UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2025
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number001-38481
UMB FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Missouri
43-0903811
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
1010 Grand Boulevard, Kansas City, Missouri
64106
(Address of principal executive offices)
(Zip Code)
(Registrant's telephone number, including area code): (816) 860-7000
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $1.00 Par Value
UMBF
The NASDAQ Global Select Market
Depositary Shares, each representing a 1/400th interest in a share of 7.00% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series A
UMBFP
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non- accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of April 29, 2025, UMB Financial Corporation had 75,918,539 shares of common stock outstanding.
INDEX
PART I – FINANCIAL INFORMATION
3
ITEM 1.
FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF INCOME
4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
5
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
6
CONSOLIDATED STATEMENTS OF CASH FLOWS
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
61
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
80
ITEM 4.
CONTROLS AND PROCEDURES
85
PART II - OTHER INFORMATION
86
LEGAL PROCEEDINGS
ITEM 1A.
RISK FACTORS
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 6.
EXHIBITS
87
SIGNATURES
88
2
(dollars in thousands, except share and per share data)
March 31,
December 31,
2025
2024
ASSETS
Loans
$
35,936,281
25,642,301
Allowance for credit losses on loans
(368,922
)
(259,089
Net loans
35,567,359
25,383,212
Loans held for sale
5,099
2,756
Securities:
Available for sale (amortized cost of $11,453,157 and $8,407,676, respectively)
10,895,659
7,774,334
Held to maturity, net of allowance for credit losses of $4,566 and $2,645, respectively (fair value of $5,107,059 and $4,748,938, respectively)
5,712,764
5,376,267
Trading securities
35,461
28,533
Other securities
647,152
471,018
Total securities
17,291,036
13,650,152
Federal funds sold and securities purchased under agreements to resell
636,069
545,000
Interest-bearing due from banks
9,811,867
7,986,270
Cash and due from banks
917,450
573,175
Premises and equipment, net
391,147
221,773
Accrued income
308,103
246,095
Goodwill
1,798,451
207,385
Other intangibles, net
557,186
63,647
Other assets
2,063,546
1,530,199
Total assets
69,347,313
50,409,664
LIABILITIES
Deposits:
Noninterest-bearing demand
18,431,854
13,617,167
Interest-bearing demand and savings
36,898,898
27,397,195
Time deposits under $250,000
1,871,388
969,132
Time deposits of $250,000 or more
1,319,038
1,158,535
Total deposits
58,521,178
43,142,029
Federal funds purchased and repurchase agreements
2,559,983
2,609,715
Long-term debt
654,380
385,292
Accrued expenses and taxes
352,143
368,457
Other liabilities
511,195
437,630
Total liabilities
62,598,879
46,943,123
SHAREHOLDERS' EQUITY
Series A Fixed-Rate Reset Non-Cumulative Perpetual Preferred stock, $0.01 par value; 11,500 authorized, issued and outstanding
110,705
—
Common stock, $1.00 par value; 160,000,000 shares authorized; 78,665,809 shares issued, 75,917,456 and 48,814,177 shares outstanding, respectively
78,666
55,057
Capital surplus
3,993,662
1,145,638
Retained earnings
3,224,866
3,174,948
Accumulated other comprehensive loss, net
(492,698
(573,050
Treasury stock, 2,748,383 and 6,242,553 shares, at cost, respectively
(166,767
(336,052
Total shareholders' equity
6,748,434
3,466,541
Total liabilities and shareholders' equity
See Notes to Consolidated Financial Statements.
(unaudited, dollars in thousands, except share and per share data)
Three Months Ended
INTEREST INCOME
527,404
385,566
Taxable interest
98,296
61,111
Tax-exempt interest
29,963
25,333
Total securities income
128,259
86,444
Federal funds and resell agreements
6,952
3,062
74,985
44,688
370
305
Total interest income
737,970
520,065
INTEREST EXPENSE
Deposits
303,406
223,875
Federal funds and repurchase agreements
25,790
27,662
Other
11,135
29,094
Total interest expense
340,331
280,631
Net interest income
397,639
239,434
Provision for credit losses
86,000
10,000
Net interest income after provision for credit losses
311,639
229,434
NONINTEREST INCOME
Trust and securities processing
79,781
69,478
Trading and investment banking
5,911
5,462
Service charges on deposit accounts
27,457
20,757
Insurance fees and commissions
178
283
Brokerage fees
18,102
13,160
Bankcard fees
26,293
21,968
Investment securities (losses) gains, net
(4,782
9,371
13,258
18,765
Total noninterest income
166,198
159,244
NONINTEREST EXPENSE
Salaries and employee benefits
221,398
143,006
Occupancy, net
16,069
12,270
Equipment
16,948
16,503
Supplies and services
4,785
3,301
Marketing and business development
7,998
6,025
Processing fees
40,850
27,936
Legal and consulting
28,606
7,894
Bankcard
12,795
10,567
Amortization of other intangible assets
17,482
1,960
Regulatory fees
8,237
19,395
9,619
5,947
Total noninterest expense
384,787
254,804
Income before income taxes
93,050
133,874
Income tax expense
11,717
23,616
NET INCOME
81,333
110,258
Less: Preferred dividends
2,013
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
79,320
PER SHARE DATA
Net income per common share – basic
1.22
2.27
Net income per common share – diluted
1.21
2.25
Dividends
0.40
0.39
Weighted average common shares outstanding – basic
65,063,262
48,663,515
Weighted average common shares outstanding – diluted
65,496,058
48,920,863
(unaudited, dollars in thousands)
Net income
Other comprehensive income (loss), before tax:
Unrealized gains and losses on debt securities:
Change in unrealized holding gains and losses, net
76,235
(41,553
Less: Reclassification adjustment for net gains included in net income
(390
(139
Amortization of net unrealized loss on securities transferred from available-for-sale to held-to-maturity
8,290
8,789
Change in unrealized gains and losses on debt securities
84,135
(32,903
Unrealized gains and losses on derivative hedges:
Change in unrealized gains and losses on derivative hedges, net
22,646
(13,658
(24
(3,660
Change in unrealized gains and losses on derivative hedges
22,622
(17,318
Other comprehensive income (loss), before tax
106,757
(50,221
Income tax (expense) benefit
(26,405
12,618
Other comprehensive income (loss)
80,352
(37,603
Comprehensive income
161,685
72,655
(unaudited, dollars in thousands, except per share data)
PreferredStock
CommonStock
CapitalSurplus
RetainedEarnings
Accumulated Other Comprehensive (Loss) Income
TreasuryStock
Total
Balance – January 1, 2024
1,134,363
2,810,824
(556,935
(342,890
3,100,419
Total comprehensive income (loss)
Dividends ($0.39 per share)
(17,976
Purchase of treasury stock
(7,537
Issuances of equity awards, net of forfeitures
(10,964
11,667
703
Recognition of equity-based compensation
4,271
Sale of treasury stock
70
60
130
Exercise of stock options
66
151
Balance – March 31, 2024
1,127,806
2,903,106
(594,538
(338,615
3,152,816
Balance – January 1, 2025
Total comprehensive income
Cash dividends declared:
Preferred dividends ($175.00 per share)
(2,013
Common dividends ($0.40 per share)
(29,402
(15,434
(15,595
16,395
800
32,419
116
176
126
179
Common stock issuance
67,056
168,085
235,141
Stock issuance for acquisition, net of issuance costs
23,609
2,763,902
2,898,216
Balance – March 31, 2025
For the Three Months Ended
OPERATING ACTIVITIES
Adjustments to reconcile net income to net cash provided by operating activities:
Net (accretion) amortization of premiums and discounts from acquisition
(26,435
276
Depreciation and amortization
29,366
13,817
Amortization of debt issuance costs
219
Deferred income tax expense (benefit)
16,710
(3,037
Net increase in trading securities and other earning assets
(6,928
(22,094
Losses (gains) on investment securities, net
4,782
(9,371
Losses (gains) on sales of assets
18
(1,846
Amortization of securities premiums, net of discount accretion
5,126
6,425
Originations of loans held for sale
(18,279
(17,979
Gains on sales of loans held for sale, net
(453
(415
Proceeds from sales of loans held for sale
16,389
18,399
Equity-based compensation
12,830
4,974
Changes in:
12,271
289
(59,461
(14,972
Other assets and liabilities, net
209,533
(38,799
Net cash provided by operating activities
363,021
56,144
INVESTING ACTIVITIES
Securities held to maturity:
Maturities, calls and principal repayments
115,631
95,031
Purchases
(9,049
(23,686
Securities available for sale:
Sales
611,423
19,153
386,343
3,104,013
(914,361
(2,630,486
Equity securities with readily determinable fair values:
(291
(87
Equity securities without readily determinable fair values:
40
28,623
8,210
1
(62,810
(5,012
Payment of tax equity investment commitments
(21,871
(15,765
Net increase in loans
(481,826
(359,617
Net (increase) decrease in fed funds sold and resell agreements
(91,069
65,069
Net cash activity from acquisitions and divestitures
174,985
(110,789
Net decrease (increase) in interest-bearing balances due from other financial institutions
956,440
(8,214
Purchases of premises and equipment
(8,823
(2,376
Proceeds from sales of premises and equipment
232
2,535
Net cash provided by investing activities
663,204
158,393
FINANCING ACTIVITIES
Net increase in demand and savings deposits
1,533,318
1,550,733
Net decrease in time deposits
(504,295
(429,982
Net (decrease) increase in fed funds purchased and repurchase agreements
(72,365
105,830
Repayment of long-term debt
(11,055
Cash dividends paid
(30,117
(19,012
Payment of common stock issuance costs
(524
Proceeds from exercise of stock options and sales of treasury shares
481
281
Purchases of treasury stock
Net cash provided by financing activities
1,135,150
1,200,313
Increase in cash and cash equivalents
2,161,375
1,414,850
Cash and cash equivalents at beginning of period
8,448,691
5,528,258
Cash and cash equivalents at end of period
10,610,066
6,943,108
Supplemental disclosures:
Income tax payments
1,732
1,328
Total interest payments
326,798
268,768
Noncash disclosures:
Acquisition of tax equity investments
14,036
Commitment to fund tax equity investments
Transfer of loans to other real estate owned
486
794
Transfer of loans to other repossessed assets
10
Issuance of common stock as consideration for HTLF acquisition
2,783,510
Issuance of preferred stock as consideration for HTLF acquisition
115,230
Stock based compensation as consideration for HTLF acquisition
20,389
8
FOR THE THREE MONTHS ENDED MARCH 31, 2025 (UNAUDITED)
1. Financial Statement Presentation
The Consolidated Financial Statements include the accounts of UMB Financial Corporation and its subsidiaries (collectively, the Company) after the elimination of all intercompany transactions. In the opinion of management of the Company, all adjustments relating to items that are of a normal recurring nature and necessary for a fair presentation of the financial position and results of operations have been made. The results of operations and cash flows for the interim periods presented may not be indicative of the results of the full year ending December 31, 2025. The financial statements should be read in conjunction with “Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations” within this Quarterly Report on Form 10-Q (the Form 10-Q) and in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the Securities and Exchange Commission (SEC) on February 27, 2025 (the Form 10-K).
The Company is a financial holding company, which offers a wide range of banking and other financial services to its customers through its branches and offices. The Company’s national bank, UMB Bank, National Association (the Bank), has its principal office in Missouri as well as branches and offices primarily in the Midwestern, Southwestern, and Western regions of the United States.
2. Summary of Significant Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. These estimates and assumptions also impact reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A summary of the significant accounting policies to assist the reader in understanding the financial presentation is provided in the Notes to Consolidated Financial Statements in the Form 10-K.
Business Combinations
The Company accounts for business combinations using the purchase method of accounting in accordance with FASB ASC Topic 805, Business Combinations, which requires assets acquired and liabilities assumed to be recognized at fair value as of the acquisition date.
On January 31, 2025 (Acquisition Date), the Company acquired Heartland Financial USA, Inc. (HTLF) pursuant to an Agreement and Plan of Merger, dated as of April 28, 2024. See Note 13, “Acquisition” for additional information.
Cash and cash equivalents
Cash and cash equivalents includes Cash and due from banks and amounts due from the Federal Reserve Bank (FRB). Cash on hand, cash items in the process of collection, and amounts due from correspondent banks are included in Cash and due from banks. Amounts due from the FRB are interest-bearing for all periods presented and are included in the Interest-bearing due from banks line on the Company’s Consolidated Balance Sheets.
This table provides a summary of cash and cash equivalents as presented on the Consolidated Statements of Cash Flows as of March 31, 2025 and March 31, 2024 (in thousands):
Due from the FRB
9,692,616
6,586,145
356,963
Also included in the Interest-bearing due from banks, but not considered cash and cash equivalents, are interest-bearing accounts held at other financial institutions, which totaled $119.3 million and $87.0 million at March 31, 2025 and March 31, 2024, respectively.
Acquired Loans
Acquired loans are initially recorded at fair value. The Company’s accounting methods for acquired loans depends on whether or not the loan reflects more than insignificant credit deterioration since origination at the date of acquisition.
Non-Purchased Credit Deteriorated Loans
Non-purchased credit deteriorated (Non-PCD) loans do not reflect more than insignificant credit deterioration since origination at the date of acquisition. These loans are recorded at fair value and an increase to the allowance for credit losses (ACL) is recorded with a corresponding increase to the provision for credit losses at the date of acquisition. The difference between fair value and the unpaid principal balance at the acquisition date is amortized or accreted to interest income over the contractual life of the loan using the effective interest method.
Purchased Credit Deteriorated Loans
Purchased loans that reflect a more than insignificant credit deterioration since origination at the date of acquisition are classified as purchased credit deteriorated (PCD) loans. PCD loans are recorded at fair value plus the ACL expected at the time of acquisition. Under this method, there is no provision for credit losses on acquisition of PCD loans. The non-credit-related difference between fair value and the unpaid principal balance at the acquisition date is amortized or accreted to interest income over the contractual life of the loan using the effective interest method.
Per Share Data
Basic net income per common share is computed using net income available to common shareholders and the weighted average number of shares of common stock outstanding during each period. Diluted net income per common share is determined using net income available to common shareholders and the weighted average common shares and assumed incremental common shares issued. The following table provides the amounts used in the determination of basic and diluted net income per common share for the three months ended March 31, 2025 and 2024 (in thousands, except per share data):
Three Months Ended March 31,
Net income available to common shareholders
Weighted average common shares outstanding for basic earnings per share
65,063
48,664
Assumed incremental common shares issued upon vesting of outstanding restricted stock units
433
257
Weighted average common shares for diluted earnings per share
65,496
48,921
Number of antidilutive restricted stock units excluded from diluted earnings per share computation
Number of antidilutive stock options excluded from diluted earnings per share computation
4,962
Derivatives
The Company records all derivatives on the Consolidated Balance Sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Currently, 15 of the Company’s derivatives are designated in qualifying hedging relationships. However, the remainder of the Company’s derivatives are not designated in qualifying hedging relationships, as the derivatives are not used to manage risks within the Company’s assets or liabilities. All changes in fair value of the Company’s non-designated derivatives and fair value hedges are recognized directly in earnings. Changes in fair value of the Company’s cash flow hedges are recognized in accumulated other comprehensive income (AOCI) and are reclassified to earnings when the hedged transaction affects earnings.
3. New Accounting Pronouncements
Equity-Method Investments In March 2023, the FASB issued ASU No. 2023-02, "Investments-Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method." The ASU allows entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. Previously, this method was only available for qualifying tax equity investments in low-income housing tax credit structures. The Company adopted the amended guidance on January 1, 2024, upon which the Company elected to continue the use of the practical expedient under ASC 323-740-35-4 to account for low-income housing tax credit and historic tax credit investments. Under the practical expedient, the cost of a tax equity investment is amortized in proportion to income tax credits only and is recorded on a net basis within income tax expense. The adoption of this amendment did not have any impact on the Consolidated Financial Statements aside from annual disclosures which were included in the Company's Annual Report on Form 10-K.
Segment Reporting In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” The ASU requires expanded segment disclosures, including disclosure of significant segment expenses and other segment items on an annual and interim basis. The Company adopted the amended guidance for the annual financial statements in 2024 and the interim disclosure requirements will be effective for interim periods beginning January 1, 2025. The adoption of this amendment did not have any impact on the Consolidated Financial Statements aside from additional disclosures. See Note 8, “Business Segment Reporting” for related disclosures.
Income Taxes In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The ASU is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in this update require additional disclosures primarily related to the rate reconciliation and income taxes paid information. The amendments in this update are effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The adoption of this accounting pronouncement will have no impact on the Consolidated Financial Statements aside from additional disclosures.
4. Loans and Allowance for Credit Losses
Loan Origination/Risk Management
The Company has certain lending policies and procedures in place that are designed to minimize the level of risk within the loan portfolio. Diversification of the loan portfolio manages the risk associated with fluctuations in economic conditions. Authority levels are established for the extension of credit to ensure consistency throughout the Company. It is necessary that policies, processes, and practices implemented to control the risks of individual credit transactions and portfolio segments are sound and adhered to. The Company maintains an independent loan review department that reviews and validates the risk assessment on a continual basis. Management regularly evaluates the results of the loan reviews. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures.
11
Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. Commercial loans are made based on the identified cash flows of the borrower and on the underlying collateral provided by the borrower. The cash flows of the borrower, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts from its customers.
Specialty lending loans include Asset-based loans, which are offered primarily in the form of revolving lines of credit to commercial borrowers that do not generally qualify for traditional bank financing. Asset-based loans are underwritten based primarily upon the value of the collateral pledged to secure the loan, rather than on the borrower’s general financial condition. The Company utilizes pre-loan due diligence techniques, monitoring disciplines, and loan management practices common within the asset-based lending industry to underwrite loans to these borrowers.
Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. The Company requires that an appraisal of the collateral be made at origination and on an as-needed basis, in conformity with current market conditions and regulatory requirements. The underwriting standards address both owner and non-owner-occupied real estate. Also included in Commercial real estate are Construction loans that are underwritten using feasibility studies, independent appraisal reviews, sensitivity analysis or absorption and lease rates, and financial analysis of the developers and property owners. Construction loans are based upon estimates of costs and value associated with the complete project. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their repayment being sensitive to interest rate changes, governmental regulation of real property, economic conditions, completion of the construction project, and the availability of long-term financing.
Consumer real estate loans, including residential real estate and home equity loans, are underwritten based on the borrower’s loan-to-value percentage, collection remedies, and overall credit history.
Consumer loans are underwritten based on the borrower’s repayment ability. The Company monitors delinquencies on all of its consumer loans and leases. The underwriting and review practices combined with the relatively small loan amounts that are spread across many individual borrowers, minimizes risk. Consumer loans and leases that are 90 days past due or more are considered non-performing.
Credit cards include both commercial and consumer credit cards. Commercial credit cards are generally unsecured and are underwritten with criteria similar to commercial loans, including an analysis of the borrower’s cash flow, available business capital, and overall creditworthiness of the borrower. Consumer credit cards are underwritten based on the borrower’s repayment ability. The Company monitors delinquencies on all of its consumer credit cards and periodically reviews the distribution of credit scores relative to historical periods to monitor credit risk on its consumer credit card loans. During the first quarter of 2024, the Company purchased a co-branded credit card portfolio. The purchase included $109.4 million in credit card receivables.
Credit risk is a potential loss resulting from nonpayment of either the primary or secondary exposure. Credit risk is mitigated with formal risk management practices and a thorough initial credit-granting process including consistent underwriting standards and approval process. Control factors or techniques to minimize credit risk include knowing the client, understanding total exposure, analyzing the client and debtor’s financial capacity, and monitoring the client’s activities. Credit risk and portions of the portfolio risk are managed through concentration considerations, average risk ratings, and other aggregate characteristics.
12
The loan portfolio is comprised of loans originated by the Company and purchased loans in connection with the Company’s acquisition of HTLF on January 31, 2025. The purchased loans were recorded at estimated fair value at the Acquisition Date with no carryover of the related allowance. As of the Acquisition Date, loans from the HTLF acquisition had a fair value of $9.8 billion, net of allowance for credit losses on PCD loans. See Note 13, “Acquisition” for additional information.
Loan Aging Analysis
The following tables provide a summary of loan classes and an aging of past due loans at March 31, 2025 and December 31, 2024 (in thousands):
March 31, 2025
30-89Days PastDue andAccruing
Greater than90 Days PastDue andAccruing
NonaccrualLoans
TotalPast Due
Current
Total Loans
Commercial and industrial
1,908
502
12,585
14,995
14,020,467
14,035,462
Specialty lending
542,089
Commercial real estate
49,886
60,980
110,866
15,887,884
15,998,750
Consumer real estate
3,602
23,291
26,893
4,162,793
4,189,686
Consumer
417
26
149
592
327,890
328,482
Credit cards
11,048
5,818
3,880
20,746
656,287
677,033
Leases and other
164,779
Total loans
66,861
6,346
100,885
174,092
35,762,189
December 31, 2024
446
4,423
4,870
10,896,632
10,901,502
469,194
1,013
805
1,818
10,129,467
10,131,285
553
13,614
14,167
3,172,963
3,187,130
175
227
193,633
193,860
9,316
7,589
400
17,305
561,461
578,766
180,564
11,503
7,602
19,282
38,387
25,603,914
The Company sold consumer real estate loans with proceeds of $16.4 million and $18.4 million in the secondary market without recourse during the three months ended March 31, 2025 and 2024, respectively.
