UMB Financial Corporation Reports Record Earnings of $183 Million for the Full-Year 2017

Jan 23, 2018 05:00 pm
KANSAS CITY, Mo. -- 

UMB Financial Corporation (Nasdaq: UMBF), a financial holding company, announced income from continuing operations for the fourth quarter 2017 of $47.4 million or $0.95 per diluted share, compared to $48.9 million or $0.98 per diluted share in the third quarter 2017 (linked quarter) and $43.4 million or $0.87 per diluted share in the fourth quarter 2016. For the year ended December 31, 2017, income from continuing operations was $183.0 million or $3.67 per diluted share, an increase of 19.1 percent compared to $153.6 million or $3.12 per diluted share for the year ended December 31, 2016. Included in both the fourth quarter and year-to-date 2017 earnings is the impact of an additional $3.0 million of non-recurring tax expense resulting from the recently enacted Tax Cuts and Jobs Act. Results from continuing operations exclude the impact of the divestiture of Scout Investments, Inc., the company’s institutional investment management subsidiary, which was divested on November 17, 2017.

Net operating income from continuing operations, a non-GAAP financial measure which is reconciled to the nearest comparable GAAP measure later in this release, was $47.5 million or $0.95 per diluted share for the fourth quarter 2017, compared to $48.9 million or $0.98 per diluted share for the linked quarter and $44.0 million or $0.89 per diluted share for the fourth quarter 2016. These results represent a decrease of 2.9 percent on a linked-quarter basis and an increase of 8.0 percent compared to the fourth quarter 2016. For the year ended December 31, 2017, net operating income from continuing operations was $183.7 million or $3.69 per diluted share, compared to $158.3 million or $3.21 per diluted share for the year ended December 31, 2016.

Summary of quarterly financial results     UMB Financial Corporation
(unaudited, dollars in thousands, except per share data)    
Q4     Q3     Q4
2017     2017     2016
Income from continuing operations $ 47,357 $ 48,872 $ 43,400
Income from discontinued operations-general operations (non-GAAP) 205 3,372 1,278

Income (loss) from discontinued operations-non-GAAP adjustments

  64,399         (4,102 )       (1,744 )

Income (loss) from discontinued operations-total

  64,604         (730 )       (466 )
Net income 111,961 48,142 42,934
 
Earnings per share from continuing operations (diluted) 0.95 0.98 0.87
Earnings per share from discontinued operations-general operations (non-GAAP) (diluted) - 0.07 0.03

Earnings (losses) per share from discontinued operations-non-GAAP adjustments (diluted)

  1.30         (0.08 )       (0.03 )

Earnings (losses) per share from discontinued operations (diluted)

  1.30         (0.01 )       -  
Earnings per share (diluted) 2.25 0.97 0.87
 

GAAP - continuing operations

Return on average assets

0.91

%

 

0.95

%

 

0.87

%

Return on average equity 8.72 9.17 8.67
Efficiency ratio 68.90 67.25 69.55
 

Non-GAAP - continuing operations

Operating return on average assets

0.91

%

 

0.96

%

 

0.88

%

Operating return on average equity 8.75 9.18 8.79
Operating efficiency ratio

68.80

 

 

67.22

 

 

69.15

 

 
Summary of year-to-date financial results         UMB Financial Corporation
(unaudited, dollars in thousands, except per share data)         December     December
YTD YTD
2017     2016
Income from continuing operations $ 182,976 $ 153,634

Income from discontinued operations-general operations (non-GAAP)

8,369 8,197

Income (loss) from discontinued operations-non-GAAP adjustments

  55,760         (3,030 )
Income from discontinued operations-total   64,129         5,167  
Net income 247,105 158,801
 
Earnings per share from continuing operations (diluted) 3.67 3.12
Earnings per share from discontinued operations-general operations (non-GAAP) (diluted) 0.17 0.17

Earnings (losses) per share from discontinued operations-non-GAAP adjustments (diluted)

  1.12         (0.07 )
Earnings per share from discontinued operations (diluted)   1.29         0.10  
Earnings per share (diluted) 4.96 3.22
 

GAAP - continuing operations

Return on average assets

0.90

%

 

0.78

%

Return on average equity 8.79 7.74
Efficiency ratio 68.56 71.50
 

Non-GAAP - continuing operations

Operating return on average assets

0.90

%

 

0.81

%

Operating return on average equity 8.83 7.98
Operating efficiency ratio 68.45 70.71
 

“Results for the fourth quarter 2017 were driven by loan growth, fueled by CRE and construction lending, strong credit metrics and continued growth in net interest margin,” said Mariner Kemper, chairman and chief executive officer. “For the full year, we earned a record $183.0 million, or $3.67 per diluted share, an increase of 19.1 percent compared to $153.6 million or $3.12 per diluted share in 2016. These results were driven by a 12.8 percent year-over-year increase in net interest income with continued favorable pricing and increased loan balances. In 2017, average loan balances increased 8.5 percent and stood at $10.8 billion.”

Discussion of results from continuing operations

Summary of revenue     UMB Financial Corporation
(unaudited, dollars in thousands)    
Q4     Q3     Q4     CQ vs.     CQ vs.
2017     2017     2016     LQ     PY
 
Net interest income $ 146,346 $ 140,858 $ 131,456 $ 5,488 $ 14,890
Noninterest income:
Trust and securities processing 44,234 45,060 42,331 (826 ) 1,903
Trading and investment banking 5,015 4,453 5,040 562 (25 )
Service charges on deposit accounts 21,364 21,510 20,949 (146 ) 415
Insurance fees and commissions 388 425 833 (37 ) (445 )
Brokerage fees 6,127 5,815 4,674 312 1,453
Bankcard fees 17,617 17,427 16,113 190 1,504
Gains on sales of securities available for sale, net 54 2,390 - (2,336 ) 54

Equity earnings (losses) on alternative investments

285 (584 ) 504 869 (219 )
Other   10,949         7,810         7,786         3,139         3,163  
Total noninterest income $ 106,033       $ 104,306       $ 98,230       $ 1,727       $ 7,803  
                                   
