UMB Financial Corporation

Good morning. Thank you for attending today's UMB Financial fourth 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. If you'd like to queue for a question, you can do so by pressing star one on your telephone keypad. I'd now like to hand the call to Kay Gregory. Please go ahead.

Good morning, and welcome to our fourth quarter 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 handler. Jim Rhine, President of the Holding Company and CEO of UMB Bank, along with Tom Terry, Chief Credit Officer, will be available for the question and answer session. Before we begin, let me remind you that today's presentation contains forward-looking statements, including the discussion of future financial and operating results, benefits, synergies, gains, and costs that the company expects to realize from the pending acquisition, as well as other opportunities management foresees. Forward-looking statements in any pro forma metrics are subject to assumptions, risks, and uncertainties, as outlined in our SEC filings and summarized in our presentation beginning on slide 49. 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 security 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.

Thank you, Kay, and good morning, everyone. First off, congratulations for 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 Fed to complete the acquisition of HTLF. We anticipate closing the deal on Friday, January 31st. I'm extremely proud of what our associates have achieved during the past several months. As evidenced by our fourth quarter and full year 2024 results, The team has 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 8K yesterday afternoon with a summary of their fourth quarter results. We've included some of the key performance indicators in the appendix of our deck on slide 46. The strong value proposition of the deposit franchise was evident, as seen by the 6% link 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 fourth quarter. 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 forma balance sheet at close, including a reduction in non-performing loans. Additionally, the deleveraging of the balance sheet put in a near 50 basis point boost in Heartland's regulatory capital ratio and further improved its loan to deposit ratio. 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 teams. We set new company records with 2024 annual operating income of $461.7 million, net interest income that surpassed $1 billion, and fee income of $628.1 million. For the fourth quarter, we reported gap earnings of $120 million. or $2.44 per share, driven by strong performance across the board. On an operating basis, we earned $2.49 per share. Net interest income increased 8.7% in the third 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 reductions 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%. 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 $1.6 billion. While CNI led the growth for the quarter, we also saw a 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. CNI continues to perform well with just three basis points of net charge-offs for the full year. Non-owner-occupied CRE has had a net charge-off ratio of zero for the past four years. And in fact, our charge-offs are less than 900,000 in total in this category since 2016. Our non-performing ratio remains flat at eight basis points for the fourth quarter. 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% for the industry as a whole. On the other side of the balance sheet, our average total deposits grew 2.7 billion or nearly 31% on a linked quarter annualized basis, largely driven by the activity in our commercial and institutional customer base. Average GDA balances increased 48% linked quarter annualized to 10.6 billion. For comparison, Banks that have reported fourth quarter results so far have a median annualized average deposit increase of just 7.3%. The strength of our diversified financial model is 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 $1.3 billion in 2024, a 75% increase over 23. And institutional assets under administration continue to expand up 18% year over year to stand at $526 billion. Corporate trust assets, part of the institutional totals, have grown significantly over the past 10 years to $42.4 billion, representing a compound annual growth rate of 14%. 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 1.6 million 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 fourth quarter a year ago, we posted positive operating leverage of 3.8% on an operating basis. Ron will provide more detail on income and expense drivers shortly. Finally, our capital levels continue to build. We ended the quarter with a CET1 ratio of 11.29%, an increase of seven basis points from the third quarter and 35 basis points from a year ago, 2023. As a reminder, our capital levels don't include the $232 million forward equity offering agreement that we announced in April, which we expect to settle in full during the first quarter of 2025. We're very pleased with our strong results for the quarter, coupled with the opportunities we see for a combined UMB and HDLS in the first quarter. We're very excited about what 2025 and beyond will bring. We continue to believe that the addition of HVLS 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 first quarter. Now I'll turn it over to Ram for more details.