financial]

Good morning, David.

[David Long, Managing Director at Raymond James Financial]

Good morning, everyone. In the fee based businesses, UMB has shown positive momentum in trust, securities processing, brokerage throughout the year. As we go into 2025, any headwinds that we need to think about in some of these fee based business

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

that could slow the momentum? No, no headwinds at all actually I would say. So if you take the funds we'll take the biggest pieces. So if you take fund services, the growth in fund services largely comes from alternatives, the alternative space, which is really doesn't correlate with what's happening in the public markets. So regardless of what happens to the public markets, that's really about flows.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

So as funds generate assets and flows into their fund vehicles, that's where the fees against asset size comes and it doesn't move up and down with the market as correlated as the public equities and fixed income do. So that's where that growth comes from. It's just fund flows and fund generation, new fund creation, etcetera. So the profile for that business remains very strong. And as we said in previous quarters, there's been a lot of disruption in that space with PE coming in and rolling up fund service providers.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

That's been good for us and continues to be good for us. And we continue to have exceptional ratings from a customer service and outcomes perspective within the industry. So very, very good profile forward looking for that business. We're also very innovative. So we control our technology and are helping customers create new ways to go to market.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

So very good profile there. Corporate trust really also has a very strong forward looking profile. As the government continues to spend and we do all these infrastructure projects, profile just continues to grow for the traditional part of our corporate trust business as we sit in a pole position within our footprint to do all the infrastructure work from an escrow trustee and paying agent perspective, along with the 12b-1 fees that come along with that business as projects are generated. Aviation is the other big vertical there within Corporate Trust. It remains very strong as well as the sort of travel business has turned around and picked up.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

There is a huge short supply of airplanes. And so as that releases and the plane Boeing is able to build and get their planes off out of the manufacturing process as well as Airbus and others, it stands to really see a nice pipeline of business for us in that space. And then we launched CLOs this last year and we're off to a good start this year. Jim, I think we've already done this year what we did last year in January. So the CLO space we're very excited about.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

And then we have our wealth business, which we've already talked about as we've had very, very strong results in our wealth business and our Investor Solutions and HSA business. We gave those results to you in the opening remarks. So all in all, I'd say profile is fantastic looking forward for all those businesses. No real headwinds to speak of at all.

[Jim Rine, Chief Executive Officer, UMB Bank at UMB Financial]

No, the only thing I would add is we've also continued to invest, as you know, not only in people, but we upgraded operating systems in our Fortiact side of fund services as well as corporate trust. So we're making these additional investments to handle increased

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

volume. The new footprint that comes with Parkland should help corporate trust. Also it's a very localized business, so doing business with local law firms. And so as we put our signs up and our offices up across all these new states and markets that should benefit our Corporate Trust business as well.

[David Long, Managing Director at Raymond James Financial]

Perfect. Thanks, Werner. Appreciate all that color. And then typically Q4 is strong with deposits. Are you seeing normal seasonal outflows from the public funds at this point?

[David Long, Managing Director at Raymond James Financial]

And what other moving parts within deposits should we be thinking about for the standalone bank here?

[Ram Shankar, Executive VP & CFO at UMB Financial]

Yes. Usually hey, Dave, this is Ram. Yes, second half of December is when we start seeing public funds inflows. It can be it'll range anywhere from $800,000,000 to $1,000,000,000 and usually early February is when it starts dissipating when actual municipal payments are made and bond and tax payments are made out of these municipalities. So that's the big driver of that.

[Ram Shankar, Executive VP & CFO at UMB Financial]

And then as we said with the Q4 and there's always some seasonality even in the Corporate Trust business with bond and tax payments and so it's always hard to predict that. So those are the only two things that can materially change our deposit pipeline and our outlook for the Q1.

[David Long, Managing Director at Raymond James Financial]

Great. Thanks, Ram. Appreciate it. Thanks, guys.

[Operator]

We have a question from Ben Gurlinger with Citi. Your line is now open.

[Ben Gerlinger, Vice President of Equity Research at Citigroup]

Hey, good morning.

[Ram Shankar, Executive VP & CFO at UMB Financial]

Hey, Ben. Hey, Ben.

