UMB Financial Corporation Reports Second Quarter Income from Continuing Operations of $55.4 Million or $1.11 Per Diluted Share

Jul 24, 2018 05:00 pm
KANSAS CITY, Mo. -- 

UMB Financial Corporation (Nasdaq: UMBF), a financial holding company, announced income from continuing operations for the second quarter 2018 of $55.4 million, or $1.11 per diluted share, compared to $57.5 million, or $1.15 per diluted share in the first quarter 2018 (linked quarter) and $44.8 million, or $0.90 per diluted share, in the second quarter 2017. The reported GAAP income from continuing operations represents a decrease of 3.7 percent on a linked-quarter basis and an increase of 23.8 percent compared to the second quarter 2017.

Net operating income from continuing operations, a non-GAAP financial measure reconciled to income from continuing operations, the nearest comparable GAAP measure, later in this release, was $56.1 million, or $1.12 per diluted share for the second quarter 2018, compared to $59.1 million, or $1.18 per diluted share, for the linked quarter and $44.9 million, or $0.90 per diluted share, for the second quarter 2017. These results represent a decrease of 5.1 percent on a linked-quarter basis and an increase of 24.8 percent compared to the second quarter 2017.

 
Summary of quarterly financial results   UMB Financial Corporation
(unaudited, dollars in thousands, except per share data)    
Q2 Q1 Q2
2018 2018 2017
Income from continuing operations $ 55,424 $ 57,533 $ 44,771
Loss from discontinued operations   —     (747 )   (1,950 )
Net income 55,424 56,786 42,821
 
Earnings per share from continuing operations (diluted) 1.11 1.15 0.90
Losses per share from discontinued operations (diluted)   —     (0.01 )   (0.04 )
Earnings per share (diluted) 1.11 1.14 0.86
 
Net operating income from continuing operations 56,079 59,062 44,948
Operating earnings per share from continuing operations (diluted) 1.12 1.18 0.90
 

GAAP - continuing operations

Return on average assets 1.08 % 1.12 % 0.88 %
Return on average equity 10.18 10.80 8.69
Efficiency ratio 70.21 68.82 71.02
 

Non-GAAP - continuing operations

Operating return on average assets 1.09 % 1.15 % 0.89 %
Operating return on average equity 10.30 11.09 8.72
Operating efficiency ratio 69.88 68.04 70.91
 
Summary of year-to-date financial results   UMB Financial Corporation
(unaudited, dollars in thousands, except per share data)   June   June
YTD YTD
2018 2017
Income from continuing operations $ 112,957 $ 86,747
(Loss) income from discontinued operations   (747 )   255  
Net income 112,210 87,002
 
Earnings per share from continuing operations (diluted) 2.26 1.74
(Losses) earnings per share from discontinued operations (diluted)   (0.01 )   0.01  
Earnings per share (diluted) 2.25 1.75
 
Net operating income from continuing operations 115,141 87,228
Operating earnings per share from continuing operations (diluted) 2.30 1.75
 

GAAP - continuing operations

Return on average assets 1.10 % 0.86 %
Return on average equity 10.49 8.64
Efficiency ratio 69.51 71.77
 

Non-GAAP - continuing operations

Operating return on average assets 1.12 % 0.87 %
Operating return on average equity 10.69 8.68
Operating efficiency ratio 68.95 71.61
 

“Highlights for the second quarter included 5.8 percent growth in our loan portfolio, continued positive operating leverage, and a 56 basis point expansion in our loan yields,” said Mariner Kemper, chairman and chief executive officer. “Our net interest margin expanded 12 basis points and drove a 9.3 percent increase in our net interest income.”

Discussion of results from continuing operations

Summary of revenue     UMB Financial Corporation
(unaudited, dollars in thousands)            
Q2 Q1 Q2 CQ vs. CQ vs.
2018 2018 2017 LQ PY
Net interest income $ 150,226 $ 147,922 $ 137,394 $ 2,304 $ 12,832
Noninterest income:
Trust and securities processing 42,845 44,002 44,811 (1,157 ) (1,966 )
Trading and investment banking 4,653 4,101 6,173 552 (1,520 )
Service charges on deposit accounts 20,722 21,905 22,731 (1,183 ) (2,009 )
Insurance fees and commissions 340 301 513 39 (173 )
Brokerage fees 6,291 6,353 5,889 (62 ) 402
Bankcard fees 17,184 18,123 20,234 (939 ) (3,050 )
Gains on sales of securities available for sale, net 228 139 1,280 89 (1,052 )
Other   8,026     10,601     8,675   (2,575 )   (649 )
Total noninterest income $ 100,289   $ 105,525   $ 110,306 $ (5,236 ) $ (10,017 )
 
Total revenue $ 250,515   $ 253,447   $ 247,700 $ (2,932 ) $ 2,815  
Net interest margin 3.24 % 3.19 % 3.12 %
Total noninterest income as a % of total revenue 40.03 41.64 44.53
 

Following the enactment of the Tax Cuts and Jobs Act, beginning in the first quarter of 2018, net interest margin is computed using net interest income adjusted to a fully taxable equivalent (FTE) basis assuming a statutory federal income tax rate of 21 percent and, where applicable, state income taxes; prior period net interest margins are computed using the then-statutory federal income tax rate of 35 percent and, where applicable, state income taxes.