The Company has ceased the recognition of interest on loans with a carrying value of $100.9 million and $19.3 million at March 31, 2025 and December 31, 2024, respectively. Restructured loans totaled $189 thousand and $196 thousand at March 31, 2025 and December 31, 2024, respectively. Loans 90 days past due and still accruing interest amounted to $6.3 million and $7.6 million at March 31, 2025 and December 31, 2024, respectively. All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. There was an insignificant amount of interest reversed related to loans on nonaccrual during 2025 and 2024. Nonaccrual loans
13
with no related allowance for credit losses totaled $100.9 million and $19.3 million at March 31, 2025 and December 31, 2024, respectively.
The following tables provide the amortized cost of nonaccrual loans with no related allowance for credit losses by loan class at March 31, 2025 and December 31, 2024 (in thousands):
Amortized Cost of Nonaccrual Loans with no related Allowance
Amortized Cost
The following tables provide a summary of the amortized cost balance of each of the Company’s loan classes disaggregated by collateral type and origination year as of March 31, 2025 and December 31, 2024, as well as the gross charge-offs by loan class and origination year for the three months ended March 31, 2025 (in thousands):
14
Amortized Cost Basis by Origination Year - Term Loans
Loan Segment and Type
2023
2022
2021
Prior
Amortized Cost - Revolving Loans
Amortized Cost - Revolving Loans Converted to Term Loans
Commercial and industrial:
Equipment/Accounts Receivable/Inventory
536,240
2,761,811
1,687,413
1,348,636
790,127
524,157
5,924,179
50,320
13,622,883
Agriculture
9,842
47,384
31,584
10,848
7,564
5,454
295,525
33
408,234
Overdrafts
4,345
Total Commercial and industrial
546,082
2,809,195
1,718,997
1,359,484
797,691
529,611
6,224,049
50,353
Current period charge-offs
7,150
505
3,620
1,478
111
13,132
25,996
Specialty lending:
Asset-based lending
5,730
7,257
29,656
28,332
461,114
Total Specialty lending
Commercial real estate:
Owner-occupied
143,117
496,496
709,940
1,074,173
914,842
982,250
37,616
4,358,434
Non-owner-occupied
458,615
889,732
985,873
1,312,179
997,383
1,067,130
48,010
5,758,922
Farmland
15,152
107,113
105,092
166,817
93,950
274,978
131,493
894,595
5+ Multi-family
12,328
187,219
107,105
401,991
363,702
118,755
6,275
1,197,375
1-4 Family construction
14,308
72,214
7,608
7,432
236
101,798
General construction
173,594
690,960
948,185
1,518,374
245,660
17,520
93,333
3,687,626
Total Commercial real estate
817,114
2,443,734
2,863,803
4,480,966
2,615,537
2,460,869
316,727
795
680
849
2,324
Consumer real estate:
HELOC
139
1,079
2,301
893
8,313
667,665
1,606
681,996
First lien: 1-4 family
93,534
427,177
402,758
685,222
801,697
947,951
15,303
3,373,642
Junior lien: 1-4 family
3,793
37,517
22,672
34,496
20,550
8,442
6,578
134,048
Total Consumer real estate
97,327
464,833
426,509
722,019
823,140
964,706
689,546
84
91
711
186
157
1,229
Consumer:
Revolving line
35
601
151,618
722
153,026
Auto
2,435
10,436
15,717
8,828
2,906
1,148
41,470
2,461
16,412
6,500
14,836
26,535
2,402
64,840
133,986
Total Consumer
4,896
26,881
22,227
23,699
29,448
4,151
216,458
27
54
105
58
490
742
Credit cards:
310,874
Commercial
366,159
Total Credit cards
6,676
Leases and other:
Leases
1,469
445
23,448
45,558
47,577
11,839
22,961
11,482
163,310
Total Leases and other
24,430
1,475,864
5,773,821
5,077,094
6,641,002
4,307,311
4,012,099
8,596,409
52,681
15
2020
2,319,857
1,363,616
975,325
688,580
293,194
135,072
4,915,907
20,356
10,711,907
9,857
5,750
3,554
2,208
356
97
156,546
178,368
11,227
2,329,714
1,369,366
978,879
690,788
293,550
135,169
5,083,680
5,803
8,026
30,702
29,392
395,271
352,517
277,049
593,480
442,805
293,799
275,207
4,948
25,266
2,265,071
784,434
527,773
1,006,769
727,365
404,362
324,839
32,312
3,807,854
54,656
47,357
58,154
36,127
183,762
23,016
107,468
510,543
161,767
47,136
302,225
256,032
28,819
18,732
9,202
823,913
46,096
1,385
47,486
493,723
644,885
1,222,539
235,758
4,049
514
74,950
2,676,418
1,893,193
1,545,585
3,183,167
1,698,087
914,791
642,308
228,885
25,269
90
16
450
455
334
5,049
390,843
2,484
399,721
413,395
361,242
565,017
635,217
496,758
273,628
2,745,257
12,516
9,969
10,004
3,978
2,934
2,676
75
42,152
426,001
371,227
575,471
639,650
500,026
281,353
390,918
101,407
101,442
8,567
7,429
3,534
1,928
673
22,414
13,050
2,876
10,065
25,659
342
796
17,216
70,004
21,652
10,305
13,599
27,587
1,015
118,623
328,474
250,292
1,492
31,084
50,273
48,801
13,067
12,780
11,116
11,951
179,072
12,608
4,707,447
3,346,756
4,807,943
3,099,881
1,751,554
1,072,517
6,808,094
48,109
Accrued interest on loans totaled $175.2 million and $125.7 million as of March 31, 2025 and December 31, 2024, respectively, and is included in the Accrued income line on the Company’s Consolidated Balance Sheets. The total amount of accrued interest is excluded from the amortized cost basis of loans presented above. Further, the Company has elected not to measure an allowance for credit losses for accrued interest receivable.
Credit Quality Indicators
As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to the risk grading of specified classes of loans, net charge-offs, non-performing loans, and general economic conditions.
The Company utilizes a risk grading matrix to assign a rating to each of its commercial, commercial real estate, and construction real estate loans. Changes in credit risk are monitored on a continuous basis and changes in risk ratings are made when identified. The loan ratings are summarized into the following categories: Pass, Special Mention, Substandard, and Doubtful. Any loan not classified in one of the categories described below is considered to be a Pass loan. A description of the general characteristics of the loan rating categories is as follows:
A discussion of the credit quality indicators that impact each type of collateral securing Commercial and industrial loans is included below:
Equipment, accounts receivable, and inventory General commercial and industrial loans are secured by working capital assets and non-real estate assets. The general purpose of these loans is for financing capital expenditures and current operations for commercial and industrial entities. These assets are short-term in nature. In the case of accounts receivable and inventories, the repayment of debt is reliant upon converting assets into cash or through goods and services being sold and collected. Collateral-based risk is due to aged short-term assets, which can be indicative of underlying issues with the borrower and lead to the value of the collateral being overstated.
Agriculture Agricultural loans are secured by non-real estate agricultural assets. These include shorter-term assets such as equipment, crops, and livestock. The risks associated with loans to finance crops or livestock include the borrower’s ability to successfully raise and market the commodity. Adverse weather conditions and other natural perils can dramatically affect farmers’ or ranchers’ production and ability to service debt. Volatile commodity prices present another significant risk for agriculture borrowers. Market price volatility and production cost volatility can affect both revenues and expenses.
Overdrafts Commercial overdrafts are typically short-term and unsecured. Some commercial borrowers tie their overdraft obligation to their line of credit, so any draw on the line of credit will satisfy the overdraft.
Based on the factors noted above for each type of collateral, the Company assigns risk ratings to borrowers based on their most recently assessed financial position.
The following tables provide a summary of the amortized cost balance by collateral type and risk rating as of March 31, 2025 and December 31, 2024 (in thousands):
17
Risk by Collateral
Pass
489,140
2,731,572
1,625,737
1,263,974
759,279
499,212
5,663,681
13,082,915
Special Mention
14,990
21,183
53,135
23,353
14,170
11,478
129,124
267,433
Substandard
32,029
9,056
8,541
61,309
16,678
13,467
131,374
272,454
Doubtful
81
Total Equipment/Accounts Receivable/Inventory
46,277
30,602
10,718
7,523
4,256
285,801
395,052
254
982
41
7,876
9,283
853
1,198
1,848
3,899
Total Agriculture
2,294,574
1,339,370
910,591
668,187
291,733
130,832
4,725,721
10,381,364
2,044
4,145
6,075
5,949
639
48,897
67,749
23,044
20,101
58,659
14,444
822
4,240
141,289
262,599
195
5,214
5,613
3,465
153,585
170,538
137
89
1,068
1,294
4,643
1,893
6,536
A discussion of the credit quality indicators that impact each type of collateral securing Specialty loans is included below:
Asset-based lending General asset-based loans are secured by accounts receivable, inventory, equipment, and real estate. The purpose of these loans is for financing current operations for commercial customers. The repayment of debt is reliant upon collection of the accounts receivable within 30 to 90 days or converting assets into cash or through goods and services being sold and collected. The Company tracks each individual borrower credit risk based on their loan to collateral position. Any borrower position where the underlying value of collateral is below the fair value of the loan is considered out-of-margin and inherently higher risk.
The following table provides a summary of the amortized cost balance by risk rating for asset-based loans as of March 31, 2025 and December 31, 2024 (in thousands):
Risk
In-margin
Out-of-margin
A discussion of the credit quality indicators that impact each type of collateral securing Commercial real estate loans is included below:
Owner-occupied Owner-occupied loans are secured by commercial real estate. These loans are often longer tenured and susceptible to multiple economic cycles. The loans rely on the owner-occupied operations to service debt which cover a broad spectrum of industries. Real estate debt can carry a significant amount of leverage for a borrower to maintain.
Non-owner-occupied Non-owner-occupied loans are secured by commercial real estate. These loans are often longer tenured and susceptible to multiple economic cycles. The key element of risk in this type of lending is the cyclical nature of real estate markets. Although national conditions affect the overall real estate industry, the effect of national conditions on local markets is equally important. Factors such as unemployment rates, consumer demand, household formation, and the level of economic activity can vary widely from state to state and among metropolitan areas. In addition to geographic considerations, markets can be defined by property type. While all sectors are influenced by economic conditions, some sectors are more sensitive to certain economic factors than others.
Farmland Farmland loans are secured by real estate used for agricultural purposes such as crop and livestock production. Assets used as collateral are long-term assets that carry the ability to have longer amortizations and maturities. Longer terms carry the risk of added susceptibility to market conditions. The limited purpose of some Agriculture-related collateral affects credit risk because such collateral may have limited or no other uses to support values when loan repayment problems emerge.
5+ Multi-family 5+ multi-family loans are secured by a multi-family residential property. The primary risks associated with this type of collateral are largely driven by economic conditions. The national and local market conditions can change with unemployment rates or competing supply of multi-family housing. Tenants may not be able to afford their housing or have better options and this can result in increased vacancy. Rents may need to be lowered to fill apartment units. Increased vacancy and lower rental rates not only drive the borrower’s ability to repay debt but also contribute to how the collateral is valued.
1-4 Family construction 1-4 family construction loans are secured by 1-4 family residential real estate and are in the process of construction or improvements being made. The predominant risk inherent to this portfolio is the risk associated with a borrower’s ability to successfully complete a project on time and within budget. Market conditions also play an important role in understanding the risk profile. Risk from adverse changes in market conditions from the start of development to completion can result in deflated collateral values.
General construction General construction loans are secured by commercial real estate in process of construction or improvements being made and their repayment is dependent on the collateral’s completion. Construction lending presents unique risks not encountered in term financing of existing real estate. The
19
predominant risk inherent to this portfolio is the risk associated with a borrower’s ability to successfully complete a project on time and within budget. Commercial properties under construction are susceptible to market and economic conditions. Demand from prospective customers may erode after construction begins because of a general economic slowdown or an increase in the supply of competing properties.
20
129,153
466,446
669,444
998,970
900,465
909,828
4,111,922
12,979
26,740
5,070
43,759
5,607
47,806
141,961
985
3,310
35,139
31,444
8,770
24,616
104,264
287
Total Owner-occupied
453,986
857,021
958,785
1,253,217
973,761
1,035,473
5,580,253
32,711
13,028
37,819
4,461
18,505
106,524
4,629
14,060
21,143
19,161
13,152
72,145
Total Non-owner-occupied
89,364
102,666
153,176
93,643
262,989
130,463
847,453
964
129
13,641
201
2,858
1,030
18,823
16,785
2,297
106
9,131
28,319
Total Farmland
72,572
384,357
117,885
1,144,338
34,533
870
35,403
17,634
Total 5+ Multi-family
7,236
101,426
372
Total 1-4 Family construction
676,413
929,126
1,460,519
222,696
17,385
86,237
3,565,970
14,441
19,059
50,683
22,955
45
107,183
7,172
7,096
14,367
Total General construction
21
316,858
276,546
590,337
442,768
289,219
267,944
2,213,886
31,213
1,512
467
33,192
4,446
503
1,631
37
4,113
7,263
17,993
514,745
981,769
324,310
3,769,297
25,000
38,028
529
36,771
45,055
45,131
182,769
14,209
106,468
466,533
13,023
1,000
17,329
16,903
2,302
993
6,483
26,681
493,614
643,050
1,221,251
504
2,673,176
1,835
1,288
3,133
109
A discussion of the credit quality indicators that impact each type of collateral securing Consumer real estate loans is included below:
HELOC HELOC loans are revolving lines of credit secured by 1-4 family residential property. The primary risk is the borrower’s inability to repay debt. Revolving notes are often associated with HELOCs that can be
22
secured by real estate without a 1st lien priority. Collateral is susceptible to market volatility impacting home values or economic downturns.
First lien: 1-4 family First lien 1-4 family loans are secured by a first lien on 1-4 family residential property. These term loans carry longer maturities and amortizations. The longer tenure exposes the borrower to multiple economic cycles, coupled with longer amortizations that result in smaller principal reduction early in the life of the loan. Collateral is susceptible to market volatility impacting home values.
Junior lien: 1-4 family Junior lien 1-4 family loans are secured by a junior lien on 1-4 family residential property. The Company’s primary risk is the borrower’s inability to repay debt and not being in a first lien position. Collateral is susceptible to market volatility impacting home values or economic downturns.
A borrower is considered non-performing if the Company has ceased the recognition of interest and the loan is placed on non-accrual. Charge-offs and borrower performance are tracked on a loan origination vintage basis. Certain vintages, based on their maturation cycle, could be at higher risk due to collateral-based risk factors.
Performing
668
1,345
376
6,269
667,209
1,118
677,071
Non-performing
53
411
956
517
456
488
4,925
Total HELOC
93,165
426,988
399,099
678,903
798,444
944,545
3,356,447
369
189
3,659
6,319
3,253
3,406
17,195
Total First lien: 1-4 family
3,745
22,641
34,218
20,459
8,355
133,513
48
31
278
535
Total Junior lien: 1-4 family
23
203
249
3,780
1,879
397,510
252
1,269
605
2,211
413,060
358,303
559,689
633,749
496,615
272,601
2,734,017
335
2,939
5,328
1,468
143
1,027
11,240
9,952
9,903
2,631
41,989
101
163
A discussion of the credit quality indicators that impact each type of collateral securing Consumer loans is included below:
Revolving line Consumer Revolving lines of credit are secured by consumer assets other than real estate. The primary risk associated with this collateral is related to market volatility and the value of the underlying financial assets.
Auto Direct consumer auto loans are secured by new and used consumer vehicles. The primary risk with this collateral class is the rate at which the collateral depreciates.
Other This category includes Other consumer loans made to an individual. The primary risk for this category is for those loans where the loan is unsecured. This collateral type also includes other unsecured lending such as consumer overdrafts.
24
552
151,609
152,968
49
Total Revolving line
15,707
8,815
2,884
1,142
41,419
51
Total Auto
2,452
16,398
6,493
14,826
133,946
Total Other
7,418
1,920
22,395
13,037
10,057
69,983
25
A discussion of the credit quality indicators that impact Credit card loans is included below:
Consumer Consumer credit card loans are revolving loans made to individuals. The primary risk associated with this collateral class is credit card debt which is generally unsecured; therefore, repayment depends primarily on a borrower’s willingness and capacity to repay. The highly competitive environment for credit card lending provides consumers with ample opportunity to hold several credit cards from different issuers and to pay only minimum monthly payments on outstanding balances. In such an environment, borrowers may become over-extended and unable to repay, particularly in times of an economic downturn or a personal catastrophic event.
The consumer credit card portfolio is segmented by borrower payment activity. Transactors are defined as accounts that pay off their balance by the end of each statement cycle. Revolvers are defined as an account that carries a balance from one statement cycle to the next. These accounts incur monthly finance charges, and, sometimes, late fees. Revolvers are inherently higher risk and are tracked by credit score.
Beginning in the first quarter of 2025, the consumer credit card portfolio is also segmented between current and significantly delinquent loans, with accounts being considered significantly delinquent after 60 days. Current loans are segmented by borrower payment activity as described above. Significantly delinquent loans are tracked by the number of cycles past due.
Commercial Commercial credit card loans are revolving loans made to small and commercial businesses. The primary risk associated with this collateral class is credit card debt which is generally unsecured; therefore, repayment depends primarily on a borrower’s willingness and capacity to repay. Borrowers may become over-extended and unable to repay, particularly in times of an economic downturn or a catastrophic event.
The commercial credit card portfolio is segmented by current and past due payment status. A borrower is past due after 30 days. In general, commercial credit card customers do not have incentive to hold a balance resulting in paying interest on credit card debt as commercial customers will typically have other debt obligations with lower interest rates in which they can utilize for capital.
The following tables provide a summary of the amortized cost balance of consumer credit cards by risk rating as of March 31, 2025 and December 31, 2024 (in thousands):
Transactor accounts
93,529
101,688
Revolver accounts (by credit score):
Less than 600
10,128
16,297
600-619
6,771
7,893
620-639
12,613
13,174
640-659
19,394
20,798
660-679
20,516
20,897
680-699
22,730
24,121
700-719
24,546
26,180
720-739
21,480
22,418
740-759
18,402
18,965
760-779
18,253
19,609
780-799
17,544
18,058
800-819
10,814
11,443
820-839
5,429
5,745
840+
1,120
1,188
303,269
61-90 Days
2,360
91-120 Days
1,941
121-150 Days
1,622
151-180 Days
1,682
7,605
The following table provides a summary of the amortized cost balance of commercial credit cards by risk rating as of March 31, 2025 and December 31, 2024 (in thousands):
341,002
231,713
Past Due
25,157
18,579
A discussion of the credit quality indicators that impact each type of collateral securing Leases and other loans is included below:
Leases Leases are either loans to individuals for household, family and other personal expenditures or are loans related to all other direct financing and leveraged leases on property for leasing to lessees other than for household, family, and other personal expenditure purposes. All leases are secured by the lease between the lessor and the lessee. These assignments grant the creditor a security interest in the rent stream from any lease, an important source of cash to pay the note in case of the borrower’s default.
Other Other loans are loans that are obligations of states and political subdivisions in the U.S., loans to non-depository financial institutions, loans for purchasing or carrying securities, or all other non-consumer loans. Risk associated with other loans is tied to the underlying collateral by each type of loan. Collateral is generally equipment, accounts receivable, inventory, 1-4 family residential construction and susceptible to the same risks mentioned with those collateral types previously. Other risks consist of collateral that is secured by the stock of a non-depository financial institution, which can be unlisted stock with a limited market for the stock, or volatility of asset values driven by market performance.
The following table provides a summary of the amortized cost balance by collateral type and risk rating as of March 31, 2025 and December 31, 2024 (in thousands):
179,047
Allowance for Credit Losses
The ACL is a valuation account that is deducted from loans’ and held-to-maturity (HTM) securities’ amortized cost bases to present the net amount expected to be collected on the instrument. Loans and HTM securities are charged off against the ACL when management believes the balance has become uncollectible.
Expected recoveries are included in the allowance and do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.
Management estimates the allowance balance using relevant available information, from internal and external sources, related to past events, current conditions, and reasonable and supportable economic forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses and is tracked over an economic cycle to capture a ‘through the cycle’ loss history. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in portfolio industry-based segmentation, risk rating and credit score changes, average prepayment rates, changes in environmental conditions, or other relevant factors. For economic forecasts, the Company uses the Moody’s baseline scenario. The Company has developed a dynamic reasonable and supportable forecast period that ranges from one to three years and changes based on economic conditions. The Company’s reasonable and supportable forecast period is one year. After the reasonable and supportable forecast period, the Company reverts to historical losses. The reversion method applied to each portfolio can either be cliff in which the Company reverts immediately to historical losses or straight-line over four quarters.
The ACL is measured on a collective (pool) basis when similar risk characteristics exist. The ACL also incorporates qualitative factors which represent adjustments to historical credit loss experience for items such as concentrations of credit and results of internal loan review. The Company has identified the following portfolio segments and measures the allowance for credit losses using the following methods. The Company’s portfolio segmentation consists of Commercial and industrial, Specialty lending, Commercial real estate, Consumer real estate, Consumer, Credit cards, Leases and other, and Held-to-maturity securities. Multiple modeling techniques are used to measure credit losses based on the portfolio.
