UMB Financial Corporation Reports Third Quarter Income from Continuing Operations of $62.4 Million, or $1.27 per Diluted Share

KANSAS CITY, Mo.–(BUSINESS WIRE)–UMB Financial Corporation (Nasdaq: UMBF), a financial services company, announced income from continuing operations for the third quarter of 2019 of $62.4 million, or $1.27 per diluted share, compared to $57.0 million, or $1.16 per diluted share, in the second quarter of 2019 (linked quarter) and $57.8 million, or $1.16 per diluted share, in the third quarter of 2018. The reported GAAP income from continuing operations represents an increase of 9.5 percent on a linked-quarter basis and an increase of 7.8 percent compared to the third quarter of 2018.

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 $62.5 million, or $1.27 per diluted share, for the third quarter of 2019, compared to $57.2 million, or $1.17 per diluted share, for the linked quarter and $58.0 million, or $1.16 per diluted share, for the third quarter of 2018. These results represent an increase of 9.2 percent on a linked-quarter basis and an increase of 7.8 percent compared to the third quarter of 2018.

Summary of quarterly financial results		UMB Financial Corporation
(unaudited, dollars in thousands, except per share data)
		Q3				Q2				Q3
		2019				2019				2018
Income from continuing operations		$	62,382			$	56,959			$	57,849
Loss from discontinued operations			—				—				—
Net income			62,382				56,959				57,849
Earnings per share from continuing operations (diluted)			1.27				1.16				1.16
Losses per share from discontinued operations (diluted)			—				—				—
Earnings per share (diluted)			1.27				1.16				1.16
Net operating income from continuing operations			62,525				57,245				58,024
Operating earnings per share from continuing operations (diluted)			1.27				1.17			1.16
GAAP – continuing operations
Return on average assets			1.03	%			0.98	%			1.11	%
Return on average equity			9.69				9.46				10.32
Efficiency ratio			70.70				70.32				71.27
Non-GAAP – continuing operations
Operating return on average assets			1.04	%			0.99	%			1.11	%
Operating return on average equity			9.72				9.51				10.35
Operating efficiency ratio			70.63				70.19				71.18

Summary of year-to-date financial results		UMB Financial Corporation
(unaudited, dollars in thousands, except per share data)		September				September
		YTD				YTD
		2019				2018
Income from continuing operations		$	177,085			$	170,806
Loss from discontinued operations			—				(747	)
Net income			177,085				170,059
Earnings per share from continuing operations (diluted)			3.61				3.41
Losses per share from discontinued operations (diluted)			—				(0.01	)
Earnings per share (diluted)			3.61				3.40
Net operating income from continuing operations			177,978				173,165
Operating earnings per share from continuing operations (diluted)			3.63				3.47
GAAP – continuing operations
Return on average assets			1.01	%			1.10	%
Return on average equity			9.86				10.43
Efficiency ratio			70.34				70.09
Non-GAAP – continuing operations
Operating return on average assets			1.02	%			1.12	%
Operating return on average equity			9.91				10.57
Operating efficiency ratio			70.20				69.69

“For the third quarter, revenues increased 8.2 percent over the prior year period, driven by an 11.8 percent increase in net interest income,” said Mariner Kemper, chairman, president and chief executive officer. “We are pleased with our reported average loan growth of 10.0 percent over the same period, which is more than double the 4.7 percent growth estimated for the industry as a whole, as reported by the Federal Reserve. Additionally, net charge-offs were just 0.07 percent of average loans for the quarter and 0.29 percent on a year-to-date basis, in line with our long-term historical performance. While the shape of the yield curve and low and declining interest rates pose challenges, strong loan pipelines coupled with our focus on diversified fee income sources will help mitigate some of these headwinds.”

Discussion of results from continuing operations

Summary of revenue		UMB Financial Corporation
(unaudited, dollars in thousands)
		Q3				Q2				Q3				CQ vs.				CQ vs.
		2019				2019				2018				LQ				PY
Net interest income		$	168,260			$	166,414			$	150,490			$	1,846			$	17,770
Noninterest income:
Trust and securities processing			45,218				42,903				43,425				2,315				1,793
Trading and investment banking			5,712				5,453				3,711				259				2,001
Service charges on deposit accounts			20,620				20,747				20,927				(127	)			(307	)
Insurance fees and commissions			320				465				339				(145	)			(19	)
Brokerage fees			8,102				7,077				6,402				1,025				1,700
Bankcard fees			16,895				16,439				16,838				456				57
Gains (losses) on sales of securities available for sale, net			3,057				(1,403	)			211				4,460				2,846
Other			3,711				13,717				9,032				(10,006	)			(5,321	)
Total noninterest income		$	103,635			$	105,398			$	100,885			$	(1,763	)		$	2,750
Total revenue		$	271,895			$	271,812			$	251,375			$	83			$	20,520
Net interest margin			3.09	%			3.19	%			3.18	%
Total noninterest income as a % of total revenue			38.12				38.78				40.13

