Heartland Financial USA, Inc. (HTLF): PESTLE Analysis [Nov-2025 Updated]

You want to know the real strategic pressure points for Heartland Financial USA, Inc. (HTLF) right now, and the answer is a tight squeeze between regulation and digitization. As a regional bank with estimated total assets of about $20.5 billion, HTLF is simultaniously facing stricter capital rules from the Basel III Endgame and the relentless, high-cost race to modernize its core systems to compete with FinTech. We've cut through the noise to deliver the 2025 PESTLE analysis, mapping the near-term risks-like pressure on Net Interest Margin (NIM) and Commercial Real Estate (CRE) loan exposure-against the clear opportunities in local market differentiation. It's a complicated picture, but the actions are simple: invest or fall behind.

Heartland Financial USA, Inc. (HTLF) - PESTLE Analysis: Political factors

Basel III Endgame proposals increase capital and liquidity requirements, even for banks under $100 billion.

You need to understand that while the largest capital requirements target the biggest players, the regulatory net is still widening, even for a bank of Heartland Financial USA, Inc.'s (HTLF) size. Since the acquisition by UMB Financial Corporation closed in January 2025, the combined entity's total assets stand at approximately $71.9 billion as of September 30, 2025. This keeps the bank below the $100 billion threshold for the full Basel III Endgame reforms (which standardize credit and operational risk calculations) set to begin transitioning on July 1, 2025.

But here's the catch: the proposal's market risk provisions still apply to banks under $100 billion if their trading assets plus trading liabilities exceed $5 billion or represent 10% or more of total assets. Given UMB Financial Corporation's diversified model, which includes wealth management and significant noninterest income, this is a real risk. If the combined bank hits that trading asset threshold, it will face new, complex capital requirements for its trading book starting in mid-2025. This means more compliance work and potentially less capital available for core lending.

Increased political scrutiny on regional bank stability following 2023 failures, impacting public trust.

The failures of Silicon Valley Bank and Signature Bank in 2023 permanently changed the political and regulatory landscape for regional banks. The government's focus shifted from just capital ratios to liquidity, interest rate risk, and risk management practices. You can see this in the increased supervisory attention, with the Government Accountability Office (GAO) recommending in 2025 that Congress mandate regulators adopt noncapital measures to signal risks earlier. This is a direct response to the fact that the failed banks had seemingly strong capital measures right before their collapse.

For UMB Financial Corporation, which successfully integrated HTLF in January 2025, the scrutiny means a higher regulatory burden and a constant need to demonstrate superior risk management to maintain public and investor confidence. The FDIC, for instance, is actively reviewing lessons learned from the 2023 turmoil, including the high cost and complexity of post-failure bridge bank solutions. The market is watching closely; one wrong step in liquidity management could trigger a deposit flight, which is the near-term risk. The political environment demands perfection from regional banks now.

Government focus on fair lending and Community Reinvestment Act (CRA) modernization.

The political environment around fair lending is highly volatile, but a major change occurred in mid-2025. The ambitious 2023 Community Reinvestment Act (CRA) Final Rule, which would have significantly expanded assessment areas to include non-branch, online lending locations and introduced new evaluation metrics, faced a preliminary injunction in March 2024. Then, in a significant political move, the federal banking agencies (OCC, FDIC, and Federal Reserve) issued a joint Notice of Proposed Rulemaking (NPR) on July 16, 2025, to rescind the 2023 Final Rule and revert to the older, more established 1995/2021 CRA regulation.

This rollback restores a degree of regulatory certainty, but it doesn't eliminate the underlying political pressure for fair lending. The current 1995/2021 framework still requires UMB Financial Corporation to meet the credit needs of its entire community, including low- and moderate-income neighborhoods, particularly in areas where it maintains a branch. The political pendulum could swing back, but for now, the bank operates under the less complex, facility-based assessment rules, which is a short-term win for regulatory predictability.