The ACL for Commercial and industrial and Leases and other segments are measured using a probability of default and loss given default method. Primary risk drivers within the segment are risk ratings of the individual loans along with changes of macro-economic variables. The economic variables utilized are typically comprised of leading and lagging indicators. The ACL for Commercial and industrial loans is calculated by modeling probability of default (PD) over future periods multiplied by historical loss given default rates (LGD) multiplied by contractual exposure at default minus any estimated prepayments and charge offs.
Collateral positions for Specialty lending loans are continuously monitored by the Company and the borrower is required to continually adjust the amount of collateral securing the loan. Credit losses are measured for any position where the amortized cost basis is greater than the fair value of the collateral. The ACL for specialty lending loans is calculated by using a bottom-up approach comparing collateral values to outstanding balances.
The ACL for the Commercial real estate segment is measured using a PD and LGD method. Primary risk characteristics within the segment are risk ratings of the individual loans, along with changes of macro-economic variables, such as interest rates, CRE price index, median household income, construction activity, farm income, and vacancy rates. The ACL for Commercial real estate loans is calculated by modeling PD over future periods based on peer bank data. The PD loss rate is then multiplied by historical LGD multiplied by contractual exposure at default minus any estimated prepayments and charge offs.
The ACL for the Consumer real estate and Consumer segments are measured using an origination vintage loss rate method applied to the loans’ amortized cost balance. The primary risk driver within the segments is year of origination along with changes of macro-economic variables such as unemployment and the home price index.
The Credit card segment contains both consumer and commercial credit cards. The ACL for Consumer credit cards is measured using a PD and LGD method for Revolvers and average historical loss rates across a defined lookback period for Transactors. The PD and LGD method used for Revolvers is similar in nature to the method used in the Commercial and industrial and Commercial real estate segments. Primary risk drivers within the segment are credit ratings of the individual card holders along with changes of macro-economic variables such as unemployment and retail sales. The ACL for Commercial credit cards is measured using roll-rate loss rate method based on days past due.
28
The ACL for the State and political HTM securities segment is measured using a loss rate method based on historical bond rating transitions. Primary risk drivers within the segment are bond ratings in the portfolio along with changes of macro-economic conditions. There is no ACL for the U.S. Agency and GSE mortgage-backed HTM securities portfolios as they are considered to be agency-backed securities with no risk of loss as they are either explicitly or implicitly guaranteed by the U.S. government. For further discussion on these securities, including the aging and amortized cost balance of HTM securities, see Note 5, “Securities.”
See the credit quality indicators presented previously for a summary of current risk in the Company’s portfolio. Changes in economic forecasts will affect all portfolio segments, updated financial records from borrowers will affect portfolio segments by risk rating, updated credit scores will affect consumer credit cards, payment performance will affect consumer and commercial credit card portfolio segments, and updated bond credit ratings will affect held-to-maturity securities. The Company actively monitors all credit quality indicators for risk changes that will influence the current estimate.
Expected credit losses are estimated over the contractual term of the loans, adjusted for prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a concessionary loan term has been granted to a borrower experiencing financial difficulty or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancelable by the Company.
Credit card receivables do not have stated maturities. In determining the estimated life of a credit card receivable, management first estimates the future cash flows expected to be received and then applies those expected future cash flows to the credit card balance. Expected credit losses for credit cards are determined by estimating the amount and timing of principal payments expected to be received as payment for the balance outstanding as of the reporting period until the expected payments have been fully allocated. The ACL is recorded for the excess of the balance outstanding as of the reporting period over the expected principal payments.
Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually include loans on nonaccrual, loans that include modifications deemed concessionary made to borrowers experiencing financial difficulty, or any loans specifically identified, and are excluded from the collective evaluation. When it is determined that payment of interest or recovery of all principal is questionable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for undiscounted selling costs as appropriate. All loans are classified as collateral dependent if placed on non-accrual or include modifications made to borrowers experiencing financial difficulty.
29
ALLOWANCE FOR CREDIT LOSSES AND RECORDED INVESTMENT IN LOANS
This table provides a rollforward of the allowance for credit losses by portfolio segment for the three months ended March 31, 2025 and March 31, 2024 (in thousands):
Three Months Ended March 31, 2025
Total - Loans
HTM
Allowance for credit losses:
Beginning balance
160,912
77,340
4,327
966
14,272
1,272
259,089
2,645
261,734
PCD allowance for credit loss at acquisition
35,143
26,764
206
62,126
Charge-offs
(25,996
(2,324
(1,229
(742
(6,676
(36,967
Recoveries
69
119
891
1,095
Provision
22,018
47,565
1,132
11,508
(122
83,579
1,921
85,500
Ending balance - ACL
192,146
149,345
4,798
1,488
19,995
1,150
368,922
4,566
373,488
Allowance for credit losses on off-balance sheet credit exposures:
2,083
1,741
214
4,124
4,138
Initial allowance for credit loss at acquisition
2,166
1,192
63
114
3,576
3,583
1,226
(521
34
(233
511
(11
500
Ending balance - ACL on off-balance sheet
5,475
2,412
138
95
8,211
8,221
Three Months Ended March 31, 2024
155,658
45,507
6,941
1,089
7,935
2,608
219,738
3,258
222,996
(944
(250
(174
(408
(3,701
(5,477
1,252
606
76
525
2,460
(16,142
(1
21,034
(3,974
(226
9,798
(1,051
9,438
562
139,824
66,291
3,399
531
14,557
1,557
226,159
3,820
229,979
4,092
460
117
160
5,024
64
5,088
The allowance for credit losses on off-balance sheet credit exposures is recorded in the Accrued expenses and taxes line of the Company’s Consolidated Balance Sheets. See Note 10 “Commitments, Contingencies and Guarantees.”
30
Collateral Dependent Financial Assets
The following tables provide the amortized cost balance of financial assets considered collateral dependent as of March 31, 2025 and December 31, 2024 (in thousands):
Amortized Cost of Collateral Dependent Assets
Related Allowance for Credit Losses
Amortized Cost of Collateral Dependent Assets with no related Allowance
11,298
1,287
17,558
34,637
2,273
6,664
61,132
5,045
17,653
593
97,157
707
135
118
960
19,037
Modifications made to Borrowers Experiencing Financial Difficulty
In the normal course of business, the Company may execute loan modifications with borrowers. These modifications are analyzed to determine whether the modification is considered concessionary, long term and made to a borrower experiencing financial difficulty. The Company’s modifications generally include interest rate adjustments, principal reductions, and amortization and maturity date extensions. These modifications allow the borrower short-term cash relief to allow them to improve their financial condition. If a loan modification is determined to be made to a borrower experiencing financial difficulty, the loan is considered collateral dependent and evaluated as part of the ACL as described above in the Allowance for Credit Losses section of this note.
For the three months ended March 31, 2025, the Company had one modification on residential real estate made to a borrower experiencing financial difficulty with a pre- and post-modification loan balance of $225
32
thousand. For the three months ended March 31, 2024, the Company did not modify any loans made to borrowers experiencing financial difficulty.
The Company had no commitments to lend to borrowers experiencing financial difficulty for which the Company has modified an existing loan as of March 31, 2025 and 2024. The Company monitors loan payments on an on-going basis to determine if a loan is considered to have a payment default. Determination of payment default involves analyzing the economic conditions that exist for each customer and their ability to generate positive cash flows during the loan term. For the three-month period ended March 31, 2025 and March 31, 2024, the Company had no loan modifications made to borrowers experiencing financial difficulty for which there was a payment default within the 12 months following the modification date.
5. Securities
Securities Available for Sale
This table provides detailed information about securities available for sale at March 31, 2025 and December 31, 2024 (in thousands):
AmortizedCost
GrossUnrealizedGains
GrossUnrealizedLosses
FairValue
U.S. Treasury
1,579,100
8,949
(2,870
1,585,179
U.S. Agencies
107,559
340
(235
107,664
Mortgage-backed
6,413,094
17,073
(469,240
5,960,927
State and political subdivisions
2,530,711
14,329
(114,740
2,430,300
Corporates
308,896
177
(10,612
298,461
Collateralized loan obligations
513,797
297
(966
513,128
11,453,157
41,165
(598,663
1,331,394
2,751
(8,072
1,326,073
129,246
(325
129,047
4,945,548
339
(524,957
4,420,930
1,309,126
487
(91,044
1,218,569
330,739
(13,629
317,170
361,623
1,060
(138
362,545
8,407,676
4,823
(638,165
The following table presents contractual maturity information for securities available for sale at March 31, 2025 (in thousands):
Amortized
Fair
Cost
Value
Due in 1 year or less
585,355
583,444
Due after 1 year through 5 years
1,923,362
1,913,941
Due after 5 years through 10 years
710,233
688,994
Due after 10 years
1,821,113
1,748,353
5,040,063
4,934,732
Mortgage-backed securities
Total securities available for sale
Securities may be disposed of before contractual maturities due to sales by the Company or because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
During 2025, related to the acquisition of HTLF, the Company acquired securities available for sale with an Acquisition Date fair value of $3.1 billion.
For the three months ended March 31, 2025 and March 31, 2024, there were $611.4 million and $19.2 million, respectively, in proceeds from the sales of securities available for sale. Securities transactions resulted in gross realized gains of $390 thousand and $139 thousand for the three months ended March 31, 2025 and 2024, respectively.
There were $11.2 billion and $10.5 billion of securities pledged to secure U.S. Government deposits, other public deposits, certain trust deposits, derivative transactions, and repurchase agreements at March 31, 2025 and December 31, 2024, respectively.
Accrued interest on securities available for sale totaled $58.0 million and $43.1 million as of March 31, 2025 and December 31, 2024, respectively, and is included in the Accrued income line on the Company’s Consolidated Balance Sheets. The total amount of accrued interest is excluded from the amortized cost of available-for-sale securities presented above. Further, the Company has elected not to measure an ACL for accrued interest receivable.
The following table shows the Company’s available-for-sale investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2025 and December 31, 2024 (in thousands):
Less than 12 months
12 months or more
Count
Fair Value
UnrealizedLosses
Description of Securities
232,454
(1,842
143,757
(1,028
376,211
(220
14,985
(15
24,985
147
1,202,454
(17,234
829
3,000,169
(452,006
976
4,202,623
393
796,861
(23,228
1,497
897,152
(91,512
1,890
1,694,013
6,908
(89
213
273,382
(10,523
218
280,290
265,735
(931
7,983
(35
273,718
599
2,514,412
(43,544
2,551
4,337,428
(555,119
3,150
6,851,840
93
635,739
(6,319
142,518
(1,753
102
778,257
20,858
(46
56,712
(279
77,570
159
1,293,953
(22,468
834
3,055,882
(502,489
4,349,835
264
173,006
(2,392
1,629
953,458
(88,652
1,126,464
239
315,109
47,222
(88
30,521
(50
77,743
527
2,170,778
(31,313
2,721
4,554,200
(606,852
3,248
6,724,978
The unrealized losses in the Company’s investments were caused by changes in interest rates, and not from a decline in credit of the underlying issuers. The U.S. Treasury, U.S. Agency, and GSE mortgage-backed securities are all considered to be agency-backed securities with no risk of loss as they are either explicitly or implicitly guaranteed by the U.S. government. The changes in fair value in the agency-backed portfolios are solely driven by change in interest rates caused by changing economic conditions. The Company has no knowledge of any underlying credit issues and the cash flows underlying the debt securities have not changed and are not expected to be impacted by changes in interest rates.
For the State and political subdivision portfolio, the majority of the Company’s holdings are in general obligation bonds, which have a very low historical default rate due to issuers generally having unlimited taxing authority to service the debt. For the State and political, Corporates, and Collateralized loan obligations portfolios, the Company has a robust process for monitoring credit risk, including both pre-purchase and ongoing post-purchase credit reviews and analysis. The Company monitors credit ratings of all bond issuers in these segments and reviews available financial data, including market and sector trends.
As of March 31, 2025 and December 31, 2024, there was no ACL related to the Company’s available-for-sale securities as the decline in fair value did not result from credit issues.
Securities Held to Maturity
The following table provides detailed information about securities held to maturity at March 31, 2025 and December 31, 2024, respectively (in thousands):
Gross Unrealized Gains
Gross Unrealized Losses
Net Carrying Amount
102,499
(167
102,332
2,473,598
(373,152
2,100,446
3,141,233
9,112
(246,064
2,904,281
(4,566
3,136,667
5,717,330
(619,383
5,107,059
116,331
(581
115,750
2,523,134
(418,482
2,104,652
2,739,447
12,035
(222,946
2,528,536
(2,645
2,736,802
5,378,912
(642,009
4,748,938
The following table presents contractual maturity information for securities held to maturity at March 31, 2025 (in thousands):
224,519
224,741
283,645
277,586
999,143
953,656
1,736,425
1,550,630
3,243,732
3,006,613
Total securities held to maturity
Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
During 2025, related to the acquisition of HTLF, the Company acquired securities held to maturity with an Acquisition Date fair value of $438.9 million.
There were no sales of securities held to maturity during the three months ended March 31, 2025 or 2024.
During the year ended December 31, 2022, securities with an amortized cost of $4.1 billion and a fair value of $3.8 billion were transferred from the available-for-sale classification to the held-to-maturity classification as the Company has the positive intent and ability to hold these securities to maturity. The transfers of securities were made at fair value at the time of transfer. The unrealized holding gain or loss at the time of transfer is retained in AOCI and will be amortized over the remaining life of the securities, offsetting the related amortization of discount or premium on the transferred securities. No gains or losses were recognized at the time of the transfers. The amortized cost balance of securities held to maturity in the tables above includes a net unamortized unrealized loss of $163.0 million and $171.3 million at March 31, 2025 and December 31, 2024, respectively.
Accrued interest on securities held to maturity totaled $22.1 million and $25.6 million as March 31, 2025 and December 31, 2024, respectively, and is included in the Accrued income line on the Company’s Consolidated Balance Sheets. The total amount of accrued interest is excluded from the amortized cost of held-to-maturity securities presented above. Further, the Company has elected not to measure an ACL for accrued interest receivable.
The following table shows the Company’s held-to-maturity investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2025 and December 31, 2024, respectively (in thousands):
Unrealized Losses
3,433
(41
263
2,097,013
(373,111
269
100
296,557
(5,325
1,409
1,914,405
(240,739
1,509
2,210,962
299,990
(5,366
1,680
4,113,750
(614,017
1,786
4,413,740
U.S. Agency
3,527
(103
2,101,125
(418,379
47
52,468
(2,030
1,414
1,972,927
(220,916
1,461
2,025,395
55,995
(2,133
1,687
4,189,802
(639,876
1,740
4,245,797
The unrealized losses in the Company’s held-to-maturity portfolio were caused by changes in the interest rate environment. The U.S. Agency and GSE mortgage-backed securities are considered to be agency-backed securities with no risk of loss as they are either explicitly or implicitly guaranteed by the U.S. government. Therefore, the Company’s expected lifetime loss for these portfolios is zero and there is no ACL recorded for these portfolios. The Company has no knowledge of any underlying credit issues and the cash flows underlying the debt securities have not changed and are not expected to be impacted by changes in interest rates.
For the State and political subdivision portfolio, the Company’s holdings are in general obligation bonds as well as private placement bonds, which have very low historical default rates due to issuers generally having
36
unlimited taxing authority to service the debt. The Company has a robust process for monitoring credit risk, including both pre-purchase and ongoing post-purchase credit reviews and analysis. The Company monitors credit ratings of all bond issuers in these segments and reviews available financial data, including market and sector trends. The underlying bonds are evaluated for credit losses in conjunction with management’s estimate of the ACL based on credit rating.
The following tables show the amortized cost basis by credit rating of the Company’s held-to-maturity State and political subdivisions bond investments at March 31, 2025 and December 31, 2024 (in thousands):
Amortized Cost Basis by Credit Rating - HTM Debt Securities
AAA
AA
A
BBB
BB
B
CCC-C
State and political subdivisions:
Competitive
69,506
52,182
483,447
811,507
54,891
16,047
2,284
1,489,864
Utilities
746,948
755,414
111,746
36,605
656
1,651,369
Total state and political subdivisions
816,454
807,596
595,193
848,112
55,547
424,690
610,351
36,628
21,990
1,093,659
759,798
761,706
99,127
24,509
648
1,645,788
523,817
634,860
37,276
Competitive held-to-maturity securities include not-for-profit enterprises that provide public functions such as housing, higher education or healthcare, but do so in a competitive environment. It also includes project financings that can have relatively high enterprise risk, such as deals backed by revenues from sports or convention facilities, or start-up transportation revenues.
Utilities are public enterprises providing essential services with a monopoly or near-monopoly over the service area. This includes environmental utilities (water, sewer, solid waste), power utilities (electric distribution and generation, gas), and transportation utilities (airports, parking, toll roads, mass transit, ports).
The following table presents the aging of past due held-to-maturity securities at March 31, 2025 (in thousands):
Non-Accrual
122
1,489,742
3,141,111
All held-to-maturity securities were current and not past due at December 31, 2024.
Trading Securities
The net unrealized losses on trading securities were $15 thousand and $40 thousand as of March 31, 2025 and March 31, 2024, respectively. Net unrealized gains and losses are included in trading and investment banking income on the Company’s Consolidated Statements of Income. Securities sold not yet purchased totaled $11.9 million and $7.1 million at March 31, 2025 and December 31, 2024, respectively, and are classified within the Other liabilities line of the Company’s Consolidated Balance Sheets.
Other Securities
The table below provides detailed information for Other securities at March 31, 2025 and December 31, 2024 (in thousands):
FRB and FHLB stock
95,190
42,672
Equity securities with readily determinable fair values
12,032
11,596
Equity securities without readily determinable fair values
539,930
416,750
Investment in FRB stock is based on the capital structure of the investing bank, and investment in FHLB stock is mainly tied to the level of borrowings from the FHLB. These holdings are carried at cost. Equity securities with readily determinable fair values are generally traded on an exchange and market prices are readily available. Equity securities without readily determinable fair values include equity investments which are held by a subsidiary qualified as a Small Business Investment Company, as well as investments in low-income housing partnerships within the areas the Company serves. Unrealized gains or losses on equity securities with and without readily determinable fair values are recognized in the Investment securities (losses) gains, net line of the Company’s Consolidated Statements of Income.
During 2025, related to the acquisition of HTLF, the Company acquired other securities with an acquired fair value of $123.8 million as of the Acquisition Date, including $2.0 million of FRB and FHLB stock and $121.8 million of equity securities without readily determinable fair values.
The table below presents the changes in equity securities without readily determinable fair values for the three months ended March 31, 2025 and 2024 (in thousands):
Balance – beginning of year
394,035
Acquisition of HTLF
121,769
Purchases of securities
24,003
5,012
Observable upward price adjustments
1,022
12,080
Observable downward price adjustments
(6,273
(2,825
Sales of securities and other activity
(17,341
(33,832
Balance – end of year
374,470
38
Investment Securities Gains, Net
The following table presents the components of Investment securities (losses) gains, net for the three months ended March 31, 2025 and March 31, 2024 (in thousands):
Available-for-sale debt securities:
Gains realized on sales
390
Fair value adjustments, net
144
(23
(5,243
(450
(73
9,705
Total investment securities (losses) gains, net
6. Goodwill and Other Intangibles
Changes in the carrying amount of goodwill for the periods ended March 31, 2025 and December 31, 2024 by reportable segment are as follows (in thousands):
Commercial Banking
Institutional Banking
Personal Banking
Balances as of January 1, 2025
63,113
76,492
67,780
954,640
636,426
1,591,066
Balances as of March 31, 2025
1,017,753
704,206
Balances as of January 1, 2024
Balances as of December 31, 2024
The following are the finite-lived intangible assets that continue to be subject to amortization as of March 31, 2025 and December 31, 2024 (in thousands):
As of March 31, 2025
Core Deposit Intangible Assets
Customer Relationships
Gross carrying amount
476,445
123,721
600,166
Accumulated amortization
16,055
26,925
42,980
Net carrying amount
460,390
96,796
As of December 31, 2024
2,345
86,800
89,145
1,600
23,898
25,498
745
62,902
39
Related to the acquisition of HTLF, the Company recognized $1.6 billion of goodwill, a $474.1 million core deposit intangible asset, wealth customer list of $26.0 million, and purchased credit card relationships of $10.9 million. See Note 13, “Acquisition” for additional information.