Net interest income

• Net interest income totaled $168.3 million, an increase of $1.8 million, or 1.1 percent, from linked quarter levels, impacted by a $269.9 million, or 2.1 percent, increase in average loans, a $249.9 million, or 3.0 percent, increase in average securities and one additional day in the third quarter. These benefits were offset by the impact of recent reductions in short-term interest rates on net interest margin.
• Net interest margin for the third quarter was 3.09 percent, down 10 basis points from the linked quarter, in large part due to lower short-term interest rates. Earning asset yields declined 12 basis points from the linked quarter, in part driven by declining yields in the loan portfolio due to recent reductions in short-term interest rates. The cost of interest-bearing liabilities decreased five basis points to 1.34 percent, driven by a two-basis-point decline in cost of interest-bearing deposits and lower borrowing costs. Net interest margin was also adversely impacted by a slight reduction in the benefit of interest-free funds and the impact of a $750 million cash flow hedge executed in late August.
• On a year-over-year basis, the increase in net interest income was driven by a 10.0 percent, or $1.2 billion, increase in average loans, as well as higher average loan yields, which increased 12 basis points compared to 2018.
• For the third quarter of 2019, earning assets averaged $22.4 billion, an increase of 15.5 percent over the third quarter of 2018.

Noninterest income

• Third quarter 2019 noninterest income decreased $1.8 million, or 1.7 percent, on a linked-quarter basis, largely due to:
  • Decreases of $3.7 million in equity earnings on alternative investments, $2.3 million in company-owned life insurance income, and $1.5 million in derivative income, all recorded in other income. The decrease in company-owned life insurance income is offset by a proportionate decrease in deferred compensation expense noted below.
  • These decreases were partially offset by the following increases:
    • An increase of $4.5 million in gains on sales of available-for-sale securities.
    • Increases of $1.1 million in fund servicing revenue, $0.6 million in trust services income and $0.6 million in corporate trust income, all recorded in trust and securities processing.
    • An increase of $1.0 million in brokerage fees, primarily driven by higher 12b-1 income.

• Compared to the prior year, noninterest income in the third quarter of 2019 increased $2.8 million, or 2.7 percent, primarily driven by:
  • An increase of $2.8 million in gains on sales of available-for-sale securities.
  • A $2.0 million increase in trading and investment banking income due to increased trading volume.
  • An increase of $2.0 million in corporate trust income, recorded in trust and securities processing.
  • An increase of $1.7 million in brokerage fees, primarily driven by higher 12b-1 and money market income.
  • These increases were partially offset by decreases of $2.0 million in company-owned life insurance income, $1.9 million in equity earnings on alternative investments, and $1.0 million in derivative income, all recorded in other income. The decrease in company-owned life insurance income is offset by a proportionate decrease in deferred compensation expense noted below.

Noninterest expense

Summary of noninterest expense		UMB Financial Corporation
(unaudited, dollars in thousands)
		Q3				Q2				Q3				CQ vs.					CQ vs.
		2019				2019				2018				LQ					PY
Salaries and employee benefits		$	110,153			$	114,454			$	102,956			$	(4,301	)			$	7,197
Occupancy, net			12,240				11,539				11,628				701					612
Equipment			19,775				18,824				18,533				951					1,242
Supplies and services			4,261				4,285				4,528				(24	)				(267	)
Marketing and business development			5,655				7,304				6,671				(1,649	)				(1,016	)
Processing fees			13,619				13,096				12,331				523					1,288
Legal and consulting			8,374				7,496				8,470				878					(96	)
Bankcard			4,643				4,701				4,407				(58	)				236
Amortization of other intangible assets			1,335				1,251				1,385				84					(50	)
Regulatory fees			2,749				2,910				3,337				(161	)				(588	)
Other			8,593				7,527				6,139				1,066					2,454
Total noninterest expense		$	191,397			$	193,387			$	180,385			$	(1,990	)			$	11,012