Potential for shifting US trade policies affecting regional business lending confidence.

The shifting US trade policy landscape is a major headwind for commercial lending in 2025, especially for a regional bank like UMB Financial Corporation that serves mid-sized businesses across the Midwest and West. The new administration's trade-first strategy, which included a blanket 10% levy on all imports and a substantial 125% tariff on Chinese goods as of April 2025, creates massive uncertainty.

This policy uncertainty directly translates into delayed capital expenditures and lower demand for long-term commercial loans. A survey found that 72.3 percent of mid-sized business CEOs are delaying investment decisions due to tariff worries. Honestly, businesses don't borrow for expansion when they can't predict their supply chain costs next quarter. This forces the bank to be more cautious about credit risk, particularly for export-oriented companies or those with complex international supply chains. The result is a slowdown in commercial and industrial (C&I) loan growth, which is a core business line, even as the bank reported a record gross loan production of $2.1 billion in Q3 2025. You'll see a continued push for short-term working capital loans to cover higher tariff-related costs, but long-term growth is still on hold.

Heartland Financial USA, Inc. (HTLF) - PESTLE Analysis: Economic factors

Federal Reserve interest rate plateau or modest cuts in late 2025, pressuring Net Interest Margin (NIM).

The core challenge for Heartland Financial USA, Inc. (HTLF) in 2025 is navigating a monetary policy shift that is already compressing its Net Interest Margin (NIM), which is the bank's primary profit driver. While the Federal Reserve maintained high rates for much of 2024, the consensus forecast for 2025 anticipated a series of rate cuts, bringing the federal funds rate down to a projected range of 3.5%-3.75% by year-end.

For HTLF, this means the interest earned on loans (assets) will reprice lower faster than the interest paid on customer deposits (liabilities), squeezing the NIM. We saw this pressure start in late 2024: the company's fully tax-equivalent NIM fell to 3.46% in the fourth quarter of 2024, a notable drop from 3.73% in the prior quarter. That's a 27 basis point contraction in one quarter, largely due to the early termination of fair value hedge swaps. The reality is, a NIM below the company's decade-long median of 3.6% puts immediate pressure on profitability.

Here's the quick math: lower rates mean lower loan yields, so you need to generate significantly more loan volume just to keep Net Interest Income (NII) flat. This is defintely a headwind for the combined UMB Financial Corporation (UMBF) and HTLF entity.

Elevated risk in Commercial Real Estate (CRE) loan portfolios, especially in office and retail sectors.

The commercial real estate (CRE) sector remains a significant risk, and Heartland Financial USA, Inc. (HTLF) felt this acutely leading into its merger with UMB Financial Corporation. The bank had to take targeted charge-offs, which are loans deemed uncollectible, specifically in its non-owner-occupied CRE book.

In the fourth quarter of 2024 alone, HTLF reported $43.1 million in charge-offs tied to just five non-owner-occupied CRE properties. This was the bulk of the total $48.9 million in net charge-offs for the quarter. This action pushed the nonperforming loans (NPLs) ratio up to 1.04% of total loans, signaling clear asset quality deterioration in this segment.

The underlying market conditions aren't helping, especially in the office sector where the national vacancy rate was still elevated at 20.0% in Q3 2024. While retail and multifamily segments are generally performing better, the exposure to non-owner-occupied CRE means the bank must continue to aggressively manage this risk and potentially increase its allowance for credit losses.

Intense competition for deposits, driving up the cost of funds for HTLF.

The high-rate environment of 2024 forced banks to compete fiercely for deposits, moving money out of low-cost, non-interest-bearing accounts and into higher-yielding products like Certificates of Deposit (CDs). For HTLF, the immediate strategy was to reduce its reliance on expensive wholesale funding (borrowed money or brokered deposits) and focus on growing core customer deposits.

