News Details

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

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

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

Discussion of results from continuing operations

Net interest income

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

Noninterest income

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

Noninterest expense

• GAAP noninterest expense for the fourth quarter of 2017 was $182.6 million and increased $10.7 million, or 6.2 percent from the linked quarter.
• On a non-GAAP basis, operating noninterest expense (as reconciled later in this release) was $182.3 million for the fourth quarter 2017, an increase of $10.5 million, or 6.1 percent, compared to the linked quarter, and an increase of $15.4 million, or 9.2 percent, compared to the fourth quarter 2016.
• The linked quarter increase in operating noninterest expense was driven by:
  • a $7.8 million increase in salaries and employee benefits expense primarily driven by a $5.4 million increase in bonus and commission expense, and a $2.0 million increase in employee benefits partially due to increased incentive compensation and profit sharing expense from improved company performance;
  • an increase of $1.5 million in marketing and business development related to timing of multiple projects; and
  • a $1.0 million increase in other noninterest expense driven by a $1.0 million contribution made to the UMB Financial Corporation Charitable Foundation.
• The year-over-year increase in operating noninterest expense of $15.4 million, or 9.2 percent, was primarily driven by:
  • an $11.1 million increase in salaries and benefits expense driven by a $4.2 million increase in bonus and commissions expense, an increase of $2.8 million in salary and wage expense, and an increase of $4.0 million in other employee benefits. These increases were primarily driven by improved company performance during 2017;
  • higher processing expenses related to investments for regulatory requirements, cyber security, and the ongoing modernization of the company’s core systems; and
  • increased charitable contributions and derivative expense, both recorded in other noninterest expense.

Full Year 2017 Financial Discussion

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

Income Taxes

• For the year ended December 31, 2017, the company’s effective tax rate remained flat at 22.6 percent as compared to the same period a year earlier.
  
  On December 22, 2017 the Tax Cuts and Jobs Act was signed into law. The new legislation includes numerous changes to existing federal income tax laws and regulations, including a permanent reduction in the federal corporate income tax rate to 21 percent effective January 1, 2018. As a result of the Tax Cuts and Jobs Act, the company was required to revalue its deferred taxes.
  
  Based on currently available information, the company recorded additional income tax expense of $3.0 million during the fourth quarter of 2017 resulting from the Tax Cuts and Jobs Act. The company’s revaluation of its deferred taxes may be subject to further refinement as additional information becomes available and further analysis is completed.

Balance Sheet

• Average total assets for the fourth quarter 2017 were $20.7 billion, an increase of $410.5 million from the linked quarter, and up from $19.9 billion for the same period in 2016.

• Average loans for the fourth quarter 2017 increased 1.6 percent, on a linked-quarter basis, and 7.1 percent, compared to fourth quarter 2016.

• The year-over-year growth in the company’s held to maturity securities portfolio is due to increased activity in private placement bonds, primarily used to refinance existing revenue bonds in the healthcare and education sectors.
• Total securities available for sale decreased 1.4 percent on a linked-quarter basis and 5.2 percent compared to the fourth quarter 2016, driven by the ongoing reinvestment of cash flows from such securities to fund growth in the private placement bond and loan portfolios.

• Average noninterest-bearing deposits were relatively unchanged compared to the fourth quarter of 2016, but increased 7.9 percent on a linked-quarter basis primarily driven by greater balances held by larger commercial and institutional customers.
• Average interest-bearing deposits increased 7.2 percent on a linked-quarter basis and 11.7 percent as compared to the fourth quarter of 2016, primarily driven by the seasonal influx of public fund deposits and increased balances from institutional customers, respectively.

Capital

• At December 31, 2017, the company’s risk-based capital ratios presented in the foregoing table exceeded all of the “well-capitalized” regulatory thresholds.

Asset Quality

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

Dividend Declaration

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

Conference Call

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

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

UMB Financial 4Q 2017 Conference Call

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

Non-GAAP Financial Information

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

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

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

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

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

Forward-Looking Statements:

This release contains, and our other communications may contain, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts—such as our statements about the timeframe or amount of expected proceeds from the closing of the sale of Scout. Forward-looking statements often use words such as “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “outlook,” “forecast,” “target,” “trend,” “plan,” “goal,” or other words of comparable meaning or future-tense or conditional verbs such as “may,” “will,” “should,” “would,” or “could.” Forward-looking statements convey our expectations, intentions, or forecasts about future events, circumstances, results, or aspirations. All forward-looking statements are subject to assumptions, risks, and uncertainties, which may change over time and many of which are beyond our control. You should not rely on any forward-looking statement as a prediction or guarantee about the future. Our actual future objectives, strategies, plans, prospects, performance, condition, or results may differ materially from those set forth in any forward-looking statement. Some of the factors that may cause actual results or other future events, circumstances, or aspirations to differ from those in forward-looking statements are described in our Annual Report on Form 10-K for the year ended December 31, 2016, our subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K, or other applicable documents that are filed or furnished with the U.S. Securities and Exchange Commission (SEC). Any forward-looking statement made by us or on our behalf speaks only as of the date that it was made. We do not undertake to update any forward-looking statement to reflect the impact of events, circumstances, or results that arise after the date that the statement was made. You, however, should consult further disclosures (including disclosures of a forward-looking nature) that we may make in any subsequent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K, or other applicable document that is filed or furnished with the SEC.

About UMB:

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