- Key Insight: UMB Financial's third-quarter earnings showed both the costs and the benefits of its recent acquisition of Heartland Financial.
- Supporting Data: The bank's loan production set a new quarterly record, but its non-accruing loans also dramatically increased.
- Expert Quote: "Good growth and a generally stable outlook, and yet the stock is down," wrote Truist Securities analyst Brian Foran.
As Missouri's largest bank navigates the aftermath of the biggest acquisition in its history, its latest earnings snapshot is a complicated picture.
The $71.8 billion-asset UMB Financial
The raw numbers, relying on generally accepted accounting principles, show a miss. UMB's earnings per share for the quarter came out to $2.36, below analysts' consensus estimate of $2.41, according to S&P. Net income was $180.4 million, short of analysts' forecasts of $183.9 million.
But those aren't the numbers UMB — and many analysts — have focused on. In its earnings release Tuesday, the bank calculated its "net operating income" by excluding the costs of "Day 1 acquisition provision expense," severance expenses and an FDIC special assessment dating back to the 2023 banking crisis.
UMB's operating EPS was $2.70, and its net operating income was $206.5 million. In both cases, these numbers surpassed Wall Street's estimates. In a research note, Truist Securities analyst Brian Foran called the results a "beat, sort of."
"Good growth and a generally stable outlook, and yet the stock is down," Foran wrote.
During the bank's earnings call on Wednesday, CEO
"I'm very excited that we've reached the important milestone in our acquisition of Heartland Financial," Kemper said. "I'm incredibly proud of the teams that have been working together around the clock to make this a smooth transition for our clients as well as for our associates, all while continuing to excel at their day jobs, which is evidenced by our strong third quarter results."
By GAAP calculations, revenue for the quarter came out to $678.3 million, beating analysts' estimates of $661.1 million, per S&P.
UMB's revenue performance was driven by rising loan production, which reached a new record, among other factors, Kemper said. Gross loan production for the quarter was $2.1 billion, passing the $2 billion mark for the first time in the bank's history.
But integrating Heartland did not come without growing pains. In the third quarter, non-accruing loans rose to $132 million, up from $19.3 million in the same period of 2024. UMB said this was "primarily driven" by two loans it inherited from Heartland — a detail that one analyst asked about during the earnings call.
"The larger of the two we had identified in due diligence and has a specific reserve against it," Tom Terry, UMB's chief credit officer, responded. "There's a smaller one that was newer that was on their watch list, but we hadn't reserved for until this quarter."
Other analysts asked about bank mergers and acquisitions, which have been accelerating in recent months — so much so that banks' stock prices have been showing signs of a backlash.
Kemper walked a fine line on this issue, emphasizing that UMB has no immediate interest in acquiring another bank, but leaving the door open to potential deals in the future.
"We don't need to do M&A," the CEO said. "We have a very strong engine, but because of that very strong engine, we do believe strategically over time we want to augment our loan growth, ultimately, as a company with acquired deposits through M&A."
In his note, Truist's Foran said this answer wasn't a clear enough "no" for some investors. During the call, UMB's stock dropped by about 3%. It closed Wednesday down 3.2%.
"The culprit is M&A, where they are open to doing deals," Foran wrote. "They did emphasize they don't need to do a deal, and that if they did one they'd be disciplined. Still, the market zeitgeist these days is if a bank says it's a buyer it goes down."
When an analyst asked whether, short of an outright acquisition, UMB might consider buying another bank's branches, Kemper expressed little interest.
"All those other ideas are always on the table," he said. "The engine for UMB is loan growth, and we're really, really good at it, and so we just don't want to be distracted."
