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Acquisition
 9 Months Ended
Sep. 30, 2025
Business Combination, Asset Acquisition, Transaction between Entities under Common Control, and Joint Venture Formation [Abstract]  
Acquisition

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 Series A 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 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 Series A preferred stock valued at $115.2 million (based on the Company’s Series A preferred stock price of $25.05) as of close of business on the Acquisition Date. 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 Series A 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 as of January 31, 2025 (in thousands, except for per share data):

 

 

Fair Value
January 31, 2025

 

Assets

 

 

Loans, net of allowance for credit losses on loans

$

9,734,711

 

Investment securities

 

3,653,860

 

Interest-bearing due from banks

 

965,003

 

Cash and due from banks

 

174,985

 

Premises and equipment, net

 

175,127

 

Identifiable intangible assets

 

511,021

 

Other assets

 

902,458

 

Total assets acquired

$

16,117,165

 

 

 

 

Liabilities

 

 

Noninterest-bearing deposits

$

3,761,997

 

Interest-bearing deposits

 

10,586,989

 

Long-term debt

 

278,018

 

Other liabilities

 

198,945

 

Total liabilities assumed

$

14,825,949

 

 

 

 

Net identifiable assets acquired

$

1,291,216

 

Preliminary goodwill

 

1,627,913

 

Net assets acquired

$

2,919,129

 

 

 

 

Consideration

 

 

Common stock consideration:

 

 

Company's common shares issued

 

23,609

 

Purchase price per share of the Company's common stock

$

117.90

 

Fair value of common stock consideration

$

2,783,510

 

Preferred stock consideration

 

115,230

 

Stock-based compensation consideration

 

20,389

 

Fair value of total consideration transferred

$

2,919,129

 

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 (Measurement 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. In the table of acquired net assets above, the amount of net assets acquired reflect Measurement Period adjustments made during the third quarter of 2025 that resulted in a net decrease in net assets acquired of $22.6 million. This decrease was primarily driven by a decrease in the value of various investment securities of $18.1 million, based on indicative market pricing determined to be in existence as of the Acquisition Date, coupled with an increase in the ACL for PCD loans of $8.0 million based on credit factors that were determined to be in existence as of the Acquisition Date. The Company has been completing a comprehensive review of the loan and investment security portfolios, including an evaluation of all facts and circumstances that existed as of the Acquisition Date for acquired loans and investment securities. This process is ongoing, and as such, the amounts recorded for the loan portfolio and investment securities are considered provisional and may be adjusted as the Company finalizes its analysis. The Company expects minimal adjustments to the fair value of the acquired assets and liabilities will be recorded after September 30, 2025.

 

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, $976.7 million was assigned to the Commercial Banking segment and $651.2 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, a customer list 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 $9.7 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

 

(85,299

)

Non-credit discount on PCD loans

 

(105,512

)

Fair value of PCD Loans

$

3,046,521

 

 

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 rates on the acquired trust preferred securities ranged from 5.89% to

8.21% as of the Acquisition Date 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 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 results of HTLF are included in the results of the Company subsequent to the Acquisition Date. Transaction costs incurred after the Acquisition Date totaled $100.4 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 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 $1.9 billion and $1.8 billion for the nine-month periods ended September 30, 2025 and September 30, 2024, respectively. Net income available to common shareholders would have been approximately $600.4 million and $379.3 million, respectively, for the same periods. Basic earnings per share would have been $8.00 and $5.24 for the same periods, respectively.

The pro forma information above reflects adjustments made to exclude the impact of acquisition-related expenses of $102.3 million for the nine months ended September 30, 2025 and include such expenses in the nine months ended September 30, 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 $8.7 million and $103.8 million for the nine-month periods ended September 30, 2025 and September 30, 2024, respectively, and adjusting noninterest expense for the estimated net amortization of intangibles and fair value marks on premises and equipment of $8.0 million and $72.0 million for the nine-month periods ended September 30, 2025 and September 30, 2024, 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.