For more detail, please refer to our 4Q24 UMBF Earnings Presentation dated January 28, 2024.
This is an exciting time at UMB. Not only did we have a phenomenal fourth quarter to end 2024, but after receiving the regulatory approvals, we closed on our acquisition of Heartland Financial (HTLF). We welcome our new associates and look forward to serving our combined communities and customers as we move forward together.
Expanding into new markets
We now have nearly 200 banking centers and ATMs across 13 states, with a top-10 market share position in five of those states. The combination of UMB’s strong commercial banking capabilities expanding into new markets, and HTLF’s successful consumer and small business efforts will bring further diversity to our business model.
The acquisition also allows us to partner with new communities and support our existing partnerships in additional ways. Looking ahead, we have a unique and important opportunity to build upon our complementary business models, values and culture together.
Record-setting fourth quarter and full-year results
Our results, which contained several record-setting metrics, are even more impressive given the extra acquisition work taken on in 2024 by many associates.
We set new company records with 2024 annual operating income of $462 million, net interest income that surpassed $1.0 billion, and fee income of $628 million.
For the fourth quarter, net income was $120.0 million, or $2.44 per share. Adjusting for a few nonrecurring items, including expenses spent on the acquisition (as further outlined in our 4Q24 Earnings Release), net operating income was $2.49 per share, ahead of the $2.26 expected by the equity analysts who cover our company.
Our track record of outpacing our peers in loan growth continued, with growth coming from across our footprint.
- We recorded double-digit annualized loan growth, with average balances increasing 14.8% from the third quarter compared to a median increase of only 1.2% for peer banks with assets between $10 and $100 billion.
- This growth was driven by another record level of production in the quarter, with our teams originating $1.6 billion in new loans.
- While commercial and industrial (C&I) lending led the growth this quarter, we also saw solid commercial and consumer real estate increases.
67% of our loans have variable rates that are tied to market indices such as the Secured Overnight Financing Rate (SOFR) or the Prime interest rate. The yields we earn on those variable loans and new loans made during the quarter were impacted by three Federal Reserve rate cuts, totaling 100 basis points, or 1%, from September through December 2024.
Outsized deposit growth
The lower interest income on loans was more than offset by the lower cost of deposits on the other side of the balance sheet. About 35% of our total deposits are indexed directly to short-term interest rates. As the Fed funds rate changes, these deposits reprice down immediately. Other deposits may have negotiated rates that will move down in the days following rate cuts.
We also experienced outsized growth in deposits in the fourth quarter, with average balances increasing more than $2.7 billion, an impressive 30.8%, on a linked-quarter annualized basis. For comparison, peer banks had a median annualized increase in deposits of just 5.3%.
Within deposits, balances in noninterest bearing, or demand deposit accounts, represented 27% of average deposits in the quarter, and help keep our total cost of funding lower.
Our deposit base is weighted heavily toward commercial and institutional clients who help provide demand deposit account (DDA) deposits in core operating accounts. These larger accounts have been solid funding sources for us, while balances can fluctuate as customers make tax and bond payments and deploy funds in the markets, particularly at quarter and year-end. This is why we focus on growth in average balances as we measure our performance versus other banks.
Our net interest income is impacted by the changes in the interest rate environment. In a falling rate environment, we often see a quicker benefit on our funding costs due to the high percentage of indexed deposits.
Net income interest that stands out
For the fourth quarter of 2024, net interest income of $269 million represented an increase of $21.6 million, or 8.7%.
Our net interest margin, the difference between what we earn on loans and other assets and pay for deposits and other funding sources, increased 11 basis points, or 0.11%, from the prior quarter to 2.57%, largely due to the repricing of our interest-bearing deposits, which was only partially offset by decreased loan yields.
Our results stood out, as peer banks saw a median increase of four basis points.
The strength of a diversified financial model
The other source of our revenue is noninterest, or fee, income, which is driven by a variety of businesses, including fund services, corporate trust, private wealth, bond trading and card services. For the fourth quarter, fee income was $165.2 million, an increase of 4.1% from the third quarter and 18% compared to the fourth quarter of 2023.
Fee income represented 38.1% of our total revenue for the quarter, comparing favorably to a peer median of just 19%. This shows the strength of our diversified financial model, with strong fee income sources that complement net interest income growth.
To highlight a couple of successes behind the growth, private wealth teams brought in net new assets of $1.3 billion in 2024, 75% ahead of 2023 levels. And institutional assets under administration continued to expand, up 18% year-over-year to stand at $526 billion.
Corporate trust assets, part of those institutional totals, have grown significantly over the past 10 years to $42.4 billion, representing a compounded annual growth rate of 14%. In our healthcare services business, the number of HSA accounts has grown steadily, from just 588,000 accounts at year-end 2014 to more than 1.6 million at the end of 2024.
Strong asset quality and capital position
As we discuss each quarter, we’re keenly focused on keeping our long track record of excellent asset quality intact, a characteristic that sets UMB apart from many in the industry. We have strong underwriting standards that have not waivered over the years.
Credit quality in our loan portfolio for the fourth quarter of 2024 remains excellent, with 14 basis points of average loans, or 0.14%, of net charge-offs for the quarter, and just 10 basis points for the full year.
Commercial and industrial continued to perform well, with just three basis points of net charge-offs for the full year.
The percentage of nonperforming loans to total loans, a good indicator of the health of a bank’s loan portfolio, was just eight basis points for the fourth quarter of 2024. On a longer-term basis, I’m proud of our track record that puts us near the top of the industry. From 2004 through 2024, our nonperforming loan ratio has averaged 0.38%, compared to 1.04% for banks with assets between $10 and $100 billion.
And finally, our capital ratios have continued to improve, as our earnings growth supports our capital position.
Capital ratios indicate how well a bank can meet its obligations. Our Common Equity Tier 1 ratio increased by seven basis points to 11.29%. As shown here, we are well above the regulatory minimums in all our capital metrics.
In closing, we’re proud of our strong fourth quarter that helped end a record-setting year for UMB. We are excited about 2025, as we work to fully combine UMB and HTLF. I look forward to reviewing our first quarter results in April, when we’ll report three months of actual results from UMB, and two months from the addition of HTLF.
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