[Ben Gerlinger, Vice President of Equity Research at Citigroup]

So, UMB's I call it legacy UMB,

[Ben Gerlinger, Vice President of Equity Research at Citigroup]

as soon

[Ben Gerlinger, Vice President of Equity Research at Citigroup]

to be Friday, that's really strong loan growth, good funding mix, some really healthy margin, fees were good, expenses were a little higher than I would have guessed, but all equal, it's a pretty healthy result. And I know you have to be a bit tactical with how you respond to Heartland's questions. When you just look at Heartland's kind of last couple of quarters, they seem to be shrinking a bit. The margin came in. As you talked to your on charge offs, the credit, what they've experienced, it seems like you said that kind of what to expect.

[Ben Gerlinger, Vice President of Equity Research at Citigroup]

When I look at your the initial kind of pro form a at the day of announcement, you assumed $200,000,000 in change roughly of net income from Heartland. And when I look at Q4, I see a pretty big gap. I would just annualize Q4 Heartland to what to expect for 2025 on the pro form a. Can you kind of help me out with like squaring that circle of like what you guys are actually expecting for the addition for the pro form a UMB? Like what should we expect in 2025?

[Ben Gerlinger, Vice President of Equity Research at Citigroup]

I know you have a lot of opportunity for marks and cost savings down the next 18 months. But just putting two balance sheets together, I'm not seeing the numbers that you previously assumed.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

Well, I think so you're specifically I think focused on the loan balances as a prospective contributor to earnings. I think that's your specific question there, right? So loan balances have come down. Is that kind of what you're specifically getting at?

[Ben Gerlinger, Vice President of Equity Research at Citigroup]

Loan balances

[Ben Gerlinger, Vice President of Equity Research at Citigroup]

and frankly just I mean

[Ben Gerlinger, Vice President of Equity Research at Citigroup]

the net income in general. Like even if I back up provision out of Heartland there's an annualized, but there's still a pretty big gap.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

So I think when we talked about the pro form a, I would say that really all that we assumed is still pretty well intact related to like I said before the capital levels and all the other puts and takes. The loan balances will at the front end of this be a bit of a drag from the pro form a from our expectations. It's hard to tell what we'll be able to do. I mean it's too early to tell what we'll be able to do with that on a go forward basis. Our machine, the legacy machine as you call it is very strong.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

So I think while their prospects and customers wait for a conversion and likely to slow their historic growth rate a bit. I would think you would expect that. We expect that. We hope to desire to and hope to make up for that with our abilities to leverage our sales force across their footprint and our footprint. We'll see.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

I don't I can't until we really get in there and assess what we've got and the year unfolds can't really tell. But that's our expect we expect and hope to make up for some if not all of that. And then I think we talked about this from the get go that is really we really expected to see the lift in 2026 not in 2025 anyway. So that really is more of the expectation is that on a combined basis that we're really rolling on all cylinders in 2026.

[Ben Gerlinger, Vice President of Equity Research at Citigroup]

Got it. Okay. That is helpful. And then when you think about the credit, I know a lot of the cost savings come with conversion later this year. And I guess going into 2026 is where you should kind of really see the pro form a numbers start to dance.

[Ben Gerlinger, Vice President of Equity Research at Citigroup]

But if you think about just the credit experience that they've had, and you called out that some of it is to be expected, but the rest of the loan portfolio, I'm assuming, underwent the same stringent combing through that you went through. Like should we expect some integration noise on charge offs as well once you do become pro form a come Friday?

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

Well, here's what I'd say about that. We did our diligence, which we shared with The Street that we had full diligence. What I'd say is what you saw happen in the 3rd Q4 was all identified through their existing process and our diligence process. So it was all identified. And so that's what you see there.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

And as far as what's left that wasn't identified and resolved, I mean their process they had to do it independently, right? They've got their accountants etcetera and they were operating their own process and following their own procedures and policies to reserve. That was their process as they were they use a kind of a reserving against potential losses process. And I think as to best of our knowledge they have a reserve against everything that they've identified, right? And in conjunction with working with their regulators and their accountants and they're following the processes and procedures, theoretically they've reserved going into 25 they reserved for everything identified.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

So that's the best I can tell you before it's under our watch. And so again, we're operating separate companies and they're following their process. And best of our knowledge, they've done that.

[Ben Gerlinger, Vice President of Equity Research at Citigroup]

Got you. That's really helpful color. I appreciate it. Congrats on that.

[Operator]

Our next question is from Nathan Race with Piper Sandler. Your line is now open.

