UMB Financial Corporation Reports Third Quarter 2017 Income from Continuing Operations of $48.9 Million, or $0.98 per diluted share

KANSAS CITY, Mo.--()--UMB Financial Corporation (Nasdaq: UMBF), a diversified financial holding company, announced income from continuing operations for the third quarter 2017 of $48.9 million or $0.98 per diluted share, compared to $44.8 million or $0.90 per diluted share in the second quarter 2017 (linked quarter) and $39.4 million or $0.80 per diluted share in the third quarter 2016. Results from continuing operations exclude the impact of the previously announced divestiture of Scout Investments, Inc., the company’s institutional investment management subsidiary. Reported GAAP income from continuing operations represents an increase of 9.2 percent on a linked-quarter basis and 24.0 percent compared to the third quarter 2016. For the nine months ended September 30, 2017, GAAP income from continuing operations was $135.6 million or $2.72 per diluted share, an increase of 23.0 percent compared to $110.2 million or $2.24 per diluted share for the nine month period ended September 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 $48.9 million or $0.98 per diluted share for the third quarter 2017, compared to $44.9 million or $0.90 per diluted share for the linked quarter and $40.1 million or $0.81 per diluted share for the third quarter 2016. These results represent an increase of 8.9 percent on a linked-quarter basis and an increase of 21.9 percent compared to the third quarter 2016. For the nine months ended September 30, 2017, net operating income from continuing operations was $136.2 million or $2.73 per diluted share, compared to $114.3 million or $2.32 per diluted share for the nine month period ended September 30, 2016.

Summary of quarterly financial results     UMB Financial Corporation
(unaudited, dollars in thousands, except per share data)    
Q3     Q2     Q3
2017     2017     2016
Income from continuing operations

$

48,872

$

44,771

$

39,422

Income from discontinued operations-general operations (non-GAAP) 3,372 2,586 2,850
Loss from discontinued operations-non-GAAP adjustments   (4,102 )       (4,536 )       (326 )
(Loss) income from discontinued operations-total   (730 )       (1,950 )       2,524  
Net income 48,142 42,821 41,946
 
Earnings per share from continuing operations (diluted) 0.98 0.90 0.80
Earnings per share from discontinued operations-general operations (non-GAAP) (diluted) 0.07 0.05 0.06

Losses per share from discontinued operations-non-GAAP adjustments (diluted)

  (0.08 )       (0.09 )       (0.01 )

(Losses) earnings per share from discontinued operations (diluted)

  (0.01 )       (0.04 )       0.05  
Earnings per share (diluted) 0.97 0.86 0.85
 

GAAP - continuing operations

Return on average assets

0.95

%

0.88

%

0.80

%

Return on average equity 9.17 8.69 7.76
Efficiency ratio 67.25 68.30 69.91
 

Non-GAAP - continuing operations

Operating return on average assets

0.96

%

0.89

%

0.81

%

Operating return on average equity 9.18 8.72 7.90
Operating efficiency ratio 67.22 68.19 69.43
       
Summary of year-to-date financial results         UMB Financial Corporation
(unaudited, dollars in thousands, except per share data) September     September
YTD YTD
2017     2016
Income from continuing operations

$

135,619

$

110,234

Income from discontinued operations-general operations (non-GAAP) 8,164 6,919
Loss from discontinued operations-non-GAAP adjustments   (8,639 )       (1,286 )
(Loss) income from discontinued operations-total   (475 )       5,633  
Net income 135,144 115,867
 
Earnings per share from continuing operations (diluted) 2.72 2.24
Earnings per share from discontinued operations-general operations (non-GAAP) (diluted) 0.16 0.14

Losses per share from discontinued operations-non-GAAP adjustments (diluted)

  (0.17 )       (0.02 )

(Losses) earnings per share from discontinued operations (diluted)

  (0.01 )       0.12  
Earnings per share (diluted) 2.71 2.36
 

GAAP - continuing operations

Return on average assets

0.89

%

0.76

%

Return on average equity 8.82 7.43
Efficiency ratio 68.44 72.18
 

Non-GAAP - continuing operations

Operating return on average assets

0.90

%

0.78

%

Operating return on average equity 8.85 7.70
Operating efficiency ratio 68.33 71.26
 

“Third quarter 2017 highlights included year-over-year improvement of 29 basis points in our net interest margin and solid positive operating leverage of 3.4 percent,” said Mariner Kemper, chairman and chief executive officer. “Revenue increased 7.4 percent while expenses increased 4.0 percent compared to the third quarter 2016. Our balance sheet growth was driven by continued momentum in our commercial real estate lending business and our national lending platforms, as well as a 32 percent increase in healthcare deposits compared to a year ago.”