The following table has the aggregate amortization expense recognized in each period (in thousands):
Aggregate amortization expense
The following table discloses the estimated amortization expense of intangible assets in future periods (in thousands):
For the nine months ending December 31, 2025
75,786
For the year ending December 31, 2026
92,303
For the year ending December 31, 2027
81,711
For the year ending December 31, 2028
69,642
For the year ending December 31, 2029
60,700
7. Borrowed Funds
The components of the Company’s borrowed funds are as follows (in thousands):
Long-term debt:
Trust preferred securities
216,826
76,782
Subordinated notes 3.70%, net of issuance costs
188,739
199,681
Subordinated notes 6.25%, net of issuance costs
108,935
108,829
Subordinated notes 2.75%
139,880
Total long-term debt
Total borrowed funds
The following table presents details of outstanding trust preferred securities as of March 31, 2025 (in thousands):
Amount Outstanding
Issuance Date
Interest Rate
Interest Rate as of March 31, 2025
Maturity Date
Marquette Capital Trust I
19,017
12/28/2005
1.33% over 3-month term SOFR
5.89
%
1/7/2036
Marquette Capital Trust II
19,513
Marquette Capital Trust III
7,663
5/30/2006
1.50% over 3-month term SOFR
6.06
6/23/2036
Marquette Capital Trust IV
30,922
6/30/2006
1.60% over 3-month term SOFR
6.16
9/15/2036
Heartland Financial Statutory Trust IV
9,538
3/17/2004
2.75% over 3-month term SOFR
7.31
3/17/2034
Heartland Financial Statutory Trust V
17,141
1/27/2006
4/7/2036
Heartland Financial Statutory Trust VI
16,660
6/21/2007
1.48% over 3-month term SOFR
6.04
9/15/2037
Heartland Financial Statutory Trust VII
14,577
6/26/2007
9/1/2037
Morrill Statutory Trust I
9,854
12/19/2002
3.25% over 3-month term SOFR
7.81
12/26/2032
Morrill Statutory Trust II
9,604
12/17/2003
2.85% over 3-month term SOFR
7.41
12/17/2033
Sheboygan Statutory Trust I
7,253
9/17/2003
2.95% over 3-month term SOFR
7.51
9/17/2033
CBNM Capital Trust I
4,803
9/10/2004
12/15/2034
Citywide Capital Trust III
6,711
12/19/2003
2.80% over 3-month term SOFR
7.35
12/19/2033
Citywide Capital Trust IV
4,618
9/30/2004
2.20% over 3-month term SOFR
6.79
9/30/2034
Citywide Capital Trust V
12,892
5/31/2006
1.54% over 3-month term SOFR
6.10
7/25/2036
OCGI Statutory Trust III
2,993
6/27/2002
3.65% over 3-month term SOFR
8.21
9/30/2032
OCGI Statutory Trust IV
5,586
9/23/2004
2.50% over 3-month term SOFR
7.06
BVBC Capital Trust II
7,366
4/10/2003
7.80
4/24/2033
BVBC Capital Trust III
10,115
7/29/2005
9/30/2035
Total trust preferred securities
In September 2020, the Company issued $200.0 million of 3.70% fixed-to-fixed rate subordinated notes that mature on September 17, 2030. The notes bear interest at the rate of 3.70% per annum, payable semi-annually on each March 17 and September 17. The Company may redeem the notes, in whole or in part, on September 17, 2025, or on any interest payment date thereafter. Unamortized debt issuance costs related to these notes totaled $0.2 million and $0.3 million as of March 31, 2025 and December 31, 2024, respectively. Proceeds from the issuance of the notes were used for general corporate purposes, including contributing Tier 1 capital into the Bank. During the three months ended March 31, 2025, the Company purchased and subsequently retired $11.1 million of its 2020 subordinated notes.
In September 2022, the Company issued $110.0 million of 6.25% fixed-to-fixed rate subordinated notes that mature on September 28, 2032. The notes bear interest at the rate of 6.25% per annum, payable semi-annually on each March 28 and September 28. The Company may redeem the notes, in whole or in part, on September 28, 2027, or on any interest payment date thereafter. Unamortized debt issuance costs related to these notes totaled $1.1 million and $1.2 million as of March 31, 2025 and December 31, 2024, respectively. Proceeds from the issuance of the notes were used for general corporate purposes, including contributing Tier 1 capital into the Bank.
As part of the acquisition of HTLF, the Company acquired $150.0 million of 2.75% fixed-to-fixed rate subordinated notes that mature on September 15, 2031. The notes bear interest at the rate of 2.75% per annum, payable semi-annually on each March 15 and September 15. The Company may redeem the notes, in whole or in part, on September 15, 2026, or on any interest payment date thereafter. The subordinated notes had an acquired fair value of $138.8 million as of the Acquisition Date.
The remainder of the Company’s long-term debt was assumed from the acquisitions of Marquette Financial Companies in 2015 and HTLF in 2025 and consists of debt obligations payable to 19 unconsolidated trusts that previously issued trust preferred securities, as summarized in the table above. These long-term debt obligations had an aggregate contractual balance of $262.9 million and a carrying value of $216.8 million as of March 31, 2025. As of December 31, 2024, the debt obligations related to the four unconsolidated trusts acquired from Marquette had an aggregate contractual balance of $103.1 million and had a carrying value of $76.8 million.
The Company is a member bank of the FHLB and through this relationship, the Company owns FHLB stock and has access to additional liquidity and funding sources through FHLB advances. The Company’s borrowing capacity is dependent upon the amount of collateral the Company places at the FHLB. As of March 31, 2025 and December 31, 2024 the Company owned $10.5 million and $10.2 million of FHLB stock, respectively. As of March 31, 2025, the Company had 30 letters of credit outstanding with the FHLB of Des Moines to secure deposits. These letters of credit have an aggregate amount of $409.2 million and have various maturity dates through July 31, 2025. The Company’s borrowing capacity with the FHLB was $1.6 billion as of March 31, 2025.
The Company utilizes repurchase agreements to facilitate the needs of customers and to facilitate secured short-term funding needs. Repurchase agreements are stated at the amount of cash received in connection with the transaction. The Company monitors collateral levels on a continuous basis and may be required to provide additional collateral based on the fair value of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with the Company’s safekeeping agents.
The table below presents the remaining contractual maturities of repurchase agreements outstanding at March 31, 2025 and December 31, 2024, in addition to the various types of marketable securities that have been pledged as collateral for these borrowings (in thousands):
Remaining Contractual Maturities of the Agreements
Overnight
2-29 Days
30-90 Days
Over 90 Days
Repurchase agreements, secured by:
299,192
1,626,456
40,241
485,979
3,000
2,155,676
Total repurchase agreements
1,925,648
2,454,868
608,836
1,496,676
431,048
2,750
1,930,474
2,105,512
2,539,310
42
8. Business Segment Reporting
The Company has strategically aligned its operations into the following three reportable segments: Commercial Banking, Institutional Banking, and Personal Banking (collectively, the Business Segments, and each, a Business Segment). These segments reflect the type of customer served, how products and services are provided, how executive management responsibilities are assigned, and reflect the manner in which financial information is evaluated by the chief operating decision maker (CODM). The Company’s CODM is comprised of a group of senior executive officers led by the Company’s chief executive officer, chief administrative officer, chief financial officer, and the Bank’s chief executive officer.
Business Segment financial information is produced using an internal reporting system which is based on a series of management estimates for funds transfer pricing (FTP), and allocations of noninterest expense and income taxes. The process for determining FTP is based on a number of factors and assumptions, including prevailing market interest rates, the expected lives of various assets and liabilities, and the Company’s broader funding profile. These estimates and allocations are periodically reviewed and refined. The CODM uses the Business Segment net income in deciding how to allocate resources and assess performance for individual Business Segments, including evaluating the cost or opportunity value of funds within each Business Segment and identifying areas of focus for organic growth or acquisition. For comparability purposes, amounts in all periods are based on methodologies in effect at March 31, 2025. Previously reported results have been reclassified in this filing to conform to the current organizational structure.
The following summaries provide information about the activities of each Business Segment:
Commercial Banking serves the commercial banking and treasury management needs of the Company’s small to middle-market businesses through a variety of products and services. Such services include commercial loans, commercial real estate financing, commercial credit cards, letters of credit, loan syndication services, and consultative services. In addition, the Company’s specialty lending group offers a variety of business solutions including asset-based lending, mezzanine debt and minority equity investments. Treasury management services include depository services, account reconciliation and cash management tools such as, accounts payable and receivable solutions, electronic fund transfer and automated payments, controlled disbursements, lockbox services and remote deposit capture services.
Institutional Banking is a combination of banking services, fund services, asset management services and healthcare services provided to institutional clients. This segment also provides fixed income sales, trading and underwriting, corporate trust and escrow services, as well as institutional custody. Institutional Banking includes UMB Fund Services, which provides fund administration and accounting, investor services and transfer agency, and other services to mutual funds and alternative investment groups. Healthcare services provides healthcare payment solutions including custodial services for health savings accounts (HSAs) and private label, multipurpose debit cards to insurance carriers, third-party administrators, software companies, employers, and financial institutions.
Personal Banking combines consumer banking and wealth management services offered to clients and delivered through personal relationships and the Company’s bank branches, ATM network and internet banking. Products offered include deposit accounts, retail credit cards, private banking, installment loans, home equity lines of credit, and residential mortgages. The range of client services extends from a basic checking account to estate planning and trust services and includes private banking, brokerage services, and insurance services in addition to a full spectrum of investment advisory, trust, and custody services.
43
Business Segment Information
Business Segment financial results for the three months ended March 31, 2025 and March 31, 2024 were as follows (in thousands):
273,916
61,159
62,564
66,751
435
18,814
Noninterest income
37,218
103,797
25,183
53,586
47,186
35,999
136,771
3,664
10,649
4,443
18,756
3,173
6,037
3,585
103
1,889
Allocated technology, service, overhead
101,125
32,245
52,464
185,834
Other segment items*
11,463
9,365
7,914
28,742
Noninterest expense
173,011
107,268
104,508
Income (loss) before taxes
71,372
57,253
(35,575
Income tax expense (benefit)
8,987
7,210
(4,480
Net income (loss)
62,385
50,043
(31,095
Average assets
30,029,000
18,324,000
11,624,000
59,977,000
157,982
49,125
32,327
7,765
234
2,001
43,978
91,704
23,562
27,217
39,810
22,176
89,203
2,163
6,836
3,175
12,174
2,681
4,575
3,112
10,368
1,829
131
54,428
35,354
25,974
115,756
8,766
9,137
7,440
25,343
95,255
97,541
62,008
98,940
43,054
(8,120
16,762
7,733
(879
82,178
35,321
(7,241
21,488,000
13,589,000
6,940,000
42,017,000
*Other segment items include occupancy, equipment, supplies and services, marketing and business development costs, legal and consulting, and regulatory fees.
9. Revenue Recognition
The following is a description of the principal activities from which the Company generates revenue that are within the scope of ASC 606, Revenue from Contracts with Customers:
Trust and securities processing – Trust and securities processing income consists of fees earned on personal and corporate trust accounts, custody of securities services, trust investments and wealth management services, and mutual fund and alternative asset servicing. The performance obligations related to this revenue include items such
44
as performing full bond trustee service administration, investment advisory services, custody and record-keeping services, and fund administrative and accounting services. These fees are part of long-term contractual agreements and the performance obligations are satisfied upon completion of service and fees are generally a fixed flat monthly rate or based on a percentage of the account’s market value per the contract with the customer. These fees are primarily recorded within the Company’s Institutional and Personal Banking segments.
Trading and investment banking – Trading and investment banking income consists of income earned related to the Company’s trading securities portfolio, including futures hedging, dividends, bond underwriting, and other securities incomes. The vast majority of this revenue is recognized in accordance with ASC 320, Investments–Debt Securities, and ASC 321, Investments–Equity Securities, and is out of the scope of ASC 606. A portion of trading and investment banking represents fees earned for management fees, commissions, and underwriting of corporate bond issuances. The performance obligations related to these fees include reviewing the credit worthiness of the customer, ensuring appropriate regulatory approval and participating in due diligence. The fees are fixed per the bond prospectus and the performance obligations are satisfied upon registration approval of the bonds by the applicable regulatory agencies. Revenue is recognized at the point in time upon completion of service and when approval is granted by the regulators.
Service charges on deposits – Service charges on deposit accounts represent monthly analysis fees recognized for the services related to customer deposit accounts, including account maintenance and depository transactions processing fees. Commercial Banking and Institutional Banking depository accounts charge fees in accordance with the customer’s pricing schedule while Personal Banking account holders are generally charged a flat service fee per month. Deposit service charges for the healthcare accounts included in the Institutional Banking segment are priced according to either standard pricing schedules with individual account holders or according to service agreements between the Company and employer groups or third-party administrators. The Company satisfies the performance obligation related to providing depository accounts monthly as transactions are processed and deposit service charge revenue is recorded monthly. These fees are recognized within all Business Segments.
Insurance fees and commissions – Insurance fees and commissions includes all insurance-related fees earned, including commissions for individual life, variable life, group life, health, group health, fixed annuity, and variable annuity insurance contracts. The performance obligations related to these revenues primarily represent the placement of insurance policies with the insurance company partners. The fees are based on the contracts with insurance company partners and the performance obligations are satisfied when the terms of the policy have been agreed to and the insurance policy becomes effective.
Brokerage fees – Brokerage fees represent income earned related to providing brokerage transaction services, including commissions on equity and commodity trades, and fees for investment management, advisory and administration. The performance obligations related to transaction services are executing the specified trade and are priced according to the customer’s fee schedule. Such income is recognized at a point in time as the trade occurs and the performance obligation is fulfilled. The performance obligations related to investment management, advisory and administration include allocating customer assets across a wide range of mutual funds and other investments, on-going account monitoring and re-balancing of the portfolio. These performance obligations are satisfied over time and the related revenue is calculated monthly based on the assets under management of each customer. All material performance obligations are satisfied as of the end of each accounting period.
Bankcard fees – Bankcard fees primarily represent income earned from interchange revenue from MasterCard and Visa for the Company’s processing of debit, credit, HSA, and flexible spending account transactions. Additionally, the Company earns income and incentives related to various referrals of customers to card programs. The performance obligation for interchange revenue is the processing of each transaction through the Company’s access to the banking system. This performance obligation is completed for each individual transaction and income is recognized per transaction in accordance with interchange rates established by MasterCard and Visa. The performance obligations for various referral and incentive programs include either referring customers to certain card products or issuing exclusively branded cards for certain customer segments. The pricing of these incentive and referral programs are in accordance with the agreement with the individual card partner. These performance obligations are completed as the referrals are made or over a period of time when the Company is exclusively issuing branded cards. For the three months ended March 31, 2025 and March 31, 2024, the Company had $11.8 million and $7.9 million of expense, respectively, recorded within the Bankcard fees line on the Company’s
Consolidated Statements of Income related to rebates and rewards programs that are outside of the scope of ASC 606. All material performance obligations are satisfied as of the end of each accounting period.
Investment securities (losses) gains, net – In the regular course of business, the Company recognizes gains and losses on the sale of available-for-sale securities. Additionally, the Company recognizes gains and losses on equity securities with readily determinable fair values and equity securities without readily determinable fair values. These gains and losses are recognized in accordance with ASC 320, Investments–Debt Securities, and ASC 321, Investments–Equity Securities, and are outside of the scope of ASC 606.
Other income – The Company recognizes other miscellaneous income through a variety of other revenue streams, the most material of which include letter of credit fees, certain loan origination fees, gains on the sale of assets, derivative income, and bank-owned and company-owned life insurance income. These revenue streams are outside of the scope of ASC 606 and are recognized in accordance with the applicable U.S. GAAP. The remainder of Other income is primarily earned through transactions with personal banking customers, including wire transfer service charges, stop payment charges, and fees for items like money orders and cashier’s checks. The performance obligations of these types of fees are satisfied as transactions are completed and revenue is recognized upon transaction execution according to established fee schedules with the customers.
The Company had no material contract assets, contract liabilities, or remaining performance obligations as of March 31, 2025. Total receivables from revenue recognized under the scope of ASC 606 were $102.1 million and $100.2 million as of March 31, 2025 and December 31, 2024, respectively. These receivables are included as part of the Other assets line on the Company’s Consolidated Balance Sheets.
The following tables depict the disaggregation of revenue according to revenue stream and Business Segment for the three months ended March 31, 2025 and March 31, 2024. As stated in Note 8, “Business Segment Reporting,” for comparability purposes, amounts in all periods are based on methodologies in effect at March 31, 2025 and previously reported results have been reclassified in this Form 10-Q to conform to the Company’s current organizational structure.
Disaggregated revenue is as follows (in thousands):
Revenue (Expense) out of Scope of ASC 606
479
61,248
18,054
329
5,582
14,581
10,859
1,978
67
15,372
2,663
24,164
7,242
6,683
(11,796
Investment securities losses, net
1,279
682
782
10,515
Total Noninterest income
40,570
95,732
30,338
(442
46
55,241
14,237
5,417
10,351
9,095
1,284
68
11,323
1,769
18,000
6,705
5,146
(7,883
Investment securities gains, net
799
675
17,153
28,557
83,208
23,394
24,085
10. Commitments, Contingencies and Guarantees
In the normal course of business, the Company is a party to financial instruments with off-balance-sheet risk in order to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, commercial letters of credit, standby letters of credit, and futures contracts. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Balance Sheets. The contractual or notional amount of those instruments reflects the extent of involvement the Company has in particular classes of financial instruments. Many of the commitments expire without being drawn upon; therefore, the total amount of these commitments does not necessarily represent the future cash requirements of the Company.
The Company’s exposure to credit loss in the event of nonperformance by the counterparty to the financial instruments for commitments to extend credit, commercial letters of credit, and standby letters of credit is represented by the contractual or notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
The following table summarizes the Company’s off-balance sheet financial instruments as described above (in thousands):
Contractual or Notional Amount
Commitments to extend credit for loans (excluding credit card loans)
16,346,650
12,904,749
Commitments to extend credit under credit card loans
5,671,954
5,474,758
Commercial letters of credit
8,000
311
Standby letters of credit
387,057
404,697
Forward contracts
59,406
55,174
Spot foreign exchange contracts
16,833
50,006
Commitments to extend credit for securities purchased under agreements to resell
171,000
96,000
Allowance for Credit Losses on Off-Balance Sheet Credit Exposure
The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancelable by the Company. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The estimate is based on expected utilization rates by portfolio segment. Utilization rates are influenced by historical trends and current conditions. The expected utilization rates are applied to the total commitment to determine the expected amount to be funded.
The allowance for off-balance sheet credit exposure is calculated by applying portfolio segment expected credit loss rates to the expected amount to be funded.
The following categories of off-balance sheet credit exposures have been identified:
Revolving Lines of Credit: includes commercial, construction, agricultural, personal, and home-equity. Risks inherent to revolving lines of credit often are related to the susceptibility of an individual or business experiencing unpredictable cash flow or financial troubles, thus leading to payment default. During these financial troubles, the borrower could have less than desirable assets collateralizing the revolving line of credit. The financial strain the borrower is experiencing could lead to drawing against the line without the ability to pay the line down.
Non-Revolving Lines of Credit: includes commercial and personal. Lines that do not carry a revolving feature are generally associated with a specific expenditure or project, such as to purchase equipment or the construction of real estate. The predominate risk associated with non-revolving lines is the diversion of funds for other expenditures. If the funds get diverted, the contributory value to collateral suffers.
Letters of Credit: includes standby letters of credit. Generally, a standby letter of credit is established to provide assurance to the beneficiary that the applicant will perform certain obligations arising out of a separate transaction between the beneficiary and the applicant. These obligations might be the performance of a service or delivery of a product. If the obligations are not met, it gives the beneficiary the right to draw on the letter of credit.
The ACL for off-balance sheet credit exposures was $8.2 million and $4.1 million as of March 31, 2025 and December 31, 2024, respectively, and was recorded in the Accrued expenses and taxes line of the Company’s Consolidated Balance Sheets. As part of the acquisition of HTLF, the Company recorded an ACL of $3.6 million related to acquired off-balance sheet credit exposures. Additionally, provision for off-balance sheet credit exposures of $500 thousand was recorded for the three months ended March 31, 2025. There was no provision for off-balance sheet credit exposures recorded for three months ended March 31, 2024. Provision for off-balance sheet credit exposures is recorded in the Provision for credit losses line of the Company’s Consolidated Statements of Income.
11. Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s loans and borrowings. The Company also has interest rate derivatives that result from a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk of the Company’s assets or liabilities. The Company has entered into an offsetting position for each of these derivative instruments with a matching instrument from another financial institution in order to minimize its net risk exposure resulting from such transactions.
Fair Values of Derivative Instruments on the Consolidated Balance Sheets
The table below presents the fair value of the Company’s derivative financial instruments as of March 31, 2025 and December 31, 2024. The Company’s derivative assets and derivative liabilities are located within Other assets and Other liabilities, respectively, on the Company’s Consolidated Balance Sheets.
Derivative fair values are determined using valuation techniques including discounted cash flow analysis on the expected cash flows from each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, foreign
exchange rates, and implied volatilities. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
This table provides a summary of the fair value of the Company’s derivative assets and liabilities as of March 31, 2025 and December 31, 2024 (in thousands):
Derivative Assets
Derivative Liabilities
Interest Rate Products:
Derivatives not designated as hedging instruments
141,124
102,118
145,823
107,386
Derivatives designated as hedging instruments
152,879
132,325
56
294,003
234,443
145,962
107,442
Fair Value Hedges of Interest Rate Risk
The Company is exposed to changes in the fair value of certain of its fixed-rate assets and liabilities due to changes in interest rates. Interest rate swaps designated as fair value hedges involve making fixed rate payments to a counterparty in exchange for the Company receiving variable rate payments over the life of the agreements without the exchange of the underlying notional amount. As of both March 31, 2025 and December 31, 2024, the Company did not have any interest rate swaps that were designated as fair value hedges of interest rate risk.
During 2022 and 2023, the Company terminated 10 fair value hedges of interest rate risk associated with the Company's municipal bond securities. For the three months ended March 31, 2025 and 2024 the Company reclassified $1.2 million and $2.6 million, respectively, from AOCI to Interest income in connection with these terminated hedges. The unrealized gain on the terminated fair value hedges remaining in AOCI was $49.4 million net of tax, and $50.4 million net of tax, as of March 31, 2025 and December 31, 2024, respectively. The hedging adjustments will be amortized through the contractual maturity date of each respective hedged item.
