Brian Wilczynski

Brian Wilczynski from Morgan Stanley asked about potential revenue synergies from the Heartland acquisition on the fee income side, specifically regarding UMB's capabilities in mortgage, credit card, corporate trust, and treasury management that Heartland previously lacked. He also inquired about the drivers of record loan production, current line utilization versus historical levels, and expectations for 2026.

Answer

Chairman and CEO Mariner Kemper identified mortgage, credit card, corporate trust (especially in California and new markets like New Mexico, Wisconsin, Minnesota), and treasury management as key areas for fee income synergies from Heartland. He also noted benefits from UMB's higher legal lending limit, allowing the bank to lead deals where Heartland was previously a participant. Regarding loan growth, Mariner Kemper stated that line utilization remains relatively flat due to the high-quality nature of borrowers, and he expects continued strong loan production.

Brian Wilczynski from Morgan Stanley asked about potential revenue synergies from the Heartland acquisition, specifically how UMB Financial's capabilities (e.g., mortgage, credit card, corporate trust, treasury management) could be offered to Heartland clients, and how this is progressing. He also inquired about loan growth and line utilization, asking for context on current levels versus historical trends and expectations for 2026.

Answer

Chairman and CEO Mariner Kemper identified key synergy areas: mortgage (Heartland lacked a product), credit card (already launched), corporate trust (benefiting from expanded footprint), treasury management (upgrading basic platform), and increased legal lending limits allowing UMB to lead deals where Heartland was a participant. He noted early positive signs and excitement for these opportunities. Regarding line utilization, Mariner Kemper stated it remains relatively flat, attributing this to the high-quality nature of UMB's borrowers, who possess strong net worth and earnings power, keeping utilization steady despite the environment.

Brian Wilczynski from Morgan Stanley asked UMB Financial about specific new loan production opportunities within the acquired Heartland Financial regions and categories, and how the company views the increasing bank M&A activity, both as a potential acquirer and for gaining market share.

Answer

Chairman and CEO Mariner Kemper highlighted broad loan production opportunities across Heartland's footprint, specifically mentioning California, Rockford, Wisconsin, and New Mexico, emphasizing significant untapped potential. Regarding M&A, Mr. Kemper stated UMB does not 'need' acquisitions but strategically seeks to acquire low-cost deposits to support its strong organic loan growth, focusing on high-quality partnerships without immediate timeline pressure.

Brian Wilczynski asked for more details on the opportunities for new loan production stemming from the Heartland acquisition, specifically identifying regions or loan categories with the most potential, and also inquired about UMB's strategy regarding the increasing bank M&A activity in its footprint.

Answer

Mariner Kemper, Chairman and CEO, highlighted significant loan production opportunities across various regions, including California, Rockford, Wisconsin, and New Mexico, emphasizing the low penetration and substantial growth potential. Regarding M&A, Kemper stated that UMB does not 'need' to do M&A due to its strong organic engine but strategically seeks acquired deposits through M&A to augment loan growth, focusing on building relationships with good partners without a specific timeline.

Brian Wilczynski of Morgan Stanley requested more detail on the credit quality within the acquired Heartland portfolio and the expected path for nonperforming loans (NPLs) and net charge-offs (NCOs). He also asked about the current state of deposit competition across UMB's markets.

Answer

CEO Mariner Kemper reported that Heartland's NPLs are already declining and he expects that trend to continue. He reiterated that combined company charge-offs are expected to perform at or near historical averages for the rest of the year. On deposits, he described commercial and institutional growth as rate-sensitive, while expressing optimism for lifting consumer deposit growth through the newly expanded branch network.

Brian Wilczynski requested an update on UMB's interest rate sensitivity post-acquisition and asked about the economic outlook embedded in the current reserve ratio and its expected trend.

Answer

CFO Ram Shankar detailed that the bank is slightly liability sensitive in year one of a rate-cut scenario and slightly asset sensitive in year two. He stated the reserve is based 100% on Moody's baseline scenario and is expected to remain around the current 1.03% level, subject to changes in the macroeconomic model. CEO J. Kemper added that UMB's disciplined underwriting should result in strong credit performance regardless of provisioning levels.

Brian Wilczynski inquired about the potential range of outcomes for net interest margin (NIM) under different interest rate scenarios and asked about any observed trends in borrower sentiment or activity that could impact the loan growth outlook.

Answer

CFO Ram Shankar explained that a 'higher for longer' interest rate environment is favorable for UMB's NII, given its slightly liability-sensitive position and the benefit of reinvesting maturing securities at higher yields. Chairman and CEO J. Kemper noted that while business sentiment is generally positive, it is too early to see a definitive impact on activity. President and UMB Bank CEO Jim Rine added that UMB's growth is primarily driven by its strategy of market penetration, which is less dependent on the broader economic climate.

