News Details

KANSAS CITY, Mo.--(BUSINESS WIRE)-- UMB Financial Corporation (Nasdaq: UMBF), a diversified financial holding company, announced net income for the first quarter 2017 of $44.2 million or $0.89 per diluted share, compared to $42.9 million or $0.87 per diluted share in the fourth quarter 2016 (linked quarter) and $36.4 million or $0.74 per diluted share in the first quarter 2016. Such reported GAAP net income represents an increase of 2.9 percent on a linked-quarter basis and 21.4 percent compared to the first quarter 2016.

Net operating income, a non-GAAP financial measure which is reconciled to the nearest comparable GAAP measure later in this release, was $44.5 million or $0.89 per diluted share for the first quarter 2017, compared to $45.3 million or $0.91 per diluted share for the linked quarter and $38.7 million or $0.79 per diluted share for the first quarter 2016. These results represent a decrease of 1.8 percent on a linked-quarter basis and an increase of 14.9 percent compared to the first quarter 2016.

“2017 is off to a solid start for UMB,” said Mariner Kemper, chairman and chief executive officer. “We continue to post double-digit year-over-year loan growth, with average loans increasing 10.6 percent compared to the same period in 2016. This growth, along with our efforts to achieve an optimal mix of earning assets and increased loan yields, drove a 13.9 percent increase in net interest income. We are pleased with this continued growth, as well as our progress toward improved profitability.

“In addition, we announced last week an agreement to sell our Scout Investments business to Carillon Tower Advisers. This was a strategic business decision that will allow us to invest time, energy and capital resources into growing our core banking businesses.”

Net interest income

• On a linked quarter basis, the increase in net interest income was driven by a nine basis point improvement in net interest margin, coupled with a 2.1 percent, or $214.1 million, increase in average loans.
• Earning asset yields improved 14 basis points from the linked quarter, which was partially offset by an increase in the cost of interest-bearing liabilities of nine basis points. Average loan yields improved 13 basis points from the linked quarter to 4.09 percent, driven, in part, by favorable re-pricing and mix changes within the loan portfolio.
• On a year-over-year basis, the increase in net interest income was driven by a 10.6 percent or $1.0 billion increase in average loans as well as higher average loan yields, which increased 28 basis points from a year ago, primarily driven by favorable pricing and mix changes.
• For the first quarter 2017, average earning assets stood at $18.9 billion, an increase of 1.6 percent over the linked quarter and 4.7 percent over the first quarter 2016.

Noninterest income

• First quarter 2017 noninterest income increased $4.5 million, or 3.8 percent, on a linked quarter basis largely due to:
  • a $2.4 million increase in unrealized gains on the company’s seed investments in certain Scout funds;
  • a $1.1 million increase in deposit service charges primarily driven by the company’s healthcare business;
  • a $0.7 million increase in interchange income and a $0.6 million decrease in retail and commercial card program rewards and rebates expense recorded within bankcard fees;
  • which were partially offset by a $1.1 million decrease in equity earnings on alternative investments.
• Noninterest income improved $4.4 million, or 3.8 percent, compared to the same quarter in 2016 driven by:
  • a $1.4 million increase in unrealized gains on the company’s seed investments in certain Scout funds and $0.7 million increase in bond underwriting fees, both recorded in trading and investment banking income;
  • an increase in other noninterest income due to a $2.0 million increase in the fair value of company-owned life insurance;
  • a $1.3 million increase in 12b-1 income recorded in brokerage fees;
  • which were partially offset by a $2.5 million decrease in gains on available-for-sale securities.

Noninterest expense

• 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 $188.3 million for the first quarter 2017, an increase of $5.7 million, or 3.1 percent, compared to the linked quarter, and $11.5 million, or 6.5 percent, compared to the first quarter 2016.
• On a linked quarter GAAP basis, the $2.4 million, or 1.3 percent, increase in noninterest expense was driven by expected increases in payroll taxes, 401(k) benefits, and medical insurance expense, offset, in part, by decreases in marketing and business development and legal and consulting expenses from elevated fourth quarter levels.
• The increase in noninterest expense of $8.3 million, or 4.6 percent, compared to the first quarter 2016 was primarily driven by:
  • a $1.9 million increase in salary and wage expense, a $1.9 million increase in bonus and commission expense, and a $3.1 million increase in employee benefits partially driven by a $1.6 million increase in fair value adjustments on the company’s deferred compensation plan; and
  • higher 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.

Income Taxes

• The Company’s effective tax rate was 22.9 percent for the quarter ended March 31, 2017 compared to 25.4 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 quarter of 2017 compared to the same period a year earlier.

Balance Sheet

• Average total assets for the first quarter 2017 were $20.2 billion compared to $19.9 billion for the linked quarter, and $19.3 billion for the same period in 2016.

• Average loans for the first quarter 2017 increased 2.1 percent, on a linked-quarter basis, and 10.6 percent, compared to first quarter 2016.

• 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.

• The cost of interest-bearing liabilities for the first quarter 2017 was 35 basis points, and total cost of funds including noninterest-bearing deposits was 23 basis points.

• Nonperforming loans, defined as restructured loans on nonaccrual and all other nonaccrual loans, decreased $13.7 million from the linked quarter and increased $1.7 million from the prior year.

Divestiture Subsequent Event

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, with $27.9 billion in assets under management as of March 31, 2017, to Carillon Tower Advisers, a unit of Raymond James Financial, for $172.5 million in cash, subject to purchase price adjustments at closing. The company plans to use the proceeds from the transaction to support its current growth strategies. See the company’s current report Form 8-K filed with the Securities and Exchange Commission on April 20, 2017 for additional information. The transaction did not meet the requirements to be accounted for as a discontinued operation for the March 31, 2017 reporting period but will be presented as a discontinued operation prospectively. The following table shows the company’s income statement components from continuing operations and income from discontinued operations (Scout) for the previous financial periods listed below on a supplemental basis to give effect to the sale of Scout.

Conference Call

The company plans to host a conference call to discuss its first quarter 2017 earnings results on Wednesday, April 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 1Q 2017 Conference Call

A replay of the conference call may be heard through May 10, 2017, by calling (toll-free) 877-344-7529 or (U.S.) 412-317-0088. The replay pass code required for playback is 10103480. 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, 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 (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 fair value adjustments, acquisition- and severance-related items and one-time marketing agent termination 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, (iv) expenses related to the buy-out and termination of certain marketing and referral agreements in the company’s institutional investment management business, 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)-(iv) 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).

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 reduced regulation, tax reform and our ability to capitalize on changes. 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, 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.