For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in Interest income in the Consolidated Statements of Income.
Cash Flow Hedges of Interest Rate Risk
The Company’s objective in using interest rate derivatives is to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps, floors, and floor spreads as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. As of March 31, 2025 and December 31, 2024, the Company had two interest rate swaps that were designated as cash flow hedges of interest rate risk associated with the Company’s variable-rate subordinated debentures issued by Marquette Capital Trusts III and IV. These swaps had an aggregate notional amount of $51.5 million at both March 31, 2025 and December 31, 2024.
Interest rate floors designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates fall below the strike rate on the contract in exchange for an upfront premium. Interest rate floor spreads designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates fall below the purchased floor rate on the contract in exchange for an upfront premium, and involve payment of variable-rate amounts to the counterparty if interest rates fall below the sold floor rate on the contract. As of both March 31, 2025 and December 31, 2024, the Company had 13 interest rate floors and floor spreads with an aggregate notional amount of $3.0 billion that were designated as cash flow hedges of interest rate risk.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in AOCI and is subsequently reclassified into interest expense and interest income in the period during which the hedged forecasted transaction affects earnings. Amounts reported in AOCI related to interest rate swap derivatives will be reclassified to Interest expense as interest payments are received or paid on the Company’s hedged items. Amounts reported in AOCI related to interest rate floor and floor spread derivatives will be reclassified to Interest income as interest payments are received or paid on the Company’s hedged items. The Company expects to reclassify $0.7 million from AOCI as a reduction to Interest expense and $8.1 million from AOCI as a reduction to Interest income during the next 12 months. As of March 31, 2025, the Company is hedging its exposure to the variability in future cash flows for forecasted transactions over a maximum period of 11.5 years.
Non-designated Hedges
The remainder of the Company’s derivatives are not designated in qualifying hedging relationships. Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously offset by interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. The changes in the fair value of both the customer swaps and the offsetting swaps are recognized in Other noninterest expense in the Consolidated Statements of Income. As of March 31, 2025, the Company had 782 interest rate swaps with an aggregate notional amount of $9.7 billion related to this program. The acquisition of HTLF included 478 interest rate swaps with an aggregate notional amount of $4.2 billion as of the Acquisition Date. As of December 31, 2024, the Company had 298 interest rate swaps with an aggregate notional amount of $5.5 billion.
Effect of Derivative Instruments on the Consolidated Statements of Income and Accumulated Other Comprehensive Income
This table provides a summary of the amount of gain or loss recognized in Interest income and Other noninterest expense in the Consolidated Statements of Income related to the Company’s derivative assets and liabilities for the three months ended March 31, 2025 and March 31, 2024 (in thousands):
Amount of Gain (Loss) Recognized
Interest Rate Products
(90
50
These tables provide a summary of the effect of hedges on AOCI in the Consolidated Statements of Comprehensive Income related to the Company’s derivative assets and liabilities for the three months ended March 31, 2025 and March 31, 2024 (in thousands):
For the Three Months Ended March 31, 2025
Derivatives in Cash Flow Hedging Relationships
Gain (Loss) Recognized in OCI on Derivative
Gain (Loss) Recognized in OCI Included Component
Loss Recognized in OCI Excluded Component
(Loss) Gain Reclassified from AOCI into Earnings
(Loss) Gain Reclassified from AOCI into Earnings Included Component
Loss Reclassified from AOCI into Earnings Excluded Component
Interest rate floors and floor spreads
23,735
45,152
(21,417
(1,395
(817
(578
Interest rate swaps
(1,089
243
44,063
(1,152
(574
For the Three Months Ended March 31, 2024
(Loss) Gain Recognized in OCI on Derivative
(Loss) Gain Recognized in OCI Included Component
Gain Recognized in OCI Excluded Component
Gain Reclassified from AOCI into Earnings
Gain Reclassified from AOCI into Earnings Included Component
(15,536
(25,056
9,520
1,588
(885
1,878
375
(23,178
1,078
1,963
Credit-risk-related Contingent Features
The Company has agreements with certain of its derivative counterparties that contain a provision that if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.
As of March 31, 2025, the termination value of derivatives in a net liability position, which includes accrued interest, related to these agreements was $1.4 million. The Company has minimum collateral posting thresholds with certain of its derivative counterparties. At March 31, 2025, the Company had posted $1.5 million of collateral. If the Company had breached any of these provisions at March 31, 2025, it could have been required to settle its obligations under the agreements at the termination value.
12. Fair Value Measurements
The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2025, and December 31, 2024, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.
Fair values determined by Level 1 inputs utilize quoted prices in active markets for identical assets and liabilities that the Company has the ability to access. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the hierarchy. In such cases, the fair value is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
Assets and liabilities measured at fair value on a recurring basis as of March 31, 2025 and December 31, 2024 (in thousands):
Fair Value Measurement at March 31, 2025
Description
Quoted Prices in Active Markets for Identical Assets (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
Assets
629
6,980
13,228
12,494
Trading – other
2,130
15,253
20,208
Available-for-sale securities
1,883,640
9,012,019
11,237,155
1,910,925
9,326,230
Liabilities
Securities sold not yet purchased
11,925
157,887
52
Fair Value Measurement at December 31, 2024
1,620
8,369
11,469
6,935
140
8,695
19,838
Available for sale securities
1,643,243
6,131,091
8,048,906
1,663,534
6,385,372
7,100
114,542
Valuation methods for instruments measured at fair value on a recurring basis
The following methods and assumptions were used to estimate the fair value of each class of financial instruments measured on a recurring basis:
Trading Securities Fair values for trading securities (including financial futures), are based on quoted market prices where available. If quoted market prices are not available, fair values are based on quoted market prices for similar securities.
Securities Available for Sale Fair values are based on quoted market prices or dealer quotes, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. Prices are provided by third-party pricing services and are based on observable market inputs. On an annual basis, the Company compares a sample of these prices to other independent sources for the same securities. Additionally, throughout the year, if securities are sold, comparisons are made between the pricing services prices and the market prices at which the securities were sold. Variances are analyzed, and, if appropriate, additional research is conducted with the third-party pricing services. Based on this research, the pricing services may affirm or revise their quoted price. No significant adjustments have been made to the prices provided by the pricing services. The pricing services also provide documentation on an ongoing basis that includes reference data, inputs and methodology by asset class, which is reviewed to ensure that security placement within the fair value hierarchy is appropriate.
Equity securities with readily determinable fair values Fair values are based on quoted market prices.
Derivatives Fair values are determined using valuation techniques including discounted cash flow analysis on the expected cash flows from each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, foreign exchange rates, and implied volatilities. The Company incorporates credit valuation adjustments to appropriately
reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
Securities sold not yet purchased Fair values are based on quoted market prices or dealer quotes, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. Prices are provided by third-party pricing services and are based on observable market inputs.
Assets measured at fair value on a non-recurring basis as of March 31, 2025 and December 31, 2024 (in thousands):
Fair Value Measurement at March 31, 2025 Using
Total Losses Recognized During the Three Months Ended March 31
Collateral dependent assets
4,068
(3,073
Other real estate owned
2,613
Other repossessed assets
6,691
Fair Value Measurement at December 31, 2024 Using
Total Losses Recognized During the Twelve Months Ended December 31
2,405
(256
26,779
29,184
Valuation methods for instruments measured at fair value on a non-recurring basis
The following methods and assumptions were used to estimate the fair value of each class of financial instruments measured on a non-recurring basis:
Collateral Dependent Assets Collateral dependent assets are assets evaluated as part of the ACL on an individual basis. Those assets for which there is an associated allowance are considered financial assets measured at fair value on a non-recurring basis. Adjustments are recorded on certain assets to reflect write-downs that are based on the external appraised value of the underlying collateral. The external appraisals are generally based on recent sales of comparable properties which are then adjusted for the unique characteristics of the property being valued. In the case of non-real estate collateral, reliance is placed on a variety of sources, including external estimates of value and judgments based on the experience and expertise of internal specialists within the Company’s property management group and the Company’s credit department. The valuation of collateral dependent assets and impaired loans are reviewed on a quarterly basis. Because many of these inputs are not observable, the measurements are classified as Level 3.
Other real estate owned and Other repossessed assets Other real estate owned and other repossessed assets consist of loan collateral which has been repossessed through foreclosure. This collateral is comprised of commercial and residential real estate and other non-real estate property, including auto, recreational and marine vehicles. Other real estate owned and other repossessed assets are recorded as held for sale initially at the fair value of the collateral less estimated selling costs. The initial valuation of the foreclosed property is obtained through an appraisal process similar to the process described in the collateral dependent assets paragraph above. Subsequent to foreclosure, valuations are reviewed quarterly and updated periodically, and the assets may be marked down further, reflecting a new cost basis. Fair value measurements may be based upon appraisals, third-party price opinions, or internally developed pricing methods and those measurements are classified as Level 3.
Fair value disclosures require disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis.
The estimated fair value of the Company’s financial instruments at March 31, 2025 and December 31, 2024 are as follows (in thousands):
Carrying Amount
SignificantUnobservableInputs(Level 3)
TotalEstimatedFair Value
FINANCIAL ASSETS
Cash and short-term investments
11,365,386
10,729,327
636,059
Securities available for sale
Securities held to maturity (exclusive of allowance for credit losses)
4,666,893
440,166
635,120
Loans (exclusive of allowance for credit losses)
35,941,380
35,873,391
FINANCIAL LIABILITIES
Demand and savings deposits
55,330,752
Time deposits
3,190,426
3,191,202
Other borrowings
105,115
712,396
OFF-BALANCE SHEET ARRANGEMENTS
Commitments to extend credit for loans
3,292
Commitments to extend resell agreements
1,050
55
9,104,445
8,559,445
459,422
25,645,057
25,665,211
41,014,362
2,127,667
70,405
417,217
12,515
292
4,375
Cash and short-term investments The carrying amounts of cash and due from banks, federal funds sold and resell agreements are reasonable estimates of their fair values.
Securities held to maturity For U.S. Agency and mortgage-backed securities, as well as general obligation bonds in the State and political subdivision portfolio, fair values are based on quoted market prices or dealer quotes, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. Prices are provided by third-party pricing services and are based on observable market inputs. On an annual basis, the Company compares a sample of these prices to other independent sources for the same securities. Variances are analyzed, and, if appropriate, additional research is conducted with the third-party pricing services. Based on this research, the pricing services may affirm or revise their quoted price. No significant adjustments have been made to the prices provided by the pricing services. The pricing services also provide documentation on an ongoing basis that includes reference data, inputs and methodology by asset class, which is reviewed to ensure that security placement within the fair value hierarchy is appropriate. For private placement bonds in the State and political subdivision portfolio, fair values are estimated by discounting the future cash flows using current market rates. For bonds acquired as part of the acquisition of HTLF, securities were priced by a third-party using a discounted cash flow method, for which the discount rate is a significant unobservable input.
Other securities Amount consists of FRB and FHLB stock held by the Company, equity securities with readily determinable fair values, and equity securities without readily determinable fair values, including equity-method investments and other miscellaneous investments. The carrying amount of the FRB and FHLB stock equals its fair value because the shares can only be redeemed by the FRB and FHLB at their carrying amount. Equity securities with readily determinable fair values are measured at fair value using quoted market prices. Equity securities without readily determinable fair values are carried at cost, which approximates fair value.
Loans Fair values are estimated for portfolios with similar financial characteristics. Loans are segregated by type, such as commercial, real estate, consumer, and credit card. Each loan category is further segmented into fixed and variable interest rate categories. The fair value of loans is estimated by discounting the future cash flows. The
discount rates used are estimated using comparable market rates for similar types of instruments adjusted to be commensurate with the credit risk, overhead costs, and optionality of such instruments.
Demand and savings deposits The fair value of demand deposits and savings accounts was the amount payable on demand at period-end.
Time deposits The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using the rates that are currently offered for deposits of similar remaining maturities.
Other borrowings The carrying amounts of federal funds purchased, repurchase agreements and other short-term debt are reasonable estimates of their fair value because of the short-term nature of their maturities. Federal funds purchased are classified as Level 1 based on availability of quoted market prices and repurchase agreements and other short-term debt are classified as Level 2.
Long-term debt Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair value of existing debt.
Other off-balance sheet instruments The fair value of loan commitments and letters of credit are determined based on the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreement and the present creditworthiness of the counterparties. Neither the fees earned during the year on these instruments nor their fair value at period-end are significant to the Company’s consolidated financial position.
13. Acquisition
On January 31, 2025 (Acquisition Date), the Company acquired all of the outstanding stock of Heartland Financial USA, Inc., a Delaware corporation (HTLF), in an all-stock transaction, issuing a total of 23.6 million shares of the Company’s common stock and 4.6 million depositary shares, each representing a 1/400th interest in a share of the Company’s 7.00% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series A (the Company’s preferred stock). Pursuant to the Agreement and Plan of Merger, dated as of April 28, 2024, (i) HTLF merged with and into the Company, with the Company continuing as the surviving corporation and (ii) one day after the closing date of the acquisition of HTLF by the Company, HTLF’s wholly owned bank subsidiary, a Colorado-chartered non-member bank (HTLF Bank), merged with and into UMB Bank, National Association, the Company’s national bank subsidiary (the Bank), with the Bank continuing as the surviving bank.
Total consideration for the acquisition was $2.9 billion, consisting of the Company’s common stock valued at $2.8 billion (based on the Company’s common stock price of $117.90) and the Company’s preferred stock valued at $115.2 million (based on the Company’s preferred stock price of $25.05). Each HTLF common stock share was converted into 0.55 shares of the Company’s common stock. Each HTLF preferred stock share was converted into a share of the Company’s preferred stock.
The acquisition of HTLF was accounted for as a business combination using the purchase method of accounting in accordance with FASB ASC Topic 805, Business Combinations. Accordingly, the purchase price was allocated based on the estimated fair market values of the assets and liabilities acquired.
The following table summarizes the net assets acquired (at fair value) and consideration transferred for HTLF
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as of January 31, 2025 (in thousands, except for per share data):
Fair ValueJanuary 31, 2025
Loans, net of allowance for credit losses on loans
9,757,790
Investment securities
3,678,164
965,003
172,730
Identifiable intangible assets
511,021
894,319
Total assets acquired
16,154,012
Noninterest-bearing deposits
3,761,997
Interest-bearing deposits
10,586,989
278,018
198,945
Total liabilities assumed
14,825,949
Net identifiable assets acquired
1,328,063
Preliminary goodwill
Net assets acquired
2,919,129
Consideration
Common stock consideration:
Company's common shares issued
Purchase price per share of the Company's common stock
117.90
Fair value of common stock consideration
Preferred stock consideration
Stock-based compensation consideration
Fair value of total consideration transferred
The amount of goodwill arising from the acquisition reflects the Company’s increased market share and related synergies that are expected to result from combining the operations of UMB and HTLF. In accordance with ASC 350, Intangibles-Goodwill and Other, goodwill will not be amortized, but will be subject to at least an annual impairment test. The Company has approximately $44.0 million of tax-deductible goodwill that arose in previous transactions completed by HTLF which carries over. The remaining goodwill related to the acquisition is not expected to be deductible for tax purposes. Of the $1.6 billion in goodwill arising from the acquisition, $954.6 million was assigned to the Commercial Banking segment and $636.4 million was assigned to the Personal Banking segment. The fair value of the acquired identifiable intangible assets of $511.0 million is comprised of a core deposit intangible of $474.1 million, customer lists of $26.0 million and purchased credit card relationships of $10.9 million.
The following is a description of the methods used to determine the fair values of significant assets and liabilities presented above.
Loans A valuation of the loans was performed by a third party as of the Acquisition Date to assess the fair value. The fair value of loans was based on a discounted cash flow methodology that considered the loans’ underlying characteristics including account type, remaining terms of loan, annual interest rates or coupon, interest types, past delinquencies, timing of principal and interest payments, current market rates, loan to value ratios, loss exposure and remaining balance. Loans were aggregated according to similar characteristics when applying the valuation method.
Investment securities The portion of the investment securities portfolio that was classified as available-for-sale was valued utilizing third-party pricing services for those securities retained and valued using the actual sales prices for those securities that were sold during the first quarter of 2025. The portion of the investment securities portfolio that was classified as held-to-maturity as of the Acquisition Date were priced by a third party using a discounted cash flow methodology similar to the methodology described above for the valuation of loans.
Interest-bearing due from banks and Cash and due from banks The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets.
Core deposit intangible Core deposit intangibles represent the value of relationships with deposit clients and the cost savings derived from available core deposits relative to an alternative funding source. The fair value of the core deposit intangible was estimated using a net cost savings method, a variation of the income approach. This approach considers expected client attrition rates, average life and balance inflation, alternative cost of funds, the interest cost and net maintenance cost associated with the client deposit base, and a discount rate used to discount the future economic benefits of the core deposit intangible asset to present value.
Deposits The fair value for demand and savings deposits is the amount payable on demand at the Acquisition Date. The fair value for time deposits was valued by a third party using a discounted cash flow calculation that applied interest rates currently being offered to the contractual interest rates on such time deposits.
Long-term debt The fair value of long-term debt instruments was valued by a third party based on quoted market prices for the instrument if available, or for similar instruments if not available, or by using discounted cash flow analyses, based on current incremental borrowing rates for similar types of instruments.
At the Acquisition Date, of the $9.8 billion of loans acquired from HTLF, $3.0 billion were accounted for as PCD loans. The following table provides a summary of PCD loans purchased as part of the HTLF acquisition as of the Acquisition Date (in thousands):
January 31, 2025
Principal of PCD loans acquired
3,237,332
PCD ACL at acquisition
(62,126
Non-credit discount on PCD loans
(128,684
Fair value of PCD Loans
3,046,522
The Company assumed long-term debt obligations with an aggregate balance of $159.8 million and an aggregate fair value of $139.3 million as of the Acquisition Date payable to fifteen unconsolidated trusts that have issued trust preferred securities. The interest rate on the trust preferred securities acquired range from 5.89% to 8.21% and reset quarterly. The acquired trust preferred securities have maturity dates ranging from September 2032 to September 2037.
The Company assumed $150.0 million in aggregate subordinated notes due September 2031. The subordinated notes have a fixed interest rate of 2.75% until September 2031, at which time the interest rate will reset quarterly. The subordinated notes had an acquired fair value of $138.8 million as of January 31, 2025.
The fair value of the acquired assets and liabilities noted in the table above is preliminary pending receipt of the final valuation for those assets and liabilities. During the preliminary period, which may last up to twelve months subsequent to the Acquisition Date, the Company will continue to review information relating to events and circumstances existing as of the Acquisition Date that could impact the preliminary fair value estimates of the acquired assets and liabilities. The Company expects that some adjustments to the fair value of the acquired assets and liabilities will be recorded after March 31, 2025.
The results of HTLF are included in the results of the Company subsequent to the Acquisition Date. Transaction costs incurred after the Acquisition Date totaled $51.3 million, primarily in Salaries and employee benefits and Legal and consulting in the Consolidated Statements of Income, as well as $62.0 million in Provision
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expense to establish an ACL on the HTLF loans designated as non-PCD as of the Acquisition Date (Day 1 Provision expense). Additional transaction and integration costs will be expensed in future periods as incurred.
The following unaudited pro forma information combines the historical results of HTLF and the Company. The pro forma financial information does not include the potential impacts of possible business model changes, current market conditions, revenue enhancements, expense efficiencies, or other factors. If the HTLF acquisition had been completed on January 1, 2024, total revenue would have been approximately $573.1 million and $615.8 million for the three-month periods ended March 31, 2025 and March 31, 2024, respectively. Net income available to common shareholders would have been approximately $167.9 million and $82.3 million, respectively, for the same periods. Basic earnings per share would have been $2.29 and $1.14 for the same periods, respectively.
The pro forma information above reflects adjustments made to exclude the impact of acquisition-related expenses of $53.2 million for the first quarter of 2025 and include such expenses in the first quarter of 2024. Day 1 provision expense of $62.0 million was included in 2024 to reflect the assumption of the acquisition timing noted above. Adjustments also included adjusting net interest income by the estimated net accretion of fair value marks on acquired loans, HTM securities, time deposits and long-term debt of $9.3 million and $35.3 million for the three-month periods ended March 31, 2025 and March 31, 2024, respectively, and adjusting noninterest expense for the estimated net amortization of intangibles and fair value marks on premises and equipment of $7.9 million and $23.8 million for the three-month periods ended March 31, 2025 and March 31, 2024, respectively.
The pro forma information is theoretical in nature and not necessarily indicative of future consolidated results of operations of the Company or the consolidated results of operations which would have resulted had the Company acquired HTLF during the periods presented.
The Company has determined that it is impractical to report the amounts of revenue and earnings of legacy HTLF since the Acquisition Date due to the integration of operations shortly after the Acquisition Date. Accordingly, reliable and separate complete revenue and earnings information is no longer available. In addition, such amounts would require significant estimates related to the proper allocation of merger cost savings that cannot be objectively made.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations highlights the material changes in the results of operations and changes in financial condition of the Company for the three-month period ended March 31, 2025. It should be read in conjunction with the accompanying Consolidated Financial Statements, Notes to Consolidated Financial Statements and other financial information appearing elsewhere in this Form 10-Q and the Form 10-K. Results of operations for the periods included in this review are not necessarily indicative of results to be attained during any future period.