Total Revenue $ 252,379       $ 245,164       $ 229,686       $ 7,215       $ 22,693  
 
Net interest margin

3.21

%

 

3.16

%

 

3.00

%

 

 
Total noninterest income as a % of total revenue 42.0 % 42.5 % 42.8 %
 

Net interest income

  • On a linked quarter basis, the increase in net interest income was driven by both a 2.1 percent increase in average earning assets and a five basis point improvement in net interest margin.
  • Earning asset yields improved four basis points from the linked quarter driven by improved loan yields of seven basis points to 4.40 percent, in part driven by favorable re-pricing and volume changes within the loan portfolio. The cost of interest-bearing liabilities remained flat at 55 basis points while the mix changed from a decrease in federal funds borrowings and an increase in interest-bearing deposits.
  • On a year-over-year basis, the increase in net interest income was driven by a 7.1 percent or $738.7 million increase in average loans as well as higher average loan yields, which increased 44 basis points from one year ago, primarily driven by higher interest rates and mix changes.
  • For the fourth quarter 2017, average earning assets stood at $19.3 billion, which is an increase of 4.2 percent over the fourth quarter 2016.

Noninterest income

  • Fourth quarter 2017 noninterest income increased $1.7 million, or 1.7 percent, on a linked quarter basis largely due to:
    • an increase of $3.1 million in other noninterest income primarily due to an increase in company-owned and bank-owned life insurance income;
    • a $0.9 million increase in equity earnings on alternative investments;
    • which were partially offset by a $2.3 million decrease in gains on sales of available-for-sale securities.
  • Noninterest income in the fourth quarter of 2017 improved $7.8 million, or 7.9 percent, compared to the same quarter in 2016 primarily driven by:
    • a $3.2 million increase in other noninterest income primarily due to increases in company-owned and bank-owned life insurance income;
    • a $1.0 million increase in wealth management revenue, a $0.5 million increase in fund servicing revenue, and a $0.5 million increase in corporate trust revenue all recorded in trust and securities processing;
    • a $1.5 million increase in bankcard fees primarily due to increased interchange income; and
    • an increase of $1.5 million in brokerage fee income primarily driven by higher 12b-1 income.

Noninterest expense

Summary of noninterest expense     UMB Financial Corporation
(unaudited, dollars in thousands)    
Q4     Q3     Q4     CQ vs.     CQ vs.
2017     2017     2016     LQ     PY
 
Salaries and employee benefits $ 107,656 $ 99,749 $ 96,765 $ 7,907 $ 10,891
Occupancy, net 11,148 11,285 11,259 (137 ) (111 )
Equipment 18,690 17,880 17,530 810 1,160
Supplies and services 4,211 4,076 4,660 135 (449 )
Marketing and business development 6,540 5,056 5,935 1,484 605
Processing fees 11,238 11,151 8,887 87 2,351
Legal and consulting 6,045 5,844 6,694 201 (649 )
Bankcard 4,405 5,130 4,558 (725 ) (153 )
Amortization of other intangible assets 1,641 1,715 2,051 (74 ) (410 )
Regulatory fees 3,825 3,798 3,687 27 138
Other   7,160       6,137       5,821       1,023         1,339  
Total noninterest expense $ 182,559     $ 171,821     $ 167,847     $ 10,738       $ 14,712  
 
  • GAAP noninterest expense for the fourth quarter of 2017 was $182.6 million and increased $10.7 million, or 6.2 percent from the linked quarter.
  • On a non-GAAP basis, operating noninterest expense (as reconciled later in this release) was $182.3 million for the fourth quarter 2017, an increase of $10.5 million, or 6.1 percent, compared to the linked quarter, and an increase of $15.4 million, or 9.2 percent, compared to the fourth quarter 2016.
  • The linked quarter increase in operating noninterest expense was driven by:
    • a $7.8 million increase in salaries and employee benefits expense primarily driven by a $5.4 million increase in bonus and commission expense, and a $2.0 million increase in employee benefits partially due to increased incentive compensation and profit sharing expense from improved company performance;
    • an increase of $1.5 million in marketing and business development related to timing of multiple projects; and
    • a $1.0 million increase in other noninterest expense driven by a $1.0 million contribution made to the UMB Financial Corporation Charitable Foundation.
  • The year-over-year increase in operating noninterest expense of $15.4 million, or 9.2 percent, was primarily driven by:
    • an $11.1 million increase in salaries and benefits expense driven by a $4.2 million increase in bonus and commissions expense, an increase of $2.8 million in salary and wage expense, and an increase of $4.0 million in other employee benefits. These increases were primarily driven by improved company performance during 2017;
    • higher processing expenses related to investments for regulatory requirements, cyber security, and the ongoing modernization of the company’s core systems; and
    • increased charitable contributions and derivative expense, both recorded in other noninterest expense.

Full Year 2017 Financial Discussion

  • The 12.8 percent year-over-year increase in net interest income was driven by benefits from higher short-term interest rates, favorable pricing and increased loan balances. In 2017, average loan balances increased $850.8 million and average loan yields increased 38 basis points. Average interest-bearing liabilities increased $649.9 million, while cost of funds increased 24 basis points.
  • Full year noninterest income increased $21.1 million, or 5.2 percent, due to:
    • a $5.3 million increase in wealth management revenue, a $3.3 million increase in fund servicing revenue, and a $1.8 million increase in corporate trust revenue all recorded in trust and securities processing;
    • a $6.7 million increase in company-owned and bank-owned life insurance income recorded in other noninterest income;
    • a $5.4 million increase in brokerage fees, primarily driven by higher 12b-1 income;
    • a $5.0 million increase in credit card interchange income recorded in bankcard fees;
    • partially offset by a $4.3 million decrease in gains on sales of available-for-sale securities and a $3.8 million decrease in equity earnings on alternative investments.
  • Full year noninterest expense increased $38.4 million, or 5.8 percent, primarily due to increases in salary and employee benefit expense of $23.8 million due to improved company performance, processing fees of $6.3 million, and equipment expense of $5.7 million.
  • On a non-GAAP basis, operating noninterest expense, which excludes the impact of acquisition expenses and other items as reconciled later in this release, was $704.0 million for full-year 2017, an increase of $44.5 million, or 6.8 percent, compared to the full-year 2016.