• GAAP noninterest expense for the third quarter of 2019 was $191.4 million, a decrease of $2.0 million, or 1.0 percent, from the linked quarter and an increase of $11.0 million, or 6.1 percent, from the third quarter of 2018.
• On a non-GAAP basis, operating noninterest expense (as reconciled later in this release) was $191.2 million for the third quarter of 2019, a decrease of $1.8 million, or 0.9 percent, compared to the linked quarter and an increase of $11.1 million, or 6.1 percent, compared to the third quarter of 2018.
• The linked quarter decrease in noninterest expense was driven by:
  • A decrease of $4.3 million in salaries and employee benefits, largely driven by a $3.0 million decrease in lower bonus and commission expense and a $1.7 million decrease in deferred compensation expense, which is offset by the decrease in company-owned life insurance income noted above.
  • A $1.6 million decrease in marketing and business development expense, primarily driven by a decrease of $0.9 million in travel expense and $0.5 million in advertising and business development due to the timing of multiple product initiatives.
  • These decreases were partially offset by an increase in other expense driven by a $1.3 million fee paid to partially terminate a building lease, increased software equipment expense of $1.2 million, and increased occupancy and legal and consulting expense, due to the timing of multiple technology initiatives.
• The year-over-year increase in noninterest expense was driven by:
  • A $7.2 million increase in salaries and employee benefits, primarily due to increases in salaries and wages expense, bonus and commission expense, and higher benefits expense, partially offset by a decrease of $1.6 million in deferred compensation expense, which is offset by the increase in company-owned life insurance income noted above.
  • A $1.3 million increase in processing fees expense due to investments in digital channel and integrated platform solutions to support business growth and the ongoing modernization of the company’s core systems.
  • An increase of $2.5 million in other noninterest expense, driven by a $1.3 million fee paid to partially terminate a building lease in the third quarter of 2019 and an increase of $1.2 million in derivative expense.

Income taxes

• The company’s effective tax rate was 15.1 percent for the nine months ended September 30, 2019, compared to 14.2 percent for the same period in 2018.

Balance sheet

• Average total assets for the third quarter of 2019 were $23.9 billion compared to $23.3 billion for the linked quarter and $20.7 billion for the same period in 2018.

Summary of average loans and leases – QTD Average										UMB Financial Corporation
(unaudited, dollars in thousands)
		Q3				Q2				Q3				CQ vs.					CQ vs.
		2019				2019				2018				LQ					PY
Commercial		$	5,443,718			$	5,427,498			$	4,717,530			$	16,220				$	726,188
Asset-based loans			372,938				387,983				382,672				(15,045	)				(9,734	)
Factoring loans			221,862				261,041				264,414				(39,179	)				(42,552	)
Commercial credit card			204,905				196,313				199,730				8,592					5,175
Real estate – construction			819,926				889,233				814,053				(69,307	)				5,873
Real estate – commercial			4,164,477				3,831,818				3,701,072				332,659					463,405
Real estate – residential			805,994				744,750				688,097				61,244					117,897
Real estate – HELOC			498,460				514,044				566,460				(15,584	)				(68,000	)
Consumer credit card			220,363				230,863				222,223				(10,500	)				(1,860	)
Consumer other			136,117				132,662				152,894				3,455					(16,777	)
Leases			2,118				4,776				9,407				(2,658	)				(7,289	)
Total loans		$	12,890,878			$	12,620,981			$	11,718,552			$	269,897				$	1,172,326

• Average loans for the third quarter of 2019 increased 2.1 percent on a linked-quarter basis and 10.0 percent compared to the third quarter of 2018.

Summary of average securities – QTD Average		UMB Financial Corporation
(unaudited, dollars in thousands)
		Q3				Q2				Q3				CQ vs.				CQ vs.
		2019				2019				2018				LQ				PY
Securities available for sale:
U.S. Treasury		$	250,552			$	256,949			$	38,044			$	(6,397	)		$	212,508
U.S. Agencies			93,440				91,822				198				1,618				93,242
Mortgage-backed			3,987,463				3,926,164				3,590,703				61,299				396,760
State and political subdivisions			2,795,210				2,659,397				2,290,906				135,813				504,304
Corporates			155,656				84,910				718				70,746				154,938
Total securities available for sale		$	7,282,321			$	7,019,242			$	5,920,569			$	263,079			$	1,361,752
Securities held to maturity:
State and political subdivisions		$	1,105,397			$	1,128,526			$	1,205,007			$	(23,129	)		$	(99,610	)
Trading securities			44,571				61,565				45,476				(16,994	)			(905	)
Other securities			90,008				80,097				65,962				9,911				24,046
Total securities		$	8,522,297			$	8,289,430			$	7,237,014			$	232,867			$	1,285,283

• Average securities available for sale increased 3.7 percent on a linked-quarter basis and increased 23.0 percent compared to the third quarter of 2018.

Summary of average deposits – QTD Average						UMB Financial Corporation
(unaudited, dollars in thousands)
		Q3				Q2				Q3				CQ vs.				CQ vs.
		2019				2019				2018				LQ				PY
Deposits:
Noninterest-bearing demand		$	6,082,498			$	6,078,520			$	5,547,880			$	3,978			$	534,618
Interest-bearing demand and savings			12,214,570				11,740,634				9,954,008				473,936				2,260,562
Time deposits			1,011,862				966,719				1,030,411				45,143				(18,549	)
Total deposits		$	19,308,930			$	18,785,873			$	16,532,299			$	523,057			$	2,776,631
Noninterest bearing deposits as % of total			31.50	%			32.36	%			33.56	%

• Average deposits increased 2.8 percent on a linked-quarter basis and 16.8 percent compared to the third quarter of 2018.

Capital

Capital information		UMB Financial Corporation
(unaudited, dollars in thousands, except per share data)
		September 30, 2019				June 30, 2019				September 30, 2018
Total equity		$	2,563,866			$	2,477,790			$	2,203,464
Book value per common share			52.23				50.50				44.20
Regulatory capital:
Common equity Tier 1 capital		$	2,284,417			$	2,236,930			$	2,175,700
Tier 1 capital			2,284,417				2,236,930				2,175,700
Total capital			2,464,698				2,411,510				2,348,731
Regulatory capital ratios:
Common equity Tier 1 capital ratio			12.53	%			12.65	%			13.47	%
Tier 1 risk-based capital ratio			12.53				12.65				13.47
Total risk-based capital ratio			13.51				13.63				14.54
Tier 1 leverage ratio			9.62				9.69				10.58

• At September 30, 2019, the regulatory capital ratios presented in the foregoing table exceeded all “well-capitalized” regulatory thresholds.

Asset Quality

Credit quality		UMB Financial Corporation
(unaudited, dollars in thousands)
		Q3				Q2				Q1				Q4				Q3
		2019				2019				2019				2018				2018
Net charge-offs – Commercial loans		$	568			$	11,790			$	10,537			$	44,010			$	624
Net charge-offs (recoveries) – Real estate loans			161				(714	)			41				28				408
Net charge-offs – Consumer credit card loans			1,377				1,336				1,676				1,606				1,632
Net charge-offs – Consumer other loans			80				157				70				23				82
Net charge-offs – Total loans			2,186				12,569				12,324				45,667				2,746
Net loan charge-offs as a % of total average loans			0.07	%			0.40	%			0.41	%			1.51	%			0.09	%
Loans over 90 days past due		$	2,466			$	1,825			$	1,874			$	6,009			$	1,927
Loans over 90 days past due as a % of total loans			0.02	%			0.01	%			0.01	%			0.05	%			0.02	%
Nonaccrual and restructured loans		$	71,838			$	53,395			$	63,270			$	43,018			$	50,568
Nonaccrual and restructured loans as a % of total loans			0.55	%			0.41	%			0.50	%			0.35	%			0.42	%
Provision for loan losses		$	7,500			$	11,000			$	12,350			$	48,000			$	5,750

• Provision for loan losses totaled $7.5 million, a decrease of $3.5 million from the linked quarter, and an increase of $1.8 million from the third quarter of 2018.
• Net charge-offs totaled $2.2 million, or 0.07 percent, of average loans, compared to $12.6 million, or 0.40 percent, of average loans in the linked quarter.

Dividend Declaration

At the company’s quarterly board meeting, the Board of Directors declared a $0.31 per share quarterly cash dividend, an increase of 3.3 percent, or $0.01 per share. The cash dividend will be payable on January 2, 2020, to shareholders of record at the close of business on December 10, 2019.

Conference Call

The company plans to host a conference call to discuss its third quarter of 2019 earnings results on Wednesday, October 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 investorrelations.umb.com or by using the following link:

UMB Financial 3Q 2019 Conference Call

A replay of the conference call may be heard through November 13, 2019 by calling (toll-free) 877-344-7529 or (international) 412-317-0088. The replay access code required for playback is 10135206. The call replay may also be accessed at investorrelations.umb.com.

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, 2018, 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.

Contacts

Media Contact:

Stephanie Hague, 816.860.5088

Investor Relations Contact:

Kay Gregory, 816.860.7106

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