This strategy showed some success right before the merger: customer deposits grew to $14.55 billion in Q4 2024. More importantly, the bank managed to slightly improve its cost of deposits, which fell by 5 basis points (bps) quarter-over-quarter to 2.13% in Q4 2024. This is a positive sign of a more robust, cost-effective funding structure, as noted by analysts.

However, the fight isn't over. Even with a few Fed rate cuts in 2025, the cost of funds will remain elevated compared to the near-zero rates of a few years ago, keeping pressure on the NIM from the expense side. You have to keep paying up for sticky customer money.

Stronger-than-expected regional economic growth in HTLF's core Midwest and Western markets.

While the national economy saw a real GDP contraction of -0.5% (annualized) in the first quarter of 2025, the performance across Heartland Financial USA, Inc.'s (HTLF) core Midwest and Western markets was highly varied, and in some key areas, significantly weaker than expected.

The assumption of 'stronger-than-expected' growth is fundamentally challenged by the Q1 2025 data from the Bureau of Economic Analysis (BEA). The agricultural downturn, in particular, hit the Midwest hard, which is a core operating region for HTLF's community banks.

The table below shows the stark reality of the regional economic landscape in HTLF's footprint during early 2025.

The sharp contractions in Iowa and Nebraska, which were the steepest in the nation, are a major risk factor for the loan portfolio's agricultural and related commercial segments. The only real growth outlier was Utah, at +0.5%, driven by real estate, but that's not enough to offset the significant contraction in the Midwest agricultural heartland.

This uneven regional performance means the combined UMB Financial Corporation (UMBF) entity faces a bifurcated lending environment: strong pockets in the West versus significant cyclical risk in the Midwest.

Heartland Financial USA, Inc. (HTLF) - PESTLE Analysis: Social factors

The social landscape for Heartland Financial USA, Inc. (HTLF) in 2025 is dominated by two forces: the relentless, industry-wide shift to digital banking and the massive organizational change following the acquisition by UMB Financial Corporation (UMB) on January 31, 2025. Your strategic view must now pivot from HTLF's independent community bank model to the social integration challenge of a new, larger regional bank.

Accelerating customer preference for digital-first banking and mobile access over branch visits.

The core of the social shift is simple: customers want to bank from their pocket, not their car. Across the US, a significant majority of consumers, 77%, prefer to manage their bank accounts through a mobile app or a computer. This trend is even more pronounced with younger clients, where mobile banking adoption reached 94% among U.S. bank clients under age 40 in 2025. For HTLF, a multi-bank holding company that operated 107 branches prior to the merger, this meant a strategic imperative to enhance its digital offerings, which was a core pillar of its pre-merger HTLF 3.0 strategy.

The merger with UMB Financial Corporation, which brought the combined entity's total assets to approximately $68 billion, is a direct response to the scale needed to fund this digital transformation. While HTLF added 104 new branches to the UMB network, the long-term focus will be on optimizing, not just maintaining, this expanded physical footprint. The digital experience is now the cost of entry, so the combined bank must deliver a seamless, high-quality mobile experience to retain HTLF's customer base.

Growing demand from younger demographics for personalized financial advice and wealth management.

Younger, tech-savvy customers-especially Millennials and Gen Z-are not just looking for transactions; they are demanding personalized financial advice and wealth management tools. Data from 2025 shows that personalized financial advice influences 54% of customers to stay with their bank. This demand is driving the use of Artificial Intelligence (AI) for predictive insights; mid-sized U.S. banks using AI-driven predictive analytics saw churn reduced by 18%. UMB Financial Corporation's acquisition of HTLF directly boosted its private wealth management Assets Under Management/Administration (AUM/AUA) by 32%, immediately giving the combined bank more scale to invest in the data analytics and AI platforms necessary to meet this personalized advice demand. This is where the merger's value-add for the customer truly lies-a bigger bank can afford better tech.

Emphasis on community banking values and local decision-making as a differentiator against national banks.

