News Details

KANSAS CITY, Mo.--(BUSINESS WIRE)-- 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.

“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

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

• 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.

• 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.

• 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.

• Average noninterest-bearing deposits declined 6.4 percent on a linked-quarter basis primarily driven by lower balances held by larger commercial customers.

Capital

• At June 30, 2018, the company’s risk-based capital ratios presented in the foregoing table exceeded all “well-capitalized” regulatory thresholds.

Asset Quality

• 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.

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.