Net interest income

  • On a linked quarter basis, the 1.6 percent increase in net interest income was driven by a five basis point improvement in net interest margin, one additional day of net interest income, and a 1.4 percent, or $157.9 million, increase in average loans.
  • Earning asset yields improved 18 basis points from the linked quarter primarily due to improved loan yields of 21 basis points to 4.74 percent, in part driven by favorable re-pricing from recent increases in short-term interest rates and earning asset mix changes. The cost of interest-bearing liabilities increased 18 basis points to 0.83 percent driven by a 16 basis point increase in cost of interest-bearing deposits. Total cost of deposits including noninterest-bearing deposits was 45 basis points, an increase of 18 basis points from the linked quarter.
  • On a year-over-year basis, the increase in net interest income was driven by a 5.8 percent or $632.4 million increase in average loans as well as higher average loan yields, which increased 56 basis points from one year ago, primarily driven by higher interest rates, volume, and mix changes, offset by the impacts of tax reform on tax equivalent income.
  • For the second quarter 2018, average total assets were $20.6 billion, which is an increase of 1.5 percent over the second quarter 2017.

Noninterest income

  • Second quarter 2018 noninterest income decreased $5.2 million, or 5.0 percent, on a linked quarter basis largely due to:
    • A $2.6 million decline in other income driven by decreases of $1.8 million in equity earnings on alternative investments and $1.1 million in the fair value of company-owned life insurance.
    • A decrease in trust and securities processing due to a $1.3 million decline in fund servicing revenue.
    • A decrease of $1.2 million in service charges on deposits primarily due to repricing.
    • An increase of $1.0 million in rebates and rewards expense recorded as an offset to bankcard fees driven by higher purchase volume.
    • These impacts were partially offset by an increase of $0.6 million in trading and investment banking.
  • Noninterest income in the second quarter of 2018 decreased $10.0 million, or 9.1 percent, compared to the same quarter in 2017 primarily driven by:
    • A $3.7 million increase in rebates and rewards expense recorded as an offset to bankcard fees driven by increased purchase volume.
    • A $2.0 million decrease in service charges on deposit accounts due to repricing.
    • A $2.0 million decline in fund servicing revenue recorded in trust and securities processing due to customer repricing and losses.
    • A $1.1 million decrease in gains on available-for-sale securities.
    • A $0.9 million decrease in trading and investment banking due to market adjustments from the company’s seed investments in certain Scout funds following the liquidation of such investments at the end of the second quarter of 2017.

Noninterest expense

Summary of Noninterest expense   UMB Financial Corporation
(unaudited, dollars in thousands)          
Q2 Q1 Q2 CQ vs. CQ vs.
2018 2018 2017 LQ PY
Salaries and employee benefits $ 104,175 $ 107,968 $ 102,773 $ (3,793 ) $ 1,402
Occupancy, net 10,813 10,953 11,061 (140 ) (248 )
Equipment 18,842 18,826 17,956 16 886
Supplies and services 4,146 3,760 4,792 386 (646 )
Marketing and business development 6,184 5,034 5,732 1,150 452
Processing fees 11,537 11,161 10,743 376 794
Legal and consulting 6,460 3,844 6,467 2,616 (7 )
Bankcard 4,165 4,626 5,033 (461 ) (868 )
Amortization of other intangible assets 1,485 1,562 1,924 (77 ) (439 )
Regulatory fees 3,772 2,905 4,071 867 (299 )
Other   5,639   5,237   6,387   402     (748 )
Total noninterest expense $ 177,218 $ 175,876 $ 176,939 $ 1,342   $ 279  
 
  • GAAP noninterest expense for the second quarter of 2018 was $177.2 million, an increase of $1.3 million, or 0.8 percent, from the linked quarter and $0.3 million, or 0.2 percent, from the second quarter of 2017.
  • On a non-GAAP basis, operating noninterest expense (as reconciled later in this release) was $176.4 million for the second quarter 2018, an increase of $2.5 million, or 1.4 percent, compared to the linked quarter, and a decrease of $0.3 million, or 0.2 percent, compared to the second quarter 2017.
  • The linked quarter increase in noninterest expense was driven by:
    • A $2.6 million increase in legal and consulting expense partially due to timing of consulting expenses on projects delayed during the first quarter of 2018.
    • Increased marketing and business development expense of $1.2 million related to timing of multiple projects and increased travel expenses.
    • Increased regulatory expense of $0.9 million from a higher assessment base.
    • These impacts were partially offset by a $3.8 million decline in salaries and employee benefits, largely driven by lower payroll taxes and 401(k) expense as compared the first quarter of 2018.
  • The year-over-year increase in noninterest expense was driven by:
    • A $1.4 million increase in salaries and employee benefits, largely due to a $1.7 million increase in salary and wage expense.
    • $0.9 million increase in equipment expense related to investments for regulatory requirements, cyber security, and the ongoing modernization of the company’s core systems.
    • These impacts were partially offset by a $0.9 million decline in bankcard administrative expenses, and decreases of $0.3 million in derivative expense and $0.5 million in operational losses, both recorded in other expense.