[Nathan Race, Director & Senior Research Analyst at Piper Sandler Companies]

Hey, everyone. Good morning. Thanks for taking the questions. Just going back to the loan growth discussion, I appreciate that it seems like you guys were able to get in front of some of the problem credits that maybe don't fit your credit box ahead of the deal closing later this week. And so just curious with maybe less intentional runoff of the HTLF post closing, if you think kind of the addition of HTLF is accretive or maybe just neutral to the overall kind of company's loan growth outlook going forward?

[Nathan Race, Director & Senior Research Analyst at Piper Sandler Companies]

I mean this year you guys put up 8% loan growth and historically it's been at least in the high single digit range. So just curious on any thoughts on kind of the combined loan growth capacity of the combined entity going forward?

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

Yes. I guess I would take you back to one of the comments I just made a minute ago about that we do expect 25,000,000 that Heartland's contribution to the overall loan growth will slow from its previous couple of years growth rate, largely just because their prospects and customers will be waiting for a conversion, right? So I don't know what that slowing will ultimately be, but we expect some slowing. We expect that our book, we don't see anything in the way of us continuing to do what we've been able to do for the last 21 years showing demonstrating near double digit loan growth every quarter and every year. So we don't expect that to change for us.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

And it is possible that we can take our engine and make up for the slowing that will probably persist in 2025 with their book. We don't know that we'll be able to do that, but that's possible. And we I would reiterate that the expectation really is that on a combined basis after integration and after conversion, the well oiled machine that we expect to deliver on starts more holistically in 2026.

[Nathan Race, Director & Senior Research Analyst at Piper Sandler Companies]

Got it. That's helpful. And just going back to expenses, Ram, I think you alluded to like $250,000,000 kind of the core legacy run rate come out of the Q4. Heartland has been run around $110,000,000 So if you get 2 thirds of an impact from Heartland in 1Q, is that is it fair to assume combined kind of core expenses are in that kind of $320,000,000 to $330,000,000 range for 1Q?

[Ram Shankar, Executive VP & CFO at UMB Financial]

Generally doing the math right there, Nate. Yes, I would expect. Again, some of the cost saves are trickling in, right? So when we did the announcement, we still feel pretty good about it. We're going to get 27.5% of their cost saves over time, including 40% in the 1st year, the stop year of 2025.

[Ram Shankar, Executive VP & CFO at UMB Financial]

So obviously, we're still working through that with various work streams, But generally, you're thinking about it right.

[Nathan Race, Director & Senior Research Analyst at Piper Sandler Companies]

Okay, great. And is the expectation still that you'll be able to get 40% of the targeted cost saves completed by the end of this year? Or you guys maybe tracking ahead of expectations on some of those fronts?

[Ram Shankar, Executive VP & CFO at UMB Financial]

At this point, we feel good with what we announced.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

It's early. We still got to execute, right? But that's still our expectation.

[Nathan Race, Director & Senior Research Analyst at Piper Sandler Companies]

Okay, great. I appreciate all the color. Congrats on

[Nathan Race, Director & Senior Research Analyst at Piper Sandler Companies]

a great quarter.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

Thanks guys.

[Ram Shankar, Executive VP & CFO at UMB Financial]

Thank you.

[Operator]

Our next question is from Chris McGratty with KBW. Your line is now open.

[Christopher Mcgratty, MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

Great. Thanks. Good morning.

[Ram Shankar, Executive VP & CFO at UMB Financial]

Good morning, Chris.

[Christopher Mcgratty, MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

Mariner or Ram, the UMB balance sheet is coming in bigger. You've talked about the smaller Heartland balance sheet. But you also mentioned because Heartland is coming in, they're coming in with more capital. How are you thinking about uses of capital once you get through the conversion beyond loan growth that you've talked about? Is there a scenario where at close you would look at your own bond portfolio like other banks have done because you've got the capital, and maybe into 2025, 2016?

[Christopher Mcgratty, MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

Is there a thought on a buyback?

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

Well, what I so lots of things are possible down the road, a year, year and a half, 2 years from now, we're you know us well. We're very conservative. And I would say that while we're comfortable with the starting balance sheet capital levels, we certainly would like to get them back to where we are today. And so we've got call it a year or so to regenerate that capital. And as long as we continue to perform at that point, we're going to be generating capital in a very consistent way and then we can start thinking about those things.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

But I think over the next year or so we will be regenerating focused on regenerating that capital.

