News Details

KANSAS CITY, Mo.--(BUSINESS WIRE)-- UMB Financial Corporation (Nasdaq: UMBF), a financial services company, announced results for the fourth quarter and year ended December 31, 2018.

“Results for the fourth quarter 2018 included 8.5 percent annualized average loan growth, 9.9 percent deposit growth and margin expansion of six basis points on a linked-quarter basis,” said Mariner Kemper, chairman and chief executive officer. “However, our results for the quarter were significantly impacted by the charge off of a single $48.1 million factoring relationship. Strong asset quality has long been a hallmark of UMB and this event is certainly not typical for us. After a thorough review, we believe that the issues specific to this credit were isolated and that this charge-off does not point to deterioration in any particular sector. We will continue to evaluate our internal controls.”

Income from continuing operations for the fourth quarter 2018 was $25.5 million, or $0.52 per diluted share, compared to $57.8 million, or $1.16 per diluted share, in the third quarter 2018 (linked quarter) and $47.4 million, or $0.95 per diluted share, in the fourth quarter 2017. The reported GAAP income from continuing operations represents decreases of 56.0 percent on a linked-quarter basis and 46.3 percent compared to the fourth quarter 2017. For the year ended December 31, 2018, income from continuing operations was $196.3 million, or $3.94 per diluted share, which is an increase of 7.3 percent compared to $183.0 million, or $3.67 per diluted share, for the year ended December 31, 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 $27.6 million, or $0.56 per diluted share, for the fourth quarter 2018, compared to $58.0 million, or $1.16 per diluted share, for the linked quarter and $47.5 million, or $0.95 per diluted share, for the fourth quarter 2017. These results represent decreases of 52.5 percent on a linked-quarter basis and 42.0 percent compared to the fourth quarter 2017. For the year ended December 31, 2018, net operating income from continuing operations was $200.7 million, or $4.03 per diluted share, compared to $183.7 million, or $3.69 per diluted share, for the year ended December 31, 2017.

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

• Net interest income totaled $161.8 million, an increase of $11.3 million, or 7.5 percent, from linked quarter levels, impacted by a $249.4 million, or 2.1 percent, increase in average loans, as well as a six-basis-point improvement in net interest margin.
• Earning asset yields improved 14 basis points from the linked quarter, primarily due to improved loan yields of 24 basis points to 5.11 percent, in part driven by favorable re-pricing from recent increases in short-term interest rates. The cost of interest-bearing liabilities increased 14 basis points to 1.21 percent, driven by a 19-basis point increase in cost of interest-bearing deposits. Total cost of deposits, including noninterest-bearing deposits, was 75 basis points, an increase of 13 basis points from the linked quarter.
• On a year-over-year basis, the increase in net interest income was driven by an 8.0 percent, or $883.2 million, increase in average loans, as well as higher average loan yields, which increased 71 basis points from 2017, primarily driven by higher short-term interest rates, volume, and asset mix changes.
• For the fourth quarter 2018, average earning assets stood at $20.5 billion, an increase of 5.8 percent over the fourth quarter 2017.

Noninterest income

• Fourth quarter 2018 noninterest income decreased $5.9 million, or 5.8 percent, on a linked quarter basis, largely due to:
  • Decreases of $5.7 million and $1.3 million in company-owned life insurance income and derivative income, respectively, both of which are recorded in other income. These decreases were partially offset by $2.9 million in gains on sales of assets and $0.9 million in loss recoveries.
  • A decrease in trust and securities processing due to a $1.5 million decline in alternative investment revenue.
  • A $0.6 million decrease in trading and investment banking due to decreased bond trading income.
• Compared to prior year, noninterest income in the fourth quarter of 2018 decreased $11.0 million, or 10.4 percent, primarily driven by:
  • Decreases of $6.6 million and $0.9 million in company-owned life insurance and derivative income, respectively, both of which are recorded in other income. These decreases were partially offset by $2.9 million in gains on sales of assets.
  • A $3.5 million decline in fund servicing revenue due to customer repricing and losses, which was partially offset by an increase of $1.4 million in corporate trust income, both recorded in trust and securities processing.
  • A $1.9 million decrease in trading and investment banking income due to decreased trading volume.
  • A $1.7 million increase in rewards and rebates expense recorded as an offset to bankcard fees driven by increased purchase volume, partially offset by a $0.4 million increase in interchange income.
  • A $0.6 million decrease in service charges on deposits primarily due to customer repricing.

Noninterest expense

• GAAP noninterest expense for the fourth quarter of 2018 was $184.3 million, an increase of $3.9 million, or 2.2 percent, from the linked quarter and an increase of $1.8 million, or 1.0 percent, from the fourth quarter of 2017.
• On a non-GAAP basis, operating noninterest expense (as reconciled later in this release) was $181.6 million for the fourth quarter 2018, an increase of $1.4 million, or 0.8 percent, compared to the linked quarter, and a decrease of $0.7 million, or 0.4 percent, compared to the fourth quarter 2017.
• The linked quarter increase in noninterest expense was driven by:
  • A $1.8 million increase in other noninterest expense, largely driven by a $0.9 million contribution made to the UMB Financial Corporation Charitable Foundation and an increase of $0.7 million in derivative expense.
  • A $1.7 million increase in consulting expense incurred in conjunction with the company’s ongoing investments in digital channel and integrated platform solutions to support business growth and the continued modernization of its core systems.
  • A $1.0 million increase in salaries and employee benefits, largely due to increased severance during the fourth quarter of 2018 and increased salary and wage expense driven by one additional business day in the fourth quarter compared to the third quarter. These increases were offset by a decrease in deferred compensation expense.
• The year-over-year increase in noninterest expense was driven by:
  • A $5.0 million increase in legal and consulting expense due to investments in digital channel and integrated platform solutions to support business growth and the continued ongoing modernization of the company’s core systems.
  • An increase of $0.7 million in derivative expense recorded in other noninterest expense.
  • These increases were partially offset by a decrease of $3.7 million in salaries and employee benefits, largely due to decreased deferred compensation expense and bonus expense.