Income Taxes

  • The company’s effective tax rate was 15.6 percent for the six months ended June 30, 2018 compared to 21.6 percent for the same period in 2017. The decrease is primarily a result of the Tax Cuts and Jobs Act, which lowered the federal corporate income tax rate to 21 percent from 35 percent, effective on January 1, 2018.

Balance Sheet

  • Average total assets for the second quarter 2018 were $20.6 billion compared to $20.7 billion for the linked quarter, and $20.3 billion for the same period in 2017.
Summary of average loans and leases - QTD Average     UMB Financial Corporation
(unaudited, dollars in thousands)            
Q2 Q1 Q2 CQ vs. CQ vs.
2018 2018 2017 LQ PY
Commercial $ 4,478,829 $ 4,456,176 $ 4,597,866 $ 22,653 $ (119,037 )
Asset-based loans 336,710 336,146 242,719 564 93,991
Factoring loans 231,035 223,031 155,528 8,004 75,507
Commercial credit card 191,009 189,891 157,214 1,118 33,795
Real estate - construction 823,169 763,867 802,350 59,302 20,819
Real estate - commercial 3,711,417 3,635,455 3,152,317 75,962 559,100
Real estate - residential 669,177 645,803 592,253 23,374 76,924
Real estate - HELOC 596,025 630,617 682,889 (34,592 ) (86,864 )
Consumer credit card 230,971 223,725 254,552 7,246 (23,581 )
Consumer other 153,427 158,131 139,120 (4,704 ) 14,307
Leases   22,679   23,680   35,250   (1,001 )   (12,571 )
Total loans $ 11,444,448 $ 11,286,522 $ 10,812,058 $ 157,926   $ 632,390  
 
  • Average loans for the second quarter 2018 increased 1.4 percent on a linked-quarter basis and 5.8 percent compared to second quarter 2017.
Summary of average securities - QTD Average     UMB Financial Corporation
(unaudited, dollars in thousands)            
Q2 Q1 Q2 CQ vs. CQ vs.
2018 2018 2017 LQ PY
Securities available for sale:
U.S. Treasury $ 37,982 $ 38,197 $ 63,945 $ (215 ) $ (25,963 )
U.S. Agencies 2,946 10,360 48,914 (7,414 ) (45,968 )
Mortgage-backed 3,679,835 3,645,891 3,677,797 33,944 2,038
State and political subdivisions 2,330,454 2,453,334 2,478,358 (122,880 ) (147,904 )
Corporates 1,476 8,482 60,508 (7,006 ) (59,032 )
Commercial Paper   7,138   30,955   —   (23,817 )   7,138  
Total securities available for sale $ 6,059,831 $ 6,187,219 $ 6,329,522 $ (127,388 ) $ (269,691 )
Securities held to maturity:
State and political subdivisions 1,228,849 1,251,771 1,242,519 (22,922 ) (13,670 )
Trading securities 45,538 44,592 75,075 946 (29,537 )
Other securities   66,345   65,560   66,199   785     146  
Total securities $ 7,400,563 $ 7,549,142 $ 7,713,315 $ (148,579 ) $ (312,752 )
 
  • Average securities available for sale decreased 4.3 percent compared to the second quarter of 2017, driven by the ongoing reinvestment of cash flows from such securities to fund growth in the loan portfolio.
Summary of average deposits - QTD Average   UMB Financial Corporation
(unaudited, dollars in thousands)            
Q2 Q1 Q2 CQ vs. CQ vs.
2018 2018 2017 LQ PY
Deposits:
Noninterest-bearing demand $ 5,666,364 $ 6,050,997 $ 5,837,602 $ (384,633 ) $ (171,238 )
Interest-bearing demand and savings 9,768,015 9,660,150 8,475,782 107,865 1,292,233
Time deposits   1,032,000     1,047,700     1,258,384     (15,700 )   (226,384 )
Total deposits $ 16,466,379   $ 16,758,847   $ 15,571,768   $ (292,468 ) $ 894,611  
Noninterest bearing deposits as % of total 34.41 % 36.11 % 37.49 %
 
  • Average noninterest-bearing deposits declined 6.4 percent on a linked-quarter basis primarily driven by lower balances held by larger commercial customers.