CAUTIONARY NOTICE ABOUT FORWARD-LOOKING STATEMENTS
From time to time the Company has made, and in the future will make, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “outlook,” “forecast,” “target,” “trend,” “plan,” “goal,” or other words of comparable meaning or future-tense or conditional verbs such as “may,” “will,” “should,” “would,” or “could.” Forward-looking statements convey the Company’s expectations, intentions, or forecasts about future events, circumstances, results, or aspirations, in each case as of the date such forward-looking statements are made.
This Form 10-Q, including any information incorporated by reference in this Form 10-Q, contains forward-looking statements. The Company also may make forward-looking statements in other documents that are filed or furnished with the Securities and Exchange Commission. In addition, the Company may make forward-looking statements orally or in writing to investors, analysts, members of the media, or others.
All forward-looking statements, by their nature, are subject to assumptions, risks, and uncertainties, which may change over time and many of which are beyond the Company’s control. You should not rely on any forward-looking statement as a prediction or guarantee about the future. Actual future objectives, strategies, plans, prospects, performance, conditions, or results may differ materially from those set forth in any forward-looking statement. While no list of assumptions, risks, or uncertainties could be complete, some of the factors that may cause actual results or other future events, circumstances, or aspirations to differ from those in forward-looking statements include:
Any forward-looking statement made by the Company or on its behalf speaks only as of the date that it was made. The Company does not undertake to update any forward-looking statement to reflect the impact of events, circumstances, or results that arise after the date that the statement was made, except as required by applicable securities laws. You, however, should consult further disclosures (including disclosures of a forward-looking nature)
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that the Company may make in any subsequent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, or Current Report on Form 8-K.
Overview
On January 31, 2025, UMBF completed its previously announced acquisition of Heartland Financial, USA, Inc. (HTLF). The acquisition added assets with a fair value of approximately $17.9 billion, $9.8 billion of loans, net of the allowance for credit losses, and $14.3 billion of deposits. The combined company retains its #1 deposit market share in Missouri and now ranks in the top 10 in Colorado, New Mexico, Kansas, and Arizona. The impacts of the acquisition are significant drivers in the first quarter results.
The Company focuses on the following four core financial objectives. Management believes these objectives will guide its efforts to achieve its vision, to deliver the Unparalleled Customer Experience, all while seeking to improve net income and strengthen the balance sheet while undertaking prudent risk management.
The first financial objective is to continuously improve operating efficiencies. The Company has focused on identifying efficiencies that simplify our organizational and reporting structures, streamline back-office functions, and take advantage of synergies and newer technologies among various platforms and distribution networks. The acquisition of HTLF will be integral in improving operational efficiency. The Company has identified and expects to continue identifying ongoing efficiencies through the normal course of business that, when combined with increased revenue, will contribute to improved operating leverage. During the first quarter of 2025, total revenue increased $165.2 million, or 41.4%, as compared to the first quarter of 2024, while noninterest expense increased $130.0 million, or 51.0%, for the same period. Included in the first quarter noninterest expense is $53.2 million in acquisition-related expense. Revenue is also impacted by accretion and amortization of the fair value adjustments discussed in Note 13, “Acquisition” above. As part of the initiative to improve operating efficiencies, the Company continues to invest in technological advances that it believes will help management drive operating leverage in the future through improved data analysis and automation. The Company also continues to evaluate core systems and will invest in enhancements that it believes will yield operating efficiencies.
The second financial objective is to increase net interest income through profitable loan and deposit growth and the optimization of the balance sheet. During the first quarter of 2025, the Company had an increase in net interest income of $158.2 million, or 66.1%, from the same period in 2024. The change in net interest income was primarily driven by rate and mix changes related to the HTLF acquisition. The increase in interest income was driven by a $9.0 billion, or 38.3%, increase in average loans, a $3.5 billion, or 106.1%, increase in average interest-bearing due from banks, and a $2.9 billion, or 21.9%, increase in total securities. The funding for these assets was driven primarily by a 43.1% increase in average interest-bearing liabilities, including an increase in average interest-bearing deposits of $13.4 billion compared to the same period in 2024. Net interest margin, on a tax-equivalent basis, increased 48 basis points compared to the same period in 2024, primarily due to cost and mix changes of loan balances and interest-bearing liabilities. Net interest spread increased 72 basis points during the same period. The Company expects to see continued volatility in the economic markets resulting from governmental responses to inflation and recessionary signs in the economy, as well as uncertainty about the impacts of recent tariffs. These changing conditions could have impacts on the balance sheet and income statement of the Company for the remainder of the year.
The third financial objective is to grow the Company’s revenue from noninterest sources. The Company seeks to grow noninterest revenues throughout all economic and interest rate cycles, while positioning itself to benefit in periods of economic growth. Noninterest income increased $7.0 million, or 4.4%, to $166.2 million for the three months ended March 31, 2025, compared to the same period in 2024. This change is primarily due to HTLF-related fee income from trust income, deposit service charges, and bankcard fees. These are partially offset by investment securities losses and lower company-owned life insurance income. See greater detail below under Noninterest Income. The Company continues to emphasize its asset management, brokerage, bankcard services, healthcare services, and treasury management businesses. For the three-month period ended March 31, 2025, noninterest income represented 29.5% of total revenues, compared to 39.9% for the same period in 2024. The recent economic changes have impacted fee income, especially those with assets tied to market values and interest rates.
The fourth financial objective is effective capital management. The Company places a significant emphasis on maintaining a strong capital position, which management believes promotes investor confidence, provides access to funding sources under favorable terms, and enhances the Company’s ability to capitalize on business growth and acquisition opportunities. The Company continues to maximize shareholder value through a mix of reinvesting in organic growth, evaluating acquisition opportunities that complement the Company’s strategies, increasing dividends over time, and appropriately utilizing a share repurchase program. At March 31, 2025, the Company had $6.7 billion in total shareholders’ equity. This is an increase of $3.6 billion, or 114.0%, compared to total shareholders’ equity at March 31, 2024. At March 31, 2025, the Company had a total risk-based capital ratio of 12.54%. The first quarter of 2025 includes the issuance of 23.6 million shares of UMBF common stock, or $2.8 billion and the issuance of 4.6 million depositary shares, each representing a 1/400th interest in a share of the Company’s 7.00% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series A (the Series A Preferred Stock), or $115.2 million, in exchange for all of the outstanding common and preferred stock of HTLF as consideration for the acquisition. The Company also settled the previously announced forward contract which added 3.2 million common shares, or $235.1 million in equity. The Company did not repurchase shares of common stock during the first quarter of 2025, except for shares acquired pursuant to the Company's share-based incentive programs.
Earnings Summary
The following is a summary regarding the Company’s earnings for the first quarter of 2025. The changes identified in the summary are explained in greater detail below. The Company recorded net income available to common shareholders of $79.3 million for the three-month period ended March 31, 2025, compared to $110.3 million for the same period a year earlier. Basic earnings per common share for the first quarter of 2025 was $1.22 per common share ($1.21 per common share fully-diluted) compared to basic earnings per common share of $2.27 per common share ($2.25 per common share fully-diluted) for the first quarter of 2024. Return on average assets and return on average common shareholders’ equity for the three-month period ended March 31, 2025 were 0.54% and 5.86%, respectively, compared to 1.06% and 14.11%, respectively, for the three-month period ended March 31, 2024.
Net interest income for the three-month period ended March 31, 2025 increased $158.2 million, or 66.1%, compared to the same period in 2024. For the three-month period ended March 31, 2025, average earning assets increased $15.7 billion, or 39.3%, compared to the same period in 2024. Net interest margin, on a tax-equivalent basis, increased to 2.96% for the three-month period ended March 31, 2025, compared to 2.48% for the same period in 2024.
The provision for credit losses increased by $76.0 million for the three-month period ended March 31, 2025, as compared to the same period in 2024. Provision expense included $62.0 million to establish an allowance for credit losses on the acquired loans designated as non-PCD loans at the close of the transaction. See Note 13, “Acquisition” above. Provision expense for both periods is primarily impacted by macro-economic data and portfolio credit metrics. The Company’s nonperforming loans increased $83.1 million to $100.9 million at March 31, 2025, compared to March 31, 2024. This includes $80.8 million in nonperforming loans related to HTLF. The ACL on loans as a percentage of total loans increased to 1.03% as of March 31, 2025, compared to 0.96% at March 31, 2024. For a description of the Company’s methodology for computing the ACL, please see the summary discussion in the “Provision and Allowance for Credit Losses” section included below.
Noninterest income increased by $7.0 million, or 4.4%, for the three-month period ended March 31, 2025, compared to the same period in 2024. These changes are discussed in greater detail below under Noninterest Income.
Noninterest expense increased by $130.0 million, or 51.0%, for the three-month period ended March 31, 2025, compared to the same period in 2024. These changes are discussed in greater detail below under Noninterest Expense.
Net Interest Income
Net interest income is a significant source of the Company’s earnings and represents the amount by which interest income on earning assets exceeds the interest expense paid on liabilities. The volume of interest-earning assets and the related funding sources, the overall mix of these assets and liabilities, and the rates paid on each affect net interest income. Net interest income for the three-month period ended March 31, 2025 increased $158.2 million, or 66.1%, compared to the same period in 2024. This increase is primarily driven by rate and mix changes related to the HTLF acquisition. Margin included $28.6 million of net accretion related to the fair value adjustments discussed in Note 13, “Acquisition” above.
Table 1 shows the impact of earning asset rate changes compared to changes in the cost of interest-bearing liabilities. As illustrated in this table, net interest spread for the three months ended March 31, 2025 increased 72 basis points as compared to the same period in 2024. Net interest margin for the three months ended March 31, 2025 increased 48 basis points compared to the same period in 2024. The changes are driven by rate and balance sheet mix changes from the acquired HTLF balance sheet. The cost of interest-bearing liabilities decreased 59 basis points from the first quarter of 2024 while the yield on earning assets increased 13 basis points compared to the same period. Earning asset balance increases have been primarily driven by higher average loan, interest-bearing due from bank, and securities balances. These variances have led to an increase in the Company’s net interest income during 2025, as compared to results for the same period in 2024. The Company expects to see continued volatility in the economic markets and governmental responses to changes in the economy. These changing conditions could have impacts on the balance sheet and income statement of the Company the remainder of the year. For the impact of the contribution from free funds, see the Analysis of Net Interest Margin within Table 2 below. Table 2 also illustrates how the changes in volume and interest rates have resulted in an increase in net interest income.
Table 1
AVERAGE BALANCE SHEETS/YIELDS AND RATES (tax-equivalent basis) (unaudited, dollars in thousands)
The following table presents, for the periods indicated, the average earning assets and resulting yields, as well as the average interest-bearing liabilities and resulting yields, expressed in both dollars and rates. All average balances are daily average balances. The average yield on earning assets without the tax-equivalent basis
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adjustment would have been 5.39% for the three-month period ended March 31, 2025, and 5.25% for the same period in 2024.
Average
Balance
Yield/Rate
Loans, net of unearned interest
32,309,697
6.62
23,354,043
6.64
Taxable
11,728,148
3.40
9,264,789
2.65
Tax-exempt
4,121,569
3.68
3,732,122
3.42
15,849,717
3.47
12,996,911
2.87
555,805
5.07
206,443
5.97
6,808,680
4.47
3,304,142
5.44
Other earning assets
20,863
7.56
17,893
7.33
Total earning assets
55,544,762
39,879,432
5.31
Allowance for credit losses
(320,371
(222,116
4,752,484
2,360,092
59,976,875
42,017,408
LIABILITIES AND SHAREHOLDERS' EQUITY
36,856,314
3.34
23,459,723
3.84
2,692,907
3.88
2,384,754
4.67
Borrowed funds
570,427
7.92
2,183,494
5.36
Total interest-bearing liabilities
40,119,648
3.44
28,027,971
4.03
Noninterest-bearing demand deposits
13,428,205
10,066,409
861,375
779,510
Shareholders' equity
5,567,647
3,143,518
Net interest spread
2.00
1.28
Net interest margin
2.96
2.48
Table 2 presents the dollar amount of change in net interest income and margin due to volume and rate. Table 2 also reflects the effect that interest-free funds have on net interest margin. The average balance of interest-free funds (total earning assets less interest-bearing liabilities) increased $3.6 billion for the three-month period ended March 31, 2025, compared to the same period in 2024. The benefit from interest-free funds decreased 24 basis points in the three-month period ended March 31, 2025 compared to the same period in 2024.
Table 2
ANALYSIS OF CHANGES IN NET INTEREST INCOME AND MARGIN (unaudited, dollars in thousands)
ANALYSIS OF CHANGES IN NET INTEREST INCOME
March 31, 2025 and 2024
Volume
Rate
Change in interest earned on:
143,050
(1,212
141,838
18,070
19,115
37,185
2,694
1,936
4,630
Federal funds sold and resell agreements
4,409
(519
3,890
39,493
(9,196
30,297
Trading
Interest income
207,771
10,134
217,905
Change in interest incurred on:
111,836
(32,305
79,531
3,187
(5,059
(1,872
Other borrowed funds
(27,642
9,683
(17,959
Interest expense
87,381
(27,681
59,700
120,390
37,815
158,205
ANALYSIS OF NET INTEREST MARGIN
Change
Average earning assets
15,665,330
Interest-bearing liabilities
12,091,677
Interest-free funds
15,425,114
11,851,461
3,573,653
Free funds ratio (interest-free funds to average earning assets)
27.77
29.72
(1.95
)%
Tax-equivalent yield on earning assets
0.13
Cost of interest-bearing liabilities
(0.59
0.72
Benefit of interest-free funds
0.96
1.20
(0.24
0.48
Provision and Allowance for Credit Losses
The ACL represents management’s judgment of the total expected losses included in the Company’s loan portfolio as of the balance sheet date. The Company’s process for recording the ACL is based on the evaluation of the Company’s lifetime historical loss experience, management’s understanding of the credit quality inherent in the loan portfolio, and the impact of the current economic environment, coupled with reasonable and supportable economic forecasts.
A mathematical calculation of an estimate is made to assist in determining the adequacy and reasonableness of management’s recorded ACL. To develop the estimate, the Company follows the guidelines in ASC 326, Financial Instruments – Credit Losses. The estimate reserves for assets held at amortized cost and any related credit deterioration in the Company’s available-for-sale debt security portfolio. Assets held at amortized cost include the Company’s loan book and held-to-maturity security portfolio.
The process involves the consideration of quantitative and qualitative factors relevant to the specific segmentation of loans. These factors have been established over decades of financial institution experience and include economic observation and loan loss characteristics. This process is designed to produce a lifetime estimate of the losses, at a reporting date, that includes evaluation of historical loss experience, current economic conditions, reasonable and supportable forecasts, and the qualitative framework outlined by the Office of the Comptroller of the Currency in the published 2020 Interagency Policy Statement. This process allows management to take a holistic view of the recorded ACL reserve and ensure that all significant and pertinent information is considered.
The Company considers a variety of factors to ensure the safety and soundness of its estimate including a strong internal control framework, extensive methodology documentation, credit underwriting standards which encompass the Company’s desired risk profile, model validation, and ratio analysis. If the Company’s total ACL estimate, as determined in accordance with the approved ACL methodology, is either outside a reasonable range based on review of economic indicators or by comparison of historical ratio analysis, the ACL estimate is an outlier and management will investigate the underlying reason(s). Based on that investigation, issues or factors that previously had not been considered may be identified in the estimation process, which may warrant adjustments to estimated credit losses.
The ending result of this process is a recorded consolidated ACL that represents management’s best estimate of the total expected losses included in the loan portfolio, held-to-maturity securities, and credit deterioration in available-for-sale securities.
Based on the factors above, management of the Company recorded $86.0 million as provision for credit losses for the three-month period ended March 31, 2025, compared to $10.0 million for the same period in 2024. As noted above, $62.0 million was recorded to establish an allowance for credit losses on the acquired loans designated as non-PCD loans at the close of the HTLF acquisition. See Note 13, “Acquisition” above. The remaining $24.0 million was recorded from applying the methodology for computing the allowance for credit losses, coupled with the impacts of the current and forecasted economic environment. As illustrated in Table 3 below, the ACL on loans increased to 1.03% of total loans as of March 31, 2025, compared to 0.96% of total loans as of March 31, 2024.
Table 3 presents a summary of the Company’s ACL for the three-month periods ended March 31, 2025 and 2024, and for the year ended December 31, 2024. Net charge-offs were $35.9 million, or 0.45% of average loans for the three-month period ended March 31, 2025, compared to $3.0 million, or 0.05% for the same period in 2024. Approximately $29.7 million of the net charge-offs were related to acquired loans. See “Credit Risk Management” under “Item 3. Quantitative and Qualitative Disclosures About Market Risk” in this report for information relating to nonaccrual loans, past due loans, restructured loans and other credit risk matters.
Table 3
ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES (unaudited, dollars in thousands)
Year Ended
Allowance – January 1
62,000
Charge-offs:
(5,441
(432
(1,524
(20,752
(4
Total charge-offs
(28,403
Recoveries:
241
2,355
Total recoveries
5,141
Net charge-offs
(35,872
(3,017
(23,262
Allowance for credit losses – end of period
Allowance for credit losses on held-to-maturity securities
Loans at end of period, net of unearned interest
23,637,649
Held-to-maturity securities at end of period
5,669,139
5,626,437
Total assets at amortized cost
41,605,420
29,264,086
31,021,213
Average loans, net of unearned interest
32,307,533
23,352,083
24,209,547
Allowance for credit losses on loans to loans at end of period
1.03
1.01
Allowance for credit losses – end of period to total assets at amortized cost
0.90
0.79
0.84
Allowance as a multiple of net charge-offs
2.57x
18.95x
11.25x
Net charge-offs to average loans
0.45
0.05
0.10
Noninterest Income
A key objective of the Company is the growth of noninterest income to provide a diverse source of revenue not directly tied to interest rates. Fee-based services are typically non-credit related and are not generally affected by fluctuations in interest rates.
The Company offers multiple fee-based products and services, which management believes will more closely align with customer demands. The Company is currently emphasizing fee-based products and services including trust and securities processing, bankcard, securities trading and brokerage, and cash and treasury management. Management believes that it can offer these products and services both efficiently and profitably, as most have common platforms and support structures.
Table 4
SUMMARY OF NONINTEREST INCOME (unaudited, dollars in thousands)
Dollar
Percent
25-24
10,303
14.8
449
8.2
Service charges on deposits
6,700
32.3
(105
(37.1
4,942
37.6
4,325
19.7
(14,153
(151.0
(5,507
(29.3
6,954
4.4
Noninterest income increased by $7.0 million, or 4.4%, during the three-month period ended March 31, 2025, compared to the same period in 2024. Table 4 above summarizes the components of noninterest income and the respective year-over-year comparison for each category.
Trust and securities processing income consists of fees earned on personal and corporate trust accounts, custody of securities services, trust investments and wealth management services, mutual fund assets, and alternative asset servicing. The increase in these fees for the three-month period ended March 31, 2025, compared to the same period in 2024, was primarily due to an increase in trust services income primarily related to HTLF, and increases in fund services revenue and corporate trust revenue. For the three-month period ended March 31, 2025, trust services income increased $4.4 million, or 29.4%, fund services revenue increased $3.6 million, or 9.0%, and corporate trust revenue increased $2.4 million, or 15.7%, in each case compared to the same period in 2024. The recent volatile markets have impacted the income in this category. Since trust and securities processing fees are primarily asset-based, which are highly correlated to the change in market value of the assets, the related income for the remainder of the year will be affected by changes in the securities markets. Management continues to emphasize sales of services to both new and existing clients as well as increasing and improving the distribution channels.
Service charges on deposits for the three-month period ended March 31, 2025 increased $6.7 million, or 32.3%, compared to the same period in 2024. This increase was largely driven by the HTLF acquisition and increased corporate service charges income.
Brokerage fees for the three-month period ended March 31, 2025 increased $4.9 million, or 37.6%, compared to the same period in 2024. This increase was driven by increased 12b-1 fees and money market share revenue.
Bankcard fees for the three-month period ended March 31, 2025 increased $4.3 million, or 19.7%, compared to the same period in 2024. This increase was driven by higher interchange income, partially offset by higher rebate and reward costs primarily related to purchase volume from the HTLF acquisition.
Investment securities gains, net for the three-month period ended March 31, 2025 decreased by $14.2 million, or 151.0%, compared to the same period in 2024. This decrease was primarily driven by a net $8.6 million gain on disposition of two of the Company’s non-marketable securities in the first quarter of 2024, coupled with $5.3 million in decreased valuation in the Company’s non-marketable securities during the first quarter of 2025. The income in this category is highly correlated to the change in market value of the assets, and the related income for the remainder of the year will be affected by changes in the securities markets. The Company’s investment portfolio is continually evaluated for opportunities to improve its performance and risk profile relative to market conditions and the Company’s interest rate expectations. This can result in differences from quarter to quarter in the amount of realized gains or losses on this portfolio.
Other noninterest income for the three-month period ended March 31, 2025 decreased $5.5 million, or 29.3%, compared to the same period in 2024, driven by a decrease of $5.3 million in company-owned life insurance income.