Full year 2018 financial discussion

• The 9.2 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 2018, average loan balances increased $762.9 million and average loan yields increased 57 basis points. Average interest-bearing liabilities increased $620.4 million, while the cost of interest-bearing liabilities increased 47 basis points.
• Full-year noninterest income decreased $21.9 million, or 5.2 percent, due to:
  • An $8.1 million increase in rewards and rebates expense recorded as an offset to bankcard fees driven by increased purchase volume, partially offset by a $4.8 million increase in interchange income.
  • A $7.6 million decrease in trading and investment banking due to decreased bond trading income and due to market adjustments from the company’s seed investments in certain Scout funds following the liquidation of such investments in 2017.
  • A $7.5 million decrease in fund servicing revenue and a $1.0 million decrease in wealth management revenue, partially offset by a $4.0 million increase in corporate trust revenue, all recorded in trust and securities processing.
  • A $3.6 million decrease in gains on sales of available-for-sale securities.
  • A $3.4 million decrease in service charges on deposits, primarily due to repricing.
  • These decreases were partially offset by an increase of $2.6 million in brokerage fees, primarily driven by higher 12b-1 income.
• Full-year noninterest expense increased $12.7 million, or 1.8 percent, primarily due to:
  • A $5.3 million increase in salary and employee benefit expense driven by increased bonus and sales commission expense and one additional business day in 2018 as compared to 2017, partially offset by a decrease in deferred compensation expense.
  • A $6.5 million increase in legal and consulting expense and a $4.6 million increase in processing fees expense due to investments in digital channel and integrated platform solutions to support business growth and the continued ongoing modernization of the company’s core systems.
  • These increases were partially offset by a decrease of $3.1 million in other noninterest expense due to lower operational losses during 2018 as compared to 2017.
• 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 $712.0 million for full-year 2018, an increase of $8.0 million, or 1.1 percent, compared to the full-year 2017.

Income taxes

• The company’s effective tax rate was 12.2 percent for the year ended December 31, 2018, compared to 22.6 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 January 1, 2018. The decrease is also attributable to a discrete tax benefit of $5.1 million related to provision-to-return adjustments.

Balance sheet

• Average total assets for the fourth quarter 2018 were $21.9 billion compared to $20.7 billion for both the linked quarter and the same period in 2017.

• Average loans for the fourth quarter 2018 increased 2.1 percent on a linked-quarter basis and 8.0 percent compared to fourth quarter 2017.

• Average securities available for sale increased 4.1 percent on a linked-quarter basis and remained flat compared to the fourth quarter of 2017.

• Average deposits increased 9.9 percent on a linked-quarter basis and 7.8 percent as compared to the fourth quarter of 2017, primarily driven by the seasonal influx of public fund deposits as well as recent deposit campaigns.

Capital

• On December 17, 2018, the company completed its previously announced accelerated share repurchase (ASR) program with Bank of America Merrill Lynch.
• Under the ASR, the company repurchased a total of 780,321 shares of its common stock (or approximately 1.6 percent of its outstanding common stock on October 23, 2018, the date the agreement governing the ASR was entered into) for an aggregate purchase price of $50.0 million.
• At December 31, 2018, the regulatory capital ratios presented in the foregoing table reflect the impact of this ASR, and exceeded all “well-capitalized” regulatory thresholds.

Asset Quality

• Nonperforming loans, defined as restructured loans on nonaccrual and all other nonaccrual loans, decreased $7.6 million from the linked quarter and $16.1 million from the prior year.
• Net charge-offs were $45.7 million, or 1.51 percent, of average loans, compared to $2.7 million, or 0.09 percent, of average loans in the linked quarter, and $3.8 million, or 0.14 percent, of average loans in the fourth quarter of 2017. Charge-offs in the fourth quarter of 2018 included a $48.1 million loss recognized on a single factoring credit relationship, which has since entered into bankruptcy. The company intends to pursue its rights both in and outside the bankruptcy proceedings.
• Provision for loan losses increased $42.3 million from the linked quarter, and $42.0 million from the fourth quarter of 2017. This increase was driven by higher provision to cover the loss related to the single factoring credit relationship noted above, 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 $0.30 per share quarterly cash dividend, payable on April 1, 2019, to shareholders of record at the close of business on March 11, 2019.

Conference Call

The company plans to host a conference call to discuss its fourth quarter and full year 2018 earnings results on Wednesday, January 30, 2019, at 8:30 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 4Q 2018 Conference Call

A replay of the conference call may be heard through February 13, 2019 by calling (toll-free) 877-344-7529 or (international) 412-317-0088. The replay access code required for playback is 10127436. The call replay may also be accessed at 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 (net operating income), 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-, divestiture-, and severance-related items 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 press 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.