Capital

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

June 30,
2018

March 31,
2018

June 30,
2017

Total equity $ 2,201,812 $ 2,167,386 $ 2,071,119
Book value per common share 43.96 43.31 41.42
 
Regulatory capital:
Common equity Tier 1 capital $ 2,145,616 $ 2,097,691 $ 1,863,359
Tier 1 capital 2,145,616 2,097,691 1,863,359
Total capital 2,315,482 2,269,315 2,031,618
 
Regulatory capital ratios:
Common equity Tier 1 capital ratio 13.56 % 13.36 % 12.22 %
Tier 1 risk-based capital ratio 13.56 13.36 12.22
Total risk-based capital ratio 14.63 14.45 13.32
Tier 1 leverage ratio 10.50 10.20 9.28
 
  • At June 30, 2018, the company’s risk-based capital ratios presented in the foregoing table exceeded all “well-capitalized” regulatory thresholds.

Asset Quality

Credit quality     UMB Financial Corporation
(unaudited, dollars in thousands)                    
Q2 Q1 Q4 Q3 Q2
2018 2018 2017 2017 2017
Net charge-offs - Commercial loans $ 6,137 $ 6,847 $ 2,248 $ 8,961 $ 7,971
Net charge-offs (recoveries) - Real estate loans 1,035 1,512 (242 ) 238 (95 )
Net charge-offs - Consumer credit card loans 1,786 1,849 1,612 1,635 2,079
Net charge-offs - Consumer other loans 46 94 167 74 71
Net charge-offs - Total loans 9,004 10,302 3,785 10,908 10,026
Net loan charge-offs as a % of total average loans 0.32 % 0.37 % 0.14 % 0.40 % 0.37 %
Loans over 90 days past due $ 2,883 $ 5,650 $ 3,091 $ 2,088 $ 2,657
Loans over 90 days past due as a % of total loans 0.02 % 0.05 % 0.03 % 0.02 % 0.02 %
Nonaccrual and restructured loans $ 56,030 $ 67,604 $ 59,142 $ 54,231 $ 51,390
Nonaccrual and restructured loans as a % of total loans 0.48 % 0.59 % 0.52 % 0.49 % 0.47 %
Provision for loan losses $ 7,000 $ 10,000 $ 6,000 $ 11,500 $ 14,500
 
  • Nonperforming loans, defined as restructured loans on nonaccrual and all other nonaccrual loans, decreased $11.6 million from the linked quarter and increased $4.6 million from the prior year period.
  • Net charge-offs decreased to $9.0 million, or 0.32 percent of average loans, compared to $10.3 million, or 0.37 percent, of average loans in the linked quarter, and $10.0 million, or 0.37 percent, of average loans in the second quarter of 2017.
  • Provision for loan losses decreased $3.0 million from the linked quarter, consistent with the company’s methodology, which considers the inherent risk in the loan portfolio, as well as other qualitative factors, such as macroeconomic conditions, loan growth, loan impairment changes, loan risk grading changes, and net charge-off levels.

Dividend Declaration

At the company’s quarterly board meeting, the Board of Directors declared a $0.29 per share quarterly cash dividend, payable on October 1, 2018, to shareholders of record at the close of business on September 10, 2018.

Conference Call

The company plans to host a conference call to discuss its second quarter 2018 earnings results on Wednesday, July 25, 2018, at 9:30 a.m. (CT).

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

UMB Financial 2Q 2018 Conference Call

A replay of the conference call may be heard through August 8, 2018, by calling (toll-free) 877-344-7529 or (international) 412-317-0088. The replay access code required for playback is 10121500. 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 from continuing operations, operating earnings per share from continuing operations - diluted (operating EPS), operating return on average equity (operating ROE), operating return on average assets (operating ROA), operating noninterest expense, and operating efficiency ratio, 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, and operating efficiency ratio – 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 acquisition- and severance-related items 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 expenses related to acquisitions and divestitures, severance expense, and the cumulative tax impact of these adjustments.

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 above for the relevant period. Operating ROE is calculated as net operating income from continuing operations, divided by the company’s average total shareholders’ equity for the relevant period. Operating ROA is calculated as net operating income from continuing operations, 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 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 non-GAAP revenue (calculated as net interest income plus noninterest income, less gains on sales of securities available for sale, net).