Table 5
SUMMARY OF NONINTEREST EXPENSE (unaudited, dollars in thousands)
78,392
54.8
3,799
31.0
2.7
1,484
45.0
1,973
32.7
12,914
46.2
20,712
262.4
2,228
21.1
15,522
791.9
(11,158
(57.5
3,672
61.7
129,983
51.0
Noninterest expense increased by $130.0 million, or 51.0%, for the three-month period ended March 31, 2025, compared to the same period in 2024. Table 5 above summarizes the components of noninterest expense and the respective year-over-year comparison for each category. First quarter 2025 noninterest expense included $53.2 million in total acquisition-related and other nonrecurring costs, compared to $0.4 million in the same period in 2024. It also includes $15.6 million in other intangible amortization expense related to the HTLF acquisition.
Salaries and employee benefits increased by $78.4 million, or 54.8%, for the three-month period ended March 31, 2025, compared to the same period in 2024. Salaries and wages expense increased $25.0 million, or 29.2%, and bonus and commission expense increased $46.7 million, or 179.5%, for the three-month period ended March 31, 2025, as compared to the same period in 2024. Employee benefits expense increased $6.7 million, or 21.4%, for the three-month period ended March 31, 2025 compared to the same period in 2024. The variances in salaries and employee benefits are primarily driven by increased severance, retention bonuses, and change in control payments made to HTLF associates, as well as higher bonus expense due to higher company performance for legacy-UMB associates.
Occupancy expense increased $3.8 million, or 31.0%, for the three-month period ended March 31, 2025, compared to the same period in 2024, primarily due to higher volume of activity from the HTLF acquisition.
Processing fees increased $12.9 million, or 46.2%, for the three-month period ended March 31, 2025, compared to the same period in 2024, primarily due to increased software subscription costs, of which $6.2 million was driven by legacy-HTLF software subscriptions.
Legal and Consulting expense increased $20.7 million, or 262.4%, for the three-month period ended March 31, 2025, compared to the same period in 2024, primarily due to $19.0 million of non-recurring transaction costs associated with the acquisition in the first quarter of 2025.
Bankcard expense increased $2.2 million, or 21.2%, for the three-month period ended March 31, 2025, compared to the same period in 2024, primarily driven by higher volume of activity from the HTLF acquisition.
Amortization of other intangible assets increased $15.5 million, or 791.9%, for the three-month period ended March 31, 2025, compared to the same period in 2024, primarily due to amortization of the core deposit intangible,
71
customer list and purchased credit card relationship intangibles recognized in the first quarter from the HTLF acquisition.
Regulatory fees decreased $11.2 million, or 57.5%, for the three-month period ended March 31, 2025, compared to the same period in 2024, primarily due to the $13.0 million FDIC special assessment recorded in the first quarter of 2024.
Other expense increased $3.7 million, or 61.7%, for the three-month period ended March 31, 2025, compared to the same period in 2024, primarily due to higher operational losses coupled with increased expenses related to the HTLF acquisition for property taxes and insurance.
Income Tax Expense
The Company’s effective tax rate was 12.6% for the three months ended March 31, 2025, compared to 17.6% for the same period in 2024. The effective tax rate decreased primarily due to more favorable discrete tax items in 2025 as compared to 2024, including a favorable discrete tax benefit for the remeasurement of deferred tax assets due to an increase in the forecasted state marginal tax rate driven by the acquisition of HTLF. Additionally, there was an increase in excess tax benefits associated with stock compensation recorded in the first quarter of 2025 compared to the same period a year earlier.
Strategic Lines of Business
The Company has strategically aligned its operations into the following three reportable Business Segments: Commercial Banking, Institutional Banking, and Personal Banking. The Company’s senior executive officers regularly evaluate Business Segment financial results produced by the Company’s internal reporting system in deciding how to allocate resources and assess performance for individual Business Segments. For comparability purposes, amounts in all periods are based on methodologies in effect at March 31, 2025. Previously reported results have been reclassified in this Form 10-Q to conform to the Company’s current organizational structure.
Table 6
Commercial Banking Operating Results (unaudited, dollars in thousands)
115,934
73.4
58,986
759.6
(6,760
(15.4
77,756
81.6
Income before taxes
(27,568
(27.9
(7,775
(46.4
(19,793
(24.1
For the three-month period ended March 31, 2025, Commercial Banking net income decreased $19.8 million to $62.4 million, as compared to the same period in 2024. Net interest income increased $115.9 million, or 73.4%, for the three-month period ended March 31, 2025, compared to the same period in 2024, primarily driven by the acquisition of HTLF, as well as organic legacy-UMB loan growth, and earning asset mix changes. Provision for credit losses increased $59.0 million for the period, driven by the acquisition of HTLF as well as portfolio metric changes and changes in macro-economic metrics in 2025 as compared to 2024. Noninterest income decreased $6.8 million, or 15.4%, compared to the same period in 2024, primarily due to a decrease of $10.7 million in investment securities gains, partially offset by an increase of $4.2 million in deposit service charges. Noninterest expense increased $77.8 million, or 81.6%, to $173.0 million for the three-month period ended March 31, 2025, compared to
72
the same period in 2024. This increase was driven by an increase of $46.7 million in technology, service, and overhead expenses and an increase of $26.4 million in salaries and employee benefits expense, both driven by the HTLF acquisition. There were additional increases of $1.6 million in marketing and business development expense and $1.5 million in processing fees.
Table 7
Institutional Banking Operating Results (unaudited, dollars in thousands)
12,034
24.5
85.9
12,093
13.2
9,727
10.0
14,199
33.0
(523
(6.8
14,722
41.7
For the three-month period ended March 31, 2025, Institutional Banking net income increased $14.7 million, or 41.7%, compared to the same period last year. Net interest income increased $12.0 million, or 24.5%, compared to the same period last year, due to an increase in funds transfer pricing due to higher deposit balances. Noninterest income increased $12.1 million, or 13.2%, primarily due to increases of $6.0 million in trust and securities processing income driven by higher fund services and corporate trust revenue, $4.0 million in brokerage fees and $1.8 million in deposit service charges. Noninterest expense increased $9.7 million, or 10.0%, primarily driven by increases of $7.4 million in salaries and employee benefits expense, $3.8 million in processing fees, and $1.5 million in bankcard expense. These increases were partially offset by a decrease of $3.1 million in technology, service, and overhead expenses.
Table 8
Personal Banking Operating Results (unaudited, dollars in thousands)
30,237
93.5
16,813
840.2
1,621
6.9
42,500
68.5
Loss before taxes
(27,455
(338.1
Income tax benefit
(3,601
(409.7
Net loss
(23,854
(329.4
For the three-month period ended March 31, 2025, Personal Banking net income decreased $23.9 million to a net loss of $31.1 million, as compared to the same period in 2024. Net interest income increased $30.2 million, or 93.5%, compared to the same period last year driven by the acquisition of HTLF, as well as organic legacy-UMB loan growth, and earning asset mix change. Provision for credit losses increased $16.8 million for the period driven by the acquisition of HTLF as well as by portfolio metric changes and changes in macro-economic metrics in 2025 as compared to 2024. Noninterest income increased $1.6 million, or 6.9%, for the same period driven by an increase of $3.8 million in trust and securities processing income, an increase of $1.3 million in bankcard fees, and an increase of $0.9 million in brokerage income. These increases were partially offset by a decrease of $4.1 million in investment securities gains. Noninterest expense increased $42.5 million, or 68.5%, primarily due to an increase of
73
$26.5 million in technology, service, and overhead expenses, and an increase of $13.8 million in salaries and employee benefits expense, both driven by the HTLF acquisition, and an increase of $1.3 million in processing fees.
Balance Sheet Analysis
Total assets of the Company increased $18.9 billion, or 37.6%, as of March 31, 2025, compared to December 31, 2024, primarily due to an increase of $10.3 billion, or 40.1% in loan balances, an increase of $3.1 billion, or 40.1%, in securities available for sale, and an increase of $1.8 billion, or 22.9%, in interest-bearing due from banks.
Total assets of the Company increased $24.0 billion, or 52.9%, as of March 31, 2025, compared to March 31, 2024, primarily due to an increase of $12.3 billion, or 52.0%, in loan balances, an increase of $4.4 billion, or 66.6%, in securities available for sale, and an increase of $3.2 billion, or 47.0%, in interest-bearing due from banks.
The overall increase in total assets from March 31, 2024 and December 31, 2024 to March 31, 2025 is directly related to the acquisition of HTLF. The HTLF acquisition added total assets with an acquired fair value of $16.3 billion, including $9.8 billion in loan balances and $3.7 billion in securities balances at January 31, 2025.
Table 9
SELECTED FINANCIAL INFORMATION (unaudited, dollars in thousands)
45,343,375
23,642,064
17,295,602
12,681,449
13,652,797
6,673,104
63,684,918
43,176,892
47,829,124
36,913,610
3,214,363
4,409,216
2,995,007
Loans represent the Company’s largest source of interest income. In addition to growing the commercial loan portfolio, management believes its middle market commercial business and its consumer business, including home equity and credit card loan products, are the market niches that represent its best opportunity to cross-sell fee-related services and generate additional noninterest income for the Company.
Actual loan balances totaled $35.9 billion as of March 31, 2025, and increased $10.3 billion, or 40.1%, compared to December 31, 2024, and increased $12.3 billion, or 52.0%, compared to March 31, 2024. Compared to December 31, 2024, commercial real estate loans increased $5.9 billion, or 57.9%, commercial and industrial loans increased $3.1 billion, or 28.7%, and consumer real estate loans increased $1.0 billion, or 31.5%. Compared to March 31, 2024, commercial real estate loans increased $6.7 billion, or 72.3%, commercial and industrial loans increased $4.1 billion, or 41.2%, and consumer real estate loans increased $1.2 billion, or 40.9%. A significant driver in the increases in loans was the acquisition of HTLF and its loan portfolio with an acquired fair value of $9.8 billion at January 31, 2025. The remaining increase in loans compared to March 31, 2024 is related to loans originated through the legacy UMB channels. See further information in Note 4, “Loans and Allowance for Credit Losses” in the Notes to Consolidated Financial Statements.
As of March 31, 2025 and December 31, 2024, commercial real estate loans comprised approximately 44.5% and 39.5%, respectively, of the Company's loan portfolio. Commercial real estate loans generally involve a greater degree of credit risk than consumer real estate loans because they typically have larger balances and are more affected by adverse conditions in the economy. Because payments on loans secured by commercial real estate often depend upon the successful operation and management of the properties and the businesses which operate from within them, repayment of such loans may be affected by factors outside the borrower’s control, such as adverse conditions in the real estate market or the economy or changes in government regulations. In recent years, commercial real estate markets have been particularly impacted by the economic disruption resulting from the
74
COVID-19 pandemic. The COVID-19 pandemic has also been a catalyst for the evolution of various remote work options, which could impact the long-term performance of some types of office properties within our commercial real estate portfolio. Due to these risks, the Company is actively monitoring its exposure to commercial real estate.
Generally, these loans are made for investment and real estate development or working capital and business expansion purposes and are primarily secured by real estate with a maximum loan-to-value of 80%. Most of these properties are non-owner occupied and have guarantees as additional security. The Company's investment CRE portfolio (which includes non-owner occupied and construction loans) totaled 29.6% and 28.5% of total Company loans as of March 31, 2025 and December 31, 2024, respectively. The average investment CRE loan was approximately $3.9 million and $7.2 million, as of March 31, 2025 and December 31, 2024, respectively.
The properties securing the commercial real estate portfolio are diverse in terms of type and geographic location. This diversity helps reduce exposure to adverse economic events that affect any single market or industry. Notwithstanding, commercial real estate loans, in general, may be more adversely impacted by conditions in the real estate market or the economy.
The following table presents the Company's investment CRE (which includes non-owner occupied and construction loans) by industry. The table separately discloses the top five industries as a percentage of the Company's loan portfolio as of either period presented, while the remainder are included in “Other.”
Table 10
Investment CRE loans by industry as a percentage of total Company Loans
Industrial
8.5
8.8
Multifamily
7.4
Office building
4.0
3.9
Hotel
2.2
1.9
Retail
5.3
4.6
Total Investment CRE
29.6
28.5
The following table presents the Company's investment CRE (which includes non-owner occupied and construction loans) by state. The table separately discloses all states that represent at least 5.0% of the Company's investment CRE portfolio as of either period presented, while the remainder are included in “All Others.”
Table 11
Investment CRE loans by State
Arizona
11.9
11.6
Texas
11.8
11.4
Colorado
9.1
10.5
14.6
Utah
5.7
8.1
California
5.1
3.0
Florida
5.8
All others
39.6
36.4
100.0
Nonaccrual, past due and restructured loans are discussed under “Credit Risk Management” within “Item 3. Quantitative and Qualitative Disclosures About Market Risk” in this report.
Investment Securities
The Company’s investment portfolio contains trading, AFS, and HTM securities, as well as FRB stock, FHLB stock, and other miscellaneous investments. Investment securities totaled $17.3 billion as of March 31, 2025, and $13.7 billion as of December 31, 2024, and comprised 27.2% and 28.5% of the Company’s earning assets, respectively, as of those dates. A significant driver in the increases in the Company's investment portfolio was the acquisition of HTLF and its bond portfolio, which added total securities with an acquired fair value of $3.7 billion at January 31, 2025.
The Company’s AFS securities portfolio comprised 63.0% of the Company’s investment securities portfolio at March 31, 2025 and 56.9% at December 31, 2024. The Company’s AFS securities portfolio provides liquidity as a result of the composition and average life of the underlying securities. This liquidity can be used to fund loan growth or to offset the outflow of traditional funding sources. The average life of the AFS securities portfolio was 77.5 months at March 31, 2025, compared to 56.0 months at December 31, 2024, and 57.8 months at March 31, 2024. In addition to providing a potential source of liquidity, the AFS securities portfolio can be used as a tool to manage interest rate sensitivity. The Company’s goal in the management of its AFS securities portfolio is to maximize return within the Company’s parameters of liquidity goals, interest rate risk, and credit risk.
Management expects collateral pledging requirements for public funds, loan demand, and deposit funding to be the primary factors impacting changes in the level of AFS securities. There were $11.2 billion and $10.5 billion of securities pledged to secure U.S. Government deposits, other public deposits, certain trust deposits, derivative transactions, and repurchase agreements at March 31, 2025 and December 31, 2024, respectively.
The Company’s HTM securities portfolio consists of U.S. agency-backed securities, mortgage-backed securities, general obligation bonds, and private placement bonds. The HTM portfolio, net of the ACL, totaled $5.7 billion at March 31, 2025 and $5.4 billion as of December 31, 2024. The average life of the HTM portfolio was 8.7 years at March 31, 2025, compared to 9.1 years at December 31, 2024, and 9.0 years at March 31, 2024.
The securities portfolio generates the Company’s second largest component of interest income. The securities portfolio achieved an average yield on a tax-equivalent basis of 3.48% for the three-month period ended March 31, 2025, compared to 2.88% for the same period in 2024.
At March 31, 2025, the unrealized pre-tax net loss on the AFS securities portfolio was $557.5 million, or 4.9% of the $11.5 billion amortized cost value, an improvement of $75.8 million as compared to December 31, 2024. At March 31, 2025, the unrealized pre-tax net loss on the securities designated as HTM was $610.3 million, or 10.7% of amortized cost value, compared to $630.0 million at December 31, 2024. During 2022, the Company transferred securities with an amortized cost balance of $4.1 billion and a fair value of $3.8 billion from the AFS category to the HTM category. The transfer of securities was made at fair value at the time of transfer. The remaining balance of unrealized pre-tax losses related to transferred securities was $163.0 million as of March 31, 2025, and $171.3 million as of December 31, 2024, and was included in the amortized cost balance of HTM securities. See further information in Note 5, “Securities” in the Notes to Consolidated Financial Statements.
Deposits and Borrowed Funds
Deposits increased $15.4 billion, or 35.6%, from December 31, 2024 to March 31, 2025 and increased $21.6 billion, or 58.5%, from March 31, 2024 to March 31, 2025. A significant driver in the increases in the Company's deposits was the acquisition of HTLF, which added total deposits with an acquired value of $14.3 billion at January 31, 2025. Total noninterest-bearing deposits increased $4.8 billion and total interest-bearing deposits increased $10.6 billion from December 31, 2024 to March 31, 2025. Total noninterest-bearing deposits increased $5.2 billion, and interest-bearing deposits increased $16.4 billion from March 31, 2024 to March 31, 2025. Noninterest-bearing deposits were 31.5%, 31.6%, and 35.9% of total deposits at March 31, 2025, December 31, 2024, and March 31, 2024, respectively.
Deposits represent the Company’s primary funding source for its asset base. In addition to the core deposits garnered by the Company’s retail branch structure, the Company continues to focus on its cash management services, as well as its trust and mutual fund servicing businesses, in order to attract and retain additional deposits. Management believes a strong core deposit composition is one of the Company’s key strengths given its competitive product mix.
As of March 31, 2025, there were an estimated $37.6 billion of uninsured deposits, an increase of $6.5 billion as compared to December 31, 2024, and an increase of $12.3 billion as compared to March 31, 2024. Estimated uninsured deposits comprised approximately 64.2%, 72.0%, and 68.4% of total deposits as of March 31, 2025, December 31, 2024, and March 31, 2024, respectively. A portion of these uninsured deposits represent affiliate deposits and collateralized deposits. Affiliate deposits represent deposit accounts owned by the wholly owned subsidiaries of UMB Financial Corporation that are on deposit at UMB Bank, n.a. Collateralized deposits are public fund deposits or corporate trust deposits that are collateralized by high quality securities within the investment portfolio. Excluding affiliate deposits of $1.7 billion and collateralized deposits of $6.5 billion, the adjusted estimated uninsured deposits were $29.4 billion as of March 31, 2025. The adjusted ratio of estimated uninsured deposits, excluding affiliate and collateralized deposits, as a percentage of total deposits was approximately 50.2% as of March 31, 2025. The adjusted ratio of estimated uninsured deposits, excluding affiliate and collateralized deposits, as a percentage of total deposits was approximately 52.6% as of December 31, 2024, and 48.6% as of March 31, 2024.
The Company participates in the IntraFi Cash Service program, which allows its customers to place deposits into the program to receive reciprocal FDIC insurance coverage. The Company had $3.4 billion, $1.3 billion, and $1.2 billion of deposits in the program as of March 31, 2025, December 31, 2024, and March 31, 2024, respectively. The increase in deposits in IntraFi Cash Service program during 2025 was driven by the acquisition of HTLF, which had $2.0 billion in the program as of January 31, 2025.
Long-term debt totaled $654.4 million at March 31, 2025, compared to $385.3 million as of December 31, 2024, and $383.7 million as of March 31, 2024. The increase in long-term debt in 2025 was driven by the acquisition of HTLF, which added total long-term debt with an acquired value of $278.0 million at January 31, 2025.
In September 2022, the Company issued $110.0 million in aggregate subordinated notes due in September 2032. The Company received $107.9 million, after deducting underwriting discounts and commissions and offering expenses, and used the proceeds from the offering for general corporate purposes, including, among other uses, contributing Tier 1 capital into the Bank. The subordinated notes were issued with a fixed-to-fixed rate of 6.25% and an effective rate of 6.64%, due to issuance costs, with an interest rate reset date of September 2027.
In September 2020, the Company issued $200.0 million in aggregate subordinated notes due in September 2030. The Company received $197.7 million, after deducting underwriting discounts and commissions and offering expenses, and used the proceeds from the offering for general corporate purposes, including, among other uses, contributing Tier 1 capital into the Bank. The subordinated notes were issued with a fixed-to-fixed rate of 3.70% and an effective rate of 3.93%, due to issuance costs, with an interest rate reset date of September 2025. During the first quarter of 2025, the Company purchased and subsequently retired $11.1 million of its 2020 subordinated notes.
As part of the acquisition of HTLF, the Company acquired $150.0 million in aggregate subordinated notes due September 2031. The subordinated notes have a fixed interest rate of 2.75% until September 2026, at which time the interest rate will reset quarterly. The subordinated notes had an acquired fair value of $138.8 million as of January 31, 2025.
The remainder of the Company’s long-term debt was assumed from the acquisitions of Marquette Financial Companies in 2015 and HTLF in 2025 and consists of debt obligations payable to 19 unconsolidated trusts that previously issued trust preferred securities. These long-term debt obligations have an aggregate contractual balance of $262.9 million and a carrying value of $216.8 million as of March 31, 2025. As of December 31, 2024, the debt obligations related to the four unconsolidated trusts acquired from Marquette had an aggregate contractual balance of $103.1 million and had a carrying value of $76.8 million. Interest rates on trust preferred securities are tied to the three-month term SOFR rate with spreads ranging from 133 basis points to 365 basis points and reset quarterly. The trust preferred securities have maturity dates ranging from September 2032 to September 2037.
Short-term debt totaled $1.8 billion as of March 31, 2024 and consisted of a $1.0 billion short-term borrowing with the FHLB of Des Moines and an $800.0 million borrowing with the BTFP. Both borrowings were repaid during October 2024.
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Federal funds purchased and securities sold under agreements to repurchase totaled $2.6 billion as of March 31, 2025, $2.6 billion as of December 31, 2024, and $2.2 billion at March 31, 2024. Repurchase agreements are transactions involving the exchange of investment funds by the customer for securities by the Company under an agreement to repurchase the same or similar issues at an agreed-upon price and date.