HTLF built its business on a community-focused, multi-bank model, which is a powerful social differentiator. Even with the digital surge, a significant portion of the market values the human touch: 35% of financial institutions still planned branch network expansion in 2025, recognizing the branch's role as a closer for complex sales and advice. The social risk post-merger is the dilution of this local identity. HTLF's subsidiaries, like Dubuque Bank and Trust Company and New Mexico Bank & Trust, were known for local decision-making. UMB Financial Corporation must now carefully manage the integration to preserve this local trust, especially since the acquisition expanded their footprint from eight to 13 states, adding new communities in California, Iowa, Minnesota, New Mexico, and Wisconsin. The challenge is to deliver a multi-billion-dollar bank's digital power while keeping the local bank's friendly face.

Workforce demographic shifts requiring new talent acquisition strategies for tech roles.

The push for digital banking and efficiency creates a massive internal social shift: the need for tech talent far outstrips the need for traditional branch staff. HTLF's pre-merger strategy explicitly included investing in talent to enhance product offerings. The broader FinTech industry is responding to this by shifting to skills-based hiring and embracing remote or hybrid work models to attract specialized talent. The combined entity now faces the immediate task of integrating two workforces and ensuring the new talent strategy can compete for high-demand roles like software developers, data scientists, and cybersecurity experts.

The integration of the two companies, which involved an acquisition valued at $2 billion, will require significant investment in upskilling existing staff and recruiting new talent, particularly given the focus on realizing cost savings of $124 million (pre-tax, run-rate) through efficiencies, which often involves technology-driven automation. This means the new bank must offer competitive compensation and a flexible work culture to attract the talent needed to manage a larger, more complex digital operation.

Heartland Financial USA, Inc. (HTLF) - PESTLE Analysis: Technological factors

The technological landscape for Heartland Financial USA, Inc. (HTLF) in 2025 is defined entirely by its integration into UMB Financial Corporation, which was completed in October 2025. This was less about HTLF's standalone tech strategy and more about the massive, complex task of migrating a $18.27 billion asset bank (as of September 30, 2024) onto a larger, unified platform. This merger, the largest in UMB's history, immediately shifts the focus from incremental upgrades to a full-scale systems consolidation, presenting both a significant near-term cost and a long-term efficiency opportunity.

Significant investment required for core system modernization to improve efficiency and data analytics.

The core system modernization for the former HTLF business was effectively executed as a full systems and brand conversion to UMB's platform, which was completed in October 2025. This process is a huge undertaking, but it is the primary driver for projected efficiency gains. The acquisition itself is expected to realize fully phased-in run-rate pre-tax cost savings of $124 million, much of which comes from eliminating redundant technology systems and consolidating data centers. This move instantly standardizes the technology stack for the combined entity, whose total assets grew to $71.8 billion as of June 30, 2025.

Here's the quick math on the near-term costs versus future savings. The integration incurred significant short-term expenses, with UMB reporting $54.2 million in merger-related and other nonrecurring costs in Q1 2025 alone. But, the goal is to realize the remaining $30 million in cost synergies by the first quarter of 2026. That's a clear trade-off: a high-cost, short-term technology conversion for a massive, recurring annual operational saving.

What this estimate hides is the risk of customer disruption, but the successful completion of the conversion in October 2025 suggests a smooth transition, giving the combined company a single, modern platform for all 192 branches and 347 ATMs.

Rapid adoption of Artificial Intelligence (AI) and Machine Learning (ML) for fraud detection and loan underwriting.

The combined entity is positioned to accelerate its adoption of AI and Machine Learning (ML) by leveraging UMB's existing, more sophisticated technological capabilities. For instance, UMB has already deployed Intain's Verification Agent, an AI-driven platform for large-volume automated loan processing in structured finance, which substantially reduces errors and speeds up processing times. This is the kind of system the former HTLF loan portfolio is now running on, moving beyond traditional, manual underwriting.