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. 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, 2017, 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, except to the extent required by applicable securities laws. 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. UMB offers personal banking, commercial banking, healthcare services and institutional banking, which includes services to mutual funds and alternative-investment entities and registered investment advisors. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska, Arizona and Texas. 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
(unaudited, dollars in thousands)    
June 30,
2018 2017
ASSETS
Loans $ 11,631,628 $ 10,848,578
Allowance for loan losses   (98,298 )   (97,797 )
Net loans 11,533,330 10,750,781
Loans held for sale 3,482 3,443
Investment Securities:
Available for sale 6,011,684 6,226,041
Held to maturity 1,204,582 1,279,524
Trading securities 67,091 61,833
Other securities   66,547     65,039  
Total investment securities 7,349,904 7,632,437
Federal funds sold and resell agreements 70,346 184,521
Interest-bearing due from banks 113,875 332,090
Cash and due from banks 379,433 379,148
Premises and equipment, net 274,408 276,412
Accrued income 100,133 99,122
Goodwill 180,867 180,867
Other intangibles, net 17,210 24,614
Other assets 508,482 436,421
Discontinued assets - goodwill and other intangibles, net   —     53,743  
Total assets $ 20,531,470   $ 20,353,599  
 
LIABILITIES
Deposits:
Noninterest-bearing demand $ 5,994,426 $ 6,433,339
Interest-bearing demand and savings 9,471,698 8,429,180
Time deposits under $250,000 512,446 569,281
Time deposits of $250,000 or more   407,508       664,866  
Total deposits 16,386,078 16,096,666
Federal funds purchased and repurchase agreements 1,666,158 1,886,370
Long-term debt 78,692 76,083
Accrued expenses and taxes 147,608 161,470
Other liabilities   51,122     61,891  
Total liabilities   18,329,658     18,282,480  
 
SHAREHOLDERS' EQUITY
Common stock 55,057 55,057
Capital surplus 1,050,660 1,037,898
Retained earnings 1,434,342 1,204,436
Accumulated other comprehensive loss, net (128,959 ) (23,625 )
Treasury stock   (209,288 )     (202,647 )
Total shareholders' equity   2,201,812       2,071,119  
Total liabilities and shareholders' equity $ 20,531,470   $ 20,353,599  
 
Consolidated Statements of Income   UMB Financial Corporation
(unaudited, dollars in thousands except share and per share data)        
  Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
INTEREST INCOME
Loans $ 135,150 $ 112,724 $ 261,284 $ 219,284
Securities:
Taxable interest 20,523 18,441 40,303 37,631
Tax-exempt interest   18,290   18,296     36,993     35,479
Total securities income 38,813 36,737 77,296 73,110
Federal funds and resell agreements 752 711 1,790 1,630
Interest-bearing due from banks 1,056 580 2,636 1,131
Trading securities   709   459     1,139     746
Total interest income   176,480   151,211     344,145     295,901
INTEREST EXPENSE
Deposits 18,334 7,835 32,169 13,801
Federal funds and repurchase agreements 6,666 4,994 11,398 8,463
Other   1,254   988     2,430     1,928
Total interest expense   26,254   13,817     45,997     24,192
Net interest income 150,226 137,394 298,148 271,709
Provision for loan losses   7,000   14,500     17,000     23,500
Net interest income after provision for loan losses   143,226   122,894     281,148     248,209
NONINTEREST INCOME
Trust and securities processing 42,845 44,811 86,847 87,352
Trading and investment banking 4,653 6,173 8,754 13,715
Service charges on deposit accounts 20,722 22,731 42,627 44,806
Insurance fees and commissions 340 513 641 1,159
Brokerage fees 6,291 5,889 12,644 11,266
Bankcard fees 17,184 20,234 35,307 37,986
Gains on sales of securities available for sale, net 228 1,280 367 1,748
Other   8,026   8,675     18,627     15,191
Total noninterest income   100,289   110,306     205,814     213,223
NONINTEREST EXPENSE
Salaries and employee benefits 104,175 102,773 212,143 206,425
Occupancy, net 10,813 11,061 21,766 22,029
Equipment 18,842 17,956 37,668 35,438
Supplies and services 4,146 4,792 7,906 8,886
Marketing and business development 6,184 5,732 11,218 9,873
Processing fees 11,537 10,743 22,698 19,942
Legal and consulting 6,460 6,467 10,304 11,517
Bankcard 4,165 5,033 8,791 9,936
Amortization of other intangible assets 1,485 1,924 3,047 3,970
Regulatory fees 3,772 4,071 6,677 7,904
Other   5,639   6,387     10,876     14,829
Total noninterest expense   177,218   176,939     353,094     350,749
Income before income taxes 66,297 56,261 133,868 110,683
Income tax expense   10,873   11,490     20,911     23,936
Income from continuing operations   55,424   44,771     112,957     86,747
Discontinued Operations
(Loss) income from discontinued operations before income taxes — (2,599 ) (917 ) 308
Income tax (benefit) expense   —   (649 )   (170 )   53
(Loss) income from discontinued operations   —   (1,950 )   (747 )   255
NET INCOME $ 55,424 $ 42,821   $ 112,210   $ 87,002
PER SHARE DATA
Basic:
Income from continuing operations $ 1.12 $ 0.91 $ 2.28 $ 1.76
(Loss) income from discontinued operations   —   (0.04 )   (0.01 )   0.01
Net income – basic 1.12 0.87 2.27 1.77
Diluted:
Income from continuing operations 1.11 0.90 2.26 1.74
(Loss) income from discontinued operations   —   (0.04 )   (0.01 )   0.01
Net income - diluted 1.11 0.86 2.25 1.75
Dividends 0.290 0.255 0.580 0.510
Weighted average shares outstanding - basic 49,551,920 49,269,786 49,486,626 49,190,271
Weighted average shares outstanding - diluted 50,007,022 49,848,903 49,973,992 49,829,193
 
