UMB Financial Earnings Call Highlights Strong Core Momentum

Umb Financial Corp. ((UMBF)) has held its Q4 earnings call. Read on for the main highlights of the call.

UMB Financial’s latest earnings call struck a distinctly upbeat tone, underscoring record profitability, strong organic growth and pristine credit quality, even as management cautioned about some temporary revenue and expense headwinds tied to its recent acquisition and nonrecurring gains in 2025. Executives emphasized that core trends in loans, deposits, margins and capital remain firmly positive, supporting confidence in the bank’s ability to deliver sustainable growth and improved returns into 2026.

Record Earnings Underscore Strong Profit Engine

UMB reported a standout quarter and year, highlighting the strength of its core franchise. Fourth-quarter net income available to common shareholders reached $209.5 million, or $2.74 per share, up 16.1% from the prior quarter. For the full year 2025, net income was $684.6 million, or $9.29 per share. Stripping out acquisition-related and other nonrecurring items, net operating income came in even higher at $235.2 million, or $3.08 per share, underscoring the underlying earnings power of the business beyond one-time items.

Profitability Ratios Move in the Right Direction

Profitability metrics continued to trend higher, reflecting better operating efficiency and balance sheet mix. Return on average common equity improved to 11.27% from 10.14% sequentially, marking another step toward more competitive mid-teens returns. The efficiency ratio improved to 55.5% from 58.1% in the third quarter, though it remains above the 51.8% level reported a year earlier. Management framed these improvements as evidence that revenue growth is outpacing expense increases despite integration costs and market-driven fee volatility.

Loan Growth Outpaces Peers by a Wide Margin

Loan growth was a major highlight. Average loans in the fourth quarter grew at a 13% linked-quarter annualized rate, far ahead of a reported peer median of 4.9%. The bank generated $2.6 billion of quarterly loan production, with commercial and industrial lending leading the way at 27% annualized growth over third-quarter average balances. Management stressed that this growth is coming from existing client relationships and targeted expansion, rather than aggressive pricing or looser credit standards, positioning UMB as a share gainer in a still-cautious lending environment.

Strong Deposit Growth and Improved Funding Costs

Funding trends were another bright spot. Average deposits rose 5.6% on a linked-quarter annualized basis, while noninterest-bearing DDA balances jumped 24.9% on the same basis. This richer mix of low-cost deposits helped bring the cost of total deposits down by 29 basis points to 2.25%, and the cost of interest-bearing deposits fell 33 basis points to 3.03%. Management highlighted this as evidence that deposit betas are stabilizing and that the franchise retains pricing power, even in a competitive market for balances.

Net Interest Income and Core Margin Expansion

Net interest income (NII) surged in the quarter, supported by both volume and mix. Fourth-quarter NII was $522.5 million, up 10% from the third quarter. The reported net interest margin (NIM) was 3.29%, including a sizable benefit from purchase accounting accretion. Excluding approximately 33 basis points of accretion, core NIM was 2.96%, up 18 basis points sequentially. This underlying margin expansion is critical as the bank prepares for a future in which purchase accounting contributions fade and the balance sheet must carry the earnings load on its own.

Credit Quality Remains a Key Competitive Strength

Asset quality remains a notable advantage versus many regional peers. Total net charge-offs were just 13 basis points in the fourth quarter, while full-year 2025 net charge-offs were 23 basis points—better than the company’s long-term historical average of 27 basis points. Nonperforming loans totaled $145 million, or 37 basis points of loans, and criticized loans improved by 9.1% from the prior quarter. Management underscored that they are not seeing broad-based deterioration and believe their conservative underwriting and diversified portfolio should support continued benign losses.

Capital Build and Purchase Accounting Tailwinds

The balance sheet continues to build capital while still supporting growth. The Common Equity Tier 1 (CET1) ratio stood at 10.6% as of December 31, up 26 basis points from September, giving UMB flexibility for growth and potential capital deployment over time. Purchase accounting accretion remained a material tailwind in the quarter, contributing $52.7 million to NII and adding roughly 33 basis points to NIM. Looking ahead, management estimates contractual accretion of about $126 million for 2026 and $92 million for 2027, though they acknowledged that the level will decline versus 2025 and represent a headwind to reported margins and NII.

Heartland Acquisition Delivers Early Benefits and Expansion

The integration of Heartland Financial is already generating tangible benefits. UMB completed the acquisition and opened its first branch in Utah, extending its geographic footprint. Management highlighted early conversion wins, including deposit and loan synergies, as well as new product rollouts such as credit card and mortgage offerings in newly acquired markets. They expressed optimism that Heartland will be a meaningful contributor to earnings growth, with synergies ramping over time and creating a broader platform for customer acquisition.