The industry trend is clear: AI-powered fraud detection is essential. 79% of treasury and finance professionals reported payments fraud attacks and attempts in 2024. The combined bank can now use advanced ML models that are up to 300 times faster at fraud detection than legacy systems, and which can reduce false positives by up to 60%. The move to a unified core system is defintely the prerequisite for deploying these high-end, data-intensive AI tools across the entire customer base.

Cybersecurity threats remain a top operational risk, requiring continuous, high-cost upgrades.

The integration process itself temporarily elevates cybersecurity risk, as merging disparate IT systems creates new vulnerabilities. However, the move to a single, consolidated platform under UMB's governance ultimately strengthens the security posture. The financial services sector is the most targeted, with the average cost of a data breach for financial institutions being reported as high as $9.28 million per incident.

The continuous high-cost upgrades are not optional; they are a necessary operational expense to defend against a threat landscape where global cybercrime costs are projected to reach $10.5 trillion in 2025. The bank's defense strategy centers on:

• Deploying Two-Factor Authentication (2FA) for all online and mobile banking.
• Implementing real-time transaction and balance alerts for early fraud detection.
• Focusing on training and risk-mitigation best practices to combat imposter scams, which led to $2.95 billion in losses in 2024.

This is a perpetual arms race, and the cost of prevention is always lower than the cost of a breach.

Strategic partnerships with FinTech firms to quickly integrate new services (e.g., embedded finance).

The combined bank is well-positioned to capitalize on the embedded finance trend, where financial services are integrated directly into non-financial platforms. UMB has been building out a Banking as a Service (BaaS) program that specifically targets FinTechs. This is a critical technological factor because the U.S. embedded finance market is projected to reach an estimated US$115.66 billion by 2025.

The former HTLF business, now operating on UMB's platform, can immediately offer these advanced services to its commercial and small business clients. This approach, where the bank provides the regulated infrastructure (BaaS) and the FinTech provides the customer-facing application, is how traditional banks stay competitive. UMB's established partnerships, such as with Unifimoney for integrated saving and investing, now extend across the entire former HTLF footprint, providing a ready-made suite of modern, digital products.

Heartland Financial USA, Inc. (HTLF) - PESTLE Analysis: Legal factors

The legal and regulatory environment for Heartland Financial USA, Inc. (HTLF) in the 2025 fiscal year was defined by a critical pivot: the successful acquisition by UMB Financial Corporation, which closed on January 31, 2025. This transaction was strategically influenced by the rising compliance burden and capital requirements that disproportionately affect mid-sized regional banks.

As a standalone entity, HTLF's total consolidated assets were approximately $17.29 billion as of December 31, 2024. This size insulated it from the most stringent new capital rules, but the underlying compliance costs and heightened enforcement across data privacy and Anti-Money Laundering (AML) still represented a material drag on profitability and a key factor in the industry's consolidation trend.

Stricter data privacy and security regulations (similar to CCPA) across more US states increase compliance costs

You face a rapidly fragmenting data privacy landscape in the US, moving away from a single, federal standard like the Gramm-Leach-Bliley Act (GLBA). The trend in 2025 is for more states to pass comprehensive privacy laws, similar to the California Consumer Privacy Act (CCPA), that limit the traditional GLBA exemption. This means that non-financial data-like website analytics, marketing data, or customer service interactions-is now subject to a patchwork of state rules.

For a regional bank like HTLF, which operates across multiple states including California, Iowa, and Minnesota (part of the post-acquisition footprint), this means compliance costs rise not just in total, but in complexity. New state laws, such as the Delaware Personal Data Privacy Act (DPDPA), became effective in January 2025, adding to the compliance burden. You must now map data to determine if it falls under GLBA or a state law, which requires significant investment in technology and legal counsel. Compliance costs for financial institutions generally range from 2.9% to 8.7% of non-interest expenses, and this percentage is defintely trending up due to data governance complexity.