Income Taxes

  • For the year ended December 31, 2017, the company’s effective tax rate remained flat at 22.6 percent as compared to the same period a year earlier.

    On December 22, 2017 the Tax Cuts and Jobs Act was signed into law. The new legislation includes numerous changes to existing federal income tax laws and regulations, including a permanent reduction in the federal corporate income tax rate to 21 percent effective January 1, 2018. As a result of the Tax Cuts and Jobs Act, the company was required to revalue its deferred taxes.

    Based on currently available information, the company recorded additional income tax expense of $3.0 million during the fourth quarter of 2017 resulting from the Tax Cuts and Jobs Act. The company’s revaluation of its deferred taxes may be subject to further refinement as additional information becomes available and further analysis is completed.

Balance Sheet

  • Average total assets for the fourth quarter 2017 were $20.7 billion, an increase of $410.5 million from the linked quarter, and up from $19.9 billion for the same period in 2016.
Summary of average loans and leases - QTD Average     UMB Financial Corporation
(unaudited, dollars in thousands)    
Q4     Q3     Q4     CQ vs.     CQ vs.
2017     2017     2016     LQ     PY
 
 
Commercial $ 4,438,241 $ 4,539,302 $ 4,369,173 $ (101,061 ) $ 69,068
Asset-based loans 326,845 278,479 231,035 48,366 95,810
Factoring loans 212,123 173,876 110,866 38,247 101,257
Commercial credit card 172,193 174,892 150,630 (2,699 ) 21,563
Real estate - construction 835,715 782,898 674,367 52,817 161,348
Real estate - commercial 3,394,232 3,284,871 3,089,946 109,361 304,286
Real estate - residential 619,985 603,865 553,770 16,120 66,215
Real estate - HELOC 649,268 668,340 713,528 (19,072 ) (64,260 )
Consumer credit card 247,284 239,529 271,909 7,755 (24,625 )
Consumer other 164,667 140,344 146,779 24,323 17,888
Leases   24,163       24,758       34,020       (595 )       (9,857 )

Total loans

$ 11,084,716     $ 10,911,154     $ 10,346,023     $ 173,562       $ 738,693  
 
  • Average loans for the fourth quarter 2017 increased 1.6 percent, on a linked-quarter basis, and 7.1 percent, compared to fourth quarter 2016.
Summary of average securities - QTD Average     UMB Financial Corporation
(unaudited, dollars in thousands)    
Q4     Q3     Q4     CQ vs.     CQ vs.
2017     2017     2016     LQ     PY
 
Securities available for sale:
U.S. Treasury $ 38,776 $ 47,216 $ 182,891 $ (8,440 ) $ (144,115 )

U.S. Agencies

14,753 22,743 248,329 (7,990 ) (233,576 )
Mortgage-backed 3,484,304 3,564,974 3,586,040 (80,670 ) (101,736 )
State and political subdivisions 2,555,462 2,536,281 2,362,178 19,181 193,284
Corporates   15,880       21,848       67,100       (5,968 )       (51,220 )
Total securities available for sale 6,109,175 6,193,062 6,446,538 (83,887 ) (337,363 )
Securities held to maturity:
State and political subdivisions 1,269,058 1,283,258 1,073,509 (14,200 ) 195,549
Trading securities 43,388 49,396 50,925 (6,008 ) (7,537 )
Other securities   63,543       64,294       66,567       (751 )       (3,024 )
Total securities $ 7,485,164     $ 7,590,010     $ 7,637,539     $ (104,846 )     $ (152,375 )
 
  • The year-over-year growth in the company’s held to maturity securities portfolio is due to increased activity in private placement bonds, primarily used to refinance existing revenue bonds in the healthcare and education sectors.
  • Total securities available for sale decreased 1.4 percent on a linked-quarter basis and 5.2 percent compared to the fourth quarter 2016, driven by the ongoing reinvestment of cash flows from such securities to fund growth in the private placement bond and loan portfolios.
Summary of average deposits - QTD Average     UMB Financial Corporation
(unaudited, dollars in thousands)    
Q4     Q3     Q4     CQ vs.     CQ vs.
2017     2017     2016     LQ     PY
 
Deposits:
Noninterest-bearing demand $ 6,180,293 $ 5,728,145 $ 6,193,787 $ 452,148 $ (13,494 )
Interest-bearing demand and savings 9,439,202 8,789,217 8,439,920 649,985 999,282
Time deposits   1,230,303         1,162,383         1,112,781         67,920       117,522  
Total deposits $ 16,849,798       $ 15,679,745       $ 15,746,488       $ 1,170,053     $ 1,103,310  
 
Non-interest bearing deposits as % of total 36.68 % 36.53 % 39.33 %
 
  • Average noninterest-bearing deposits were relatively unchanged compared to the fourth quarter of 2016, but increased 7.9 percent on a linked-quarter basis primarily driven by greater balances held by larger commercial and institutional customers.
  • Average interest-bearing deposits increased 7.2 percent on a linked-quarter basis and 11.7 percent as compared to the fourth quarter of 2016, primarily driven by the seasonal influx of public fund deposits and increased balances from institutional customers, respectively.