 
Consolidated Statements of Comprehensive Income   UMB Financial Corporation
(unaudited, dollars in thousands)            
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Net income $ 55,424 $ 42,821 $ 112,210 $ 87,002
Other comprehensive (loss) income, net of tax:
Unrealized gains and losses on debt securities:
Change in unrealized holding gains and losses, net (16,020 ) 35,311 (96,682 ) 57,582
Less: Reclassification adjustment for gains included in net income   (228 )   (1,280 )   (367 )   (1,748 )
Change in unrealized gains and losses on debt securities during the period (16,248 ) 34,031 (97,049 ) 55,834
Change in unrealized gains and losses on derivative hedges 910 (1,157 ) 3,112 (911 )
Income tax benefit (expense)   3,770     (12,340 )   23,552     (21,006 )
Other comprehensive (loss) income before reclassifications (11,568 ) 20,534 (70,385 ) 33,917
Amounts reclassified from accumulated other comprehensive income   —     —     (13,049 )   —  
Net current-period other comprehensive (loss) income   (11,568 )   20,534     (83,434 )   33,917  
Comprehensive income $ 43,856   $ 63,355   $ 28,776   $ 120,919  
 
 
Consolidated Statements of Shareholders' Equity UMB Financial Corporation
(unaudited, dollars in thousands except per share data)      
 

Common
Stock

 

Capital
Surplus

 

Retained
Earnings

Accumulated
Other
Comprehensive
Loss

Treasury
Stock

Total

Balance - January 1, 2017 $ 55,057 $ 1,033,419 $ 1,142,887 $ (57,542 ) $ (211,437 ) $ 1,962,384
Total comprehensive income — — 87,002 33,917 — 120,919
Cash dividends ($0.51 per share) — — (25,453 ) — — (25,453 )
Purchase of treasury stock — — — — (4,279 ) (4,279 )
Issuance of equity awards — (3,929 ) — — 4,401 472
Recognition of equity-based compensation — 6,243 — — — 6,243
Sale of treasury stock — 321 — — 244 565
Exercise of stock options   —   1,844     —     —     8,424     10,268  
Balance - June 30, 2017 $ 55,057 $ 1,037,898   $ 1,204,436   $ (23,625 ) $ (202,647 ) $ 2,071,119  
Balance - January 1, 2018 $ 55,057 $ 1,046,095 $ 1,338,110 $ (45,525 ) $ (212,206 ) $ 2,181,531
Total comprehensive income (loss) — — 112,210 (83,434 ) — 28,776
Reclassification of certain tax effects — — 12,917 — — 12,917
Cash dividends ($0.580 per share) — — (29,040 ) — — (29,040 )
Purchase of treasury stock — — — — (6,211 ) (6,211 )
Issuance of equity awards — (2,457 ) — — 2,951 494
Recognition of equity-based compensation — 5,201 — — — 5,201
Sale of treasury stock — 278 — — 275 553
Exercise of stock options — 1,543 — — 5,903 7,446
Cumulative effect adjustments   —   —     145     —     —     145  
Balance - June 30, 2018 $ 55,057 $ 1,050,660   $ 1,434,342   $ (128,959 ) $ (209,288 ) $ 2,201,812  
 
 
Average Balances / Yields and Rates   UMB Financial Corporation
(tax - equivalent basis)          
(unaudited, dollars in thousands)
Three Months Ended June 30,
2018 2017
Average Average Average Average
Balance Yield/Rate Balance Yield/Rate
Assets
Loans, net of unearned interest $ 11,444,448 4.74 % $ 10,812,058 4.18 %
Securities:
Taxable 3,862,378 2.13 3,997,904 1.85
Tax-exempt   3,492,647     2.66     3,640,336     3.09  
Total securities 7,355,025 2.38 7,638,240 2.44
Federal funds and resell agreements 107,343 2.81 150,745 1.89
Interest bearing due from banks 252,292 1.68 252,169 0.92
Trading securities   45,538     6.83     75,075     2.96  
Total earning assets 19,204,646 3.79 18,928,287 3.41
Allowance for loan losses (101,801 ) (95,410 )
Other assets   1,516,801     1,482,040  
Total assets $ 20,619,646   $ 20,314,917  
 
Liabilities and Shareholders' Equity
Interest-bearing deposits $ 10,800,015 0.68 % $ 9,734,166 0.32 %
Federal funds and repurchase agreements 1,737,383 1.54 2,400,181 0.83
Borrowed funds   78,583     6.40     75,953     5.22  
Total interest-bearing liabilities 12,615,981 0.83 12,210,300 0.45
Noninterest-bearing demand deposits 5,666,364 5,837,602
Other liabilities 152,491 199,386
Shareholders' equity   2,184,810     2,067,629  
Total liabilities and shareholders' equity $ 20,619,646   $ 20,314,917  
Net interest spread 2.96 % 2.96 %
Net interest margin 3.24 3.12
 