[Ram Shankar, Executive VP & CFO at UMB Financial]

Yes. And then the only other thing I would add to your question is we've evaluated bond portfolio restructurings and we're very comfortable with what we own including what we're going to acquire from Heartland after we sell the bonds that we had originally targeted. So I don't see a lot of opportunity especially given our capital levels to take a loss on something and deplete our capital even more. So don't see a whole lot of opportunity doing a balance sheet repositioning there.

[Christopher Mcgratty, MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

Okay. And if I

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

could Our perspective on repositioning just us, okay, us talking is that you're fixing a problem when you do it and we don't have any problems to fix.

[Christopher Mcgratty, MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

No, I wasn't intimating there's a problem. I'm just saying you're going to have more capital on the smaller balance sheet acquired. But I get the message I think. In terms, Ron, on Slide 32, your rate sensitivity, you talked about the hedges. You talked about Hyre For Longer being good.

[Christopher Mcgratty, MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

But as you kind of go through the merger, does the just remind us of rate overall rate positioning, ideal curve, ideal rate scenario for the bank?

[Ram Shankar, Executive VP & CFO at UMB Financial]

Yes. I would say, as we said, pro form a, we expect so we are liability sensitive on our standalone. Heartland was materially asset sensitive until they terminated some of their hedges that we talked they talked about in the Q4 release. And so they began slightly less asset sensitive. And if you put the let the two balance sheets together, we're pretty neutral.

[Ram Shankar, Executive VP & CFO at UMB Financial]

So I'll go back to my earlier question to answer on the first question. This is actually a pretty good rate environment. We have a higher and steeper curve with reinvestment rates that are significantly higher than what's going rolling off. New loan yields are accretive to where we are. So we feel pretty good about what that means for our margin outlook in NII.

[Christopher Mcgratty, MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

Okay. Thank you.

[Operator]

We have a question from Jon Arfstrom with RBC. Your line is now open.

[Jon Arfstrom, Managing Director - Associate Director of US Research at RBC Capital Markets]

Hey, thanks. Good morning.

[Ram Shankar, Executive VP & CFO at UMB Financial]

Good morning, John.

[Jon Arfstrom, Managing Director - Associate Director of US Research at RBC Capital Markets]

Great.

[Jon Arfstrom, Managing Director - Associate Director of US Research at RBC Capital Markets]

Mariner, what are you focused on initially with Heartland? I mean, it's obviously closing very soon, but what are the first couple of things that you want to get accomplished early?

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

Well, I think that's a great question. I think culture, I would put at the very top of the list, which is to assimilate the teams, make sure that we do as good a job as we can, making them feel welcome and comfortable, learn our processes, our procedure, our way of doing things. We pretty much the core foundational component of UMB is risk management. And we want to make sure that they understand how we think about risk and then can quickly integrate and help keep that profile intact. So I would say that that's probably number 1 at the top of the list is bringing the families together and breaking bread and making sure that everybody is on the same singing from the same book.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

And then from there, it will be assessing sort of the talent for growth and then making sure we're building the pipeline on our end to add talent to the footprint and help build out the growth profile. And then on a retail basis, one of the things we're really excited about, right, is we're doubling our footprint, doubling our branch network, doubling our deposit levels there. And Liz Lewis, who oversees that for us, we're very excited about the so we'll be going through a process of optimizing the branch network. We're going to make sure that we fill out the markets where we know we can play and we'll be exercising our muscle basically kind of bringing all that back to life at UMD with being in the market with campaigns on a regular basis, refreshing branches and expanding the branch footprint in the markets where we feel like we already have a strong presence and fill them out like Arizona, Kansas City, Denver being the highest profile ones there that we know we have the right to play in a broad major retail way and making sure we hold places together like New Mexico, which is a top player in New Mexico and make sure that we stay invested there.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

And then we'll look for ways to do things like what do we do in Central Valley of California where there are 10,000,000 people from Bakersfield to Sacramento. And how can we build out a footprint there and take advantage of that 10,000,000 people through maybe bolt on acquisitions over time and branch build out and hiring talent. Similar story in say Minneapolis and Milwaukee. And then there's some other really great markets right outside of say Chicago land like Rockford. We have a nice branch network already in Rockford, Illinois and sort of expand and build out and grow and see what we can do around the Chicago land area with that.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

So I would say it's somewhat I started at the top of the list. The number of opportunities is sort of endless. So I think it's our job is really to stay focused. I'll have my team kind of banging on me to stay focused because it's an enormous amount of opportunity. And I did do that in order of sort of what we want to attack first.