Brian Wilczynski asked about the expected trajectory of Simmons First National Corporation's Return on Tangible Common Equity (ROTC) moving forward, and how much it depends on the economic environment versus internal strategic levers. He also sought more details on the company's strategy to grow customer deposits in 2026 and beyond, following significant improvements in the funding base.

Answer

President and CEO James Brogdon explained that while Q4 ROTC was strong, Q1 would see a seasonal downward shift due to expenses and non-recurring fee income (BOLI gains), estimating a more sustainable run-rate ROA in the mid-one teens. CFO Daniel Hobbs added that Q1 also has fewer days impacting NII, but the long-term ROTC target remains in the mid-teens, with ROA above 125. Brogdon noted that initial ROTC targets, previously expected by 2027, are now achievable sooner. Regarding deposit growth, Brogdon detailed strategies across consumer banking (adopting best practices, private banking expansion) and commercial banking (building C&I capabilities, talent acquisition), emphasizing the opportunity to improve non-interest-bearing deposits. COO Chris Steenburg highlighted accelerating successful initiatives and focusing on small business customers.

Brian Wilczynski from Morgan Stanley asked about the expected trajectory of Simmons First National Corporation's Return on Tangible Common Equity (ROTC) moving forward, and how much this trajectory depends on the broader economic environment versus the company's internal strategic levers. He also requested more details on the strategy to grow customer deposits in 2026 and beyond.

Answer

President and CEO James Brogdon explained that while Q4 ROTC was strong, Q1 typically sees seasonal expense increases (payroll taxes, merit) and a lower effective tax rate in Q4 2025 compared to the projected 20% for 2026. He estimated a more sustainable run-rate Return on Assets (ROA) in the 'mid one teens' from the Q4 129 bps. CFO Daniel Hobbs added that Q1 NII would also be impacted by two fewer days. Both executives stated that the long-term ROTC target is in the 'mid teens' and ROA at 125 bps or above, with a good path to achieve this, potentially accelerating targets initially set for 2027 due to a stronger starting point. Regarding deposit growth, Brogdon outlined several strategic initiatives: adopting industry best practices in the Consumer Bank across demographics, expanding private banking efforts (rolled out in 2024, expanded in 2025) with competitive products, and multi-year investments in building commercial and middle market C&I capabilities, including talent acquisition and process improvements. He noted that non-interest-bearing deposits as a percentage of total deposits are below peer, representing a significant opportunity. COO Chris Steenberg added that the company is accelerating and scaling successful initiatives, learning quickly from experimentation, and focusing on the small business segment for deposit-rich customers with limited credit needs.

Brian Wilczynski with Morgan Stanley asked for more details on the increased competition observed in the third quarter across Atlantic Union Bankshares' markets, including its sources. He also inquired about revenue-related synergies from the Sandy Spring integration, specifically mentioning swap income and other opportunities like foreign exchange, treasury management, and specialty lines.

Answer

President and CEO John Asbury and EVP and Wholesale Banking Group Executive David Ring described the competitive environment as a 'turn-it-on' phase, with traditional banks re-entering the market aggressively, leading to some pricing pressure. They noted a slight slowdown in private credit competition. John Asbury and David Ring highlighted key revenue synergies from the Sandy Spring acquisition, including the former Sandy Spring Bank's ability to fully engage in lending without prior constraints, new capabilities like interest rate hedging, foreign exchange, enhanced treasury management, and deeper penetration into asset-based lending markets.

In a follow-up, Brian Wilczynski from Morgan Stanley asked about the full-year net charge-off guidance of 15-20 basis points, noting it seems conservative relative to recent performance and questioning if it reflects underlying weakness or caution.

Answer

CFO Robert Gorman and CEO John C. Asbury clarified that the guidance is conservative but also includes a few loans with specific reserves that are expected to be resolved in the second half of the year. They confirmed there are no other signs of weakness that would suggest losses will move materially higher.

Brian Wilczynski asked for the key drivers that would lead to the high or low end of the net interest income guidance and questioned if the bank is seeing any current weakness in its portfolio or hearing concerns from clients related to recently announced tariffs.

Answer

EVP and CFO Rob Gorman explained the NII range depends on Fed rate cuts, loan growth, and deposit cost management, with more than the assumed three cuts being a negative driver. President and CEO John Asbury and Chief Credit Officer Doug Wiley addressed portfolio health, stating there are no known pockets of credit quality issues. They clarified the reserve build's qualitative overlay was a response to the elevated risk of a national recession caused by trade policy uncertainty, not a reflection of specific weakness in their portfolio or region, which they believe is less impacted than many areas.