Capital

Capital information     UMB Financial Corporation
(unaudited, dollars in thousands, except per share data)    
Q4     Q3     Q4
2017     2017    

2016

 
Total equity $ 2,181,531 $ 2,101,543 $ 1,962,384
Book value per common share 43.72 42.15 39.51
 
Regulatory capital:
Common equity Tier 1 capital $ 2,041,504 $ 1,893,842 $ 1,789,581
Tier 1 capital 2,041,504 1,893,842 1,789,581
Total capital 2,213,050 2,062,928 1,951,078
 
Regulatory capital ratios:
Common equity Tier 1 capital ratio

12.95

%

 

12.18

%

 

11.80

%

Tier 1 risk-based capital ratio 12.95 12.18 11.80
Total risk-based capital ratio 14.04 13.26 12.87
Tier 1 leverage ratio 9.94 9.43 9.09
 
  • At December 31, 2017, the company’s risk-based capital ratios presented in the foregoing table exceeded all of the “well-capitalized” regulatory thresholds.

Asset Quality

Credit quality     UMB Financial Corporation
(unaudited, dollars in thousands)    
Q4     Q3     Q2     Q1     Q4
2017     2017     2017     2017     2016
 
Net charge-offs - Commercial loans $ 2,248 $ 8,961 $ 7,971 $ 5,283 $ 1,127

Net (recoveries) charge-offs - Real estate loans

(242 ) 238 (95 ) 125 3,373
Net charge-offs - Consumer credit card loans 1,612 1,635 2,079 1,815 1,692
Net charge-offs - Consumer other loans 167 74 71 103 63
Net charge-offs - Total loans 3,785 10,908 10,026 7,326 6,255
Net loan charge-offs as a % of total average loans

0.14

%

 

0.40

%

 

0.37

%

 

0.28

%

 

0.24

%

Loans over 90 days past due $ 3,091 $ 2,088 $ 2,657 $ 3,369 $ 3,365
Loans over 90 days past due as a % of total loans

0.03

%

0.02

%

 

0.02

%

 

0.03

%

 

0.03

%

Nonaccrual and restructured loans $ 59,142 $ 54,231 $ 51,390 $ 56,594 $ 70,259
Nonaccrual and restructured loans as a % of total loans

0.52

%

0.49

%

 

0.47

%

 

0.53

%

 

0.67

%

Provision for loan losses

$

6,000

$

11,500 $ 14,500 $ 9,000 $ 7,500
 
  • Nonperforming loans, defined as restructured loans on nonaccrual and all other nonaccrual loans, increased $4.9 million from the linked quarter and decreased $11.1 million from the prior year period.
  • Net charge-offs decreased to $3.8 million or 0.14 percent of average loans, compared to $10.9 million, or 0.40 percent of average loans in the linked quarter, and $6.3 million, or 0.24 percent of average loans in the fourth quarter of 2016.
  • Provision for loan losses decreased $5.5 million from the elevated linked quarter levels driven by both lower net charge-offs and favorable migration within the loan portfolio.

Dividend Declaration

At the company’s quarterly board meeting, the Board of Directors declared a $0.29 per share quarterly cash dividend, a 5.5 percent increase from previous levels. This cash dividend will be payable on April 2, 2018, to shareholders of record at the close of business on March 9, 2018.

Conference Call

The company plans to host a conference call to discuss its fourth quarter and full year 2017 earnings results on Wednesday, Jan. 24, 2018, at 8:30 a.m. (CT).

Interested parties may access the call by dialing (toll-free) 877-267-8760 or (U.S.) 412-542-4148 and requesting to join the UMB Financial call. The live call can also be accessed by visiting the investor relations area of umbfinancial.com or by using the following the link:

UMB Financial 4Q 2017 Conference Call

A replay of the conference call may be heard through Feb. 7, 2018, by calling (toll-free) 877-344-7529 or (U.S.) 412-317-0088. The replay pass code required for playback is 10115494. The call replay may also be accessed via the company's website umbfinancial.com by visiting the investor relations area.

Non-GAAP Financial Information

In this release, we provide information about net operating income, operating earnings per share - diluted (operating EPS), operating return on average equity (operating ROE), operating return on average assets (operating ROA), operating noninterest expense, operating efficiency ratio, net income from discontinued operations-general operations, and earnings per share from discontinued operations-general operations, all of which are non-GAAP financial measures. This information supplements the results that are reported according to generally accepted accounting principles in the United States (GAAP) and should not be viewed in isolation from, or as a substitute for, GAAP results. The differences between the non-GAAP financial measures—net operating income, operating EPS, operating ROE, operating ROA, operating noninterest expense, operating efficiency ratio, net income from discontinued operations-general operations, and earnings per share from discontinued operations-general operations—and the nearest comparable GAAP financial measures are reconciled later in this release. The company believes that these non-GAAP financial measures and the reconciliations may be useful to investors because they adjust for fair value adjustments, acquisition- and severance-related items, one-time marketing agent termination costs, and divestiture costs that management does not believe reflect the company’s fundamental operating performance.

Net operating income for the relevant period is defined as GAAP net income, adjusted to reflect the impact of excluding the following: (i) fair value adjustments on contingent consideration for the acquisitions of Reams Asset Management Company (Reams), (ii) expenses related to acquisitions and divestitures, (iii) non-acquisition related severance expense, and (v) the cumulative tax impact of the previous adjustments. The company believes that the financial impact of excluding non-acquisition related severance expense will be immaterial in the near future. It is excluded from certain GAAP financial measures as it has an unusually large impact on the company’s financial statements.

Operating EPS (diluted) is calculated as earnings per share as reported, adjusted to reflect, on a per share basis, the impact of excluding the non-GAAP adjustments described in clauses (i)-(v) above for the relevant period. Operating ROE is calculated as net operating income, divided by the company’s average total shareholders’ equity for the relevant period. Operating ROA is calculated as net operating income, divided by the company’s average assets for the relevant period. Operating noninterest expense for the relevant period is defined as GAAP noninterest expense, adjusted to reflect the pre-tax impact of non-GAAP adjustments described in clauses (i)-(iii) above. Operating efficiency ratio is calculated as the company’s operating noninterest expense, net of amortization of other intangibles, divided by the company’s total revenue (calculated as tax equivalent net interest income, plus noninterest income, less gains on sales of securities available for sale, net).

Net income from discontinued operations-general operations for the relevant period is defined as GAAP income from discontinued operations, adjusted to reflect the impact of excluding non-GAAP adjustments (iii) and (v) above, and (iv) divestiture expenses related to Scout, (vii) the gain on sale of Scout, and (viii) expenses related to the buy-out and termination of certain marketing and referral agreements in Scout’s business. The company believes that the financial impact of excluding non-acquisition related severance expense will be immaterial in the near future. It is excluded from certain GAAP financial measures as it has an unusually large impact on the company’s financial statements.

Earnings per share from discontinued operations-general operations (diluted) is calculated as earnings per share from discontinued operations (diluted) as reported, adjusted to reflect, on a per share basis, the impact of excluding non-GAAP adjustment (iii)-(v), and (vii)-(viii) above for the relevant period.

Forward-Looking Statements:

This release contains, and our other communications may contain, 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—such as our statements about the timeframe or amount of expected proceeds from the closing of the sale of Scout. 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 our expectations, intentions, or forecasts about future events, circumstances, results, or aspirations. All forward-looking statements are subject to assumptions, risks, and uncertainties, which may change over time and many of which are beyond our control. You should not rely on any forward-looking statement as a prediction or guarantee about the future. Our actual future objectives, strategies, plans, prospects, performance, condition, or results may differ materially from those set forth in any forward-looking statement. Some of the factors that may cause actual results or other future events, circumstances, or aspirations to differ from those in forward-looking statements are described in our Annual Report on Form 10-K for the year ended December 31, 2016, our subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K, or other applicable documents that are filed or furnished with the U.S. Securities and Exchange Commission (SEC). Any forward-looking statement made by us or on our behalf speaks only as of the date that it was made. We do 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. You, however, should consult further disclosures (including disclosures of a forward-looking nature) that we may make in any subsequent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K, or other applicable document that is filed or furnished with the SEC.

About UMB:

UMB Financial Corporation (Nasdaq: UMBF) is a financial services company headquartered in Kansas City, Mo., offering complete banking services, payment solutions and asset servicing. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska, Arizona and Texas, as well as two national specialty-lending businesses. A subsidiary of the holding company, UMB Fund Services, Inc., offers services to mutual funds and alternative-investment entities and registered investment advisors. For more information, visit UMB.com, UMB Financial.com, UMB Blog or follow us on Twitter at @UMBBank, UMB Facebook and UMB LinkedIn.

       
Consolidated Balance Sheets         UMB Financial Corporation
(dollars in thousands)
December 31,

Assets

2017     2016
(unaudited)     (audited)
Loans $ 11,280,513 $ 10,540,383
Allowance for loan losses   (100,604 )       (91,649 )
Net loans   11,179,909         10,448,734  
Loans held for sale 1,460 5,279
Investment securities:
Available for sale 6,258,577 6,466,334
Held to maturity 1,261,014 1,115,932
Trading securities 54,055 39,536
Other securities   65,897     68,306  
Total investment securities   7,639,543     7,690,108  
Federal funds and resell agreements 191,601 324,327
Interest-bearing due from banks 1,351,760 715,823
Cash and due from banks 392,723 422,117
Premises and equipment, net 275,942 289,007
Accrued income 98,863 99,045
Goodwill 180,867 180,867
Other intangibles, net 20,257 26,630
Other assets 438,658 425,205
Discontinued assets – goodwill and other intangibles, net   -         55,390  
Total assets $ 21,771,583       $ 20,682,532  
 

Liabilities

Deposits:
Noninterest-bearing demand $ 6,839,171 $ 6,654,584
Interest-bearing demand and savings 9,903,565 8,780,309
Time deposits under $250,000 547,990 613,589
Time deposits of $250,000 or more   732,274         522,132  
Total deposits   18,023,000         16,570,614  
Federal funds and repurchase agreements 1,260,704 1,856,937
Long-term debt 79,281 76,772
Accrued expenses and taxes 191,464 172,967
Other liabilities   35,603         42,858  
Total liabilities   19,590,052         18,720,148  
 

Shareholders' Equity

Common stock 55,057 55,057
Capital surplus 1,046,095 1,033,419
Retained earnings 1,338,110 1,142,887
Accumulated other comprehensive loss, net (45,525 ) (57,542 )
Treasury stock   (212,206 )       (211,437 )
Total shareholders' equity   2,181,531         1,962,384  
Total liabilities and shareholders' equity $ 21,771,583       $ 20,682,532  
 
 
Consolidated Statements of Income     UMB Financial Corporation
(dollars in thousands, except share and per share data)    
Three Months Ended     Year Ended
December 31, December 31,
2017     2016     2017     2016

Interest Income

(unaudited)     (unaudited) (unaudited)     (audited)
Loans $ 122,885 $ 102,961 $ 461,301 $ 386,274
Securities:
Taxable interest 17,774 18,339 73,125 73,560
Tax-exempt interest   19,047       16,139         73,419         57,516
Total securities income 36,821 34,478 146,544 131,076
Federal funds and resell agreements 1,062 769 3,700 2,708
Interest-bearing due from banks 1,987 569 3,871 2,341
Trading securities   361       233         1,496         632
Total interest income   163,116       139,010         616,912         523,031
 

Interest Expense

Deposits 12,372 5,119 36,354 17,936
Federal funds and repurchase agreements 3,632 1,774 17,906 6,524
Other   766       661         3,739         3,248
Total interest expense   16,770       7,554         57,999         27,708
Net interest income 146,346 131,456 558,913 495,323
Provision for loan losses   6,000       7,500         41,000         32,500
Net interest income after provision for loan losses   140,346       123,956         517,913         462,823
 

Noninterest Income

Trust and securities processing 44,234 42,331 176,646 166,315
Trading and investment banking 5,015 5,040 23,183 21,422
Service charges on deposits 21,364 20,949 87,680 86,662
Insurance fees and commissions 388 833 1,972 4,188
Brokerage fees 6,127 4,674 23,208 17,833
Bankcard fees 17,617 16,113 73,030 68,749
Gains on sale of securities available for sale, net 54 - 4,192 8,509
Equity earnings (losses) on alternative investments 285 504 (1,108 ) 2,695
Other   10,949       7,786         34,759         26,138
Total noninterest income   106,033       98,230         423,562         402,511
 

Noninterest Expense

Salaries and employee benefits 107,656 96,765 413,830 390,059
Occupancy, net 11,148 11,259 44,462 44,255
Equipment 18,690 17,530 72,008 66,337
Supplies, postage and telephone 4,211 4,660 17,173 18,535
Marketing and business development 6,540 5,935 21,469 21,208
Processing fees 11,238 8,887 42,331 36,005
Legal and consulting 6,045 6,694 23,406 20,801
Bankcard 4,405 4,558 19,471 20,757
Amortization of other intangibles 1,641 2,051 7,326 8,695
Regulatory fees 3,825 3,687 15,527 14,178
Other   7,160       5,821         28,126         25,915
Total noninterest expense 182,559 167,847 705,129 666,745
Income before income taxes 63,820 54,339 236,346 198,589
Income tax provision   16,463       10,939         53,370         44,955
Income from continuing operations $ 47,357 $ 43,400 $ 182,976 $ 153,634

Discontinued operations

Income (loss) from discontinued operations before income taxes 101,948 (377 ) 101,226 8,415
Income tax expense   37,344       89         37,097         3,248
Income (loss) on discontinued operations   64,604       (466 )       64,129         5,167
Net income $ 111,961     $ 42,934       $ 247,105       $ 158,801
 

Per Share Data

Basic:
Income from continuing operations $ 0.96 $ 0.89 $ 3.72 $ 3.15
Income (loss) from discontinued operations   1.31       (0.01 )       1.30         0.10
Net income - basic 2.27 0.88 5.02 3.25
Diluted:
Income from continuing operations 0.95 0.87 3.67 3.12
Income from discontinued operations   1.30       -         1.29         0.10
Net income – diluted 2.25 0.87 4.96 3.22
Dividends 0.275 0.255 1.040 0.990
 
Weighted average shares outstanding 49,229,693 48,935,216 49,223,661 48,828,313
Weighted average shares outstanding – diluted 49,840,529 49,616,121 49,839,290 49,277,055
 
 
Consolidated Statements of Comprehensive Income (Loss)     UMB Financial Corporation
(dollars in thousands)    
Three Months Ended     Year Ended
December 31, December 31,
2017     2016     2017     2016
(unaudited)     (unaudited) (unaudited)     (audited)
Net Income $ 111,961 $ 42,934 $ 247,105 $ 158,801
Other comprehensive (loss) income, net of tax:
Unrealized (losses) gains on securities:
Change in unrealized holding (losses) gains, net (41,507 ) (168,433 ) 21,139 (77,794 )
Less: Reclassifications adjustment for gains included in net income   (54 )       -         (4,192 )       (8,509 )
Change in unrealized (losses) gains on securities during the period (41,561 ) (168,433 ) 16,947 (86,303 )
Change in unrealized gains (losses) on derivatives 30 7,161 (1,050 ) (516 )
Income tax benefit (expense)   18,674         61,218         (3,880 )       32,995  
Other comprehensive (loss) income   (22,857 )       (100,054 )       12,017         (53,824 )
Comprehensive income (loss) $ 89,104       $ (57,120 )     $ 259,122       $ 104,977  
 
Consolidated Statements of Changes in Shareholders' Equity     UMB Financial Corporation
(dollars in thousands, except per share data)
                Accumulated        
Other
Common Capital Retained Comprehensive Treasury
(audited) Stock     Surplus     Earnings    

(Loss) Income

    Stock     Total
Balance - January 1, 2016 $ 55,057 $ 1,019,889 $ 1,033,990 $ (3,718 ) $ (211,524 ) $ 1,893,694
Total comprehensive income - - 158,801 (53,824 ) - 104,977
Cash dividends ($0.99 per share) - - (49,048 ) - - (49,048 )
Purchase of treasury stock - - - - (16,367 ) (16,367 )
Issuance of equity awards - (3,011 ) - - 3,440 429
Recognition of equity based compensation - 11,306 - - - 11,306
Sale of treasury stock - 480 - - 616 1,096
Exercise of stock options - 3,417 - - 12,398 15,815
Cumulative effect adjustment   -       1,338         (856 )       -         -         482  
Balance – December 31, 2016 $ 55,057     $ 1,033,419       $ 1,142,887       $ (57,542 )     $ (211,437 )     $ 1,962,384  
 
(unaudited)
Balance - January 1, 2017 $ 55,057 $ 1,033,419 $ 1,142,887 $ (57,542 ) $ (211,437 ) $ 1,962,384
Total comprehensive income - - 247,105 12,017 - 259,122
Cash dividends ($1.04 per share) - - (51,882 ) - - (51,882 )
Purchase of treasury stock - - - - (15,276 ) (15,276 )
Issuance of equity awards - (2,871 ) - - 3,343 472
Recognition of equity based compensation - 12,844 - - - 12,844
Sale of treasury stock - 608 - - 512 1,120
Exercise of stock options   -       2,095         -         -         10,652         12,747  
Balance – December 31, 2017 $ 55,057     $ 1,046,095       $ 1,338,110       $ (45,525 )     $ (212,206 )     $ 2,181,531  
 
 
Average Balances / Yields and Rates     UMB Financial Corporation
(tax - equivalent basis)    
(unaudited, dollars in thousands) Three Months Ended December 31,
2017     2016
Average     Average     Average     Average

Assets

Balance     Yield/Rate     Balance     Yield/Rate
Loans, net of unearned interest $ 11,084,716 4.40 % $ 10,346,023 3.96 %
Securities:
Taxable 3,688,202 1.91 4,232,002 1.72
Tax-exempt   3,753,574       3.08     3,354,612       2.94  
Total securities 7,441,776 2.50 7,586,614 2.26
Federal funds and resell agreements 181,933 2.32 208,581 1.47
Interest-bearing due from banks 587,181 1.34 365,512 0.62
Trading securities   43,388       4.21     50,925       2.18  
Total earning assets 19,338,994 3.56 18,557,655 3.17
Allowance for loan losses (100,344 ) (91,833 )
Other assets   1,485,075     1,454,616  
Total assets $ 20,723,725   $ 19,920,438  
 

Liabilities and Shareholders' Equity

Interest-bearing deposits $ 10,669,505 0.46 % $ 9,552,701 0.21 %
Federal funds and repurchase agreements 1,424,380 1.01 1,899,196 0.37
Borrowed funds   76,626       3.97     76,831       3.42  
Total interest-bearing liabilities 12,170,511 0.55 11,528,728 0.26
Noninterest-bearing demand deposits 6,180,293 6,193,787
Other liabilities 217,721 206,576
Shareholders' equity   2,155,200     1,991,347  
Total liabilities and shareholders' equity $ 20,723,725   $ 19,920,438  
Net interest spread 3.01 % 2.91 %
Net interest margin 3.21 3.00
 
 
Average Balances / Yields and Rates     UMB Financial Corporation
(tax - equivalent basis)
(unaudited, dollars in thousands) Year Ended December 31,
2017 2016
Average Average Average Average

Assets

Balance Yield/Rate Balance Yield/Rate
Loans, net of unearned interest $ 10,843,642 4.25 % $ 9,992,874 3.87 %
Securities:
Taxable 3,918,001 1.87 4,545,013 1.62
Tax-exempt   3,657,951       3.08     3,077,562       2.87  
Total securities 7,575,952 2.45 7,622,575 2.12
Federal funds and resell agreements 190,074 1.95 188,572 1.44
Interest-bearing due from banks 351,293 1.10 410,163 0.57
Trading securities   57,013       3.28     42,437       1.85  
Total earning assets 19,017,974 3.45 18,256,621 3.03
Allowance for loan losses (97,231 ) (85,201 )
Other assets   1,475,685     1,421,265  
Total assets $ 20,396,428   $ 19,592,685  
 

Liabilities and Shareholders' Equity

Interest-bearing deposits $ 10,002,497 0.36 % $ 9,432,720 0.19 %
Federal funds and repurchase agreements 2,095,111 0.85 2,005,631 0.33
Borrowed funds   76,301       4.90     85,658       3.79  
Total interest-bearing liabilities 12,173,909 0.48 11,524,009 0.24
Noninterest-bearing demand deposits 5,936,172 5,906,021
Other liabilities 205,500 178,906
Shareholders' equity   2,080,847     1,983,749  
Total liabilities and shareholders' equity $ 20,396,428   $ 19,592,685  
Net interest spread 2.97 % 2.79 %
Net interest margin 3.15 2.88
 
 
Business Segment Information     UMB Financial Corporation
(unaudited, dollars in thousands)
    Three Months Ended December 31, 2017
Bank     Asset Servicing     Total
Net interest income $ 142,544     $ 3,802     $ 146,346
Provision for loan losses 6,000 - 6,000
Noninterest income 82,966 23,067 106,033
Noninterest expense   160,202       22,357       182,559
Income before taxes 59,308 4,512 63,820
Income tax expense   15,838       625       16,463
Net income from continuing operations $ 43,470     $ 3,887     $ 47,357
 
Average assets $ 19,950,550 $ 773,450 $ 20,724,000
 
Three Months Ended December 31, 2016
Bank     Asset Servicing     Total
Net interest income $ 128,869 $ 2,587 $ 131,456
Provision for loan losses 7,500 - 7,500
Noninterest income 75,246 22,984 98,230
Noninterest expense   147,006       20,841       167,847
Income before taxes 49,609 4,730 54,339
Income tax expense   9,951       988       10,939
Net income from continuing operations $ 39,658     $ 3,742     $ 43,400
 
Average assets $ 18,879,000 $ 1,041,000 $ 19,920,000
 
 
Year Ended December 31, 2017
Bank     Asset Servicing     Total
Net interest income $ 546,000 $ 12,913 $ 558,913
Provision for loan losses 41,000 - 41,000
Noninterest income 328,550 95,012 423,562
Noninterest expense   616,883       88,246       705,129
Income before taxes 216,667 19,679 236,346
Income tax expense   49,522       3,848       53,370
Net income from continuing operations $ 167,145     $ 15,831     $ 182,976
 
Average assets $ 19,612,450 $ 783,550 $ 20,396,000
 
Year Ended December 31, 2016
Bank     Asset Servicing     Total
Net interest income $ 484,716 $ 10,607 $ 495,323
Provision for loan losses 32,500 - 32,500
Noninterest income 309,889 92,622 402,511
Noninterest expense   582,719       84,026       666,745
Income before taxes 179,386 19,203 198,589
Income tax expense   40,406       4,549       44,955
Net income from continuing operations $ 138,980     $ 14,654     $ 153,634
 
Average assets $ 18,371,950 $ 1,221,050 $ 19,593,000
 
 
Non-GAAP Financial Measures     UMB Financial Corporation
Net operating income non-GAAP reconciliations:
(unaudited, dollars in thousands, except per share data)
 
    Three Months Ended     Year Ended
December 31, December 31,
2017     2016     2017     2016
Income from continuing operations (GAAP) $ 47,357     $ 43,400 $ 182,976     $ 153,634
Adjustments:
Fair value adjustments on contingent consideration (i) - - - 67
Acquisition expenses (ii) 52 547 74 5,020
Non-acquisition severance expense (iii) 224 415 1,039 2,167
Tax-impact of adjustments (v)   (100 )       (346 )       (401 )       (2,611 )
Total Non-GAAP adjustments (net of tax)   176         616         712         4,643  
Net operating income from continuing operations (Non-GAAP) $ 47,533       $ 44,016       $ 183,688       $ 158,277  
 
Earnings per share from continuing operations - diluted (GAAP) $ 0.95 $ 0.87 $ 3.67 $ 3.12
Fair value adjustments on contingent consideration (i) - - - -
Acquisition expenses (ii) - 0.01 - 0.10
Non-acquisition severance expense (iii) - 0.01 0.02 0.04
Tax-impact of adjustments (v)   -         -         -         (0.05 )
Operating earnings per share from continuing operations - diluted (Non-GAAP) $ 0.95       $ 0.89       $ 3.69       $ 3.21  
 

GAAP

Return on average assets

0.91

%

 

0.87

%

 

0.90

%

 

0.78

%

Return on average equity 8.72 8.67 8.79 7.74
 

Non-GAAP

Operating return on average assets

0.91

%

 

0.88

%

 

0.90

%

 

0.81

%

Operating return on average equity 8.75 8.79 8.83 7.98
 
 
Operating noninterest expense and operating efficiency ratio non-GAAP reconciliations:     UMB Financial Corporation
(unaudited, dollars in thousands)    
Three Months Ended     Year Ended
December 31, December 31,
2017     2016     2017     2016
Noninterest expense $ 182,559     $ 167,847 $ 705,129     $ 666,745
Adjustments to arrive at operating noninterest expense (pre-tax):
Fair value adjustments on contingent consideration (i) - - - 67
Acquisition expenses (ii) 52 547 74 5,020
Non-acquisition severance expense (iii)   224         415         1,039         2,167  
Total Non-GAAP adjustments (pre-tax)   276         962         1,113         7,254  
Operating noninterest expense (Non-GAAP) $ 182,283       $ 166,885       $ 704,016       $ 659,491  
 
Noninterest expense $ 182,559 $ 167,847 $ 705,129 $ 666,745
Less: Amortization of other intangibles   1,641         2,051         7,326         8,695  
Noninterest expense, net of amortization of other intangibles (Non-GAAP) (numerator A) $ 180,918       $ 165,796       $ 697,803       $ 658,050  
 
Operating noninterest expense $ 182,283 $ 166,885 $ 704,016 $ 659,491
Less: Amortization of other intangibles   1,641         2,051         7,326         8,695  
Operating expense, net of amortization of other intangibles (Non-GAAP) (numerator B) $ 180,642       $ 164,834       $ 696,690       $ 650,796  
 
Net interest income (tax equivalent) (vi) $ 156,583 $ 140,147 $ 598,392 $ 526,337
Noninterest income 106,033 98,230 423,562 402,511
Less: Gains on sales of securities available for sale, net   54         -         4,192         8,509  
Total (Non-GAAP) (denominator A) $ 262,562       $ 238,377       $ 1,017,762       $ 920,339  
 
Efficiency ratio (numerator A/denominator A)

68.90

%

 

69.55

%

 

68.56

%

 

71.50

%

Operating efficiency ratio (Non-GAAP) (numerator B/denominator A) 68.80 69.15 68.45 70.71
 
Net income from discontinued operations-general operations non-GAAP reconciliation:     UMB Financial Corporation
(unaudited, dollars in thousands, except per share data)
    Three Months Ended     Year Ended
December 31, December 31,
2017     2016     2017     2016
Income (loss) from discontinued operations (GAAP) $ 64,604     $ (466 ) $ 64,129     $ 5,167
Adjustments:
Divestiture expense (iv) 3,021 - 16,519 -
Non-acquisition severance expense (iii) - - - 2,010
Gain on sale of discontinued operations (vii) (103,644 ) - (103,644 ) -
Marketing agent termination costs (viii) - 2,725 - 2,725
Tax-impact of adjustments (v)   36,224         (981 )       31,365         (1,705 )
Total Non-GAAP adjustments (net of tax)   (64,399 )       1,744         (55,760 )       3,030  
Net income from discontinued operations-general operations (Non-GAAP) $ 205       $ 1,278       $ 8,369       $ 8,197  
 
Earnings per share from discontinued operations - diluted $ 1.30 $ - $ 1.29 $ 0.10
Divestiture expense (iv) 0.06 - 0.33 -
Non-acquisition severance expense (iii) - - - 0.04
Gain on sale of discontinued operations (vii) (2.08 ) - (2.08 ) -
Marketing agent termination costs (viii) - 0.05 - 0.06
Tax-impact of adjustments (v)   0.72         (0.02 )       0.63         (0.03 )
Total Non-GAAP adjustments (net of tax)   (1.30 )       0.03         (1.12 )       0.07  
Earnings per share from discontinued operations-general operations - diluted (Non-GAAP) $ -       $ 0.03       $ 0.17       $ 0.17  

(i)

 

Represents fair value adjustments to contingent consideration for the acquisitions of Reams.

(ii)

Represents expenses related to acquisitions and divestitures.

(iii)

Represents non-acquisition severance expense related to UMB-legacy employees as management excludes severance expense from its internal evaluation of company performance. Severance expense for Marquette-legacy employees is included in item (ii). Severance expense for Scout employees is included in item (iv)

(iv)

Represents expenses related to the divestiture of Scout.

(v)

Calculated using the company's marginal tax rate of 36%.

(vi)

Tax-exempt interest income has been adjusted to a tax equivalent basis. The amount of such adjustment was an addition to net interest income of $10.3 million and $8.7 million for the three months ended December 31, 2017 and 2016, respectively. The amount of such adjustment was an addition to net interest income of $39.5 million and $31.0 million for the years ended December 31, 2017 and 2016, respectively.

(vii)

Represents the gain on the sale of Scout. As this gain does not represent income from the normal course of business, it is removed from the calculation of discontinued operations-general operations

(viii)

Represents expenses related to the buy-out and termination of certain marketing and referral agreements in the company’s institutional investment management business.

UMB Financial Corporation
Media Contact:
Rachael Crocker, 816-860-7775
or
Investor Relations Contact:
Kay Gregory, 816-860-7106