[Jon Arfstrom, Managing Director - Associate Director of US Research at RBC Capital Markets]

Okay. Okay. How long do you think it there have been some questions on lending obviously in the Heartland balance sheet. How long do you think it takes you to bring in your lending process or lending engines to the Heartland footprint?

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

Well, that's one

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

of the things we're most excited about. I'll say the thing I'm most excited about related to the connection between our risk profile and being able to deploy that and then move forward growing the business our way is we had the depth coming in to be able to deploy our regional credit officer model into their footprint. So at UMB, we have in our own footprint, we have regional credit officers with loan authority that are people who have worked here 20 plus years who know how we do things. And so we've given them the authority to oversee the people, the process, the product, the customers, stay on top of all of that in the footprint. And so we identified in the process of bringing this Heartland into the family individuals that have that same profile with us give them opportunities for career development.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

And we've identified several regional credit officers to oversee the new parts of the footprint. And so we're going to do that immediately. Byron, we have with somebody who's here in Kansas City actually moved is moving this weekend to Madison. And he was running our loan review process for UMB and we're moving him to Madison to be our regional credit officer for the upper Midwest as an example. I could go on, but that's the I'm super excited about that because I think that is the way we're going to do it.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

And you ask how long it's going to take, I'd say that is immediate. So I think the ability to get in oversee and do it our way will be immediate. The loan growth part will come. I don't have the answer to how loan growth will come yet, but we certainly expect that we just got to get in there and do the work.

[Jon Arfstrom, Managing Director - Associate Director of US Research at RBC Capital Markets]

Okay. And then Ron, just a quick one to follow-up on Chris McGratty's question on Slide 32. On the right side, what's the message you want us to take away from that? It seems like most of the loans are repriced and you're protecting against further cuts. Is that what you want us to take away from that?

[Jon Arfstrom, Managing Director - Associate Director of US Research at RBC Capital Markets]

Or am I misreading that? Thanks.

[Ram Shankar, Executive VP & CFO at UMB Financial]

Are you talking about the hedges? Or are you talking about the top half?

[Jon Arfstrom, Managing Director - Associate Director of US Research at RBC Capital Markets]

Both of them.

[Ram Shankar, Executive VP & CFO at UMB Financial]

So the top half, we're just stating what our variable rate book looks like. Obviously, when you look at an earning asset basis and liability basis, we're pretty maxed in terms of what percentage of our earning assets are variable versus what percentage of our deposits being indexed are variable. So it's pretty correlation. That's why we get our neutral position when it looks to interest rates. And so that's why I say what we have right now in terms of the rate environment is very ideal for us.

[Ram Shankar, Executive VP & CFO at UMB Financial]

And then on the bottom side is a conservative approach that we've taken historically to make sure that we're protected against rates falling, right? So we over the last 18 months, I want to say we put these $3,000,000,000 of notional hedges synthetic hedges here to protect us from down rates. And at the end of the day, what my point earlier in the prepared comments was even if there are no more rate cuts, the impact from these hedges is not going to be material for our net interest income and net interest margin because the as some of these hedges amortize, the benefits also start reaping in. Some of these hedges are already in the money based on the movements and so forth that we've seen so far. And then if additional rate cuts were to happen, there's a little bit more upside, again modest, I would say.

[Ram Shankar, Executive VP & CFO at UMB Financial]

Some of these hedges are 4 to 5 year terms. So that's a long period of time that we basically bought insurance against falling interest rates. So that's the message, I would say. Hopefully that's clear and what you're looking for. Okay.

[Jon Arfstrom, Managing Director - Associate Director of US Research at RBC Capital Markets]

Yes, that helps. Okay. Well, good luck this weekend and I guess next weekend as well, Mariner.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

Yes. Thank you, sir. Yes. I'm going to be there by the way. So look for me in the stands.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

All right.

[Ram Shankar, Executive VP & CFO at UMB Financial]

Thanks,

[Operator]

Our next question is from Timur Barbellar with Wells Fargo. Your line is now open.

[Ram Shankar, Executive VP & CFO at UMB Financial]

Good morning, Timur. Tibor, are you there?

[Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo]

Sorry, yes. Can you hear me?