Discussion of results from continuing operations

Summary of revenue     UMB Financial Corporation
(unaudited, dollars in thousands)    
Q3   Q2   Q3   CQ vs.   CQ vs.
2017   2017   2016   LQ   PY
 
Net interest income $ 140,858 $ 137,394 $ 124,765 $ 3,464 $ 16,093
Noninterest income:
Trust and securities processing 45,060 44,811 41,812 249 3,248
Trading and investment banking 4,453 6,173 6,114 (1,720 ) (1,661 )
Service charges on deposit accounts 21,510 22,731 21,832 (1,221 ) (322 )
Insurance fees and commissions 425 513 698 (88 ) (273 )
Brokerage fees 5,815 5,889 4,712 (74 ) 1,103
Bankcard fees 17,427 20,234 17,086 (2,807 ) 341
Gains on sales of securities available for sale, net 2,390 1,280 2,978 1,110 (588 )
Equity (losses) earnings on alternative investments (584 ) (195 ) 1,594 (389 ) (2,178 )
Other   7,810       8,870       6,716       (1,060 )     1,094  
Total noninterest income $ 104,306     $ 110,306     $ 103,542     $ (6,000 )   $ 764  
                           
Total Revenue $ 245,164     $ 247,700     $ 228,307     $ (2,536 )   $ 16,857  
 
Net interest margin

3.16

%

 

3.12

%

 

2.87

%

 

 
Total noninterest income as a % of total revenue 42.55 44.53 45.35
 

Net interest income

  • On a linked quarter basis, the increase in net interest income was driven by a four basis point improvement in net interest margin.
  • Earning asset yields improved 11 basis points from the linked quarter driven by improved loan yields of 15 basis points. The cost of interest-bearing liabilities increased 10 basis points due to increased federal fund borrowing costs of 20 basis points coupled with a nine basis point increase in interest-bearing deposit rates.
  • The cost of interest-bearing liabilities for the third quarter 2017 was 55 basis points, and total cost of funds, including noninterest-bearing deposits was 38 basis points.
  • On a year-over-year basis, the increase in net interest income was driven by a 7.2 percent or $729.3 million increase in average loans as well as higher average loan yields, which increased 47 basis points from one year ago, primarily driven by higher interest rates and mix changes.
  • For the third quarter 2017, average earning assets stood at $18.9 billion, which is flat compared to the linked quarter and an increase of 3.1 percent over the third quarter 2016.

Noninterest income

  • Third quarter 2017 noninterest income decreased $6.0 million, or 5.4 percent, on a linked quarter basis largely due to:
    • a $0.9 million decrease in bond trading fees, and a $0.8 million decrease in 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;
    • lower service charges on deposits driven by higher earnings credit rates;
    • lower bankcard fees driven by a $2.7 million increase in retail and commercial card program rewards and rebates expense recorded;
    • a decrease in other noninterest income of $1.1 million which was primarily due to a $1.0 million gain on the sale of a branch building recorded in the second quarter;
    • which were partially offset by a $1.1 million increase in gains on sales of available-for-sale securities.
  • Noninterest income in the third quarter of 2017 improved $0.8 million, or 0.7 percent, compared to the same quarter in 2016 primarily driven by:
    • a $1.7 million increase in fund servicing revenue, a $1.0 million increase in wealth management revenue, and a $0.5 million increase in corporate trust revenue all recorded in trust and securities processing;
    • which were partially offset by a $2.2 million decrease in equity earnings on alternative investments and $1.7 million decrease in trading and investment banking revenue, driven by a $1.2 million decrease in market adjustments from the company’s seed investments in certain Scout Funds and a $0.5 million decrease in bond trading fees.

Noninterest expense

Summary of noninterest expense

    UMB Financial Corporation
(unaudited, dollars in thousands)    
Q3   Q2   Q3   CQ vs.   CQ vs.
2017   2017   2016   LQ   PY
 
Salaries and employee benefits $ 99,749 $ 102,773 $ 99,403 $ (3,024 ) $ 346
Occupancy, net 11,285 11,061 11,224 224 61
Equipment 17,880 17,956 16,029 (76 ) 1,851
Supplies and services 4,076 4,792 4,472 (716 ) (396 )
Marketing and business development 5,056 5,732 5,090 (676 ) (34 )
Processing fees 11,151 10,743 9,084 408 2,067
Legal and consulting 5,844 6,467 4,437 (623 ) 1,407
Bankcard 5,130 5,033 5,015 97 115
Amortization of other intangible assets 1,715 1,924 2,088 (209 ) (373 )
Regulatory fees 3,798 4,071 3,370 (273 ) 428
Other   6,137     6,387     4,999     (250 )     1,138  
Total noninterest expense $ 171,821   $ 176,939   $ 165,211   $ (5,118 )   $ 6,610  
 