Increased regulatory enforcement on Anti-Money Laundering (AML) and Bank Secrecy Act (BSA) compliance

The regulatory enforcement environment for Anti-Money Laundering (AML) and Bank Secrecy Act (BSA) compliance has reached an unprecedented intensity in 2025. Regulators are demonstrating an uncompromising stance, setting new penalty benchmarks that regional banks must heed. This is not just a concern for the largest institutions; the regulatory expectation for robust internal controls, qualified AML officers, and proactive testing applies to all insured depository institutions.

The sheer scale of recent fines highlights the risk. For instance, the Financial Crimes Enforcement Network (FinCEN) imposed a $1.3 billion penalty against TD Bank in late 2024 for chronic AML program failures, establishing a new level of regulatory consequence. While HTLF's direct compliance costs are proprietary, the industry is seeing a mandatory increase in spending on staff and technology. Here's the quick math: if a bank's total operating expenses are $500 million, even the low end of the compliance cost range (2.9% of non-interest expense) translates to millions of dollars in direct annual spending on AML/BSA programs, excluding potential fines.

• Mandatory increase in AML/BSA staffing and training.
• Heightened scrutiny on Suspicious Activity Reports (SARs) quality and timely filing.
• Need for advanced transaction monitoring software to mitigate fraud and illicit finance risks.

Ongoing legal uncertainty surrounding the final scope and implementation of Basel III capital rules

The proposed 'Basel III Endgame' rules, which aim to finalize the post-crisis capital framework, created significant legal and strategic uncertainty across the banking sector in 2025. The initial proposal was designed to apply to banking organizations with $100 billion or more in total consolidated assets.

Heartland Financial USA, Inc. (HTLF), with assets of approximately $17.29 billion at the end of 2024, was safely below this threshold and was not directly subject to the most rigorous new requirements, such as the full overhaul of risk-weighted asset (RWA) calculations. However, the uncertainty still affected the bank's strategic outlook. The proposed rules, which were expected to begin implementation on July 1, 2025, with a three-year phase-in, were estimated to result in an aggregate 16% to 25% increase in Common Equity Tier 1 capital requirements for affected banks. The prospect of these rules applying to a wider range of banks, or even a future lower threshold, likely accelerated the trend of smaller banks being acquired by larger ones, as seen with the UMB Financial Corporation acquisition of HTLF in January 2025.

Higher FDIC assessment fees to replenish the Deposit Insurance Fund (DIF) post-2023 events

Following the failure of several large regional banks in 2023, which resulted in an estimated $19.6 billion in losses to the Deposit Insurance Fund (DIF), the Federal Deposit Insurance Corporation (FDIC) took actions that directly impacted HTLF's operating expenses.

The FDIC had previously increased the initial base deposit insurance assessment rates by 2 basis points for all insured depository institutions, effective the first quarterly assessment period of 2023. This increase is a permanent, higher operating cost for HTLF. Furthermore, the FDIC proposed a special assessment to recoup the $15.8 billion cost of protecting uninsured depositors from the 2023 failures.

The structure of this special assessment, however, provided a degree of relief to smaller institutions. The FDIC proposal primarily targeted banks with $50 billion or more in assets, requiring them to pay 95% of the replenishment costs. Since HTLF's assets were approximately $17.29 billion at the end of 2024, it was exempt from this special assessment, creating a small competitive advantage against its larger peers, at least until the acquisition by UMB Financial Corporation increased the combined entity's assets to approximately $68 billion.

Heartland Financial USA, Inc. (HTLF) - PESTLE Analysis: Environmental factors

The environmental factors for Heartland Financial USA, Inc. (HTLF) in 2025 are defined less by its historical, independent actions and more by the immediate integration into UMB Financial Corp's (UMBF) existing sustainability framework, following the January 31, 2025, acquisition. This transition is happening against a backdrop of intensifying regulatory demands for climate-related financial disclosures (TCFD) and a growing, quantifiable market for sustainable finance.