Capital and Liquidity
The Company places a significant emphasis on the maintenance of a strong capital position, which promotes investor confidence, provides access to funding sources under favorable terms, and enhances the Company’s ability to capitalize on business growth and acquisition opportunities. Higher levels of liquidity, however, bear corresponding costs, measured in terms of lower yields on short-term, more liquid earning assets and higher expenses for extended liability maturities. The Company manages capital for each subsidiary based upon the subsidiary’s respective risks and growth opportunities as well as regulatory requirements.
Total shareholders’ equity was $6.7 billion at March 31, 2025, a $3.3 billion increase compared to December 31, 2024, and a $3.6 billion increase compared to March 31, 2024, driven by the acquisition of HTLF. Total common shareholders' equity was $6.6 billion as of March 31, 2025. Total accumulated other comprehensive loss was $492.7 million at March 31, 2025. This is an improvement of $80.4 million as compared to December 31, 2024, and an improvement of $101.8 million as compared to March 31, 2024.
The Company’s Board of Directors authorized, at its April 29, 2025 and April 30, 2024 meetings, the repurchase of up to one million shares of the Company’s common stock during the twelve months following each meeting (each a Repurchase Authorization). On July 25, 2023, the Company's Board of Directors approved the repurchase of up to one million shares of the Company's common stock, which terminated on April 30, 2024. During the three-month periods ended March 31, 2025 and 2024, the Company did not repurchase shares of common stock pursuant to any of its announced Repurchase Authorizations, but did acquire shares pursuant to the Company's share-based incentive programs.
At the Company’s quarterly board meeting, the Board of Directors declared a $0.40 per share quarterly cash dividend payable on July 1, 2025, to shareholders of record at the close of business on June 10, 2025. Additionally, the Board of Directors declared a dividend of $175 per share of the Series A Preferred Stock, which results in a dividend of $0.4375 per depositary share. The Series A Preferred Stock dividend is payable on July 15, 2025 to stockholders of record of the Series A Preferred Stock as of the close of business on June 30, 2025.
Through the Company’s relationship with the FHLB of Des Moines, the Company owns $10.5 million of FHLB stock and has access to additional liquidity and funding sources through FHLB advances. The Company’s borrowing capacity is dependent upon the amount of collateral the Company places at the FHLB. As of March 31, 2025 the Company has 30 letters of credit outstanding with the FHLB of Des Moines to secure deposits. These letters of credit have an aggregate amount of $409.2 million and have various maturity dates through July 31, 2025. The Company’s remaining borrowing capacity with the FHLB was $1.6 billion as of March 31, 2025. The Company had no outstanding FHLB advances at the FHLB of Des Moines as of March 31, 2025.
Risk-based capital guidelines established by regulatory agencies set minimum capital standards based on the level of risk associated with a financial institution’s assets. The Company has implemented the Basel III regulatory capital rules adopted by the FRB. Basel III capital rules include a minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5% and a minimum tier 1 risk-based capital ratio of 6%. A financial institution’s total capital is also required to equal at least 8% of risk-weighted assets.
The risk-based capital guidelines indicate the specific risk weightings by type of asset. Certain off-balance sheet items (such as standby letters of credit and binding loan commitments) are multiplied by credit conversion factors to translate them into balance sheet equivalents before assigning them specific risk weightings. The Company is also required to maintain a leverage ratio equal to or greater than 4%. The leverage ratio is calculated as the ratio of tier 1 core capital to total average assets, less goodwill and intangibles.
U.S. banking agencies in December 2018 approved a final rule to address the impact of CECL on regulatory capital by allowing banking organizations the option to phase in the day-one impact of CECL until the first quarter
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of 2023. In March 2020, the U.S. banking agencies issued an interim final rule that provides banking organizations with an alternative option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period. The Company elected this alternative option instead of the one described in the December 2018 rule. As of March 31, 2025, the impact of CECL was fully phased into the Company's regulatory capital.
The Company's capital position as of March 31, 2025 is summarized in the table below and exceeded regulatory requirements.
Table 12
RATIOS
Common equity tier 1 capital ratio
10.11
11.09
Tier 1 risk-based capital ratio
10.35
Total risk-based capital ratio
12.54
13.03
Leverage ratio
8.47
8.39
Return on average assets
0.54
1.06
Return on average common equity
5.86
14.11
Average common equity to assets
9.16
7.48
The Company's per share data is summarized in the table below.
Earnings per common share – basic
Earnings per common share – diluted
Cash dividends per common share
Dividend payout ratio
32.8
17.2
Book value per common share
87.43
64.68
Off-balance Sheet Arrangements
The Company’s main off-balance sheet arrangements are loan commitments, commercial and standby letters of credit, futures contracts and forward exchange contracts, which have maturity dates rather than payment due dates. See Note 10, “Commitments, Contingencies and Guarantees” in the Notes to Consolidated Financial Statements for detailed information on these arrangements. The level of the outstanding commitments could be impacted by volatility in the economic markets and governmental responses to inflation, geopolitical tensions, and supply chain constraints. These changing conditions could have impacts on the consolidated balance sheets of the Company for the remainder of the year.
Critical Accounting Policies and Estimates
The preparation of these Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to customers and suppliers, allowance for credit losses, bad debts, investments, financing operations, long-lived assets, taxes, other contingencies, and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which have formed the basis for making such judgments about the carrying value of assets and liabilities that are not
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readily apparent from other sources. Under different assumptions or conditions, actual results may differ from the recorded estimates.
A summary of critical accounting policies is listed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the Form 10-K. Additionally, the Company has identified the fair value of loans acquired in, and the core deposit intangibles associated with, the acquisition of HTLF as critical accounting estimates. The determination of estimated fair values required management to make certain estimates about discount rates, future expected cash flows, market conditions at the time of the acquisition and other future events that are highly subjective in nature and may require adjustments. See Note 2, “Summary of Significant Accounting Policies” and Note 13, “Acquisition” for additional information.
Risk Management
Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various factors, including interest rates, foreign exchange prices, commodity prices, or equity prices. Financial instruments that are subject to market risk can be classified either as held for trading or held for purposes other than trading.
The Company is subject to market risk primarily through the effect of changes in interest rates of its assets held for purposes other than trading. The following discussion of interest rate risk, however, combines instruments held for trading and instruments held for purposes other than trading because the instruments held for trading represent such a small portion of the Company’s portfolio that the interest rate risk associated with them is immaterial.
Interest Rate Risk
In the banking industry, a major risk exposure is changing interest rates. To minimize the effect of interest rate changes to net interest income and exposure levels to economic losses, the Company manages its exposure to changes in interest rates through asset and liability management within guidelines established by its Asset Liability Committee (ALCO) and approved by the Board. The ALCO is responsible for approving and ensuring compliance with asset/liability management policies, including interest rate exposure. The Company’s primary method for measuring and analyzing consolidated interest rate risk is the Net Interest Income Simulation Analysis. The Company also uses a Net Portfolio Value model to measure market value risk under various rate change scenarios and a gap analysis to measure maturity and repricing relationships between interest-earning assets and interest-bearing liabilities at specific points in time. On a limited basis, the Company uses hedges such as swaps, rate floors, floor spreads, and futures contracts to manage interest rate risk on certain loans, trading securities, and trust preferred securities. See further information in Note 11 “Derivatives and Hedging Activities” in the Notes to the Consolidated Financial Statements.
Overall, the Company manages interest rate risk by positioning the balance sheet to maximize net interest income while maintaining an acceptable level of interest rate and credit risk, remaining mindful of the relationship among profitability, liquidity, interest rate risk, and credit risk.
Net Interest Income Modeling
The Company’s primary interest rate risk tool, the Net Interest Income Simulation Analysis, measures interest rate risk and the effect of interest rate changes on net interest income and net interest margin. This analysis incorporates all of the Company’s assets and liabilities together with assumptions that reflect the current interest rate environment. Through these simulations, management estimates the impact on net interest income of a 200-basis-point upward or a 300-basis-point downward gradual change (e.g. ramp) and immediate change (e.g. shock) of market interest rates over a two year period. In ramp scenarios, rates change gradually for a one-year period and remain constant in year two. In shock scenarios, rates change immediately and the change is sustained for the remainder of the two-year scenario horizon. Assumptions are made to project rates for new loans and deposits based on historical analysis, management outlook and repricing strategies. Asset prepayments and other market risks are
developed from industry estimates of prepayment speeds and other market changes. The results of these simulations can be significantly influenced by assumptions utilized and management evaluates the sensitivity of the simulation results on a regular basis.
Table 13 shows the net interest income increase or decrease over the next two years as of March 31, 2025 and 2024 based on hypothetical changes in interest rates and a constant sized balance sheet with runoff being replaced.
Table 13
MARKET RISK (unaudited)
Hypothetical change in interest rate – Rate Ramp
Year One
Year Two
March 31, 2024
Change in basis points
Percentagechange
200
0.1
(1.5
7.1
(0.2
(0.8
2.0
Static
(100)
0.6
1.4
(2.6
(0.5
(200)
3.1
(5.1
(0.6
(300)
4.8
(7.7
(1.0
Hypothetical change in interest rate – Rate Shock
1.2
1.1
3.7
3.5
(0.7
(0.4
(3.6
(2.1
(1.1
(0.3
(7.3
(4.0
(1.8
(11.2
(6.2
The Company is positioned relatively neutral to changes in interest rates in the next year. Net interest income is predicted to increase in all upward rate scenarios except for 100bps ramp scenario. In down rate scenarios, net interest income is predicted to increase in rate ramp scenarios and decrease in rate shock scenarios in year one. In year two, net interest income is predicted to rise in all increasing rate scenarios and decrease in falling rate scenarios. The Company’s ability to price deposits consistent with its historical approach is a key assumption in these scenarios.
Trading Account
The Company carries securities in a trading account that is maintained according to Board-approved policy and procedures. The policy limits the amount and type of securities that can be carried in the trading account, requires compliance with any limits under applicable law and regulations, and mandates the use of a value-at-risk methodology to manage price volatility risks within financial parameters. The risk associated with the carrying of trading securities is offset by utilizing financial instruments including exchange-traded financial futures as well as short sales of U.S. Treasury and Corporate securities. The trading securities and related hedging instruments are marked-to-market daily. The trading account had a balance of $35.5 million as of March 31, 2025, $28.5 million as of December 31, 2024, and $40.2 million as of March 31, 2024. Securities sold not yet purchased (i.e., short positions) totaled $11.9 million at March 31, 2025, $7.1 million as of December 31, 2024, and $11.7 million at March 31, 2024 and are classified within the Other liabilities line of the Company’s Consolidated Balance Sheets.
The Company is subject to market risk primarily through the effect of changes in interest rates of its assets held for purposes other than trading. The discussion in Table 13 above of interest rate risk, however, combines instruments held for trading and instruments held for purposes other than trading, because the instruments held for trading represent such a small portion of the Company’s portfolio that the interest rate risk associated with them is immaterial.
Other Market Risk
The Company has minimal foreign currency risk as a result of foreign exchange contracts. See Note 10 “Commitments, Contingencies and Guarantees” in the notes to the Consolidated Financial Statements.
Credit Risk Management
Credit risk represents the risk that a customer or counterparty may not perform in accordance with contractual terms. The Company utilizes a centralized credit administration function, which provides information on the Bank’s risk levels, delinquencies, an internal ranking system and overall credit exposure. Loan requests are centrally reviewed to ensure the consistent application of the loan policy and standards. In addition, the Company has an internal loan review staff that operates independently of the Bank. This review team performs periodic examinations of the Bank’s loans for credit quality, documentation and loan administration. The respective regulatory authorities governing the Bank also review loan portfolios.
A primary indicator of credit quality and risk management is the level of nonperforming loans. Nonperforming loans include both nonaccrual loans and restructured loans on nonaccrual. The Company’s nonperforming loans increased $83.1 million to $100.9 million at March 31, 2025, compared to March 31, 2024, and increased $81.6 million, compared to December 31, 2024. The increase in both periods is attributable to additional non-performing loans related to the acquisition of HTLF. Acquired non-performing loans totaled $80.8 million as of March 31, 2025.
The Company had other real estate owned of $4.2 million as of March 31, 2025, $1.7 million as of December 31, 2024, and $2.5 million as of March 31, 2024. Loans past due more than 90 days and still accruing interest totaled $6.3 million as of March 31, 2025, compared to $3.0 million at March 31, 2024 and $7.6 million as of December 31, 2024.
A loan is generally placed on nonaccrual status when payments are past due 90 days or more and/or when management has considerable doubt about the borrower’s ability to repay on the terms originally contracted. The accrual of interest is discontinued and recorded thereafter only when received in cash.
Certain loans are restructured to provide a reduction or deferral of interest or principal due to deterioration in the financial condition of the respective borrowers. The Company had $189 thousand of restructured loans at March 31, 2025, $517 thousand at March 31, 2024, and $196 thousand at December 31, 2024.
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Table 14
LOAN QUALITY (unaudited, dollars in thousands)
Nonaccrual loans
100,848
17,401
19,241
Restructured loans on nonaccrual
355
Total nonperforming loans
17,756
4,225
2,532
1,612
26,789
Total nonperforming assets
131,899
20,288
47,673
Loans past due 90 days or more
3,076
Restructured loans accruing
152
162
155
Ratios:
Non-performing loans as a percent of loans
0.28
0.08
Non-performing assets as a percent of loans plus other real estate owned and other repossessed assets
0.37
0.09
0.19
Non-performing assets as a percent of total assets
0.04
Loans past due 90 days or more as a percent of loans
0.02
0.01
0.03
Allowance for credit losses on loans as a percent of loans
Allowance for credit losses on loans as a multiple of nonperforming loans
3.66x
12.74x
13.44x
Liquidity Risk
Liquidity represents the Company’s ability to meet financial commitments through the maturity and sale of existing assets or availability of additional funds. The Company believes that the most important factor in the preservation of liquidity is maintaining public confidence that facilitates the retention and growth of a large, stable supply of core deposits and wholesale funds. Ultimately, the Company believes public confidence is generated through profitable operations, sound credit quality and a strong capital position. The primary source of liquidity for the Company is regularly scheduled payments on and maturity of assets, which include $10.9 billion of high-quality securities available for sale as of March 31, 2025. The liquidity of the Company and the Bank is also enhanced by its activity in the federal funds market and by its core deposits. Additionally, management believes it can raise debt or equity capital in the future, should the need arise.
Another factor affecting liquidity is the amount of deposits and customer repurchase agreements that have pledging requirements. All customer repurchase agreements require collateral in the form of a security. The U.S. Government, other public entities, and certain trust depositors require the Company to pledge securities if their deposit balances are greater than the FDIC-insured deposit limitations. These pledging requirements affect liquidity risk in that the related security cannot otherwise be disposed of due to the pledging restriction. There were $11.2 billion and $10.5 billion of securities pledged to secure U.S. Government deposits, other public deposits, certain trust deposits, derivative transactions, and repurchase agreements at March 31, 2025 and December 31, 2024, respectively.
The Company also has other commercial commitments that may impact liquidity. These commitments include unused commitments to extend credit, standby letters of credit and financial guarantees, and commercial letters of credit. The total amount of these commercial commitments at March 31, 2025 was $22.6 billion. Since many of these commitments expire without being drawn upon, the total amount of these commercial commitments does not necessarily represent the future cash requirements of the Company.
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The Company’s cash requirements consist primarily of dividends to shareholders, debt service, operating expenses, and treasury stock purchases. Management fees and dividends received from bank and non-bank subsidiaries traditionally have been sufficient to satisfy these requirements and are expected to be sufficient in the future. The Bank is subject to various rules regarding payment of dividends to the Company. For the most part, the Bank can pay dividends at least equal to its current year’s earnings without seeking prior regulatory approval. The Company also uses cash to inject capital into its bank and non-bank subsidiaries to maintain adequate capital as well as fund strategic initiatives.
The Company is a member bank of the FHLB. The Company owns $10.5 million of FHLB stock and has access to additional liquidity and funding sources through FHLB advances. The Company’s borrowing capacity is dependent upon the amount of collateral the Company places at the FHLB. As of March 31, 2025 the Company has 30 letters of credit outstanding with the FHLB of Des Moines to secure deposits. These letters of credit have an aggregate amount of $409.2 million and have various maturity dates through July 31, 2025. The Company’s remaining borrowing capacity with the FHLB was $1.6 billion as of March 31, 2025. The Company had no outstanding FHLB advances at the FHLB of Des Moines as of March 31, 2025.
In addition to borrowing capacity with the FHLB as described above, the Company had additional liquidity of $30.9 billion available via cash, unpledged bond collateral, the federal funds market, the Federal Reserve Discount Window, and the IntraFi Cash Service program as of March 31, 2025.
Operational Risk
Operational risk generally refers to the risk of loss resulting from the Company’s operations, including those operations performed for the Company by third parties. This would include but is not limited to the risk of fraud by employees or persons outside the Company, the execution of unauthorized transactions by employees or others, errors relating to transaction processing, breaches of the internal control system and compliance requirements, and unplanned interruptions in service. This risk of loss also includes the potential legal or regulatory actions that could arise as a result of an operational deficiency, or as a result of noncompliance with applicable regulatory standards. The Company must comply with a number of legal and regulatory requirements.
The Company operates in many markets and relies on the ability of its employees and systems to properly process a high number of transactions. In the event of a breakdown in internal control systems, improper operation of systems or improper employee actions, the Company could suffer financial loss, face regulatory action and suffer damage to its reputation. In order to address this risk, management maintains a system of internal controls with the objective of providing proper transaction authorization and execution, safeguarding of assets from misuse or theft, and ensuring the reliability of financial and other data.
The Company maintains systems of internal controls that provide management with timely and accurate information about the Company’s operations. These systems have been designed to manage operational risk at appropriate levels given the Company’s financial strength, the environment in which it operates, and considering factors such as competition and regulation. The Company has also established procedures that are designed to ensure that policies relating to conduct, ethics, and business practices are followed on a uniform basis. In certain cases, the Company has experienced losses from operational risk. Such losses have included the effects of operational errors that the Company has discovered and included as expense in the statement of income. While there can be no assurance that the Company will not suffer such losses in the future, management continually monitors and works to improve its internal controls, systems, and corporate-wide processes and procedures.
The Sarbanes-Oxley Act of 2002, as amended, requires the Chief Executive Officer and the Chief Financial Officer to make certain certifications under this Form 10-Q with respect to the Company’s disclosure controls and procedures and internal control over financial reporting. The Company has a Code of Ethics that expresses the values that drive employee behavior and maintains the Company’s commitment to the highest standards of ethics.
Disclosure Controls and Procedures
The Company’s management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company's “disclosure controls and procedures” (as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this Form 10-Q. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Form 10-Q, the Company’s disclosure controls and procedures were effective for ensuring that the Company’s SEC filings are recorded, processed, summarized, and reported within the time period required and that information required to be disclosed by the Company is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
Internal Control Over Financial Reporting
In the normal course of business, the Company and its subsidiaries are named defendants in various legal proceedings. In the opinion of management, after consultation with legal counsel, none of these lawsuits are expected to have a materially adverse effect on the financial position, results of operations, or cash flows of the Company.
There were no material changes to the risk factors as previously disclosed in response to Item 1A to Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
The table below sets forth the information with respect to purchases made by or on behalf of the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our common stock during the three-month period ended March 31, 2025.
ISSUER PURCHASES OF EQUITY SECURITIES
Period
Total Number of Shares (or Units) Purchased (1)
Average Price Paid per Share (or Unit)
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2)
Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
January 1 - January 31, 2025
22,879
121.11
1,000,000
February 1 - February 28, 2025
95,374
112.25
March 1 - March 31, 2025
19,035
102.87
137,288
112.42
(1) Includes shares acquired pursuant to the Company's share-based incentive programs. Under the terms of the Company's share-based incentive programs, the Company accepts previously owned shares of common stock surrendered to satisfy tax withholding obligations associated with equity compensation. These purchases do not count against the maximum value of shares remaining available for purchase under Repurchase Authorizations.
(2) Includes shares acquired under the Board of Directors approved Repurchase Authorization(s).
On April 30, 2024, the Company announced a plan to repurchase up to one million shares of common stock, which terminated on April 29, 2025. On April 29, 2025, the Company announced a plan to repurchase up to one million shares of common stock, which will terminate on April 28, 2026. The Company has not made any repurchases other than through the Repurchase Authorizations, but did acquire shares pursuant to the Company's share-based incentive programs. The Company is not currently engaging in repurchases. In the future, it may determine to resume repurchases. All share purchases pursuant to the Repurchase Authorizations are intended to be within the scope of Rule 10b-18 promulgated under the Exchange Act. Rule 10b-18 provides a safe harbor for purchases in a given day if the Company satisfies the manner, timing and volume conditions of the rule when purchasing its own shares of common stock.
Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 and filed with the Commission on May 9, 2006).
3.2
Bylaws, amended as of April 13, 2023 (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K dated April 13, 2023 and filed with the Commission on April 13, 2023).
31.1
CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act filed herewith.
31.2
CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act filed herewith.
32.1
CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act filed herewith.
32.2
CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act filed herewith.
101.INS
Inline XBRL Instance Document – The instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents.
104
The cover page of our Form 10-Q for the quarter ended March 31, 2025, formatted in iXBRL.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
/s/ David C. Odgers
David C. Odgers
Chief Accounting Officer
Date: May 2, 2025