  • GAAP noninterest expense for the third quarter of 2017 was $171.8 million and decreased $5.1 million, or 2.9 percent, from the linked quarter.
  • On a non-GAAP basis, operating noninterest expense (as reconciled later in this release) was $171.7 million for the third quarter 2017, a decrease of $4.9 million, or 2.8 percent, compared to the linked quarter, and an increase of $7.6 million, or 4.7 percent, compared to the third quarter 2016.
  • The linked quarter decrease in operating noninterest expense was driven by:
    • a $3.0 million decrease in salaries and employee benefits expense driven by a $1.6 million decrease in bonus and commission expense, and a $1.6 million decrease in employee benefits partially due to lower employment taxes and medical expense;
    • a $0.7 million decline in both supplies and services expense and marketing and business development expenses.
  • The year-over-year increase in GAAP noninterest expense of $6.6 million, or 4.0 percent, was primarily driven by:
    • a $1.9 million increase in 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;
    • higher processing expenses in healthcare, fund servicing, and institutional businesses and higher legal and consulting expense;
    • a $0.7 million increase in off-balance sheet commitment reserves and $0.5 million increase in losses on sales of assets, both recorded in other noninterest expense.

Income Taxes

  • For the nine months ended September 30, 2017, the company’s effective tax rate decreased to 21.4 percent compared to 23.6 percent for the same period a year earlier. The decrease is primarily attributable to a larger portion of income being earned from tax-exempt municipal securities and an increase in excess tax benefits associated with stock compensation recorded through the third quarter of 2017.

Balance Sheet

  • Average total assets for the third quarter 2017 were $20.3 billion, unchanged from the linked quarter, and up from $19.7 billion for the same period in 2016.
Summary of average loans and leases - QTD Average     UMB Financial Corporation
(unaudited, dollars in thousands)    
Q3   Q2   Q3   CQ vs.   CQ vs.
2017   2017   2016   LQ   PY
 
Commercial $ 4,539,302 $ 4,597,866 $ 4,441,790 $ (58,564 ) $ 97,512
Asset-based loans 278,479 242,719 228,310 35,760 50,169
Factoring loans 173,876 155,528 101,731 18,348 72,145
Commercial credit card 174,892 157,214 166,617 17,678 8,275
Real estate - construction 782,898 802,350 591,584 (19,452 ) 191,314
Real estate - commercial 3,284,871 3,152,317 2,976,666 132,554 308,205
Real estate - residential 603,865 592,253 505,721 11,612 98,144
Real estate - HELOC 668,340 682,889 735,527 (14,549 ) (67,187 )
Consumer credit card 239,529 254,552 262,937 (15,023 ) (23,408 )
Consumer other 140,344 139,120 137,949 1,224 2,395
Leases   24,758     35,250     32,987     (10,492 )     (8,229 )
Total loans $ 10,911,154   $ 10,812,058   $ 10,181,819   $ 99,096     $ 729,335  
 
  • Average loans for the third quarter 2017 increased 0.9 percent, on a linked-quarter basis, and 7.2 percent, compared to third quarter 2016.
Summary of average securities - QTD Average     UMB Financial Corporation
(unaudited, dollars in thousands)    
Q3   Q2   Q3   CQ vs.   CQ vs.
2017   2017   2016   LQ   PY
 
Securities available for sale:
U.S. Treasury $ 47,216 $ 63,945 $ 340,144 $ (16,729 ) $ (292,928 )
U.S. Agencies 22,743 48,914 369,022 (26,171 ) (346,279 )
Mortgage-backed 3,564,974 3,677,797 3,512,905 (112,823 ) 52,069
State and political subdivisions 2,536,281 2,478,358 2,314,875 57,923 221,406
Corporates   21,848     60,508     77,646     (38,660 )     (55,798 )
Total securities available for sale 6,193,062 6,329,522 6,614,592 (136,460 ) (421,530 )
Securities held to maturity:
State and political subdivisions 1,283,258 1,242,519 927,875 40,739 355,383
Trading securities 49,396 75,075 51,280 (25,679 ) (1,884 )
Other securities   64,294     66,199     65,984     (1,905 )     (1,690 )
Total securities $ 7,590,010   $ 7,713,315   $ 7,659,731   $ (123,305 )   $ (69,721 )
 
  • The 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 2.2 percent on a linked-quarter basis and 6.4 percent compared to the third quarter 2016, driven by the ongoing reinvestment of cash flows from such securities to fund growth in the private placement bond and loan portfolio.
Summary of average deposits - QTD Average     UMB Financial Corporation
(unaudited, dollars in thousands)    
Q3   Q2   Q3   CQ vs.   CQ vs.
2017   2017   2016   LQ   PY
 
Deposits:
Noninterest-bearing demand $ 5,728,145 $ 5,837,602 $ 5,690,838 $ (109,457 ) $ 37,307
Interest-bearing demand and savings 8,789,217 8,475,782 8,276,491 313,435 512,726
Time deposits   1,162,383       1,258,384       1,154,762       (96,001 )     7,621
Total deposits $ 15,679,745     $ 15,571,768     $ 15,122,091     $ 107,977     $ 557,654
 
Non-interest bearing deposits as % of total

36.53

%

 

37.49

%

 

37.63

%

 

 
  • Average noninterest-bearing demand deposits were relatively unchanged compared to the third quarter of 2016, but declined 1.9 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)    
Q3     Q2     Q3
2017     2017     2016
 
Total equity $ 2,101,543 $ 2,071,119 $ 2,024,628
Book value per common share 42.15 41.42 40.86
 
Regulatory capital:
Common equity Tier 1 capital $ 1,893,842 $ 1,863,359 $ 1,749,738
Tier 1 capital 1,893,842 1,863,359 1,749,738
Total capital 2,062,928 2,031,618 1,909,583
 
Regulatory capital ratios:
Common equity Tier 1 capital ratio

12.18

%

 

12.22

%

 

11.75

%

Tier 1 risk-based capital ratio 12.18 12.22 11.75
Total risk-based capital ratio 13.26 13.32 12.82
Tier 1 leverage ratio 9.43 9.28 8.99
 
  • At September 30, 2017, the company’s risk-based capital ratios presented in the foregoing table exceeded all of the “well-capitalized” regulatory thresholds.

Asset Quality

Credit quality     UMB Financial Corporation
(unaudited, dollars in thousands)    
Q3   Q2   Q1   Q4   Q3
2017   2017   2017   2016   2016
 
Net charge-offs - Commercial loans $ 8,961 $ 7,971 $ 5,283 $ 1,127 $ 5,538
Net charge-offs (recoveries) - Real estate loans 238 (95 ) 125 3,373 (67 )
Net charge-offs - Consumer credit card loans 1,635 2,079 1,815 1,692 1,658
Net charge-offs - Consumer other loans 74 71 103 63 133
Net charge-offs - Total loans 10,908 10,026 7,326 6,255 7,262
Net loan charge-offs as a % of total average loans

0.40

%

 

0.37

%

 

0.28

%

 

0.24

%

 

0.28

%

Loans over 90 days past due $ 2,088 $ 2,657 $ 3,369 $ 3,365 $ 2,678
Loans over 90 days past due as a % of total loans

0.02

%

 

0.02

%

 

0.03

%

 

0.03

%

 

0.03

%

Nonaccrual and restructured loans

$

54,231 $ 51,390 $ 56,594 $ 70,259 $ 79,620
Nonaccrual and restructured loans as a % of total loans

0.49

%

 

0.47

%

 

0.53

%

 

0.67

%

 

0.77

%

Provision for loan losses

$

11,500

$

14,500 $ 9,000 $ 7,500 $ 13,000
 
  • Nonperforming loans, defined as restructured loans on nonaccrual and all other nonaccrual loans, increased $2.8 million from the linked quarter and decreased $25.4 million from the prior year period.
  • Net charge-offs increased to $10.9 million or 0.40 percent of average loans, compared to $10.0 million, or 0.37 percent of average loans in the linked quarter, and $7.3 million, or 0.28 percent of average loans in the third quarter of 2016.
  • Provision for loan losses decreased $3.0 million from the elevated linked quarter levels and is 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, increased impaired loans and increased net charge-offs.

Dividend Declaration

At the company’s quarterly board meeting, the Board of Directors declared a $0.275 per share quarterly cash dividend, an increase of 7.8 percent or $0.02 per share. The cash dividend will be payable on January 2, 2018, to shareholders of record at the close of business on December 8, 2017.

Conference Call

The company plans to host a conference call to discuss its third quarter 2017 earnings results on Wednesday, October 25, 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 3Q 2017 Conference Call

A replay of the conference call may be heard through November 8, 2017, by calling (toll-free) 877-344-7529 or (U.S.) 412-317-0088. The replay pass code required for playback is 10112430. 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, 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, 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)-(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).

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 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 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)
September 30,
2017     2016

Assets

   
Loans $ 10,997,028 $ 10,293,494
Allowance for loan losses   (98,389 )       (90,404 )
Net loans   10,898,639         10,203,090  
Loans held for sale 4,525 11,880
Investment securities:
Available for sale 5,848,960 6,295,687
Held to maturity 1,276,252 1,009,117
Trading securities 60,660 58,062
Other securities   63,543         66,853  
Total investment securities   7,249,415         7,429,719  
Federal funds and resell agreements 244,436 244,891
Interest-bearing due from banks 221,856 453,189
Cash and due from banks 366,169 354,184
Premises and equipment, net 277,454 287,267
Accrued income 103,076 93,016
Goodwill 180,867 180,867
Other intangibles, net 23,477 28,681
Other assets 655,846 383,095

Discontinued assets – goodwill and other intangibles, net

  53,743         56,267  
Total assets $ 20,279,503       $ 19,726,146  
 
 

Liabilities

Deposits:
Noninterest-bearing demand $ 5,812,117 $ 6,008,326
Interest-bearing demand and savings 9,063,079 8,288,670
Time deposits under $250,000 576,035 658,541
Time deposits of $250,000 or more   548,373         422,712  
Total deposits   15,999,604         15,378,249  
Federal funds and repurchase agreements 1,856,837 2,021,123
Long-term debt 76,071 75,418
Accrued expenses and taxes 193,978 163,221
Other liabilities   51,470         63,507  
Total liabilities   18,177,960         17,701,518  
 

Shareholders' Equity

Common stock 55,057 55,057
Capital surplus 1,042,022 1,028,869
Retained earnings 1,239,865 1,112,613
Accumulated other comprehensive (loss) income (22,668 ) 42,512
Treasury stock   (212,733 )       (214,423 )
Total shareholders' equity   2,101,543         2,024,628  
Total liabilities and shareholders' equity $ 20,279,503       $ 19,726,146  
 
 
Consolidated Statements of Income     UMB Financial Corporation
(unaudited, dollars in thousands except share and per share data)
    Three Months Ended     Nine Months Ended
September 30, September 30,

Interest Income

2017     2016     2017     2016
Loans $ 119,132     $ 98,820 $ 338,416     $ 283,313
Securities:
Taxable interest 17,720 17,012 55,351 55,221
Tax-exempt interest 18,893         14,797       54,372         41,377
Total securities income 36,613 31,809 109,723 96,598
Federal funds and resell agreements 1,008 790 2,638 1,939
Interest-bearing due from banks 753 445 1,884 1,772
Trading securities   389         174       1,135         399
Total interest income   157,895         132,038       453,796         384,021
 

Interest Expense

Deposits 10,181 4,626 23,982 12,817
Federal funds and repurchase agreements 5,811 1,894 14,274 4,750
Other   1,045         753       2,973         2,587
Total interest expense   17,037         7,273       41,229         20,154
Net interest income 140,858 124,765 412,567 363,867
Provision for loan losses   11,500         13,000       35,000         25,000
Net interest income after provision for loan losses   129,358         111,765       377,567         338,867
 

Noninterest Income

Trust and securities processing 45,060 41,812 132,412 123,984
Trading and investment banking 4,453 6,114 18,168 16,382
Service charges on deposits 21,510 21,832 66,316 65,713
Insurance fees and commissions 425 698 1,584 3,355
Brokerage fees 5,815 4,712 17,081 13,159
Bankcard fees 17,427 17,086 55,413 52,636
Gains on sale of securities available for sale, net 2,390 2,978 4,138 8,509
Equity (losses) earnings on alternative investments (584 ) 1,594 (1,393 ) 2,191
Other   7,810         6,716       23,810         18,352
Total noninterest income   104,306         103,542       317,529         304,281
 

Noninterest Expense

Salaries and employee benefits 99,749 99,403 306,174 293,294
Occupancy, net 11,285 11,224 33,314 32,996
Equipment 17,880 16,029 53,318 48,807
Supplies, postage and telephone 4,076 4,472 12,962 13,875
Marketing and business development 5,056 5,090 14,929 15,273
Processing fees 11,151 9,084 31,093 27,118
Legal and consulting 5,844 4,437 17,361 14,107
Bankcard 5,130 5,015 15,066 16,199
Amortization of other intangibles 1,715 2,088 5,685 6,644
Regulatory fees 3,798 3,370 11,702 10,491
Other   6,137         4,999       20,966         20,094
Total noninterest expense 171,821 165,211 522,570 498,898
Income before income taxes 61,843 50,096 172,526 144,250
Income tax provision   12,971         10,674       36,907         34,016
Income from continuing operations $ 48,872 $ 39,422 $ 135,619 $ 110,234

Discontinued operations

(Loss) income from discontinued operations before income taxes (1,030 ) 3,834 (722 ) 8,792
Income tax (benefit) expense   (300 )       1,310       (247 )       3,159
(Loss) income on discontinued operations   (730 )       2,524       (475 )       5,633
Net Income $ 48,142       $ 41,946     $ 135,144       $ 115,867
 

Per Share Data

Basic:
Income from continuing operations $ 0.99 $ 0.81 $ 2.76 $ 2.26
(Loss) income from discontinued operations   (0.01 )       0.05       (0.01 )       0.11
Net income – basic $ 0.98 $ 0.86 $ 2.75 $ 2.37
Diluted:
Income from continuing operations 0.98 0.80 2.72 2.24
(Loss) income from discontinued operations   (0.01 )       0.05       (0.01 )       0.12
Net income – diluted 0.97 0.85 2.71 2.36
Dividends 0.255 0.245 0.765 0.735
 
Weighted average shares outstanding 49,283,322 48,849,251 49,221,629 48,792,419
Weighted average shares outstanding – diluted 49,833,141 49,284,280 49,838,619 49,162,200
 
 
Consolidated Statements of Comprehensive Income     UMB Financial Corporation
(unaudited, dollars in thousands)        

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017     2016     2017     2016
Net Income $ 48,142     $ 41,946 $ 135,144     $ 115,867

Other comprehensive income (loss), net of tax:

Unrealized gains (losses) on securities:

Change in unrealized holding gains (losses), net

5,064 (16,946 ) 62,646 90,639

Less: Reclassifications adjustment for gains included in net income

  (2,390 )       (2,978 )       (4,138 )       (8,509 )

Change in unrealized gains (losses) on securities during the period

2,674 (19,924 ) 58,508 82,130
Change in unrealized losses on derivatives (169 ) (643 ) (1,080 ) (7,677 )

Income tax (expense) benefit

  (1,548 )       7,784         (22,554 )       (28,223 )

Other comprehensive income (loss)

  957         (12,783 )       34,874         46,230  
Comprehensive income $ 49,099       $ 29,163       $ 170,018       $ 162,097  
 
 

Consolidated Statements of Changes in 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 - - 115,867 46,230 - 162,097

Cash dividends ($0.735 per share)

- - (36,388 ) - - (36,388 )
Purchase of treasury stock - - - - (14,189 ) (14,189 )
Issuance of equity awards - (3,373 ) - - 3,802 429
Recognition of equity based compensation - 8,253 - - - 8,253
Sale of treasury stock - 362 - - 474 836
Exercise of stock options - 2,400 - - 7,014 9,414
Cumulative effect adjustment   -     1,338       (856 )     -       -       482  
Balance – September 30, 2016 $ 55,057   $ 1,028,869     $ 1,112,613     $ 42,512     $ (214,423 )   $ 2,024,628  
 
Balance - January 1, 2017 $ 55,057 $ 1,033,419 $ 1,142,887 $ (57,542 ) $ (211,437 ) $ 1,962,384
Total comprehensive income - - 135,144 34,874 - 170,018
Cash dividends ($0.765 per share) - - (38,166 ) - - (38,166 )
Purchase of treasury stock - - - - (14,369 ) (14,369 )
Issuance of equity awards - (3,364 ) - - 3,835 471
Recognition of equity based compensation - 9,576 - - - 9,576
Sale of treasury stock - 468 - - 381 849
Exercise of stock options   -     1,923       -       -       8,857       10,780  
Balance – September 30, 2017 $ 55,057   $ 1,042,022     $ 1,239,865     $ (22,668 )   $ (212,733 )   $ 2,101,543  
 
 
Average Balances / Yields and Rates     UMB Financial Corporation
(tax - equivalent basis)    
(unaudited, dollars in thousands) Three Months Ended September 30,
2017     2016
Average     Average     Average     Average

Assets

Balance     Yield/Rate     Balance     Yield/Rate
Loans, net of unearned interest $ 10,911,154 4.33 % $ 10,181,819 3.86 %
Securities:
Taxable 3,794,074 1.85 4,449,485 1.52
Tax-exempt   3,746,540       3.06     3,158,966       2.86  
Total securities 7,540,614 2.46 7,608,451 2.08
Federal funds and resell agreements 190,036 2.10 217,287 1.45
Interest-bearing due from banks 254,702 1.17 314,619 0.56
Trading securities   49,396       3.95     51,280       1.75  
Total earning assets 18,945,902 3.52 18,373,456 3.03
Allowance for loan losses (99,954 ) (86,368 )
Other assets   1,467,273     1,405,152  
Total assets $ 20,313,221   $ 19,692,240  
 

Liabilities and Shareholders' Equity

Interest-bearing deposits $ 9,951,600 0.41 % $ 9,431,253 0.20 %
Federal funds and repurchase agreements 2,234,666 1.03 2,261,863 0.33
Borrowed funds   76,159       5.44     82,340       3.64  
Total interest-bearing liabilities 12,262,425 0.55 11,775,456 0.25
Noninterest-bearing demand deposits 5,728,145 5,690,838
Other liabilities 207,417 203,953
Shareholders' equity   2,115,234     2,021,993  
Total liabilities and shareholders' equity $ 20,313,221   $ 19,692,240  
Net interest spread 2.97 % 2.78 %
Net interest margin 3.16 2.87
 
 
Average Balances / Yields and Rates     UMB Financial Corporation
(tax - equivalent basis)    
(unaudited, dollars in thousands) Nine Months Ended September 30,
2017     2016
Average     Average     Average     Average

Assets

Balance     Yield/Rate     Balance     Yield/Rate
Loans, net of unearned interest $ 10,762,401 4.20 % $ 9,874,298 3.83 %
Securities:
Taxable 3,995,441 1.85 4,650,111 1.59
Tax-exempt   3,625,727       3.07     2,984,538       2.85  

Total securities

7,621,168 2.43 7,634,649 2.08
Federal funds and resell agreements 192,817 1.83 181,854 1.42
Interest-bearing due from banks 271,799 0.93 425,155 0.56
Trading securities   61,604       3.06     39,588       1.70  
Total earning assets 18,909,789 3.42 18,155,544 2.99
Allowance for loan losses (96,181 ) (82,975 )
Other assets   1,474,177     1,415,325  
Total assets $ 20,287,785   $ 19,487,894  
 

Liabilities and Shareholders' Equity

Interest-bearing deposits $ 9,777,717 0.33 % $ 9,392,435 0.18 %
Federal funds and repurchase agreements 2,321,144 0.82 2,041,369 0.31
Borrowed funds   76,192       5.22     88,621       3.90  
Total interest-bearing liabilities 12,175,053 0.45 11,522,425 0.23
Noninterest-bearing demand deposits 5,853,905 5,809,398
Other liabilities 203,037 174,873
Shareholders' equity   2,055,790     1,981,198  
Total liabilities and shareholders' equity $ 20,287,785   $ 19,487,894  
Net interest spread 2.97 % 2.76 %
Net interest margin 3.12 2.84
 
 
Business Segment Information     UMB Financial Corporation
(unaudited, dollars in thousands)    
    Three Months Ended September 30, 2017
Bank    

Asset
Servicing

    Total
Net interest income $ 137,331 $ 3,527     $ 140,858
Provision for loan losses 11,500 - 11,500
Noninterest income 79,759 24,547 104,306
Noninterest expense   150,057       21,764       171,821
Income before taxes 55,533 6,310 61,843
Income tax expense   11,649       1,322       12,971
Income from continuing operations $ 43,884     $ 4,988     $ 48,872
 
Average assets $ 19,542,050 $ 770,950 $ 20,313,000
 
 
Three Months Ended September 30, 2016
Bank    

Asset
Servicing

    Total
Net interest income $ 121,963 $ 2,802 $ 124,765
Provision for loan losses 13,000 - 13,000
Noninterest income 80,540 23,002 103,542
Noninterest expense   144,450       20,761       165,211
Income before taxes 45,053 5,043 50,096
Income tax expense   9,560       1,114       10,674
Income from continuing operations $ 35,493     $ 3,929     $ 39,422
 
Average assets $ 18,441,950 $ 1,250,050 $ 19,692,000
 
 
Nine Months Ended September 30, 2017
Bank    

Asset
Servicing

    Total
Net interest income $ 403,450 $ 9,117 $ 412,567
Provision for loan losses 35,000 - 35,000
Noninterest income 245,583 71,946 317,529
Noninterest expense   456,680       65,890       522,570
Income before taxes 157,353 15,173 172,526
Income tax expense   33,733       3,174       36,907
Income from continuing operations $ 123,620     $ 11,999     $ 135,619
 
Average assets $ 19,501,000 $ 787,000 $ 20,288,000
 
 
Nine Months Ended September 30, 2016
Bank    

Asset
Servicing

    Total
Net interest income $ 355,847 $ 8,020 $ 363,867
Provision for loan losses 25,000 - 25,000
Noninterest income 234,643 69,638 304,281
Noninterest expense   435,708       63,190       498,898
Income before taxes 129,782 14,468 144,250
Income tax expense   30,478       3,538       34,016
Income from continuing operations $ 99,304     $ 10,930     $ 110,234
 
Average assets $ 18,205,900 $ 1,282,100 $ 19,488,000
 
 
Non-GAAP Financial Measures     UMB Financial Corporation
Net operating income non-GAAP reconciliation:
(unaudited, dollars in thousands, except per share data)
   
Three Months Ended     Nine Months Ended
September 30, September 30,
2017   2016     2017   2016
Income from continuing operations (GAAP) $ 48,872   $ 39,422 $ 135,619   $ 110,234
Adjustments:

Fair value adjustments on contingent consideration (i)

- - - 67
Acquisition expenses (ii) 5 434 22 4,473

Non-acquisition severance expense (iii)

80 680 815 1,751
Tax-impact of adjustments (v)   (30 )     (401 )       (301 )     (2,265 )
Total Non-GAAP adjustments (net of tax)   55       713         536       4,026  
Net operating income (Non-GAAP) $ 48,927     $ 40,135       $ 136,155     $ 114,260  
 
Earnings per share from continuing operations as reported - diluted $ 0.98 $ 0.80 $ 2.72 $ 2.24

Fair value adjustments on contingent consideration (i)

- - - -
Acquisition expenses (ii) - 0.01 - 0.09
Non-acquisition severance expense (iii) - 0.01 0.02 0.04
Tax-impact of adjustments (v)   -       (0.01 )       (0.01 )     (0.05 )
Operating earnings per share - diluted $ 0.98     $ 0.81       $ 2.73     $ 2.32  
 

GAAP

Return on average assets

0.95

%

 

0.80

%

 

0.89

%

 

0.76

%

Return on average equity 9.17 7.76 8.82 7.43
 

Non-GAAP

Operating return on average assets

0.96

%

 

0.81

%

 

0.90

%

 

0.78

%

Operating return on average equity 9.18 7.90 8.85 7.70
 
 
Operating noninterest expense and operating efficiency ratio non-GAAP reconciliation:   UMB Financial Corporation
(unaudited, dollars in thousands)    
Three Months Ended   Nine Months Ended
September 30, September 30,
2017     2016     2017     2016
Noninterest expense $ 171,821     $ 165,211 $ 522,570     $ 498,898
Adjustments to arrive at operating noninterest expense (pre-tax):
Fair value adjustments on contingent consideration (i) - - - 67
Acquisition expenses (ii) 5 434 22 4,473
Non-acquisition severance expense (iii)   80         680         815         1,751  
Total Non-GAAP adjustments (pre-tax)   85         1,114         837         6,291  
Operating noninterest expense $ 171,736       $ 164,097       $ 521,733       $ 492,607  
 
Noninterest expense $ 171,821 $ 165,211 $ 522,570 $ 498,898
Less: Amortization of other intangibles   1,715         2,088         5,685         6,644  
Noninterest expense, net of amortization of other intangibles (numerator A) $ 170,106       $ 163,123       $ 516,885       $ 492,254  
 
Operating noninterest expense $ 171,736 $ 164,097 $ 521,733 $ 492,607
Less: Amortization of other intangibles   1,715         2,088         5,685         6,644  
Operating expense, net of amortization of other intangibles (numerator B) $ 170,021       $ 162,009       $ 516,048       $ 485,963  
 
Net interest income (tax equivalent) (vi) $ 151,014 $ 132,765 $ 441,809 $ 386,190
Noninterest income 104,306 103,542 317,529 304,281
Less: Gains on sales of securities available for sale, net   2,390         2,978         4,138         8,509  
Total (denominator A) $ 252,930       $ 233,329       $ 755,200       $ 681,962  
 
Efficiency ratio (numerator A/denominator A)

67.25

%

 

69.91

%

 

68.44

%

 

72.18

%

Operating efficiency ratio (numerator B/denominator A) 67.22 69.43 68.33 71.26
 
 
Income from discontinued operations-general operations non-GAAP reconciliation UMB Financial Corporation
(unaudited, dollars in thousands, except per share data)    
Three Months Ended     Nine Months Ended
September 30, September 30,
2017     2016     2017     2016
(Loss) income from discontinued operations (GAAP) $ (730 )     $ 2,524 $ (475 )     $ 5,633
Adjustments:
Divestiture expense (iv) 6,410 - 13,498 -
Non-acquisition severance expense (iii) - 509 - 2,010
Tax-impact of adjustments (v)   (2,308 )       (183 )       (4,859 )       (724 )
Total Non-GAAP adjustments (net of tax)   4,102         326         8,639         1,286  

Net income from discontinued operations-general operations (Non-GAAP)

$ 3,372       $ 2,850       $ 8,164       $ 6,919  
 
(Losses) earnings per share from discontinued operations - diluted $ (0.01 ) $ 0.05 $ (0.01 ) $ 0.12
Divestiture expense (iv) 0.13 - 0.27 -
Non-acquisition severance expense (iii) - 0.01 - 0.03
Tax-impact of adjustments (v)   (0.05 )       -         (0.10 )       (0.01 )
Total Non-GAAP adjustments (net of tax)   0.08         0.01         0.17         0.02  
Earnings per share from discontinued operations-general operations - diluted (Non-GAAP) $ 0.07       $ 0.06       $ 0.16       $ 0.14  

(i)

 

Represents fair value adjustments to contingent consideration for the acquisitions of Reams.

(ii)

Represents expenses related to acquisitions.

(iii)

Represents non-acquisition severance expense related to UMB-legacy employees as management excludes severance expense from its internal evaluation of company performance. Severance expense for Marquette-legacy employees is included in item (ii).

(iv)

Represents expenses related to the divestiture of Scout.

(v)

Calculated using the company's marginal tax rate of 36%.

(vi)

Tax-exempt interest income has been adjusted to a tax equivalent basis. The amount of such adjustment was an addition to net interest income of $10.1 million and $8.0 million for the three months ended September 30, 2017 and September 30 2016, respectively.

 

Contacts

UMB Financial Corporation
Media Contact:
Rachael Crocker, 816-860-7775
or
Investor Relations Contact:
Kay Gregory, 816-860-7106

Contacts

UMB Financial Corporation
Media Contact:
Rachael Crocker, 816-860-7775
or
Investor Relations Contact:
Kay Gregory, 816-860-7106