Fee Businesses Show Resilience and Growth Potential

While some parts of noninterest income were pressured by markets, core fee franchises remained solid. Trust and securities processing income increased $4.5 million, or 5.1% sequentially. The fund services and custody business added 15 new fund families and a total of 109 new funds during 2025, signaling continuing institutional momentum. The company also realized an approximate $17 million net gain from the sale of its Voyager position, representing nearly a 4x multiple and roughly 30% internal rate of return since the IPO, though management cautioned that such investment gains should not be considered recurring.

Expense Discipline Amid Integration and One-Time Charges

UMB reinforced its reputation for cost control even as merger-related expenses rise temporarily. Operating noninterest expense, excluding merger and other one-time costs, was $391.8 million, up just 1.8% quarter over quarter despite ongoing integration work. Management guided first-quarter operating expense to a range of $385 million to $390 million and reiterated a firm commitment to achieving positive operating leverage in 2026. They noted that integration and contract termination costs are heavily weighted to the back half of the year and should moderate, supporting better efficiency.

Market-Driven Fee Pressure and Nonrecurring Gains

Noninterest income faced some headwinds driven largely by market-related factors. Fee income excluding valuation changes was $196.2 million, down $11.2 million from the third quarter. The largest drivers were $9.2 million in variances related to corporate- and bank-owned life insurance (COLI/BOLI) and a $2.9 million decline in derivative income. Additionally, the company recorded a $4.8 million market value loss on Voyager stock during the quarter, largely offset by the subsequent sale. Management also flagged approximately $30 million of investment gains in 2025, including Voyager-related gains, that are not expected to repeat in 2026, creating more challenging comparisons for fee and other income lines.

Merger-Related Costs Elevated but Temporary

Merger-related and other one-time expenses weighed on reported results but are expected to be transitory. These costs totaled $39.7 million in the fourth quarter, up from $35.6 million in the prior quarter. Contract termination and conversion expenses related to the Heartland transaction are heavily back-end loaded, inflating the near-term expense base. Management emphasized that these costs are part of the integration process and should subside as systems are fully converted and duplicative arrangements are wound down.

Margin Headwinds from Lower Purchase Accounting Accretion

While current margins look robust, UMB acknowledged that a portion of the NIM strength is tied to purchase accounting accretion which will diminish over time. The fourth-quarter core margin benefited by roughly 33 basis points from accretion. Management expects about $38 million less contractual purchase accounting accretion in 2026 compared with 2025, which will act as a headwind to both net interest income and NIM. The strategy to offset this is continued organic loan growth, deposit mix improvement and disciplined pricing, so that the underlying core margin can absorb the loss of this temporary income stream.

Deposit Flow Volatility Adds Near-Term Uncertainty

Management highlighted some inherent variability in certain institutional and public-funds-related deposit flows. They cited approximately $1 billion of inflows in December tied to corporate trust and public funds, noting that such balances can reverse, including potential tax-related outflows in February. This episodic nature creates short-term volatility in funding levels and margin assumptions, though the bank believes its overall funding base is stable and well diversified. Investors were encouraged to focus on underlying core trends rather than quarterly swings in these specialized deposit categories.

Tax Rate Moving Higher into 2026

The company’s tax profile is also shifting modestly less favorably. UMB’s effective tax rate was 20.3% in the fourth quarter and 19.7% for full-year 2025, up from 18.5% in 2024. Looking forward, management expects an effective tax rate in the 20% to 22% range for 2026. This higher tax expense will be another headwind to net income growth and will require offsetting improvements in revenue, costs and balance sheet mix to maintain earnings momentum.

Forward Guidance Points to Steady Margins and Positive Leverage

Management’s outlook for 2026 is constructive but measured. They expect first-quarter margins to be relatively flat compared with the adjusted fourth-quarter core NIM of around 2.92% (excluding purchase accounting accretion and a small one-off), with no assumed benefit from potential rate cuts. Contractual accretion is projected at $126 million for 2026 and $92 million for 2027, but roughly $38 million lower accretion in 2026 versus 2025 and about $30 million of nonrecurring 2025 investment gains will weigh on year-on-year comparisons. Operating expenses for the first quarter are guided to $385–$390 million, including about $15 million of seasonal FICA, payroll and retirement costs, roughly $10 million of which should ease in the second quarter. Management reaffirmed its goal of achieving positive operating leverage for the full year, supported by continued loan momentum, solid deposit trends, a blended deposit beta of 76%, declining deposit costs, strong asset quality metrics (net charge-offs of 13 basis points in Q4 and 23 basis points for the year, versus a 27-basis-point long-term average), CET1 at 10.6%, and an expected effective tax rate of 20–22% for 2026.

In closing, UMB Financial’s earnings call painted the picture of a bank with robust core momentum—record earnings, above-peer loan growth, improving profitability and disciplined credit—offset by manageable, largely temporary headwinds from acquisition accounting, integration costs and nonrecurring gains. For investors, the key takeaway is a franchise that appears well positioned for steady growth and capital build, with management focused on sustaining core margin, controlling expenses and delivering positive operating leverage into 2026, even as some tailwinds fade and the operating environment remains uncertain.