 
Average Balances / Yields and Rates   UMB Financial Corporation
(tax - equivalent basis)          
(unaudited, dollars in thousands)
Six Months Ended June 30,
2018 2017
Average Average Average Average
Balance Yield/Rate Balance Yield/Rate
Assets
Loans, net of unearned interest $ 11,365,921 4.64 % $ 10,686,792 4.14 %
Securities:
Taxable 3,865,660 2.10 4,097,794 1.85
Tax-exempt   3,563,715     2.65     3,564,319     3.08  
Total securities 7,429,375 2.37 7,662,113 2.42
Federal funds and resell agreements 134,009 2.69 194,231 1.69
Interest bearing due from banks 341,469 1.56 280,490 0.81
Trading securities   45,068     5.65     67,809     2.73  
Total earning assets 19,315,842 3.70 18,891,435 3.36
Allowance for loan losses (101,652 ) (94,264 )
Other assets   1,468,793     1,477,685  
Total assets $ 20,682,983   $ 20,274,856  
 
Liabilities and Shareholders' Equity
Interest-bearing deposits $ 10,754,187 0.60 % $ 9,689,335 0.29 %
Federal funds and repurchase agreements 1,649,758 1.39 2,365,101 0.72
Borrowed funds   78,773     6.22     76,209     5.10  
Total interest-bearing liabilities 12,482,718 0.74 12,130,645 0.40
Noninterest-bearing demand deposits 5,857,618 5,917,826
Other liabilities 170,374 200,809
Shareholders' equity   2,172,273     2,025,576  
Total liabilities and shareholders' equity $ 20,682,983   $ 20,274,856  
Net interest spread 2.96 % 2.96 %
Net interest margin 3.22 3.10
 
 
Business Segment Information   UMB Financial Corporation
(unaudited, dollars in thousands)                
Three Months Ended June 30, 2018

Commercial
Banking

Institutional
Banking

Personal
Banking

Healthcare
Services

Total
Net interest income $ 93,011 $ 16,279 $ 31,111 $ 9,825 $ 150,226
Provision for loan losses 5,139 322 1,539 — 7,000
Noninterest income 19,178 43,411 28,720 8,980 100,289
Noninterest expense   62,859   47,551   54,259   12,549   177,218
Income before taxes 44,191 11,817 4,033 6,256 66,297
Income tax expense   7,246   1,939   662   1,026   10,873
Income from continuing operations $ 36,945 $ 9,878 $ 3,371 $ 5,230 $ 55,424
Average assets $ 9,740,000 $ 3,934,000 $ 4,799,000 $ 2,147,000 $ 20,620,000
 
Three Months Ended June 30, 2017

Commercial
Banking

Institutional
Banking

Personal
Banking

Healthcare
Services

Total
Net interest income $ 86,810 $ 12,415 $ 30,615 $ 7,554 $ 137,394
Provision for loan losses 12,114 320 2,066 — 14,500
Noninterest income 21,714 48,161 31,135 9,296 110,306
Noninterest expense   62,545   46,610   56,516   11,268   176,939
Income before taxes 33,865 13,646 3,168 5,582 56,261
Income tax expense   7,188   3,137   106   1,059   11,490
Income from continuing operations $ 26,677 $ 10,509 $ 3,062 $ 4,523 $ 44,771
Average assets $ 9,842,000 $ 3,316,000 $ 5,293,000 $ 1,864,000 $ 20,315,000
 
Six Months Ended June 30, 2018

Commercial
Banking

Institutional
Banking

Personal
Banking

Healthcare
Services

Total
Net interest income $ 185,006 $ 32,023 $ 62,003 $ 19,116 $ 298,148
Provision for loan losses 13,117 672 3,211 — 17,000
Noninterest income 39,775 88,830 59,434 17,775 205,814
Noninterest expense   125,131   94,383   109,225   24,355   353,094
Income before taxes 86,533 25,798 9,001 12,536 133,868
Income tax expense   13,516   4,030   1,406   1,959   20,911
Income from continuing operations $ 73,017 $ 21,768 $ 7,595 $ 10,577 $ 112,957
Average assets $ 9,765,000 $ 3,882,000 $ 4,885,000 $ 2,151,000 $ 20,683,000
 