[Ram Shankar, Executive VP & CFO at UMB Financial]

Yes. I can hear you now.

[Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo]

Hey, guys. Sorry about that. The first question just on the cadence of the cost saves, the 40% that you're expecting this year. How much of that hits in 4Q on the systems conversion? And then just the remaining 60%, how quickly in 26% do we see those coming through?

[Ram Shankar, Executive VP & CFO at UMB Financial]

It really depends on contract by contract, right? Some of it is people, some of it is obviously vendors and how long we want those vendors to stay past conversion day. But generally, full blown conversion that we expect to complete in the Q4 means that most if not all of their systems will be on ours. So that's the expectation. And then it's just accelerating some of the negotiations we have with our providers and making sure that we can get those cost saves on a run rate basis.

[Ram Shankar, Executive VP & CFO at UMB Financial]

And that's where you'll see the biggest one time cost that you will see will be either in the it will be in the Q1 and the Q4 for those specific reasons, right, between people and the technology contracts that are being unwelled.

[Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo]

Okay. Thanks. And then I want to take another shot at Ben's question. Just looking at the earnings run rate that was put out in the initial deck, it looks like Heartland earnings are down close to 30% from that initial deck. I'm wondering how much of that type of cleanup on the balance sheet had been expected.

[Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo]

Are you somewhat surprised by the level of decline? And how are you thinking about potentially filling this hole?

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

Yes. Sorry, I'm going to attempt to do a little better for you, but still have to be pretty careful about the pre and post here and their operations and ours. From a modeling perspective, I think highest level best thing I can tell you there is from an EPS accretion perspective, our targets are still in place on a combined basis, okay, for what we shared early on in the process. So that's all still in place. Some of that comes from us, some of that comes from them are some of our outperformance, some of their underperformance, etcetera.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

But I think what's important to note is that those EPS accretion targets are in place, are still in check. So that's the thing I would focus on. As far as surprises, again, what I'd say is again puts and takes, right? All of what they took all of what they accomplished was on credits identified in the diligence process. Some of them were worse, some of them were better, but all of it was identified.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

And again, at the end of the day, the way I think about it is you'll have the loan levels from an earnings perspective and you'll have capital levels in line with what we expected to start with. And from that perspective, them reserving and identifying everything at the end of the year for their processes and for the regulatory environment, the expectation is all that's been done and reserved for at the appropriate levels and marked at the appropriate levels. And we'll start February 1, overseeing it. And then at the end of the Q1, you're going to see a full look at all that from us. And you'll start seeing a much fuller picture at that point.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

But from a performance perspective, whether it comes from us or it comes from them, all of it is largely intact and within striking distance of everything we announced back in April. The other thing I would say that we didn't get to earlier nobody's asked is about the credit mark. In addition to all that I just said, we will be coming in with a conservative credit mark on top of all that as we roll into the combined entity in February.

[Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo]

Okay. So it sounds like what was laid out in April assumes some level of degradation as the credit process went along and if the credit mark is conservative maybe more of that is going to be made up on the accretion side?

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

Yes.

[Mariner Kemper, Chairman, President and Chief Executive Officer at UMB Financial]

Certainly that will play a role. That will play a role what I was getting at the top of the house was whether it's our outperformance or their underperformance at the end of the day our EPS accretion expectations are still intact.

[Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo]

Okay. Thank you.

[Operator]

There are no additional questions at this time. So I'll pass the call back over to the management team.

[Kay Gregory, Investor Relations at UMB Financial]

Thank you everyone for joining us today. We appreciate your time and your interest. If you have follow-up questions, you can reach us at 816-860-7106. Thanks and have a great day.

Participants

Executives

• Kay Gregory, Investor Relations
• Mariner Kemper, Chairman, President and Chief Executive Officer
• Ram Shankar, Executive VP & CFO
• Jim Rine, Chief Executive Officer, UMB Bank

Analysts

• Jared Shaw, Managing Director at Barclays
• Brian Weinstein, Head of Global Markets at Morgan Stanley
• David Long, Managing Director at Raymond James Financial
• Ben Gerlinger, Vice President of Equity Research at Citigroup
• Nathan Race, Director & Senior Research Analyst at Piper Sandler Companies
• Christopher Mcgratty, MD & Head of U.S. Bank Research at Keefe, Bruyette & Woods (KBW)
• Jon Arfstrom, Managing Director - Associate Director of US Research at RBC Capital Markets
• Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo