Press Release

UMB Financial Corporation Reports Second Quarter Net Income from Continuing Operations of $44.8 Million, or $0.90 per diluted share

Company Release - 7/25/2017 5:00 PM ET

KANSAS CITY, Mo.--(BUSINESS WIRE)-- UMB Financial Corporation (Nasdaq: UMBF), a diversified financial holding company, announced net income from continuing operations for the second quarter 2017 of $44.8 million or $0.90 per diluted share, compared to $42.0 million or $0.84 per diluted share in the first quarter 2017 (linked quarter) and $36.5 million or $0.74 per diluted share in the second quarter 2016. Results from continuing operations exclude the impact of previously announced divestiture of Scout Investments, Inc., the company’s institutional investment management subsidiary. Reported GAAP net income represents an increase of 6.7 percent on a linked-quarter basis and 22.8 percent compared to the second quarter 2016. For the six months ended June 30, 2017, GAAP net income from continuing operations was $86.7 million or $1.74 per diluted share, an increase of 22.5 percent compared to $70.8 million or $1.44 per diluted share for the six month period ended June 30, 2016.

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 $44.9 million or $0.90 per diluted share for the second quarter 2017, compared to $42.3 million or $0.85 per diluted share for the linked quarter and $37.5 million or $0.76 per diluted share for the second quarter 2016. These results represent an increase of 6.3 percent on a linked-quarter basis and an increase of 20.0 percent compared to the second quarter 2016. For the six months ended June 30, 2017, net operating income from continuing operations was $87.2 million or $1.75 per diluted share, compared to $74.1 million or $1.51 per diluted share for the six month period ended June 30, 2016.

   
Summary of quarterly financial results     UMB Financial Corporation
(unaudited, dollars in thousands, except per share data)        
Q2 Q1 Q2
2017     2017     2016
Income from continuing operations

$

44,771

$

41,976

$

36,463

Income from discontinued operations-general operations 2,586 2,205 2,016
Income from discontinued operations-non-GAAP adjustments   (4,536 )       -         (961 )
Income from discontinued operations-total   (1,950 )       2,205         1,055  
Net income 42,821 44,181 37,518
 
Earnings per share from continuing operations (diluted) 0.90 0.84 0.74
Earnings per share from discontinued operations-general operations (diluted) 0.05 0.05 0.04
Earnings per share from discontinued operations-non-GAAP adjustments (diluted)   (0.09 )       -         (0.02 )
Earnings per share from discontinued operations (diluted)   (0.04 )       0.05         0.02  
Earnings per share (diluted) 0.86 0.89 0.76
 

GAAP - continuing operations

Return on average assets

0.88

%

0.84

%

0.75

%

Return on average equity 8.69 8.58 7.41
Efficiency ratio 68.30 69.82 72.61
 

Non-GAAP - continuing operations

Operating return on average assets

0.89

%

0.85

%

0.77

%

Operating return on average equity 8.72 8.65 7.61
Operating efficiency ratio 68.19 69.62 71.94
 
Summary of year-to-date financial results     UMB Financial Corporation
(unaudited, dollars in thousands, except per share data)     June     June
YTD YTD
2017     2016
Income from continuing operations

$

86,747

$

70,812

Income from discontinued operations-general operations 4,791 4,070
Income from discontinued operations-non-GAAP adjustments   (4,536 )       (961 )
Income from discontinued operations-total   255         3,109  
Net income 87,002 73,921
 
Earnings per share from continuing operations (diluted) 1.74 1.44
Earnings per share from discontinued operations-general operations (diluted) 0.10 0.09
Earnings per share from discontinued operations-non-GAAP adjustments (diluted)   (0.09 )       (0.02 )
Earnings per share from discontinued operations (diluted)   0.01         0.07  
Earnings per share (diluted) 1.75 1.51
 

GAAP - continuing operations

Return on average assets

0.86

%

0.73

%

Return on average equity 8.64 7.26
Efficiency ratio 69.04 73.36
 

Non-GAAP - continuing operations

Operating return on average assets

0.87

%

0.77

%

Operating return on average equity 8.68 7.60
Operating efficiency ratio 68.89 72.21
 

“Overall, I’m pleased with our results for the first half of the year, as we continue to focus on improved operating leverage across the company,” said Mariner Kemper, chairman and chief executive officer. Net interest margin improved three basis points on a linked quarter basis, driven primarily by the favorable change in our earning asset mix, combined with higher interest rates and increased loan volumes. We are pleased with this progress, as loan growth continued to be strong for the second quarter, up 9.4 percent year-over-year. In addition, noninterest income for the quarter improved 7.3 percent, reflecting, in part, solid contributions from our wealth management and asset servicing businesses.”

Discussion of results from continuing operations

Summary of revenue     UMB Financial Corporation
(unaudited, dollars in thousands)                    
Q2 Q1 Q2 CQ vs. CQ vs.
2017     2017     2016     LQ     PY
 
Net interest income

$

137,394

$

134,315

$

121,210

$

3,079

$

16,184

Noninterest income:
Trust and securities processing 44,811 42,541 41,072 2,270 3,739
Trading and investment banking 6,173 7,542 5,638 (1,369 ) 535
Service charges on deposit accounts 22,731 22,075 22,420 656 311
Insurance fees and commissions 513 646 1,160 (133 ) (647 )
Brokerage fees 5,889 5,377 4,262 512 1,627
Bankcard fees 20,234 17,752 17,534 2,482 2,700
Gains on sales of securities available for sale, net 1,280 468 2,598 812 (1,318 )
Equity (losses) earnings on alternative investments (195 ) (614 ) 978 419 (1,173 )
Other   8,870         7,130         7,112         1,740         1,758  
Total noninterest income

$

110,306

     

$

102,917

     

$

102,774

     

$

7,389

     

$

7,532

 
                         
Total Revenue

$

247,700

     

$

237,232

     

$

223,984

     

$

10,468

     

$

23,716

 
 
Net interest margin

3.12

%

3.09

%

2.86

%

 
Total noninterest income as a % of total revenue 44.53 43.38 45.88
 

Net interest income

  • On a linked quarter basis, the increase in net interest income was driven by a three basis point improvement in net interest margin, coupled with a 2.4 percent, or $251.9 million, increase in average loans.
  • Earning asset yields improved ten basis points from the linked quarter driven by improved loan yields of nine basis points. The cost of interest-bearing liabilities also increased ten basis points due to increased federal fund borrowing costs of 23 basis points coupled with a seven basis point increase in interest-bearing deposit rates.
  • The cost of interest-bearing liabilities for the second quarter 2017 was 45 basis points, and total cost of funds including noninterest-bearing deposits was 31 basis points.
  • On a year-over-year basis, the increase in net interest income was driven by a 9.4 percent or $924.7 million increase in average loans as well as higher average loan yields, which increased 36 basis points from a year ago, primarily driven by higher interest rates and mix changes.
  • For the second quarter 2017, average earning assets stood at $18.9 billion, which is flat compared to the linked quarter and an increase of 4.7 percent over the second quarter 2016.

Noninterest income

  • Second quarter 2017 noninterest income increased $7.4 million, or 7.2 percent, on a linked quarter basis largely due to:
    • a $1.0 million increase in fund servicing revenue from new business growth and higher custody fees and a $0.9 million increase in wealth management revenue both recorded in trust and securities processing;
    • higher bankcard fees driven by a $1.4 million decrease in retail and commercial card program rewards and rebates expense recorded and a $0.9 million increase in interchange income;
    • a $0.8 million increase in gains on sales of available-for-sale securities;
    • an increase in other noninterest income of $1.7 million which was primarily due to a $1.0 million gain on the sale of a branch building and a $0.4 million increase in derivative income;
    • which were partially offset by a $0.7 million decrease in bond trading fees and $0.7 million decrease in the company’s seed investments in certain Scout Funds, both recorded in trading and investment banking income.
  • Noninterest income in the second quarter of 2017 improved $7.5 million, or 7.3 percent, compared to the same quarter in 2016 primarily driven by:
    • a $1.9 million increase in wealth management revenue and a $1.1 million increase in fund servicing revenue both recorded in trust and securities processing;
    • higher bankcard fees driven by a $2.2 million decrease in retail and commercial card program rewards and rebates expense and a $1.0 million increase in interchange income;
    • an increase in other noninterest income due to a $1.2 million increase in the fair value of company-owned life insurance;
    • a $1.6 million increase in 12b-1 income recorded in brokerage fees;
    • which were partially offset by a $1.3 million decrease in gains on available-for-sale securities.
Summary of Noninterest expense     UMB Financial Corporation
(unaudited, dollars in thousands)                    
Q2 Q1 Q2 CQ vs. CQ vs.
2017     2017     2016     LQ     PY
 
Salaries and employee benefits

$

102,773

$

103,652

$

97,322

$

(879

)

$

5,451

Occupancy, net 11,061 10,968 10,978 93 83
Equipment 17,956 17,482 16,714 474 1,242
Supplies and services 4,792 4,094 4,577 698 215
Marketing and business development 5,732 4,141 6,027 1,591 (295 )
Processing fees 10,743 9,199 8,969 1,544 1,774
Legal and consulting 6,467 5,050 4,903 1,417 1,564
Bankcard 5,033 4,903 5,369 130 (336 )
Amortization of other intangible assets 1,924 2,046 2,237 (122 ) (313 )
Regulatory fees 4,071 3,833 3,692 238 379
Other   6,387       8,442       7,631       (2,055 )       (1,244 )
Total noninterest expense

$

176,939

   

$

173,810

   

$

168,419

   

$

3,129

     

$

8,520

 
 

Noninterest expense

  • GAAP noninterest expense for the second quarter of 2017 was $176.9 million and increased $3.1 million, or 1.8 percent from the linked quarter.
  • On a non-GAAP basis, operating noninterest expense (as reconciled later in this release) was $176.7 million for the second quarter 2017, an increase of $3.3 million, or 1.9 percent, compared to the linked quarter, and $9.8 million, or 5.9 percent, compared to the second quarter 2016.
  • The linked quarter increase in noninterest expense and operating noninterest expense was driven by increases in marketing and business development, legal and consulting expenses, and processing fees. These increases were partially offset by decreases in other expenses driven by lower operating losses.
  • The year over year increase in noninterest expense of $8.5 million, or 5.1 percent, was primarily driven by:
    • a $3.4 million increase in salary and wage expense, a $1.3 million increase in employee benefits partially driven by a $1.1 million increase in fair value adjustments on the company’s deferred compensation plan, and a $0.8 million increase in bonus and commission expense; and
    • higher consulting expense and equipment expense for computer and hardware costs related to investments for regulatory requirements, cyber security, and the ongoing modernization of the company’s core systems, as well as higher processing expenses in healthcare, fund servicing, and institutional businesses.

Income Taxes

  • For the six months ended June 30, 2017, the company’s effective tax rate decreased to 21.6 percent compared to 24.8 percent for the same period a year earlier. The decrease is primarily a result of an increase in excess tax benefits associated with stock compensation recorded in the first and second quarter of 2017 compared to the same period a year earlier.

Balance Sheet

  • Average total assets for the second quarter were $20.3 billion compared to $20.2 billion for the linked quarter, and $19.4 billion for the same period in 2016.
Summary of average loans and leases - QTD Average   UMB Financial Corporation
(unaudited, dollars in thousands)  
Q2   Q1   Q2   CQ vs.   CQ vs.
2017   2017   2016   LQ   PY
 
Commercial $ 4,597,866 $ 4,397,675 $ 4,357,474 $ 200,191 $ 240,392
Asset based loans 242,719 225,818 221,989 16,901 20,730
Factoring loans 155,528 148,356 93,993 7,172 61,535
Commercial credit card 157,214 157,864 149,740 (650 )

7,474

Real estate - construction 802,350 793,892 508,080 8,458 294,270
Real estate - commercial 3,152,317 3,157,363 2,887,255 (5,046 ) 265,062
Real estate - residential 592,253 567,611 491,971 24,642 100,282
Real estate - HELOC 682,889 697,010 732,800 (14,121 ) (49,911 )
Consumer credit card 254,552 249,489 276,479 5,063

(21,927

)
Consumer other 139,120 125,835 127,458 13,285 11,662
Leases   35,250     39,221     40,165     (3,971 )     (4,915 )
Total loans $ 10,812,058   $ 10,560,134   $ 9,887,404   $ 251,924     $ 924,654  
 
  • Average loans for the second quarter 2017 increased 2.4 percent, on a linked-quarter basis, and 9.4 percent, compared to second quarter 2016.
Summary of average securities - QTD Average   UMB Financial Corporation
(unaudited, dollars in thousands)  
Q2   Q1   Q2   CQ vs.   CQ vs.
2017   2017   2016   LQ   PY
 
Securities available for sale:
U.S. Treasury $ 63,945 $ 83,302 $ 353,045 $ (19,357 ) $ (289,100 )
U.S. Agencies 48,914 144,166 497,558 (95,252 ) (448,644 )
Mortgage-backed 3,677,797 3,753,733 3,598,789 (75,936 ) 79,008
State and political subdivisions 2,478,358 2,412,351 2,236,301 66,007 242,057
Corporates   60,508     66,840     80,122     (6,332 )     (19,614 )
Total securities available for sale 6,329,522 6,460,392 6,765,815 (130,870 ) (436,293 )
Securities held to maturity:
State and political subdivisions 1,242,519 1,157,871 833,487 84,648 409,032
Trading securities 75,075 60,462 40,996 14,613 34,079
Other securities   66,199     67,988     64,145     (1,789 )     2,054  
Total securities $ 7,713,315   $ 7,746,713   $ 7,704,443   $ (33,398 )   $ 8,872  
 
  • The growth in the company’s held to maturity securities portfolio is attributed to increased activity in private placement bonds, primarily used to refinance existing revenue bonds in the healthcare and education sectors.
Summary of average deposits - QTD Average   UMB Financial Corporation
(unaudited, dollars in thousands)          
Q2 Q1 Q2 CQ vs. CQ vs.
2017   2017   2016   LQ   PY
 
Deposits:
Noninterest-bearing demand

$

5,837,602

$

5,998,943

$

5,723,840

$

(161,341

)

$

113,762

Interest-bearing demand and savings 8,475,782 8,564,059 8,150,545 (88,277 ) 325,237
Time deposits   1,258,384       1,079,946       1,165,306       178,438       93,078
Total deposits

$

15,571,768

   

$

15,642,948

   

$

15,039,691

   

$

(71,180

)

 

$

532,077

 
Non-interest bearing deposits as % of total

37.49

%

38.35

%

38.06

%

 
  • Average noninterest-bearing demand deposits increased 2.0 percent from the second quarter of 2016, but declined 2.7 percent on a linked-quarter basis primarily due to institutional customers deploying more funds in the markets.

Capital

Capital information     UMB Financial Corporation
(unaudited, dollars in thousands, except per share data)    
June 30,     March 31,     June 30,
2017     2017    

2016

 
Total equity $ 2,071,119 $ 2,010,878 $ 2,003,141
Book value per common share 41.42 40.34 40.44
 
Regulatory capital:
Common equity Tier 1 capital $ 1,863,359 $ 1,821,915 $ 1,709,986
Tier 1 capital 1,863,359 1,821,915 1,709,833
Total capital 2,031,618 1,985,231 1,864,389
 
Regulatory capital ratios:
Common equity Tier 1 capital ratio

12.22

%

 

11.89

%

 

11.65

%

Tier 1 risk-based capital ratio 12.22 11.89 11.65
Total risk-based capital ratio 13.32 12.96 12.70
Tier 1 leverage ratio 9.28 9.11 8.91
 
  • At June 30, 2017, the company’s estimated 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
2017     2017     2016     2016     2016
 
Net charge-offs (recoveries) - Commercial loans

$

7,971

$

5,283

$

1,127

$

5,538

$

(59

)

Net (recoveries) charge-offs - Real estate loans (95 ) 125 3,373 (67 ) 1,164
Net charge-offs - Consumer credit card loans 2,079 1,815 1,692 1,658 1,575
Net charge-offs - Consumer other loans 71 103 63 133 52
Net charge-offs - Total loans 10,026 7,326 6,255 7,262 2,732
Net loan charge-offs as a % of total average loans

0.37

%

0.28

%

0.24

%

0.28

%

0.11

%

Loans over 90 days past due

$

2,657

$

3,369

$

3,365

$

2,678

$

4,700

Loans over 90 days past due as a % of total loans

0.02

%

0.03

%

0.03

%

0.03

%

0.05

%

Nonaccrual and restructured loans

$

51,390

$

56,594

$

70,259

$

79,607

$

58,423

Nonaccrual and restructured loans as a % of total loans

0.47

%

0.53

%

0.67

%

0.77

%

0.58

%

Provision for loan losses

$

14,500

$

9,000

$

7,500

$

13,000

$

7,000

 
  • Nonperforming loans, defined as restructured loans on nonaccrual and all other nonaccrual loans, decreased $5.2 million from the linked quarter and decreased $7.0 million from the prior year period.
  • The increase in net charge-offs to $10.0 million or 0.37 percent of total loans, was driven primarily by a charge-off of one commercial credit to a manufacturing and distribution company.
  • Provision for loan losses increased $5.5 million from the linked quarter, consistent with our methodology, which considers the inherent risk in our loan portfolio, as well as other qualitative factors, such as macroeconomic conditions, loan growth, increased impaired loans, and increased net charge-offs.

Divestiture

On April 20, 2017, the company announced the execution of an agreement to sell 100 percent of the stock of Scout Investments, Inc. (Scout), its institutional investment management subsidiary, to Carillon Tower Advisers, a unit of Raymond James Financial, for $172.5 million in cash, subject to purchase price adjustments at closing, which is expected to occur in the fourth quarter of 2017. The company plans to use the proceeds from the transaction to support its current growth strategies. See the company’s Current Report on Form 8-K filed with the Securities Exchange Commission on April 20, 2017 for additional information.