Six Months Ended June 30, 2017

Commercial
Banking

Institutional
Banking

Personal
Banking

Healthcare
Services

Total
Net interest income $ 172,108 $ 23,971 $ 60,809 $ 14,821 $ 271,709
Provision for loan losses 18,934 789 3,777 — 23,500
Noninterest income 40,919 93,828 59,671 18,805 213,223
Noninterest expense   125,202   91,362   112,632   21,553   350,749
Income before taxes 68,891 25,648 4,071 12,073 110,683
Income tax expense   14,870   5,456   1,015   2,595   23,936
Income from continuing operations $ 54,021 $ 20,192 $ 3,056 $ 9,478 $ 86,747
Average assets $ 9,730,000 $ 3,391,000 $ 5,317,000 $ 1,837,000 $ 20,275,000
 

The company has strategically aligned its operations into the following four reportable segments: Commercial Banking, Institutional Banking, Personal Banking, and Healthcare Services. Senior executive officers regularly evaluate business segment financial results produced by the company’s internal reporting system in deciding how to allocate resources and assess performance for individual business segments. Previously, the company had the following two business segments: Bank and Asset Servicing. The company’s reportable segments include certain corporate overhead, technology and service costs that are allocated based on methodologies that are applied consistently between periods. For comparability purposes, amounts in all periods are based on methodologies in effect at June 30, 2018.

 
Non-GAAP Financial Measures   UMB Financial Corporation
Net operating income Non-GAAP reconciliations:
(unaudited, dollars in thousands except per share data)    

Three Months Ended
June 30,

Six Months Ended
June 30,

2018   2017 2018 2017
Income from continuing operations (GAAP) $ 55,424 $ 44,771 112,957 $ 86,747
Adjustments:
Acquisition and divestiture (income) expense (24 ) 17 (6 ) 17
Severance expense 867 259 2,814 735
Tax-impact of adjustments (i)   (188 )   (99 )   (624 )   (271 )
Total Non-GAAP adjustments (net of tax)   655     177     2,184     481  
Net operating income from continuing operations (Non-GAAP) $ 56,079   $ 44,948   $ 115,141   $ 87,228  
 
Earnings per share from continuing operations - diluted (GAAP) $ 1.11 $ 0.90 $ 2.26 $ 1.74
Acquisition and divestiture (income) expense — — — —
Severance expense 0.01 — 0.05 0.01
Tax-impact of adjustments (i)   —     —     (0.01 )   —  
Operating earnings per share from continuing operations - diluted (Non-GAAP) $ 1.12   $ 0.90   $ 2.30   $ 1.75  
 
GAAP
Return on average assets 1.08 % 0.88 % 1.10 % 0.86 %
Return on average equity 10.18 8.69 10.49 8.64
 
Non-GAAP
Operating return on average assets 1.09 % 0.89 % 1.12 % 0.87 %
Operating return on average equity 10.30 8.72 10.69 8.68
 
 

Operating noninterest expense and operating efficiency ratio
Non-GAAP reconciliations:

  UMB Financial Corporation
(unaudited, dollars in thousands)      

Three Months Ended
June 30,

Six Months Ended
June 30,

2018 2017 2018 2017
Noninterest expense $ 177,218 $ 176,939 $ 353,094 $ 350,749
Adjustments to arrive at operating noninterest expense (pre-tax):
Acquisition and divestiture (income) expense (24 ) 17 (6 ) 17
Severance expense   867     259     2,814     735  
Total Non-GAAP adjustments (pre-tax)   843     276     2,808     752  
Operating noninterest expense (Non-GAAP) $ 176,375   $ 176,663   $ 350,286   $ 349,997  
 
Noninterest expense $ 177,218 $ 176,939 $ 353,094 $ 350,749
Less: Amortization of other intangibles   1,485     1,924     3,047     3,970  
Noninterest expense, net of amortization of other intangibles (Non-GAAP) (numerator A) $ 175,733   $ 175,015   $ 350,047   $ 346,779  
 
Operating noninterest expense $ 176,375 $ 176,663 $ 350,286 $ 349,997
Less: Amortization of other intangibles   1,485     1,924     3,047     3,970  
Operating expense, net of amortization of other intangibles (Non-GAAP) (numerator B) $ 174,890   $ 174,739   $ 347,239   $ 346,027  
 
Net interest income $ 150,226 $ 137,394 $ 298,148 $ 271,709
Noninterest income 100,289 110,306 205,814 213,223
Less: Gains on sales of securities available for sale, net   228     1,280     367     1,748  
Total Non-GAAP Revenue (denominator A) $ 250,287   $ 246,420   $ 503,595   $ 483,184  
 
Efficiency ratio (numerator A/denominator A) 70.21 % 71.02 % 69.51 % 71.77 %
Operating efficiency ratio (Non-GAAP) (numerator B/denominator A) 69.88 % 70.91 % 68.95 % 71.61 %

(i) Calculated using the company’s marginal tax rate of 22.2% for periods beginning after December 31, 2017 as a result of the Tax Cuts and Jobs Act. The prior periods were calculated using the company’s marginal tax rate of 36.0%.

UMB Financial Corporation
Media Contact:
Stephanie Hague, 816-860-5088
or
Investor Relations Contact:
Kay Gregory, 816-860-7106