Here's the quick math: HTLF's need to spend on technology to compete digitally is running up against the higher capital requirements from regulation. Finance: draft a 13-week cash view focusing on tech spend and regulatory capital impact by Friday.

Growing pressure from investors and regulators for climate-related financial risk disclosures (TCFD framework)

The pressure for climate-related financial disclosures is significant and non-negotiable in 2025, moving beyond voluntary frameworks like the Task Force on Climate-related Financial Disclosures (TCFD), which formally disbanded in late 2023, to the new International Sustainability Standards Board (ISSB) standards. While HTLF, as a regional bank, was not a first-mover, the combined entity is now subject to the higher disclosure expectations of UMB Financial Corp's investor base.

Regulators like the Financial Stability Board (FSB) continue to push for a global framework to trace how physical and transition climate risks are transmitted through the financial system. The focus is on translating these risks into quantifiable financial metrics, which is a significant compliance and modeling cost. This means the newly integrated HTLF business lines must rapidly adopt the acquiring company's risk management processes.

The regulatory and investor focus is on four core areas:

• Governance: Board-level oversight of climate-related risks.
• Strategy: Resilience testing against climate scenarios (e.g., 2°C or lower).
• Risk Management: Identifying and managing physical and transition risks.
• Metrics & Targets: Quantifying greenhouse gas (GHG) emissions (Scope 1, 2, and 3).

Demand for green lending and sustainable finance products from commercial and retail clients

The market for sustainable debt is growing rapidly, creating a clear opportunity. Globally, Green Loans and Social Loans reached a record aggregate issuance of $175 billion in 2024, with Green Loans specifically reaching $162 billion. This demand is now a competitive factor in the US banking sector, even for regional players like the former HTLF. The combined entity's commercial and agricultural clients, particularly in the Midwest, are increasingly seeking financing for energy efficiency upgrades, renewable energy projects, and sustainable agriculture practices.

The challenge is not just offering a product, but building the internal expertise to assess the environmental risk (e.g., transition risk) of a borrower's business model. This is where the combined bank must now compete with larger institutions that led the 2024 sustainable debt surge, which saw a 21% increase in sustainable loan issuance globally.

Operational focus on reducing the carbon footprint of branch networks and data centers

The operational environmental focus for the former HTLF branch network is now dictated by UMB Financial Corp's established sustainability practices. UMBF has implemented automated systems to conserve energy in all its owned buildings and four leased locations, meeting a goal to have all converted by year-end 2023.

Concrete operational efficiency metrics from UMBF's 2023 efforts, which now apply to the integrated network, include:

The integration task for 2025 is to quickly retrofit the 104 former Heartland Financial USA, Inc. branch locations (as of the acquisition date) to meet these UMBF energy efficiency standards. This is a significant capital expenditure item in the near-term budget.

Need to assess physical climate risks (e.g., extreme weather) on real estate and loan collateral in operating regions

Heartland Financial USA, Inc.'s operating footprint, which is a key part of the combined entity's new presence in the Midwest and Southwest, exposes the loan portfolio to material physical climate risks. These risks include both acute hazards (like severe windstorms, flash floods) and chronic hazards (like prolonged drought impacting agricultural or commercial real estate values).

The financial sector globally is now focused on translating these physical risks into quantifiable financial impacts, such as probability of default and loss given default. For the combined bank, this means a critical need to:

• Geolocate Collateral: Map all commercial real estate and agricultural loan collateral across the former HTLF footprint to specific climate hazard zones.
• Model Risk: Use climate scenario analysis (e.g., 2°C or 4°C warming scenarios) to project future damage impacts on the loan book, a practice increasingly common among financial institutions in 2025.
• Adjust Credit Policy: Incorporate the physical risk assessment into the credit decisioning process for new and renewed loans in high-risk areas like coastal regions or drought-prone agricultural states.

Failure to properly assess these risks could lead to unexpected credit losses, especially as extreme weather events become more frequent and severe across the United States.