Results attributed to Scout’s performance are designated as discontinued operations in the current and prior periods. Loss from such discontinued operations for the second quarter 2017 was $2.0 million or ($0.04) per diluted share, compared to income from discontinued operations of $2.2 million or $0.05 per diluted share in the first quarter 2017 and income from discontinued operations of $1.1 million or $0.02 per diluted share in the second quarter 2016. Year-to-date income from discontinued operations as of June 30, 2017, was $0.3 million or $0.01 per diluted share, compared to $3.1 million or $0.07 per diluted share for the six month period ended June 30, 2016. The loss from discontinued operations in the second quarter resulted primarily from $7.1 million in pre-tax divestiture expenses incurred.

Income from discontinued operations-general operations, a non-GAAP financial measure which is reconciled to the nearest comparable GAAP measure later in this release, was $2.6 million or $0.05 per diluted share for the second quarter 2017, compared to $2.2 million or $0.05 per diluted share for the linked quarter and $2.0 million or $0.04 per diluted share for the first quarter 2016. Year-to-date income from discontinued operations-general operations as of June 30, 2017, was $4.8 million or $0.10 per diluted share, compared to $4.1 million or $0.09 per diluted share for the six month period ended June 30, 2016. The primary non-GAAP adjustment is the $7.1 million in pre-tax divestiture expenses incurred in the second quarter of 2017.

Dividend Declaration

At the company’s quarterly board meeting, the Board of Directors declared a $0.255 per share quarterly cash dividend, payable on October 2, 2017, to shareholders of record at the close of business on September 8, 2017.

Conference Call

The company plans to host a conference call to discuss its second quarter 2017 earnings results on Wednesday, July 26, 2017, 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 2Q 2017 Conference Call

A replay of the conference call may be heard through August 9, 2017, by calling (toll-free) 877-344-7529 or (U.S.) 412-317-0088. The replay pass code required for playback is 10109956. 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 (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 (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 (basic and 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)-(v) 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 (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 net income from discontinued operations, adjusted to reflect the impact of excluding non-GAAP adjustment (iii) and (v) above and (iv) divestiture expenses related to Scout for the relevant period. 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) and (v) above and (iv) divestiture expenses related to Scout 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 expected cost savings and other results of efficiency initiatives and 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 diversified financial holding company headquartered in Kansas City, Mo., offering complete banking services, payment solutions, asset servicing, and institutional investment management to customers. 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. Subsidiaries of the holding company include companies that offer services to mutual funds and alternative-investment entities and registered investment advisors that offer equity and fixed income strategies to institutions and individual investors. For more information, visit umb.com, umbfinancial.com, blog.umb.com or follow us on Twitter at @UMBBank, Facebook at facebook.com/UMBBank and LinkedIn at linkedin.com/company/umb-bank.

       
Consolidated Balance Sheets         UMB Financial Corporation
(unaudited, dollars in thousands)
June 30,

Assets

2017     2016
   
Loans $ 10,848,578 $ 10,083,266
Allowance for loan losses   (97,797 )       (84,666 )

Net loans

  10,750,781         9,998,600  
Loans held for sale 3,443 10,495
Investment securities:
Available for sale 6,226,041 6,771,179
Held to maturity 1,279,524 880,600
Trading securities 61,833 56,311
Other securities   65,039         66,300  
Total investment securities   7,632,437         7,774,390  
Federal funds and resell agreements 184,521 196,283
Interest-bearing due from banks 332,090 379,611
Cash and due from banks 379,148 355,732
Premises and equipment, net 276,412 277,060
Accrued income 99,122 92,650
Goodwill 180,867 180,867
Other intangibles, net 24,614 30,769
Other assets 436,421 380,448
Discontinued assets   53,743         57,171  
Total assets $ 20,353,599       $ 19,734,076  
 

Liabilities

Deposits:
Noninterest-bearing demand $ 6,433,339 $ 6,233,492
Interest-bearing demand and savings 8,429,180 8,270,416
Time deposits under $250,000 569,281 695,629
Time deposits of $250,000 or more   664,866         449,156  
Total deposits   16,096,666         15,648,693  
Federal funds and repurchase agreements 1,886,370 1,788,567
Short-term debt - 5,003
Long-term debt 76,083 85,320
Accrued expenses and taxes 161,470 148,618
Other liabilities   61,891         54,734  
Total liabilities   18,282,480         17,730,935  
 

Shareholders' Equity

Common stock 55,057 55,057
Capital surplus 1,037,898 1,024,083
Retained earnings 1,204,436 1,082,801
Accumulated other comprehensive (loss) income (23,625 ) 55,295
Treasury stock   (202,647 )       (214,095 )
Total shareholders' equity   2,071,119         2,003,141  
Total liabilities and shareholders' equity $ 20,353,599       $ 19,734,076  
 
 
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,

Interest Income

2017     2016     2017     2016
Loans $ 112,724     $ 93,949 $ 219,284     $ 184,493
Securities:
Taxable interest 18,441 18,852 37,631 38,209
Tax-exempt interest   18,296         13,845       35,479         26,580
Total securities income 36,737 32,697 73,110 64,789
Federal funds and resell agreements 711 642 1,630 1,149
Interest-bearing due from banks 580 436 1,131 1,327
Trading securities   459         173       746         225
Total interest income   151,211         127,897       295,901         251,983
 

Interest Expense

Deposits 7,835 4,136 13,801 8,191
Federal funds and repurchase agreements 4,994 1,626 8,463 2,856
Other   988         925       1,928         1,834
Total interest expense   13,817         6,687       24,192         12,881
Net interest income 137,394 121,210 271,709 239,102
Provision for loan losses   14,500         7,000       23,500         12,000
Net interest income after provision for loan losses   122,894         114,210       248,209         227,102
 

Noninterest Income

Trust and securities processing 44,811 41,072 87,352 82,172
Trading and investment banking 6,173 5,638 13,715 10,268
Service charges on deposits 22,731 22,420 44,806 43,881
Insurance fees and commissions 513 1,160 1,159 2,657
Brokerage fees 5,889 4,262 11,266 8,447
Bankcard fees 20,234 17,534 37,986 35,550
Gains on sale of securities available for sale, net 1,280 2,598 1,748 5,531
Equity (loss) earnings on alternative investments (195 ) 978 (809 ) 597
Other   8,870         7,112       16,000         11,636
Total noninterest income   110,306         102,774       213,223         200,739
 

Noninterest Expense

Salaries and employee benefits 102,773 97,322 206,425 193,891
Occupancy, net 11,061 10,978 22,029 21,772
Equipment 17,956 16,714 35,438 32,778
Supplies, postage and telephone 4,792 4,577 8,886 9,403
Marketing and business development 5,732 6,027 9,873 10,183
Processing fees 10,743 8,969 19,942 18,034
Legal and consulting 6,467 4,903 11,517 9,670
Bankcard 5,033 5,369 9,936 11,184
Amortization of other intangibles 1,924 2,237 3,970 4,556
Regulatory fees 4,071 3,692 7,904 7,121
Other   6,387         7,631       14,829         15,095
Total noninterest expense 176,939 168,419 350,749 333,687
Income before income taxes   56,261         48,565       110,683         94,154
Income tax provision   11,490         12,102       23,936         23,342
Income from continuing operations $ 44,771 $ 36,463 $ 86,747 $ 70,812

Discontinued operations

(Loss) Income from discontinued operations before income taxes (2,599 ) 1,749 308 4,958
Income tax (benefit) expense   (649 )       694       53         1,849
(Loss) Income on discontinued operations   (1,950 )       1,055       255         3,109
Net Income $ 42,821       $ 37,518     $ 87,002       $ 73,921
 

Per Share Data

Basic:

 

 

 

 

Income from continuing operations

$

0.91

$

0.75

$

1.76

$

1.45

(Loss) income from discontinued operations

(0.04 ) 0.02 0.01 0.07
Net income – basic

 

0.87

 

0.77

 

1.77

 

1.52
Diluted:
Income from continuing operations 0.90 0.74 1.74 1.44

(Loss) income from discontinued operations

(0.04 ) 0.02 0.01 0.07
Net income – diluted 0.86 0.76 1.75 1.51
Dividends 0.255 0.245 0.510 0.490
 
Weighted average shares outstanding 49,269,786 48,770,948 49,190,271 48,763,690
Weighted average shares outstanding – diluted 49,848,903 49,149,076 49,829,193 49,084,413
 
 
Consolidated Statements of Comprehensive Income     UMB Financial Corporation
(unaudited, dollars in thousands)    

Three Months Ended
June 30,

   

Six Months Ended
June 30,

2017     2016     2017     2016
Net Income $ 42,821     $ 37,518 $ 87,002     $ 73,921
Other comprehensive income, net of tax:
Unrealized gains on securities:
Change in unrealized holding gains, net 35,311 42,273 57,582 107,585
Less: Reclassifications adjustment for gains included in net income   (1,280 )       (2,598 )       (1,748 )       (5,531 )
Change in unrealized gains on securities during the period 34,031 39,675 55,834 102,054
Change in unrealized losses on derivatives (1,157 ) (2,894 ) (911 ) (7,034 )
Income tax expense   (12,340 )       (13,954 )       (21,006 )       (36,007 )
Other comprehensive income   20,534         22,827         33,917         59,013  
Comprehensive income $ 63,355       $ 60,345       $ 120,919       $ 132,934  
 
 
Consolidated Statements of Shareholders' Equity    

UMB Financial Corporation

(unaudited, dollars in thousands, except per share data)
                Accumulated        
Other
Common Capital Retained Comprehensive Treasury
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 - - 73,921 59,013 - 132,934
Cash dividends ($0.490 per share) - - (24,254 ) - - (24,254 )
Purchase of treasury stock - - - - (13,581 ) (13,581 )
Issuance of equity awards - (4,457 ) - 4,887 430
Recognition of equity based compensation - 5,000 - - - 5,000
Sale of treasury stock - 260 - - 309 569
Exercise of stock options - 2,053 - - 5,814 7,867
Cumulative effect adjustment   -       1,338         (856 )       -         -         482  
Balance – June 30, 2016 $ 55,057     $ 1,024,083       $ 1,082,801       $ 55,295       $ (214,095 )     $ 2,003,141  
 
 
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 ($0.510 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  
 
 
Average Balances / Yields and Rates     UMB Financial Corporation
(tax - equivalent basis)    
(unaudited, dollars in thousands) Three Months Ended June 30,
2017     2016
Average     Average     Average     Average

Assets

Balance     Yield/Rate     Balance     Yield/Rate
Loans, net of unearned interest $ 10,812,058

4.18

%

$ 9,887,404

3.82

%

Securities:
Taxable 3,997,904 1.85 4,676,230 1.62
Tax-exempt   3,640,336       3.09     2,987,217       2.86  

Total securities

7,638,240 2.44 7,663,447 2.11
Federal funds and resell agreements 150,745 1.89 181,094 1.43
Interest-bearing due from banks 252,169 0.92 313,427 0.56
Trading securities   75,075       2.96     40,996       2.09  
Total earning assets 18,928,287 3.41 18,086,368 3.01
Allowance for loan losses (95,410 ) (81,699 )
Other assets   1,482,040     1,431,600  
Total assets $ 20,314,917   $ 19,436,269  
 
 

Liabilities and Shareholders' Equity

Interest-bearing deposits $ 9,734,166

0.32

%

$ 9,315,851

0.18

%

Federal funds and repurchase agreements 2,400,181 0.83 2,163,264 0.30
Borrowed funds   75,953       5.22     91,034       4.09  
Total interest-bearing liabilities 12,210,300 0.45 11,570,149 0.23
Noninterest-bearing demand deposits 5,837,602 5,723,840
Other liabilities 199,386 162,390
Shareholders' equity   2,067,629     1,979,890  
Total liabilities and shareholders' equity $ 20,314,917   $ 19,436,269  
Net interest spread

2.96

%

2.78

%

Net interest margin 3.12 2.86
 
Average Balances / Yields and Rates     UMB Financial Corporation
(tax - equivalent basis)    
(unaudited, dollars in thousands) Six Months Ended June 30,
2017     2016
Average     Average     Average     Average

Assets

Balance     Yield/Rate     Balance     Yield/Rate
Loans, net of unearned interest $ 10,686,792

4.14

%

$ 9,718,848

3.82

%

Securities:
Taxable 4,097,794 1.85 4,751,526 1.62
Tax-exempt   3,564,319       3.08     2,896,366       2.84  
Total securities 7,662,113 2.42 7,647,892 2.08
Federal funds and resell agreements 194,231 1.69 163,943 1.41
Interest-bearing due from banks 280,490 0.81 481,031 0.55
Trading securities   67,809       2.73     33,677       1.67  
Total earning assets 18,891,435 3.36 18,045,391 2.97
Allowance for loan losses (94,264 ) (81,259 )
Other assets   1,477,685     1,420,465  
Total assets $ 20,274,856   $ 19,384,597  
 

Liabilities and Shareholders' Equity

Interest-bearing deposits $ 9,689,335

0.29

%

$ 9,372,812

0.18

%

Federal funds and repurchase agreements 2,365,101 0.72 1,929,910 0.30
Borrowed funds   76,209       5.10     91,796       4.02  
Total interest-bearing liabilities 12,130,645 0.40 11,394,518 0.23
Noninterest-bearing demand deposits 5,917,826 5,869,330
Other liabilities 200,809 160,173
Shareholders' equity   2,025,576     1,960,576  
Total liabilities and shareholders' equity $ 20,274,856   $ 19,384,597  
Net interest spread

2.96

%

2.74

%

Net interest margin 3.10 2.82
 
Business Segment Information     UMB Financial Corporation
(unaudited, dollars in thousands)
    Three Months Ended June 30, 2017
Bank    

Asset
Servicing

    Total
Net interest income $ 134,480     $ 2,914     $ 137,394
Provision for loan losses 14,500 - 14,500
Noninterest income 86,084 24,222 110,306
Noninterest expense   154,474       22,465       176,939
Income before taxes 51,590 4,671 56,261
Income tax expense   10,560       930       11,490
Income from continuing operations $ 41,030     $ 3,741     $ 44,771
 
Average assets $ 19,560,000 $ 755,000 $ 20,315,000
 
 
Three Months Ended June 30, 2016
Bank    

Asset
Servicing

    Total
Net interest income $ 118,613 $ 2,597 $ 121,210
Provision for loan losses 7,000 - 7,000
Noninterest income 79,565 23,209 102,774
Noninterest expense   146,950       21,469       168,419
Income before taxes 44,228 4,337 48,565
Income tax expense   10,991       1,111       12,102
Income from continuing operations $ 33,237     $ 3,226     $ 36,463
 
Average assets $ 18,227,950 $ 1,208,050 $ 19,436,000
 
    Six Months Ended June 30, 2017
Bank    

Asset
Servicing

    Total
Net interest income $ 266,119     $ 5,590     $ 271,709
Provision for loan losses 23,500 - 23,500
Noninterest income 165,822 47,401 213,223
Noninterest expense   306,689       44,060       350,749
Income before taxes 101,752 8,931 110,683
Income tax expense   22,032       1,904       23,936
Income from continuing operations $ 79,720     $ 7,027     $ 86,747
 
Average assets $ 19,479,950 $ 795,050 $ 20,275,000
 
 
Six Months Ended June 30, 2016
Bank    

Asset
Servicing

    Total
Net interest income $ 233,884 $ 5,218 $ 239,102
Provision for loan losses 12,000 - 12,000
Noninterest income 154,102 46,637 200,739
Noninterest expense   291,253       42,434       333,687
Income before taxes 84,733 9,421 94,154
Income tax expense   20,919       2,423       23,342
Income from continuing operations $ 63,814     $ 6,998     $ 70,812
 
Average assets $ 18,086,900 $ 1,298,100 $ 19,385,000
 
 
Non-GAAP Financial Measures     UMB Financial Corporation
Net operating income non-GAAP reconciliation:
(unaudited, dollars in thousands, except share and per share data)
 
    Three Months Ended     Six Months Ended
June 30, June 30,
2017     2016     2017     2016
Net income from continuing operations (GAAP) $ 44,771     $ 36,463 $ 86,747     $ 70,812
Adjustments:
Fair value adjustments on contingent consideration (i) - - - 67
Acquisition expenses (ii) 17 996 17 4,039
Non-acquisition severance expense (iii) 259 547 735 1,071
Tax-impact of adjustments (v)   (99 )       (555 )       (271 )       (1,864 )
Total Non-GAAP adjustments (net of tax)   177         988         481         3,313  
Net operating income (Non-GAAP) $ 44,948       $ 37,451       $ 87,228       $ 74,125  
 
Earnings per share from continuing operations as reported - diluted $ 0.90 $ 0.74 $ 1.74 $ 1.44
Fair value adjustments on contingent consideration (i) - - - -
Acquisition expenses (ii) - 0.02 - 0.09
Non-acquisition severance expense (iii) - 0.01 0.01 0.02
Tax-impact of adjustments (v)   -         (0.01 )       -         (0.04 )
Operating earnings per share - diluted $ 0.90       $ 0.76       $ 1.75       $ 1.51  
 

GAAP

Return on average assets

0.88

%

 

0.75

%

 

0.86

%

 

0.73

%

Return on average equity 8.69 7.41 8.64 7.26
 

Non-GAAP

Operating return on average assets

0.89

%

 

0.77

%

 

0.87

%

 

0.77

%

Operating return on average equity 8.72 7.61 8.68